Towards a more stable Construction Joint Venture agreement: individual rationality vs. fairness

Contractors’ decisions are individually rational and not always based on fairness that is needed in collaborative projects, such as Construction Joint Ventures (CJVs). This paper provides a comparative analysis between rational and fair-based sharing in CJVs risk management, along with the commonly used investment-based approach. The analysis is divided into two processes; (1) the contingency cost (CC) calculation process to generate the CCs based on the probabilities and impacts of the project’s different risk factors; and (2) the sharing process to allocate the payoff shares to the participating players using three different cooperative game theory (CGT) solution concepts, namely Kernel, Shapley value and τ-value. The analysis is carried out using two illustrative case studies drawn from the literature. The authors mathematically analyzed the stability of the coalition, and evaluated the results through a questionnaire survey held by construction practitioners to offer their perception on the proposed shares. The results show that fair-based approaches resulted in the most stable coalition formation compared to rational-based and investment-based shares. This shows the need to adopt fairness into the decision-making process of contractors in CJVs. Ultimately, this research shall help the decision-makers to craft agreements that stabilize collaborative construction projects.