Developing Client-contractor Trust

Developing Client-Contractor Trust: A Conceptual Framework for Management in Project Working Environments Dr Hedley Smyth 2003 School of Construction and Project Management The Bartlett University College London

Abstract The paper focuses upon trust as a key dimension for reducing adversarial relations in project working environments. It is argued that trust can both be facilitated and managed in a proactive way. Underpinned by a theoretical and philosophical argument that trust and accountability in the client-contractor relationship can be in conflict, a framework is developed for understanding the dynamics of trust and as a basis for management in practice in ways that communication and performance are enhanced so that accountability it a product of trust rather than eroding trust. Key words: Collaborative Capital, Communication, Partnering, Relationship Management, Trust

Introduction There has been considerable business emphasis placed upon the development of collaborative relationships across companies in recent years. Construction is no exception. The presence of trust in the relationships has been cited as central to successful business and project outcomes (NEDC 1991, Partnership Sourcing Ltd. 1994, Latham1994, Baden-Hellard 1995, European Construction Industry Institute1997, Egan 1998). Trust is central to the development of nonadversarial business relationships, and hence provides fertile ground for the development of practices such as partnering, strategic alliances and supply chain management. Those citing trust as important use it in a ‘common sense’ way. There is an assumption that it is understood what trust is, and so, it can be recognised when it is present. Although, in practice it may be the absence of trust that is most noticeable. This paper raises the issue, “Can trust be developed?” In other words, is trust something which managers can identify, facilitate and manage its form and development? This is an important question given its centrality to successful outcomes in project working environments for client, contractor and other parties. To address this question it is necessary to define and understand trust that goes beyond the ‘common sense’ usage. In that way managers may become more aware of the dynamics and parameters of trust.

The aim of this paper is to address these issues and develop a framework of trust, which provides an understanding of the dynamics and parameters. This will act as a basis to explore how trust may be developed and hence managed within an enterprise and across the client-contractor interface. The objectives of this paper is to use a framework of trust to: 1. Understand the conceptual elements that make up trusting relationships 2. Understand the operation of trust at the client-contractor interface 3. Provide a context to develop ways of evaluating and building trust between the parties. The next section provides a definition of trust within a philosophical and literature review. The framework of trust is then set out, followed by an exposition of each element of the framework. Finally, the framework will be evaluated in the context for analysing the capacity to build trustworthiness within an enterprise to facilitate the relationship between client and contractor.

Definition and Review Defining trust is important in determining the dynamics and parameters of application and operation in practice as well as for a workable framework. For example, profit is vital to a business and it is the bottom line of the balance sheet. Profit is well defined. It can be analysed in terms of its mass, in relation to turnover as a profit margin, in terms of return on capital employed and so on. This helps management concentrate decisions to effectively manage operations. Trust needs to be similarly understood in order to manage relationships between parties, especially in areas of uncertainty, characterised by project working environments. The greater the level of uncertainty the greater is the need for trust. Yet it is often in these circumstances that trust is minimal and adversarial relationships come to dominate. Fear is ‘an enemy’ of trust. Fear means that one party is suspicious that the other will take advantage of their vulnerabilities, using circumstances to their gain and therefore at the expense of the other party. The Confucian requirement for being in command is threefold: weapons, food and trust. Trust is the most valuable of the three for "without trust we cannot stand". In construction the requirement can be paraphrased as technical capacity, resources and trust. This is the requirement for internal support, the management power base. Internally trust is a form of “collaborative capital” (cf. Dawson 2000). The corporate investor or manager can expect a return on the internal investment, hence yielding external benefits, that is a transfer from client-contractor relationship to the bottom line of the balance sheet. That is the positive side where trust as internal collaborative capital lowers transaction costs (Smyth 1999, c.f. Williamson 1985). Trust is needed internally in order to stand, but against what? The ‘enemy’ of trust is fear. Fear focuses upon the external party. It is the uncertainty and associated risk that is external, invoking fear concerning internal vulnerability and insecurities. However, this does not imply that strength and security is all that is needed. It is only

in the face of vulnerability and insecurities that being able to trust the other party is vital: Where we have guarantees or proofs, we don't need to trust. Trust is redundant. (O’Neill 2002a) Therefore trust implies a willingness to be vulnerable (Mayer et al 1995, Mishra 1996, in construction see Smyth and Thompson 1999, Wood and McDermott 1999). This willingness to trust also implies an expectation of mainly positive outcomes (Rousseau et al 1998), which in a business context is an expectation of a positive relationship value in terms of financial criteria. However, there is a dynamic of trust being overcome or eroded by fear. This is not merely a matter of the absolute character of the individual or the reputation of the other organisation. Fear can arise as a negative expectation. This expectation is based upon opportunistic behaviour and follows the pattern set out in the prisoner’s dilemma. There may be a willingness to trust the other party in principle at the outset. This willingness can be tested over some modest exploration and if the outcome is positive, trust can be taken to another level. The intention may be made known to the other party and both agree to proceed without opportunism. If both parties keep to this agreement, trust is built and the relationship becomes closer. Both parties begin with the best of intentions. There may be no evidence that either party is departing from the agreement, but the thought arises, “What if the other party reneges on the agreement?” This means the initiator is making itself vulnerable, hence open to opportunism. The consequence of this thought is that it makes sense to break the agreement first, hence become opportunistic and take advantage of the other party. This can lead to a further thought that there is now a willingness to be opportunistic, in which case it is better to definitely break the agreement in order to benefit from opportunism at the other party’s expense. The other party may think the same, even though they have no evidence to doubt the trustworthiness of the other party. Therefore it is always better for both parties to break trust and hence to break to the agreement. This philosophical position has been set out by Hobbes (1994), who claims that even modest agreements and agreements with a set time scale, such as a construction contract or framework agreement, are likely to fail, it being a question of circumstantial timing for the breaking of trust to maximise opportunistic advantage. As with the prisoners dilemma, the timing takes into account what one party anticipates the other party to be thinking and doing, with a consequence that the breaking of the agreement tends to be pushed forward in order to pre-empt the other party acting opportunistically first. This means that if each person or organisation acts rationally in their own interests, and does not have sufficient fear of detection and punishment, they will ignore opportunities to collaborate with others. This introduces the need for checks in behaviour, hence need for accountability, measures and forms of benchmarking. This is implicit admission of a suspicion that trust will fail or be broken. When a party is initiating opportunistic behaviour, they are acting out of pride, that is, at the expense of another. This is not pride in achievements based upon merit. They are acting on a value or belief that they are important enough or sufficiently self-

indulgent or selfish to use power at the expense of another. Pride is also an ‘enemy’ of trust. This exposition begins to describe some of the dynamics of trust and help articulate a definition of trust. It can be seen that trust is not an emotion. Pride and fear are the prime emotions. The converse of pride and fear are the positive feelings of confidence and humility1. Trust is an intangible thing (c.f. Ganesan 1994, McAllister 1995, Fukuyama 1995, Misztal). It is an attitude (Luhmann 1979, Flores and Solomon 1998) as a noun and disposition (Fukuyama 1995) in the form of a verb, which is formed into a belief that informs action. It is a belief that those on whom we depend will meet our expectations of them (Shaw 1997). Trust is observed indirectly as evidence in behaviour (Moorman et al 1993, Currall and Judge 1995, Mayer et al 1995, Smith and Barclay 1995, Smyth and Thompson 1999). This is shown in the matrix below. It is generally thought that behaviour is eighty percent formed out of emotions and twenty percent from rational thought, so these dynamics are significant.

Proactive Disposition

Pride

Confidence

(Re)Active Disposition

Fear

Humility

Negative Attitude

Positive Attitude

Figure 1. Primary Emotions A definition can be posited as: Trust is a disposition and attitude, giving rise to a belief, concerning the willingness to be vulnerable in relation to another party or circumstance. In the construction context a further focus can be added to the definition: Trust is a disposition and attitude concerning the willingness to rely upon the actions of or be vulnerable towards another party, under circumstances of contractural and social obligations, with the potential for collaboration. The social obligations exist throughout the relationship and thus start at the initial development of the relationship at the client-contractor interface. The outcome must be a relationship value that yields financial reward, which will normally be profit but not necessarily in every instant. 1

As indicated pride can be positive when based upon warranted praise and on merit. Fear can act as a warning. Confidence and humility are positive feelings based upon acceptance, security and a sense of significance. These feelings can be present in a person or an organisation in a mix.

The dynamism of trust is to act as a mediator, combining past evidence and feeling in moving the individual or organisation towards a willingness to pursue a trusting form of behaviour towards another party. Trust can be shown as a mediator in diagrammatic form.

Pride

Confidence

Fear

Humility

Trust

Figure 2. Trust as a Mediator of Emotions Expressed in Behaviour In business, confidence is a valued emotion. Confidence is built upon what is known, in particular past experiences. Mathematically, confidence is a probability calculation. Confidence is contrary to faith, which is built upon what is unknown or unseen. Faith is not an emotion, like pride and fear, but is a disposition, giving rise to belief. In practice people rarely operate upon ‘blind faith’ over long periods, but anticipate they will gradually see more clearly so that faith is transformed into confidence. A key factor of transformation is trust. The willingness to trust provides a basis to observe the beliefs, held in faith, being outworked in behaviour, hence providing evidence to build confidence in a relationship.

