Which governs - the relationship or the contract?

According to the transaction cost economics literature, a firm’s external contractual relationships must be ‘fit for purpose’. What is a ‘fit for purpose’ contractual relationship should not be a normative decision, but an objective one, to be made with regard to achieving transaction cost efficiency, while defending the core competencies of the firm. Data from a Hong Kong case study is used to examine whether or not the client’s choice of contractual relationship is ‘fit for purpose’ and also to evaluate the impact of such a choice. The findings suggest that maintaining a relationship of high quality as a strategic policy not only reduces recourse to the contract but, also improves the quality and predictability of project performance and, is an antidote to ill-aligned contractual elements. These findings lend support to the growing trend towards relationship or relational contracting in construction