Evaluating Factors Affecting Transaction Costs of Contractors in Public Procurement in Nigeria: PLS-SEM Approach

Abstract

The costs of transaction construction projects for contractors in public organization have been considered a necessary measure for the sustainability of contracting business. Studies on factors affecting owners and contractors transaction costs have used various techniques and methods to explain the relationships between particular variables. Unexpectedly, Structural Equation Modeling (SEM) has acquired very little concern in factors affecting contractors transaction costs studies. To address this limitation in the body of knowledge, the objective of this study was to apply the SEM approach and build a model that explained and identified the critical factors affecting transaction costs of contractors in bidding public sector organization projects. The study developed a quantitative approach using smart-PLS version 3.2.8. This study shed light on the views of different contracting firms’ based on their experience in bidding public construction projects in Nigeria. Particularly, the study aimed to findout the relationships between eligibility documents, method of securing documents, and contract administration factors, and how these relate to transaction costs of contractors’. The findings of this study revealed that the R2 value of the model was scored at 0.358, which meant that the three exogenous latent constructs collectively explained 35.8% of the variance in transaction costs. The Goodness-of-Fit of the model was 0.932. The eligibility document costs factor was the most important out of the three constructs. This study confirming that appropriate plans and costs control management methods as well as necessary amendment of the Act can be employ to insure minimal costs of bidding public sector projects. These findings might map out critical areas to pay attention for a new contracting firms and public organization on costs related problems that might occur in their transactions.

Keywords: Theory, Transaction Costs, Procurement Act 2007, Bidding, Public Organization