Faith

Confidence

Trust

Figure 3. Trust as Mediator to Build Confidence

Faith can over-ride pride and fear, although it carries a high risk, because the level of uncertainty is maximized2. Where pride or fear dominate, the person or organization has decided to act opportunistically and thus is attempting to deceive the other party, if only moderately or in the short term, in order that they may have the upper hand. Thus the approach set out by Hobbes can be encapsulated as deception eroding trust, which at a general level echoes the position of Machiavelli (1999). Therefore there is force acting in opposing directions between trust and deception.

Hobbes Machiavelli Deception

Trust

Figure 4. Deception in Opposition to Trust The Enlightenment philosopher, Hume (1978), believed that people are more sympathetic than Hobbes or indeed Machiavelli. People act as reflections of each other, one party seeing aspects of themselves through others, hence creating the social desire for companionship and social interaction. The prisoner’s dilemma essentially isolates the individual (or organisation). Love, affection and the range of emotions associated with close relationships provide good reasons to avoid deceptive action and promote collaboration.

Hobbes Machiavelli

Hume

Love and Sympathy

Deception

Trust

Figure 5. Trust as Mediator between Deceptive and Loving Behaviour

2

However, risk and faith are not the same for faith concerns what is believed to be possible and may even include belief at quite a detailed level, whereas risk concerns what is known to be possible, but the details thus likelihood are by definition unknown.

Hume’s position had been implicitly challenged by those who believed that selfish interest can easily dominate and erode love and sympathy3. The issue is that no deception is needed, merely selfishness. According to Hobbes and Glaucon there must be a penalty for selfish behaviour. The punishment must match the crime. Hobbes Machiavelli

Hobbes Glaucon

Selfish Interest

Social Justice

Trust

Figure 6. Trust as Mediator between Selfishness and Justice In different ways, Locke and Kant saw failings in social justice, both generally and a system of punishment in particular, as being capable of overcoming the excesses of self-interest. For these commentators a more positive force was needed at a societal rather than individual level. In distinct ways they advocated social values as a key means with trust being present to mediate in favour of social aims.

Hobbes Machiavelli

Locke Kant

Selfish Interest

Social Values

Trust

Figure 7. Trust as Mediator between Selfishness and Social Values The perceived problem with social values is that they do not always regulate personal life, nor for that matter the life within organizations. Privacy and secrecy serve to 3

This returns to the roots of Socrates and Glaucon’s debate (Bailey 2002).

provide fertile ground for selfish pursuit generally and opportunistic behaviour in a business setting. One solution is that open and more transparent communication is advocated. People and organizations need to be made accountable for their actions, not simply through a system of social justice, supported by penal sanctions, but through public accountability where actions can be measured and assessed. In this way a means is provided to test whether social values are being adhered to in areas important to the stable functioning of society and governance.

Hobbes Machiavelli

Locke, Kant Marx

Selfish Interest

Social Values

Accountability and Measurement Weberian Corporatism

Figure 8. Accountability as Mediator between Selfishness and Social Values The important point to draw out is that trust is now substituted by accountability. Where there is a drive for accountability and open communication, then trust is usurped. Where communication is open and transparent there is no need for trust. The role of accountability is to subscribe those areas in which assessment or measurement is needed in order to secure the integrity of the activity. Benchmarking and KPIs in construction are part of the process of accountability. There is a philosophical contradiction here between public accountability and trust (O’Neill 2002c). Once accountability is enshrined in the process, the parties will have a tendency to focus activities on satisfying these requirements. The parties therefore substitute the need for trust by legalistically following the new rules, tending to meet the minimum requirements of acceptability whether this is the status quo or moderate improvement. The moderate improvement may fall short of the potential to be achieved where trust has been built and is active within relationships because trust provides encouragement to perform to capacity and potential. Measurement and accountability are important. There is a need to know achievement levels. First, it is a matter of degrees of accountability, in other words sufficient to ensure progress. Second, it is a matter of availability in the public domain, for an organization will benefit from self-evaluation to improve performance. Third, performance measurement to facilitate change management is questionable, especially in the case of construction, when the output measures do not reflect the fundamentals initiating change, as will be analysed later. Just as communication is a product of

trusting relationships, so accountability grows out of trust, but where it is imposed it becomes a substitute for trust. The corporatist approach may offer some efficiency, but little on the scale of effectiveness. Indeed, ultimately the efficiencies gained may be eroded because the legalistic adoption of the rules of accountability take the model back to the realm of pursuing social justice against the forces of selfishness. However, trust is left out of the equation now (cf. Figure 7) and therefore will fail to moderate selfish behaviour as desired. The logical solution therefore is a harsh, even dictatorial penal system. Advocating, yet leaving trust out of the policy implementation is precisely the position adopted by Egan (1998). Benchmarking and KPIs become the tools to evaluate the success of the drive for change. Trust is unlikely to be sustained in the long run. One potential factor of amelioration is the poor formulation of measurement, which tends to focus upon performance per se rather than in relation to client expectations. Client expectations are not measured at the outset and so a sound evaluation of progress and satisfaction in meeting client requirements is avoided. Ironically, it has been clients that have led the drive for change that resulted in the landmark reports by Latham (1994) and Egan (1998) as well as more recent ones in their wake. Thus there will still be some reliance upon trust. However, this does not rule out completely the potential for a more punitive system. The outworking of the corporatist approach is that one party relies upon another, rather than trusts the other. Such reliance is based upon hope rather than trust. That is positive, but it neither happens within a close or sympathetic relationship, nor is it based upon faith that things will work out well. There is no philosophical need for trust and therefore for confidence to be built as trust is built. Thus, the most hope provides is a belief that things could go either way. As each party assesses whether to behave opportunistically or not, that is precisely the equation – it could go either way. Fear and pride can provoke the parties to swing the equation back in favour of opportunism. Thus, any potential to build trust on the back of hope is quickly eroded. The final rational outcome of the corporatist approach is retreat to opportunism and the eradication of trust. Consequentially relationships break down. Can relationships be re-established and trust built from this analysis. In essence, the requirement is an investment or commitment. In a competitive market this is not a matter of altruism, it is a matter of competitive advantage (cf. Barney and Hansen 1995), hence relationship development and the building of trust becomes a management objective and the means are management tools of investment. The investment is emotional and financial. This is essential for an investment is needed in order to yield a return. It commences with the first contact during the business development stage and requires continuity throughout, whether operating an account handling approach or passing the baton under a relay team approach (Smyth 2000). Whether relationship development is being pursued under partnering arrangements or an informal approach, the essence is single-sourced, close relationships. These relationships are business orientated rather than task or technology focussed, hence they are not about selling products or services, partners moving from a technology of selling to the process of interaction (Nooteboom 1992). The elements of investment are:

Taking a step of faith in order to provide a basis for trust to be explored, and mediate successful outcomes, thus converting in time faith into feeling confident about the other party Taking responsibility for the relationship in order that opportunism will not be entertained and thus deception arising Monitoring that the other party is prepared to take responsibility in order that commitment to making the relationship work is present amongst both parties Having forbearance and tolerance where initial behaviour is not in line with collaborative aims and where there is no evidence of failure to commit, or of opportunism (cf. Swan et al 2001a) Making investment in the relationship in terms of investing in systems and processes to develop trusting relations, training and supporting staff, hence committing management resources to the building of relationships generally and trust in particular, and hence, building market barriers to opportunism (Smyth 1999; 2000, Smyth and Thompson 1999). Such investment requires internal confidence in management decision-making and in staff. There needs to be internal trust amongst management in the competencies of staff and in their capacity to develop and be developed in this area. This requires a sense of vulnerability, perceived in terms of humility, not weakness. Humility embodies an ability to act in a firm and assertive way when needed. Confidence and humility are important emotions to foster and are based upon individual and corporate identity in the sense of knowing acceptance, security and significance. Identity is derived from who a person or an organization is. It is not derived from what they currently do or how they behave in relationships. While past experience may have built identity, relying on current relationships or performance to prove a point will only show up any lack of acceptance, security and significance which can then invoke pride and fear, hence opportunism. Trust is tested and developed across the client-contractor interface through a series personal encounters (Moorman et al 1993), in which the parties establish reciprocal obligations (Nooteboom 1992). Usually a number of individuals are involved in both parties in this process, hence the need for overall management input, internal trust and consistency in managing the other party whether utilising the account handler or relay team approach (Smyth 2000). Taking responsibility for a relationship may not rule out opportunistic behaviour as the relationship nears the end of its usefulness. At the client-contractor interface this may be manifested as: Clients pretend to still yield the commanding market position and contractors the competitive market position to create a mutually co-operative or collaborative position of interdependence, but act in other ways behind the scenes Clients know they will not reappoint the contractor out of preference or there is insufficient work and this information is not known by the contractor The client may not pay the entirety of the final account in the knowledge that seeking justice is both risky and costly to the other party

