Transaction Costs and Efficiency in Design-Build Contracting: Empirical Evidence from the Transportation Infrastructure Sector in Oregon

Design-build (DB) contracting as a type of public–private partnerships (PPPs) has been widely used as an alternative to the traditional contracting-out and the in-house provisions for the delivery of infrastructure in the United States. The research question this article seeks to answer is whether the efficiency motive helps explain the use of DB contracting compared to traditional contracting-out, the design-bid-build (DBB), in public infrastructure delivery. By using the transaction cost economics approach, I assessed whether DB contracting is selected to minimize transaction costs in certain infrastructure transactions that would later lead to more efficient results for those infrastructure transactions. By employing a two-stage empirical strategy (the nonparametric data envelopment analysis and the instrumental variable two-stage least squares regression approach), I examined 59 bridge and combination bridge-roadway projects in Oregon that were completed during 2005–2015 using both DB and DBB contracting. I found that when the transaction is complex, the assets in the transaction are specific, and the size of the transaction is large, the use of DB contracting significantly increases the efficiency score by 46 percentage points. The findings suggest that the transaction costs economizing motive underlies the choice of governance structure in public service deliveries.