Contractors are nearing the end of a contract or partnering agreement where there is little prospect of more work Contractors are facing intensified competition, for example entering a recession, and opportunism surfaces on both sides. However, where trust is being used as a source of competitive advantage, then market reputation is important in attracting quality suppliers for the client and in attracting quality clients for the contractor. Reputation can therefore embody trust for which responsibility must therefore also be taken. It is interesting to note that the means to regenerate trust is not based upon utilitarian theories, thus in line with Kant whereby people should respect others, behaving as you would wish them to behave towards you. However, competitive forces can harness this process to induce utilitarian outcomes. There is a possibility of parties mistaking behaviour as exhibiting trust, when the motivation is compliance, which is common where one party has the commanding position and chooses to mobilize that power (Hardy et al 1998). In this case opportunism may not be present, but the outworking of market leverage. It acts as disrespectful behaviour and erodes commitment. The strength of the relationship between organizations, in this case the clientcontractor relationship, can only be as strong as internal relations in the firm. Therefore internal trust has to first be fostered. However, that does not automatically mean that trust is exhibited in external relations. It may be weaker or non-existent as in criminal activity requiring the co-operation of several (Husted 1998, Watson 1998, c.f. Gummesson 1999). In so far that trust exists, it is widely agreed that there must integrity (Anderson and Narus 1991, Mayer, et al 1995, Kumar 1996, Clark and Payne 1997, Wood et al 2001, Beccera and Huemer 2000). People need good evidence to trust in a sustained way. Indeed, many tend to trust up to a minimal level until there is evidence one way or the other. Misplaced trust arises when we ignore contrary evidence, which is when the desire to trust is stronger than the evidence because of high hopes or expectations in a desired outcome. Williamson (1985) argues that trust does not exist in the market. It only occurs within an organization. Circumstantially partnering and other contract forms are trying to promote the benefits of internal collaboration within a market context. It has been noted that trusting relationships can over-ride opportunism (Fukuyama 1995, Brenkert 1998, Smyth 1999; 2000) and indeed erect barriers of market through increasing switching costs (Smyth, 1999; 2000). Korcynski (2000) challenges Williamson by saying he adopts a neo-Hobbesian view and follows neo-classical orthodoxy in respect of denying trust in the market. Korcynski builds upon Durkheim, citing that any contract formed in the market gives rise to social obligations that are not stated in the contract terms. The outworking of such obligations are that the motivation to fulfill them is relationship based, mediated by trust. Barney and Hansen define trust in economic relations as: …an attribute of a relationship between exchange partners. (1995, p. 2)

Trust in a market helps to increase stability, whereas its absence can lead to market failure (Dasgupta 1988). Trust adds value through incentives or governance, increases the value of personal or corporate relations, adds value through all forms of scarce knowledge, and through the perceived reliability of corporate systems in the exchange process (Korcynski 2000). In contracting it is acknowledged that trust is linked to money, in particular to better business from working in teams (Swan et al 2001b), which can be interpreted as improved repeat business, improved market share and increased profit margins. Working in teams demands support from senior management and implies there is a system, for example an approach derived from the relationship marketing paradigm (Storbacka et al 1994, Gummesson 1999 and for construction Smyth 2000). If one organisation trusts another and it shows, evidence is then provided to other parties of the trustworthiness of both organisations. This acts as a basis for the third party to trust these too. In this way, trust is built between groups or teams and then across organisations. The teams may be the decision-making unit (DMU) for a project. In turn, parties in other organisations may observe the trust and be prepared to follow suit. Trust then builds across a project’s temporary multi-organisational team (Cherns and Bryant 1983) or virtual organisation for project implementation and then the whole project coalition. This is the basis for creating the beginnings of a network of trust that includes the client, design team, contracting team and supply chains or clusters as well as other stakeholders. Wood et al (2001a) support the notion that working in teams within the market is positive and indeed believe that this will reinforce the social values required to sustain trust in the long run: … the trend towards trust-based partnering in the UK construction industry is

leading its managers and professionals to adopt an ethic of care. They may not be doing so consciously, and in some instances be doing so sceptically. (2001 p.127) However, there are broader economic forces in play. Financial stability in the market and of the company may create favourable positions for trust building. Recessive conditions can actually encourage opportunistic behaviour that undermines trust. While it is demanding to build trust in time and effort, it is easy to destroy trust, hence the need to achieve a critical mass of network based trust that is robust. A critical mass means that the social values exert a stronger force than the economic ones and must do so to maintain trust. Recent research in contracting has reported indicative signs for respect and commitment, and a preparedness to be vulnerable and trust the other party (Wood and McDermott 1999). If replicated in a widespread manner across the market, then there is a positive basis for developing trust and then going on to manage the development of trust. In summary, the concept of trust has been defined in terms of disposition and attitude, expressed as a belief through behaviour. It has been seen to act in a mediating role between other beliefs, values and behaviours. The role of social values is seen as being of critical importance, where the presence of trust helps to facilitate their development. It has also been shown what behavioural investment can be made to help shift attitudes and built trust. Finally, the corporatist requirement for

accountability and performance measurement creates tensions with trust and tends to erode it through a process of substitution, which has been traced in the construction context. Both accountability and good communication are a outcomes of trusting relationships rather than drivers. Where these are placed above trust in importance, legalistic behaviour tends to surface and adversarial relations are re-established.

The Framework A basis has been provided for developing a framework of trust. This section provides a brief overview, prior to examining each of the elements. The main elements of the framework of trust are: Characteristics of Trust Components for Trust Conditions of Trust Levels of Trust Operational Basis for Trust Evidence of Trust Trust in the Marketplace The characteristics of trust concern the primary types of trust. This commences with definition (Lyons and Mehta 1997). Two types of trust are identified, self-interested trust and socially orientated trust. The two characteristics concern the depth of willingness of one party to trust another and an analysis is provided of how and when to move from one type towards another. These characteristics determine behaviour experienced by the other party. The components for trust deals with the attributes and attitudes that underpin trust. The way in which trust relates to other feelings and beliefs is analysed, building the relationship between confidence and faith, adding in desires, needs and expectations of parties in showing how these work together in the development of trust. The components therefore focus upon the dynamics that changes attitudes and therefore behaviour experienced by both parties. Facilitating change at this level is vital for inducing trust internally, hence experiencing trust between organisations. The conditions of trust concerns an analysis of how those attributes and attitudes are translated into behaviour patterns that combine to create an atmosphere of, or conducive culture, for trust (Butler 1991). Trust operates at different levels in organisational terms. The expression of trust is therefore different at these levels. The role at each level and the organisational dynamics is important to grasp for the client-contractor interface to be managed effectively. Having an understanding of each other’s business, combined with a common interests and empathetic business approach, provides the chemistry to begin to build trust in particular practical circumstances. This provides the operational basis for trust. Each party must have good reasons to trust. Evidence of trust in operation and being able to measure trust is therefore important for maintenance and development of client-contractor relations (see for example Dawson 2000). Therefore trust has to be demonstrated through transparency and communication to each party for it to be

valued. Finally, developed trust ultimately depends upon surviving external pressures. Market forces can provide a test for maintaining trust in the marketplace. These framework elements will be constructed into an integrated entity by the end of the paper. At this stage they can be grouped in two ways. The first way concerns the level of analysis and operation (see Figure 9). Concepts of Trust Characteristics of Trust Components for Trust

Understanding the Operation of Trust Conditions of Trust Levels of Trust Operational Basis for Trust

Developing Trust Evidence of Trust Trust in the Marketplace

Figure 9. Levels of Analysis and Operation of Trust The second way concerns the location of these elements in the context of the customer-supplier and market relations. Elements that are developed within an organisation are represented in Figure 10 by a circular arrow. Some elements are only evident internally. Where some evidence, mainly intuitive or subjective, may become apparent to the other party a broken arrow crosses the interface. The solid straight arrow indicates where direct assessment, evaluation and interpretation can be gained between parties, in this context within the market. The extent of trust is moderated between organisations by prevailing forces in the market. This will serve to indirectly reinforce or erode the potential for trusting relationships. It is experienced and expressed by the parties in terms of how much perceived trust in the marketplace exists under the prevailing economic conditions. Figure 10 shows the indirect influence using a broken arrow. People and the ‘organisation’ have to have good reasons to trust. This may take two forms. First, there may be evidence for trust in a relationship with those in the other party. Yet, trust may not be sufficiently evident in some circumstances.

Market Client

Market Interface

Contractor

Characteristics of Trust

Characteristics of Trust

Components for Trust

Components for Trust

Conditions of Trust

Conditions of Trust

Levels of Trust

Levels of Trust

Operational Basis for Trust

Operational Basis for Trust

Evidence of Trust

Evidence of Trust Trust in the Marketplace

Figure 10. Expression of Trust in the Customer-Supplier Dyad Second, the willingness of an individual to trust another party may be increased where they have internal support and trust others within their organisation. This may provide a basis for increased confidence because the perceived risk in the external relationship is reduced through internal support and capacity to act should insufficient evidence of trusting behaviour become apparent. The evidence must therefore be available in terms of being sensed or observed in behaviour. That embraces both intuitive and rational communication. The second option based upon internal trust is only a short-term one, allowing trust to be demonstrated further on. Thus, in the medium term, trust must be demonstrated by one organisation to another in order to provide the necessary evidence to continue to be vulnerable and therefore have the willingness to trust the other party. For example, in construction, a tender price secures a project based upon the estimated cost of the work to a contractor including a mark up. In traditional contracting the price is not guaranteed and indeed the customer or client may make design and project variations during the contract. If a contractor tries to extract a premium payment out of each variation or makes claims for additional payment without due cause, there will be no evidence of trusting behaviour, opportunism having emerged and adversarial relationships tending to become dominant. In such instances contractor behaviour demonstrates to the client there is insufficient evidence to trust. The next sections consider each of the framework elements in turn.

Characteristics of Trust The characteristics of trust concern the primary types of trust. Before exploring the types of trust, first it is necessary to examine when parties may show a willingness to trust, but where it is misplaced trust. There is a risk for any party that trust may prove to be misplaced with hindsight. It is part of the vulnerability: Since trust has to be placed without guarantees, it is inevitably sometimes misplaced: others let us down and we let others down. When this happens trust and relationships based on trust are both damaged. Trust, it is constantly observed, is hard earned and easily dissipated. It is valuable social capital and not to be squandered. (O’Neill, 2002a) Misplaced trust may occur where one party is acting prematurely, hoping that everything will work well. It may occur when there is no evidence for trust. Denial can play a part too where evidence is overlooked when either hope or perceived need for a favourable outcome leads a party to put trust in another without sufficient reason. Misplaced trust turns out to be ‘blind faith’ without trust converting such faith into confidence. In construction, misplaced trust is corporately born out of the drive to secure projects regardless or denial that things are going wrong and failing to recognise a strong tendency for the other party to behave opportunistically during a contract. Where there is good reason to trust, two types of trust have been identified by Lyons and Mehta (1997): Self-interested trust, which focuses upon a willingness to trust with minimal evidence for trust, but from which it is estimated there is mutual short-term advantage to trust another party. The risk is small and so is the initial reward, yet there may be potential to build the reward beyond the initial willingness to trust. Socially orientated trust, which is generated through obligations in a social network comes through reputation, advocacy and especially relationships. It is sustained through experience, leading to a preparedness to “go the extra mile” for another trustworthy party. In this sense it is sacrificial. Self-interested trust is based upon behaviour where it is mutually beneficial to trust each other. The importance of this type of trust is that it requires minimal evidence of trust, probably at the level of an intuitive sense or based upon company reputation. It could be summarised as being prepared to trust the other party until proved otherwise. So, as long as there is no basis, nor strong suspicion, for mistrust it is to mutual advantage to trust the other party. This is the classic “win-win” situation. However, it is entirely based upon the premise that it is in my short-term interest to trust. In summary the motive to trust is, “What can the other party do for me?” This is the character of self-interested trust. Self-interested trust is therefore the initial stage of developing trust between parties. Each party stands to gain, but it is relatively superficial in character if that is where the relationship, hence trust stays. Fukuyama (1995), for example distinguishes

between low and high trust societies. Societies change over time, O’Neill (2002b) recently drawing attention to a growing crisis of trust in civil society in Britain. As a sector, the construction industry has been adversarial and is seeking to change towards a higher trust sector, especially at the ‘top end’. In summary, the following configurations can be identified: a) Self-interested trust will be highest where goals are shared. b) Self-interested trust can exist where goals are different, yet can be achieved through low level collaboration. c) Self-interested trust will be lowest where goals are different and can be achieved through co-operation, yet where the goals of one party could also be achieved at the expense of the other – opportunistic behaviour. d) Self-interested trust can be minimal where the power relations between the parties are unequal at any one time, the more powerful party needing to dispense with any deception or opportunism or taking the initiative to transition towards to socially orientated trust. Making a change to a deeper level of trust carries costs and many prefer to remain at the self-interested level of trust. However, this level is easily punctured by opportunistic self-interest. The mind-set can stay the same, only the behaviour changing. Socially orientated trust is a deeper level of trust with a philanthropic character. In that sense it is giving in character. It takes the definition of ‘service’ in the literal sense and requires that one party “goes the extra mile” for another. Socially orientated trust needs to be built with care through the relationship, as each party must be aware of the willingness of the other party to be equally trustworthy. In a business context, there must also be investment on both sides in the relationship. Whilst there must be a return on the investment in the long run, each act of investment does not require a short-term return. In other words, the trusting is unconditional. This is not the short-term “win-win” situation. Nor is it a win-lose situation, but rather it is about seeing the potential relationship value and investing in it to build it up as an asset. In terms of motivation socially orientated trust asks, “What can I do for the other party?” Wood and McDermott (1999) found from a small sample that senior managers within the industry are putting self-interest aside in favour of further collaboration. Further research is needed to establish how widespread this is in intention and behaviour. In summary, the following configurations can be identified: a) Socially orientated trust will be maximised when predicated upon mutual understanding of expectations, needs and likelihood to act in one way or another b) Socially orientated trust will be highest where both parties expect to secure a high and relatively equal level of benefit c) Socially orientated trust stands most likelihood of being maintained where there is mutual respect and consistent responsibility taken for the relationship internally as well as for the other party

d) Socially orientated trust stands most likelihood of being maintained where both parties make relatively equal levels of investment in the relationship and in management and technical requirements. The outcome for both parties should be favourable in the end, but the focus changes in achieving those ends. Making the switch from the self-interested trust to the socially orientated trust is what will make the client-contractor relationship sustainable in the long run. What does that transition from one focus to another mean in practice? Many companies are “accountancy driven” in the sense that the figures tend to drive decisions more than relationships. Where this is the case, the “win-win” mentality of self-interested trust will be the normal limit of pursuit. Partnering down the supply chain, on the other hand, will require levels of support and co-operation that may go beyond the short-term win-win objective to a more strategic aim of socially orientated trust. The supplier will hope that they will benefit from “going the extra mile” in the long run, but there is a short-term sacrifice. The relationship value over the long run will warrant some sacrifice (Storbacka, et al 1994). In construction, the relations are traditionally adversarial. Project partnering is largely tactical and short-term, hence is still largely based upon self-interested trust, whereas strategic partnering across projects offers opportunities to develop socially orientated trust, although the commitment and investment has yet to be manifested in a consistent way (Smyth 1999, 2000).

Components for Trust Components of trust deals with the attributes and attitudes that underpin trust. The link between confidence and faith has been cited. Confidence is based upon past direct and indirect experience, giving concrete evidence as to why one party may have confidence in another. Faith, on the other hand, is based upon belief, where there is little or no evidence in advance. Trust is not grounded in substantial concrete evidence, nor is it based purely upon belief. It is grounded in having good reason to support someone or something. The reason gives comfort to the party trusting another. The root of trust is in the German, trost, which suggests comfort. However, confidence-trust-faith cannot be put into a continuum as faith can live side by side with confidence, however trust has a mediating role in creating a bridge to explore whether faith can be converted into confidence over time. This permits faith to rise to higher levels and in new areas of potential. Figure 11 shows how the dynamic operates in order that relationships are enhanced.

New level or issue of faith

Faith

Confidence

Trust

Figure 11. Faith, Trust, Confidence Dynamic As relationships are enhanced, faith is raised to a new level, hence improved performance and new tasks arise. As confidence is established at this new level, the cycle begins again. Greater trust is required as this dynamic demands the transition from self-interested to socially orientated trust.

Levels of faith

Socially orientated trust

Self-interested trust Degrees of confidence

Figure 12. Faith, Confidence and Trust Transition The confidence-trust-faith dynamic contains aspects that may not be watertight compartments. Trust is a subjective construct, therefore experience shows it is a matter of interpretation of the party concerned. In this sense it is both circumstantial and individual. In a business context individual competencies means employees are in responsible positions during transaction relationships. Each has individual has their

own view of the skills and competencies of others, hence of faith-trust-confidence. In the business environment of project management, Hartman (1999) develops trust in a similar way, whereby technical competence is the mainstay and induces a solidity that can give confidence with an element of trust. Trust is enhanced when it is professionally based and like a liquid finds its own ethical level as code of conduct. This is facilitated through communication. When these two elements are integrated, trust develops as sufficient evidence concerning skills and behaviour is apparent. The most mature development of trust produces a balance for highly effective project teams (Hartman 2000), which by implication work in a highly rational and intuitive form, combining confidence, trust and faith in both themselves and at the clientcontractor interface. These aspects give rise to expectations in relationships. Trust encompasses beliefs that others on whom we depend will meet our expectations of them (Shaw 1997). The expectations will generally be positive ones. We may prioritise these expectations in terms of needs and desires. Clients will want to have needs met ahead of desires. The same is true of the contractor, as they too have business needs to be met through delivering a service. The characteristics and components for trust can be drawn together in a matrix to articulate the customer-supplier dyad. Figure 13 shows how the relationship value grows for both parties, adds value for the client and improves profitability for the contractor as trust grows and increased expectations are met.

Desires

Needs

High added value service Premium profit

Minimum value service Marginal profit Self-interested trust

Socially orientated trust

Figure 13. Expectations, Trust and Relationship Value Transition The graph assumes that meeting desires is a higher aim than needs on the assumption that needs have already been fulfilled. Given that the iron triangle of time, cost and quality, are the minimum requirements for a client, even though these are not always met, it is realistic to assume that clients are looking for value that exceeds the minimum, especially as this has been an experience secured from many suppliers in other sectors. Meeting client desires is a source of competitive advantage for the contractor in the marketplace.

Similarly, the contractor has expectations too. Their minimum needs are to secure a profit, although market share may also be a motive, especially in recessive conditions. As value is added to the service, the contractor will expect the client to show a willingness to trust them beyond the level of self-interest and towards a social orientation. The client is making the relationship investment to secure high levels of added value, while the contractor is seeking a higher profit margin. The relationship must work for both parties. As the relationship moves towards the top right hand quadrant of the graph, trust moves towards the more sacrificial level of being more socially orientated: Self-interested trust-needs: minimal “win-win” Expectations and trust in transition: increased collaboration and relationship testing Socially orientated trust-desires: high trust, high collaboration levels, where both parties potentially secure advantage over their respective competitors. In summary, as the relationship moves towards the top right hand quadrant of the graph, the contractor is giving service and the client is rewarding the contractor through payment. Payment may come in the form of premium profits, concentration of repeat business or some combination. The service-payment transaction accounted for by trust is the meeting of mutual expectations. Hence profitability is a reflection of service value. Repeat business is a reflection of service satisfaction. Thus the market position of both parties is strengthened. It is in this way that trust can be established as collaborative capital. Once the competition in the market as a whole is also meeting those desires, the desires quickly become new needs. So, a levelling process acts in the opposite direction to developing trust. This implies a demand to deepen the relationship and continue to build the trust. This provides some insight into the shifting and subjective criteria for perceptions of trust. The graph therefore provides a springboard for exploring the operational basis for trust later in the paper. While trust can be articulated in relation to collaborative capital and to confidence and faith, it also has to be located in terms of relationships. The expectations are expressed through relationships, thus having reasons to trust are grounded in relationships. One commentator on relationships put it this way: Without trust you can have forgiveness, and even love, but there can be no genuine relationship. The strength of trust will determine the strength of every relationship. (Joyner 1996, p.57) In business terms, “love” can be configured as closeness of understanding and empathy, perhaps also including friendships between individual employees in both organisations. Trust is indeed the bottom line of the client-contractor relationship. The components for trust have been established. How these relate together in order to deepen relationships and improve performance have been articulated in relation to

trust. Improved performance includes meeting higher expectations for both parties. How this relates to the characteristics of trust has been developed in order to start building together the elements of the framework. Every business relationship operates in a wider set of circumstances. Some of those circumstances include the conditions within which trust can develop. The next section therefore addresses the conditions in which trust is fostered.

Conditions of Trust Understanding the characteristics of trust and the components for trust provides important underpinnings for analysing behaviour patterns. However, there is not an automatic link from emotions and beliefs to particular types of behaviour. This is the case for several reasons. First, people do not always behave logically. Second, people mobilise different beliefs, hence behaviours that can be in conflict or contradiction, depending upon what “buttons” are pressed circumstantially. Third, in any circumstances there are usually choices to be made, some being more positive responses than others. The same is the case for organisations. Therefore it is important to understand what behaviour patterns, thus conditions, give rise to a willingness of one party to trust another. Wood et al (2001b) found six dimensions in a sample within contracting, namely openness of communications and honesty dimension, promise-keeping, fairnessreasonableness, relationships, mutuality-reciprocity, and values-ethics. This closely relates to broader studies into trust (for example Mayer et al 1995, Mishra 1996), however, these are part of the trust construct. Wood et al introduce ethics, although trust can exist in unethical situations, for example in the criminal world where either a high level of group trust or fear is necessary to afford protection in the face of an absence of external trust (see Gummesson, 1999). Therefore, the six dimensions are based upon the conceptions of trust and associated behaviours in the industry, which is a step away from the behaviours themselves that create the positive conditions for trust to be present. Conditions of trust show how attributes and attitudes are translated into behaviour patterns that combine to create an atmosphere of, or a conducive culture for, trust. Butler (1991) was responsible for developing the dimensions of conditions of trust in consumer markets. The approach of Butler is to look at conditions associated with trust as they are demonstrated through the customer-supplier dyad. The outcome is a number of areas upon which management can focus in order to foster trust. The significance is that the analysis extends beyond the circumstantial aspects of the characteristics and components. Management therefore can focus not only upon the environmental context but also on specific conditions. This is particularly relevant in business-to-business relationships. Two attempts have been made to place this in a contracting and project context. The construction study of 30 projects by Hannah (1991) in the United States showed that performance derived from trust related to individuals rather than project factors. This may be more a reflection of construction industry culture in the United States than trust per se. The studies by Thompson (1996; 1997) in the United Kingdom endeavoured to examine

the conditions in terms of relationship marketing and management. Thompson related perceived client risk to client confidence. The conditions of trust mediate between these two elements. The more the client trusts the contractor the lower the level of perceived risk. Perceived Risk

Client Confidence

Conditions of Trust

Source: Thompson, 1997 Figure 14. Risk-Confidence Continuum based upon Conditions of Trust From this basis, Thompson analysed the conditions of trust from the perceptions of clients derived from in-depth interviews. This acted as the basis for a broad based survey of leading clients, which yielded the following results against each condition. Condition of trust

Correlation coefficient against overall reported trust

Receptivity Promise-fulfilment Consistency Integrity Loyalty Fairness Openness Competence Discretion Availability

0.84 0.82 0.82 0.81 0.81 0.74 0.73 0.73 0.69 0.52

Source: Thompson 1997; see also Smyth and Thompson 1999 Table 1. Client Conditions of Trust in Construction Although this pioneering work experienced some difficulties in method and data collection, the results can be treated as indicative. As such, they confirm part of the foregoing analysis, as well as providing further insights. First, the conditions are the result of client perceptions rather than mutually exclusive categories, and so reflect perceived importance. Second, the conditions clients perceived to be important are the intangibles of the service. Third, the most important conditions of trust are certainly those that are either relate to the transition stage from self-interested trust to

socially orientated trust or require socially orientated trust. Apart from two categories, receptivity and promise-fulfilment, there is no evidence that clients expect contractor performance to exceed meeting their needs. Promise-fulfilment requires that contractors meet those promises made pitching for a contract, during post-tender negotiations, through to completion, which will go beyond the iron triangle and the clauses of the contract. Receptivity may also imply for some respondents of the need to listen and respond to new demands, including desires as they arise during the contract. This demands a reasonable fluid approach amongst both parties. Receptivity does not necessarily mean responding to every demand, but it means careful consideration to create and maintain trusting conditions. The apparent low level of desires implied in the research findings indicates that clients do not have particularly high expectations. This does not mean they are satisfied. This accords with initiatives to take construction away from adversarial approaches towards a more co-operative approach (cf. Latham 1994; Egan 1996). The conditions of trust are affected by context. The more complex is the project, the higher the perceived risk, therefore, the greater the value of trust to reduce perceived risk. However, project complexity tends to be linked to size, hence the greater the number and complexity of relationships, and thus the longer it takes and the greater the investment in building and maintaining trust. Economic factors also come into play. Financial stability in the market and of the company will create more favourable positions for trust building. Recessive conditions can actually encourage opportunistic behaviour that undermines the conditions of trust. While it is demanding to build trust in time and effort, it is easily destroyed, hence the need to achieve a critical mass of network based trust that is robust. In a project environment repeat business is implied with either a high level of continuity maintained in project teams or strong systems being in place to maintain the character of service (Smyth 2000). The top three conditions from the findings of Thompson suggest that reliability is important to clients. This reinforces the work of Parasuraman et al (1988; 1991), who place reliability as the most important condition of service quality, using SERVQUAL. Thompson (1997) carried out research from the client perspective. Similar research has yet to be conducted looking at the conditions of trust from the contractor perspective of the client organisation. From Thompson’s and the foregoing analysis, it would be surprising if the profile was markedly different. What can be asserted is that the contractor too needs the conditions of trust to be in place in order to develop confidence in the client and improve service and performance levels. More problematic in the findings of Thompson (1997) and Wood et al (2001) is the extent to which observed behaviours in practice have a causal power in engendering trust and the extent they are the result of trust. It may be more realistic to suppose that there is an iterative approach. Thompson is clearly addressing causal conditions. The research approach combines the conditions of trust inventory with a reasonedaction model. However, his data focuses upon perceptions rather than behaviour itself, therefore, the behaviour is causal. This is not to say that all behaviour is in line with any one of the conditions, nor to say that all behaviour is causal. For example,

people or organisations can behave in open and competent ways but may not always establish conditions for trust, nor need the party necessarily intend to act in a trustworthy fashion. This distinction is important for examining the extent to which management can manage the development of trust in their organisations and across the client-contractor interface. At this stage, the most that can be claimed is that if one party encourages and facilitates behaviour amongst staff in line with the conditions of trust an appropriate basis will be created in general terms. In itself this will not create trust, but coupled to managing other framework elements trust will be induced. At this stage the framework begins to develop shape as attitudes and beliefs move towards distinctive behaviour patterns.

Attitudes and Beliefs

Behaviour Patterns

Components for Trust

Conditions of Trust

Characteristics of Trust

Figure 15. Development of Trusting Behaviour Patterns. Figure 15 can be considered for individuals and groups. A large group may constitute a division or business operating unit, project team and indeed a company. However, in considering group behaviour in a business setting, then the hierarchy and thus levels of operation must be taken into account. There are two corporate aspects of levels of trust germane to this study. The first aspect is how authority within the hierarchy is expressed in relation to trust. The second aspect is how management facilitate the development of trust internally and then support the willingness to trust other parties at the client-contractor interface. This is the subject of the next section.

Levels of Trust Trust operates at different levels in organisational terms. The expression of trust is therefore different at these levels. The role at each level and the organisational dynamics are important to grasp for the customer-supplier interface to be managed effectively. There are essentially three levels of trust: 1. Corporate

2. Group or Project 3. Personal. The main issue is one of conceptual stance. Is trust purely located in individual relationships or can trust located within and belong to organisations? In the first case, trust is simply a reflection of trust between individuals across organisations and is manifested in several ways, as trust in relationships: within an organisation across the client-contractor dyad across the temporary multi-organisational team (cf. Cherns and Bryant 1983) or the wider project coalition (cf. Winch 2002). In the latter case, trust is embodied in organisations regardless of the individuals because culture, competence and reputation reside with the organisation over and above individuals. Wood et al (2001c) found individuals stated that they tended to trust people rather than organisations. However, the role of an organisations reputation is important for two main reasons. The reputation of the organisation is important as it embodies semblance of relationship development and performance across a series of dimensions, of which trust is important. Reputation therefore embodies trust and in construction is more closely associated with individual trustworthiness because of the strong network, referred to by Wood et al as the “small world”, where many regularly worked with the same people over many years. Reputation is based upon accumulated behaviour over a period of time as perceived by other parties. An individual from one party will assess the individual from another party, not only by their own behaviour but also by those with whom they work. Effective project teams are built when people have authority to make decisions and the information that they are passing between one another is honest and accurate. If an organisation trusts it’s own people, its ability to build trusting relationships with other parties is enhanced, as perceived by those parties (Wood et al 2001c). There is a blending of individual and organisational relationships occurring, filtered through the employee and reputation in the market. Therefore the position adopted in this paper lies somewhere between trust residing with the individual and the corporate organisation. Ultimately, trust is a human experience, based in the mind and emotions of individuals. Yet it is the case that trust expressed between individuals can influence the behaviour of others and hence the culture and performance of an organisation. The organisational systems help develop and transmit trust, as systems are vehicles for communicating both the willingness to trust and the evidence of trustworthy behaviour. This helps enhance internal perceptions and external reputation. Behaviour differs at organisational levels, so trust is expressed differently. The more the individual is operationally based, such as site personnel, the more rapidly trust develops. Yet individuals operating at this level have a more limited view of it, focussing on tasks or projects. Directors and senior management on the other hand focus on relationships at a more strategic level (Wood et al 2001c). Figure 16 shows how the focus shifts over time and up a hierarchy from being task based towards being relationship based.

Conception of Trust Building

Relationship

Project

Task Level

Time

Source: Wood et al 2001c Figure 16. Levels of Trust Building. At the corporate level trust is built around shared strategic vision and aims. It is a matter of mutual understanding among the decision-makers. Developing trust down and across the business will depend upon communication. The communication starts with the mission and strategy of the organisation, as shown in Figure 17. Communication will set up expectations amongst staff concerning the content and realisation of the mission and strategy. When expectations are in line with the strategy, then authority from the management will be accepted and followed, based upon trust, resulting in conformance through co-operation. Successful implementation, that is, without a performance gap (Parasuraman et al 1988), results in actions following expectations so that confidence is built among staff. Success will result in strategic aims being translated into applied objectives. Trust will have enhanced efficacy and efficiency.

Mission and Strategy

Expectations

Authority

Conformance

Figure 17. Trust Planning Converted to Conformance in Actions The same process works in human relation functions, where communication forms part of the behaviour pattern in the transmission of trust in order that the character, components and conditions of trust can be evident. There is a corporate parallel to what happens within an individual. It has been shown that attitudes and beliefs inform individual behaviour. They do not always determine behaviour because there are choices. Similarly the communicated vision and strategy in the organisation inform the behaviour of individuals who are bound by contract rather than conscience. However, individual behaviour is not determined in this way, for there are choices in the work environment too. The same occurs through impartation and social osmosis concerning the organisational culture. It has been noted that trust does not require complete transparency of communication. Good communication tends to flow from a secure environment. Indeed, the conditions of trust include discretion and integrity both of which require a degree of confidentiality. The privacy will be high at the senior management level, especially with external parties. The higher the management level the higher the confidentiality warranted. The lower the level, the greater the need for open communication to facilitate project implementation and task completion warranted. This is demonstrated in Figure 18. Whatever the level of trust, taking responsibility for relationships is crucial, but relationships need not be so deep to function effectively to conduct tasks. At senior levels of management, there will be a greater emphasis upon social values. The senior management focus upon relationships accords with the need to assess and dovetail social values across the client-contractor interface.

Senior Management

Trust in relationships of respect

PRIVACY OPENNESS

Senior Management PRIVACY

Trust in relationships of sharing

OPENNESS

Source: adapted from Smyth 2000. Figure 18. Communication Levels and Trust. Therefore expression of trust needs to be more open at group or project level. Teamworking requires confidence in each other. It is at the corporate-project interface and within the project level that implementation gaps arise. Open communication is far more important at this level and can be establish quicker in order to plug the service gaps. Open communication is also important up and down the management line. Staff support and adequate systems provide a means to address and control issues where gaps may otherwise occur, especially in a project working environment, where the team can become dislocated from corporate management. Ironically, it is often here that greatest secrecy arises due to concern about accountability and personal career issues. There are two reasons why openness may be thwarted at this level. First, is failure for employees to be open because of accountability issues, which has been shown tends to induce fear. In other words employees fear the consequences of getting it wrong in the eyes of superiors, although in many cases they know not what will be considered right or wrong. There may be several reasons for this, but an absence of any real trust or the presence of misplaced trust will be at the root. Second, the employee may be fearful due to personal background and experience, the working circumstances “pressing buttons” from the past, invoking fear. This poses a particular problem in the blame culture of construction. The construction industry has operated a blame culture in many countries. Its adversarial history has embedded generations of mistrust into the industry fabric. The combination of both factors can be destructive, because those full of fear are familiar with situations where there is an absence of trust and in employment terms people tend to be attracted to what they know rather than risk change when they are not used to trusting others. Communication systems are part of the remedy for plugging implementation gaps. They can provide an open means of communication, which supported by senior management, can help employees through situations that induce insecurity and fear. This is part of the process of maintaining and enhancing trust at this level.

This takes the analysis from relations within one organisation to the client-contractor interface. It has been noted how clients have been driving change. Partnering has been instigated across many industries, including construction. Partnering is endeavouring to reduce costs through supply chain management, using lean thinking. Partnering is also endeavouring to reduce adversity and increase trust. In the construction context in the United States, a CII report stated partnering as embodying: A long term commitment between two or more organisations for the purpose of achieving specific business objectives by maximising the effectiveness of each participants resources. The relationship is based on trust, dedication to common goals, and an understanding of each other’s individual expectations and values. (Hander 1989, quoted in Cox and Townsend, 1998) This is typical statement about many partnering contexts. The group or project level is being temporarily constituted for implementing the contract with members of different companies who are working together for the first time unless strategic partnering is being practiced at company and team levels. Added to this, some team members are frequently located remotely on site on the supply side. Thus, building trust is potentially constrained by: Dislocation decreasing organisational support, therefore increasing trust based upon individuals The temporary nature of the team, which means a steep learning curve for the team or group members to build trust amongst themselves reducing capacity for the client to trust the contractor Characteristic reliance on subcontracting and external suppliers, putting reliance upon supply chain management as a means to generate trust that is supposed be demonstrated to the client. Although trust is cited in so much of the literature, in practice it takes low priority. The table below looks at a number of authoritative accounts of partnering. Trust figures highly amongst them, but only one has a client focus, which undermines the partnering concept in broad terms and constrains the ability to develop trust. Trust demands an external focus.

Key Attributes

CII

NEDC PS

B-H

B&J

CIB

Mutual objectives (risk & rewards)

X

X

X

X

X

X

X

X

X

X

X

X

6

X

X

X

X

X

7

X

X

X

5

X

X

4

Agreed early problem Resolution method Continuous measurable Improvement

X

X

Equality in relationships (win-win)

X

X

Open culture (No blame)

X

X

Customer focus

ECII

6

X

Management and stakeholder commitment

X

Trust

X

Long term commitment/ Emphasis

X

1

X

X

X

X

X

X

X

3

X

1

Innovation

X

Score

Team approach CII Construction Industry Institute, 1991 PS Partnership Sourcing Ltd., 1994 B & J Bennett and Jayes, 1995 1997 ECI European Construction Industry Institute, 1997

X

X NEDC B-H CIB

X

6

X

5

1

NEDC, 1991 Baden-Hellard, 1995 Construction Industry Board,

Source: adapted from Cox and Townsend, 1998

Table 2. Key Attributes of Partnering: The Client and Trust Therefore trust needs to be seen as strategically important if the tactical and practical implementation is to be achieved at project or group level. This covers personal support and systems development. This levels of trust analysis provides elements to brace the framework, which are summarised in Figure 19.

Levels of Trust Components for Trust

Conditions of Trust

Senior Levels of Corporate Management Project Team Management

Characteristics of Trust

Junior Levels of Corporate Management

Figure 19. Levels of Trust.

Operational Basis for Trust Trust has been asserted to be a form of collaborative capital. How can this be understood? Dawson (2000) identifies three types of investments as intangible assets: 1. Human capital – skills and competencies 2. Structural capital – systems, processes and intellectual property 3. Relationship capital – image, reputation, trust and goodwill Trust is part of relationship capital. Relationship capital can be broken down as: Profile capital i. Image ii. Reputation Collaborative capital i. Trust ii. Goodwill It is collaborative capital because it adds value. On its own, it is meaningless, especially in a business environment. Trust is expressed through behaviour, therefore action is needed for trust to be mobilised within business operations. Approaches to managing the enterprise will form a vehicle for trust to be experienced. Similarly, approaches to managing projects can provide vehicles. For example, managing projects can be conceived functionally (Morris 1994), technocratically as information processing (Winch 2002) or conceived as relationship management (Smyth 2000). Management science has placed greater emphasis upon the development of competencies in recent years (Hamel and Prahalad 1994). Three concepts, the learning organisation (Senge 1993), emotional intelligence (Goleman 1996) and relationship management (Grönroos 2000), provide examples that can be applied to project working environments and thus each will be mediated through trust in their internal application, hence affecting their operational efficiency and efficacy. In order

to demonstrate how this can work in more detail, some tenets from relationship management have been selected for illustrative purposes, the paradigm being as, if not more, appropriate than others as trust is seen as part of relationship capital (Dawson 2000). Relationship management grew out of relationship marketing (Grönroos 2000, Gummesson 1999, and in construction Smyth 2000), whereby business-to-business relations are seen as a main means to secure work, preferably on a repeat business basis, and achieve successful outcomes. Customers or clients receive added value to meet their requirements and greater satisfaction with services. The desired output through adding value is an enhanced relationship value (Storbaka et al 1994). The process is depicted in Figure 20.

Investment Foci for Management

Focus of Relationship Management

Cost Foci for Management

Service Quality

Perceived Value

Perceived Sacrifice

Customer Commitment

Customer Satisfaction

Exit Barriers

Perceived Alternatives

Relationship Strength

Critical Events

Patronage Concentration

Relationship Longevity

Event Configuration

Relationship Revenue

Relationship Profitability

Relationship Costs

Source: adapted from Storbaka et al 1994; see also Gummesson 1999 and Smyth 2000. Figure 20. Model of Relationship Management. There needs to be investment in the inputs and a willingness to shoulder costs in operationalising the process. The investments and costs are represented by the top and bottom lines, recognising that the translation of perceived value on the client side into profitability for the contractor along the central line is not a mere mechanical or automatic process. Each step provides an opportunity to build or erode trust. Critical events are the area in which there is most scope for the destruction of trust. How these are managed is crucial. Indeed, they provide positive opportunities to demonstrate that the conditions of trust are in place through successfully addressing single events or a configuration of events. When things go wrong, yet are handled with honesty, simply addressing the mistake by taking responsibility and acting can actually build trust. An adaptation of the model for relationship management in projects is provided in Figure 21, which should be seen as a supplement not a substitute. The prime difference concerning relationship management of projects is that the focus changes the project definition so that management begins with first contact and consistency

plus continuity is provided throughout until the next project is secured from the same organisation. Similarly the client recognises the investment and makes corresponding relationship investments to improve the service and stimulate innovation. The two models are combined to show how trust operates in facilitating the process in Figure 22.

Foci for HQ Management

Focus of Relationship Project Management

Foci for Project Management

Corporate-to-site systems

Project Team Support

Strategic Relationship Building

Perceived Value

Client Commitment

Client Satisfaction

Perceived Quality & Sacrifice

Transaction Cost & Supply Chain Man’t.

Critical Events

Site & Post Handover Support

Relationship Strength

Event Configuration

Repeat Business

Relationship Value

Relationship Costs

Figure 21. Model of Relationship Management of Projects.

Model of Relationship Management

Trust as Mediator in Relationships

Model of Relationship Management of Projects

Figure 22. Trust as a Mediator in the Relationship Management of Projects. The mediation can be seen in a practical example where there is inadequate information for a decision concerning a project. Combining the analysis of Winch (2002) regarding information processing and Thompson (1997) concerning conditions of trust the two aspects are combined in Figure 23. Uncertainty gives rise to a

perceived risk, which is assessed on the probability of an adverse outcome. This is mediated by the conditions of trust, which may have a positive effect of increasing the confidence of the one party in the other. This knowledge of the strength of relationship is itself a part of the information that helps feed into the decision-making process. The knowledge is about confidence in the capacity of the team to manage the risk in the interim and solve the problem.

Uncertainty

Perceived Risk

probability data

Information required for Decision

Available Information

Conditions of Trust

Confidence

relationship

Figure 23. Trust Applied in a Context of High Risk. Information that contributes towards building trust occurs upstream. It begins with business development: Understanding the business of the other party Articulating expectations Mapping and profiling of the decision making units These aspects are not exclusive, but are indicative of areas for exploration to build trust. This provides a basis for: Clarifying common goals Accommodating and facilitating mutually exclusive goals Agreeing a basis for an open relationship – communication and systems Accepting of responsibility – credit, error and forgiveness Again, good communication arises out of trust and is necessary. Good communication can also be facilitated. There are key stages to the communication at all levels that help the building of trust within the organisation. These are: Key Stage 1. Encouragement 2. Exhortation 3. Enlightenment

Function

Focus

Supportive Directive Transformative

Feelings Behaviour Thinking (left and right brained)

Effective development of trust should require communication to pass smoothly through each stage. In enterprises there is frequently a presumption to move to exhortation or directive communication, which can preclude trust and curtail employees understanding and constrain relations. The use of encouragement as a matter of regular and good practice reduces the risk of employees behaving opportunistically and increases their potential for initiative because trust is present and they feel valued. Being willing to trust at this level of analysis invites reciprocity. Reciprocity provides security for trust to move to another level, hence further performance development. It is at this operational stage that reciprocity is important. For it is at this stage that accountability of performance may first begin to erode trust. Accountability does not expect reciprocity, merely meets a benchmark. However, reciprocity could provide scope for medium and long-term improvement and innovation through closer collaboration. However, at each stage all trust risks disappointment, but that is the nature of being vulnerable. Yet, opportunistic behaviour is as likely or more likely to result in failure to meet the benchmark. Therefore the framework can be developed to include operations, although how this works in practice will depend upon the strategy and practices of an enterprise. This is shown in Figure 24, which also includes the element for the next section, evidence of trust. Operations culminate in the behaviour witnessed and experienced by the other party and it is on that basis that an evaluation will be made about the degree of trust that exists, the willingness to continue trusting and investing in the other party.

Operational Basis for Trust: inputs of concepts, strategies, systems and tools Components for Trust

Conditions of Trust

Levels of Trust Senior Levels of Corporate Management Project Team Management

Characteristics of Trust

Junior Levels of Corporate Management

Figure 24. Operational Behaviour and Evidence of Trust.

Evidence of Trust

Evidence of Trust Trust has to be demonstrated to each party for it to be valued. Each party must have good reasons to trust. Evidence of trust in operation and an ability to evaluate trust is therefore important for maintenance and development of client-contractor relations. There are several ways of demonstrating trust. Attitude, motivations and behaviour are all ways of demonstrating trust. The former two are “caught”, while behaviour is the only tangible evidence. Attitude and motivations are sensed and are therefore about ‘chemistry’, especially one-to-one, but also in terms of corporate culture. Behaviour demonstrates the way in which trust is being built or eroded. The evaluation of the evidence is always based upon the attitude and motivations of the observer, for it is these that are intrinsic to beliefs, values and expectations: Your client’s interest in you is based on their belief that your actions will reflect a high level of consideration for their interests. They must believe that you will act with their best interests at heart. (Dawson 2000, p.20) The evidence, derived from behaviour, will support or refute the belief. Some behaviour is communicated as action, whilst some is verbal or captured as written and visual communication. Some behaviour is communicated as action. Action may result in an output, whilst other behaviour is subtle, such as body language. Openness helps one party to collect evidence of trusting behaviour. There is a need for a sufficient degree of openness or transparency to provide evidence of trusting behaviour, derived from self-interested trust in the first instance. Dawson (2000) makes the observation that services need to be more transparent for the added services value to be perceived, rather than being delivered from a “black box”. Visibility is necessary, especially at the front end so the customer can register the receipt and initial processing of information and prior to delivery of the service so that an evaluation can be made that quality and delivery is in line with expectation. Supplier

Black Box Opaque Process Management

Outcome (seen)

Source: Dawson, 2000 Figure 25. Black Box Service Provision

If one person in a team should break trust, then the presence of a team based trust or a network of trust can maintain the trust by addressing their colleague who broke trust to repair the damage. They can also address the wronged party and make efforts to rectify what went wrong if possible. Indeed, there is potential for a “silver lining” here, whereby the efforts of those in the team prove robustness of the network based trust and turn the situation around to reinforce overall reliability and reduce future perceived risk in the eyes of the wronged party. Therefore, three principles can be derived concerning communication: 1. Initial evidence has to be provided as good reasons to (begin to) trust, some of which will be in the form of communication: a. A degree of openness b. Using the key stages – encouragement; exhortation; enlightenment 2. Secondary evidence is provided through a relatively transparent service a. Building on initial relationships b. Responding to problems 3. Absence of evidence, recognising the need to respect confidentiality at senior levels and support to staff in order to foster trust within the other company Can trust be measured? Measurement can be internal or external to the enterprise. Measurement based upon client, or indeed contractor, satisfaction surveys or benchmarking performance help to establish the level achieved for each indicator that may be compared to the expectations of both parties. In relation to trust such measurement is unhelpful as trust is implicit in expectations and would not be identifiable as to how it has contributed to a performance outcome. In addition, the performance of clients is not measured under the KPIs, and client satisfaction measures exclude any dynamics concerning their expectations at the outset. Yet, as O’Neill (2002c) pointed out, it is nonetheless necessary to look for ways in which we can actively check one another's claims. We need evidence that performance meets the condition of trust expressed from the supply side, that is, promise-fulfilment. We need to know too that promises relate to the demand side, that is, expectations are met. Here the measures are not external measures set by rules of accountability but those set in the responsibilities of trusting relationships. O’Neill puts it this way: We can place trust beyond face-to-face relationships when we can check the information and undertakings others offer. This is after all the function of informed consent requirements. (2002c) The requirements for evidence undermine the validity of recent benchmarking practice in construction. The measures chosen have more to do with ease of measurement in order to satisfy a political agenda rather than accurately articulate actual performance: In the end, the new culture of accountability provides incentives for arbitrary and unprofessional choices. (O’Neill 2002b) There is a need to reduce deception. Having more information available may help, but transparency and increased communication do not remove a motive to deceive and

indeed can encourage an increase in misinformation. Deception undermines trust and promotes opportunism. Deceivers: … communicate in ways that others cannot share and follow, test and check, and thereby damage others' communication and action. They undermine the very trust on which communication itself depends: they free ride on others' trust and truthfulness. (O’Neill 2002d) There is a way around this – exposing the motives. Sometimes one party will require evidence in advance by setting some sort of test or quest for the other party. This may not guarantee anything, but will build confidence and take the willingness to trust to another level.

Trust in the Market Finally, developing trust ultimately depends upon surviving external pressures. Market forces can provide a test for maintaining trust. There are two dimensions to this: 1. The role of the client and contractor in the market 2. The role of competitors The creation of trust and the realisation of profit have to be managed. The management approach will depend upon the relative power position of clients in the marketplace.

Client Purchasing Strategies

Competitive

Interdependent Domesticated Market

Co-operative

Command

Independent Seller’s Market

Independent Perfect Market

Independent Buyer’s Market

Dependent Sub-contract Market

Competitive

Co-operative

Dependent Captive Market

Command

Contractor Marketing Strategies Source: adapted from Campbell 1995 Figure 26. Classification of Buyer-Seller Relationships In construction, there has been a move away from the bottom left hand box in the matrix (see Figure 26) towards a desire to occupy the central position where the benefits of an ‘in house’ service are experienced without the complacency. However, clients are finding it difficult to relinquish their commanding position and contractors are reluctant to make the necessary investments. There are reasons that extend beyond the remit of this paper, however, a lack of trust is one reason. The scope for developing trust changes according to the market position in the matrix. The scope is scheduled in Table 3. Client Procurement Strategy

Contractor Market Marketing Strategy

Trust Potential

Command Command Competitive Competitive Co-operative Co-operative

Competitive Co-operative Competitive Command Command Co-operative

Poor Fair Poor-Fair Fair-Poor Good-Fair Good

Table 3. Buyer-Seller Relationships and Trust

Buyer’s Sub-contract Perfect Seller’s Captive Domesticated

Switching costs are a key determinant to maintaining high trust levels as high levels over-ride the effect of market opportunism. Switching costs are the direct and indirect costs a client incurs in switching supplier between purchases. Therefore low switching costs can overrule the positive effects of trust, as the opportunity cost to the client of switching suppliers or contractors for the next purchase is minimal. Low switching costs encourage opportunistic behaviour. Trust may not feature much in such decisions to switch. Where there is frequency of transaction, a co-operative strategy may develop (see Campbell 1995) which may induce more investment in the relationship. In construction, transaction costs are high. Thus, the more intense the competition, the more opportunistic contractors will behave in the market place, even “buying work” in times of recession as a defensive posture. The force of such action tends to erode the value of investment in relationships generally and trust specifically. Such opportunism may also lead the contractor to act opportunistically once the contract is secured to claw back the cost of securing the contract at breakeven or with a low margin. This will erode trust between the parties, but the net result will also be erosion of trust across the market. In terms of game theory and the prisoner’s dilemma, individual enterprises have a strong incentive to ‘cheat’ on any tacit market agreement, in this case to build trust, especially if they assume others are sticking or will stick by the tacit agreement (Barney, 2002). The result is the undercutting of others, yet claiming to offer the same service, hoping clients will break their partnering or framework agreements to let them into the market. If a number of companies also decide to cheat, the tacit agreement breaks down and quality must fall. Recession intensifies competition and thus makes such an outcome more likely. However, trust is collaborative capital. Where the value of that capital increases switching costs, then the incentive to behave opportunistically recedes for several reasons: The client wishes to preserve the capital value, hence benefits The contractor focuses upon repeat business with existing client rather than behaving opportunistically to secure new business at higher cost Trust has built up a barrier of entry to other competitors The solution for the contractor, therefore, is to invest, hence add service or product value that is greater than the cost savings clients derive from switching suppliers. In the case of construction, the value of investment across a range of areas will need to be considerable to achieve such a result. New procurement methods, project innovations and some shift away from the blame culture have helped, yet it is probable that considerable investment is still needed, including investment in the areas or relationships and specifically trust in order to reinforce the new procurement processes as well as raise the barriers to competition through client management. The level of investment and value of collaborative and other sorts of capital must be higher than the incentives for switching under the most intense competitive market conditions. The value must match client needs to secure loyalty from key clients. In summary, market forces are a significant test of trust. They can provide a powerful and over-riding force. However, it is clear that the requirement to operate with a

willingness to trust is only sustainable with long term commitment amongst parties, which includes commitment to invest and maintain trusting behaviours that add value. This is the case for both parties in the client-contractor dyad. This completes the framework, shown in Figure 27. Trust in the Market

Client

Operational Basis for Trust: inputs of concepts, strategies, systems and tools Components for Trust

Conditions of Trust

Characteristics of Trust

Levels of Trust

Client

Senior Levels of Corporate Management

Client

Project Team Management

Evidence of Trust

Junior Levels of Corporate Management

Client

Client

Figure 27. Framework of Trust

Developing and Managing Trust The analysis has shown that trust is an attitude and disposition. It builds in relationships that are working and is a foundation for both their maintenance and deepening the commitment. It has also been argued that social values are key to providing the context for maintenance and development in the face of external factors, particularly opportunistic and deceptive behaviours. Within the enterprise, trust is not a passive matter but can be fostered, first amongst staff within the business and then in relationships across organisational boundaries. In construction, the clientcontractor interface poses particular difficulties because of the features of the project working environment. However, it has also been shown that trust acts as collaborative capital and thus adds value in the form of service benefits and profitability for the two respective parties. Over several contracts this adds into the relationship value of the client-contractor. Therefore, the principal question raised in the paper has been addressed with the conclusion that trust can be developed and managed. Within an enterprise this can be carried out in a similar way to applying any other management concept, such as supply chain management or the learning organization. There is one notable difference. Trust cannot be directly observed and therefore investment cannot be direct. It has to be carried out through encouraging certain sorts of behaviour. This

can be reinforced through systems and good communication, which may need further investments to facilitate conditions of trust in particular. There are wider issues for an enterprise, especially contractors. It has been shown that the culture of accountability in society generally and construction in particular (see Egan 1998) is in conflict with the advocacy of trust by the same powers and a contractor will need to address that conflict within the various industry fora as well as in relation to clients and government. However, their arguments will only carry weight where the willingness to trust has been evident in the market, with further desire to developing trust using the framework

Conclusions The paper has articulated the importance and workings of trust between the client and contractor. It has demonstrated that the concept of trust is complex. Trust can be understood as the “bottom line” of the business relationship in as much complexity as profit and loss can be understood as the bottom line of the balance sheet. Trust has the following elements: characteristics, components and conditions of trust, which are located and operate at different levels in the organisation and in the marketplace. As such trust is also to be understood and evident as collaborative capital that adds service value in enterprise operations. Whilst the supplier may wish to develop trust, its value depends upon the perceptions and expectations of both parties in the dyad. The sum of activity across a series of relationships will affect the perception of trust in the market. Trust needs to be developed in and as part of the market, yet be robust enough to resist countervailing forces. The importance of analysing trust in a framework is twofold. First, the elements of trust have been identified. Second, and arising from identifying the elements, is the implication that trust can be developed. Developing trust may arise out of relationships. It is also active and thus constitutes a management process. Activating detailed management processes to build trust is beyond the scope of this paper and is a research issue for investigation. The understanding has been developed in the paper in such a way that facilitates moving from the conceptual elements of trust to the normative process of exploring how trust can be developed in enterprise relationships. The next steps for research are to examine how these elements of trust can be understood in specific contexts, which will help refine the analysis and provide insights into activating detailed management processes to build trust.

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