Construction Research Congress 2016 597

A Game Theoretic Model for Subcontractors’ Partnership in Construction:

Win-Win Game
1 2
Reihaneh Samsami and Mehdi Tavakolan
1
Master Student, School of Civil Engineering, College of Engineering, Univ.
of Tehran, Tehran, Iran. E-mail: reihaneh.sam@gmail.com
2
Assistant Professor, School of Civil Engineering, College of Engineering,
Univ. of Tehran, Tehran, Iran. E-mail: mtavakolan@ut.ac.ir

Abstract
There are two different directions considered for a subcontractor partnering in
construction projects, horizontal and vertical. In horizontal partnership (partnering
with other subcontractors) subcontractors can benefit considerably from joint
resource management. While potentially all parties can benefit from partnership,
enforcing it may be challenging in practice due to several reasons including lack of
trust. Trust-based relationship is a divarication of collaborative behavior defined in
this paper. By joint resource management, the overall payoff of coalition and the
payoff of every partner increases, making the partnership more beneficial. In this
article, a model is defined to build and analyze partnering between subcontractors
based on game theory. Results show that this model helps to improve the win-win
outcomes of subcontractors. The model contributes to the body of knowledge by
quantifying the win-win outcomes of a horizontal partnership. It can be also utilized
in practice to give subcontractors adequate information on the way they can behave,
to improve their own payoffs while improving the overall payoff for the project.

INTRODUCTION
Subcontracting is a prevalent way for executing construction projects,
accounting for up to 90% of the total value of projects (Kumaraswamy and Matthews
2000). There are two types of partnering relationship related to subcontractors
involved in a construction project; the first is partnering with the general contractor
(vertical) and the second is partnering with other subcontractors (horizontal) which
we discuss in this article.
Due to lack of trust among different subcontractors, partnering is impalpable
during the course of the projects. Asgari’s study (2013) indicates that lack of trust and
transparency, as well as incomplete flow of information, are the main obstacles in
achieving beneficial opportunities of partnering. Based on the definition of joint
research management, subprojects’ plan is based on group rationality, instead of
individual, considering common decision variables to share idle facilities (Asgari et
al. 2013).
This paper is organized in three sections. The first section reviews previous
studies including subsections on partnering and collaboration, trust and game theory.
The second section is allocated to research methodology containing an example.
Finally, we conclude investigating the results and provide suggestions for future
studies.

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LITERATURE REVIEW

Partnering and Collaboration

Partnering is driven by a clear understanding of mutual objectives and
cooperative decision-making by a number of firms that are all focused on using
feedback to continuously improve their joint performance (Chan et al. 2004).
According to the Construction Industry Institution (CII), partnering is defined as a
long-term commitment between two or more organizations for the purpose of
achieving specific business objectives by maximizing the effectiveness of each
participant’s resources. While subcontractors interact with their peers, seeking win-
win outcomes and reinforcement of relationships, collaboration emerges (Rousseau et
al. 1998; Tsai and Chi 2015). Tsai and Chi (2015) also assert that it is a crucial factor
of project success. Collaboration establishes not only the foundation for obtaining
economic benefits such as timely completion, reduced costs, no litigation and higher
quality work, but also the foundation for a trusting relationship (Gad and Shane
2014).

Trust
One of three fundamental principles of partnering is trust (CII 1991, Chan et
al. 2004). For partnering in construction projects, mutual trust is vital, leading to
cooperative behavior. In literature, trust is defined as a psychological state comprising
the intention to accept vulnerability based upon positive expectations of the intentions
or behavior of another. Trust can appear spontaneously or exist between people or
organizations before a relationship begins just on the basis of reputation (Gad and
Shane 2014). Organization structure and relationships between subcontractors, which
is studied in the light of Game Theory, affects the form of trust.
Game Theory
According to Von Neumann, game theory is the mathematical study of
cooperation between rational decision-makers. It is a useful framework to study
different features of construction projects. They are not too dissimilar from serious
“games” since there can be winners and losers, more than one party is involved,
strategies are used by the parties, and the outcome depends on the appropriate choice
of strategies (Gad and Shane 2014).
Win-win game
In the context of learning, the path of error detection and correction, we
endeavor to direct individuals’ focus from self-interests and individual gains to the
shared interests (Tsai and Chi 2015). This shift leads us to win-win outcomes and
synergistic teamwork. Win-win thinking is the essential element of the partnering
concept (Devilbiss and Leonard 2000; Chan et al. 2004). A win–win game is a game
designed in such a way that all participants can profit from it in one way or the other.
In other words, if a strategy puts the interest of both players first, it is termed
cooperative. Noncollaborative (competitive) ones are moves which put the player’s
own interest first. Individuals’ interpretive frames guide their choices about whether
to trust and collaborate (Tsai and Chi 2015).

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RESEARCH METHODOLOGY

Resources
In this paper, we assume that resources required to complete construction
activities are constant ones. Due to considerable costs of transportation and
mobilization (Asgari et al. 2013), contractors prefer to mobilize the construction site
according to the peak demand of each constant machine type resource. Also,
regarding human resources, engineers are hired in fixed sets to capture the benefits of
learning acquired by workers after working for some time (Senouci and Eladin,
2004). As Asgari (2013) states, during construction activities, the crew reaches its
highest productivity when its size remains almost constant.

Coalitions
Von Neumann and Morgenstern considered cooperative games in
characteristic function form (now sometimes also called "coalitional form") defined
by a finite set N = {1, …, n} of players, and a real-valued "characteristic function" v,
defined on all subsets of N. The interpretation of v is that for any subset S of N, the
number v(S) is the worth of the coalition, in terms of how much "utility" the members
of S can divide among themselves in any way that sums to no more than v(S), if they
all agree. The only restriction on v that von Neumann and Morgenstern proposed was
that it be super additive; that is, if S and T are two disjoint subsets of N, then v(S U T )
> v(S) + v(T). This means that the worth of the coalition SUT is equal to at least the
worth of its parts acting separately.

The Shapley Value

Shapley (1953) proposed to summarize the complex possibilities facing each
player, in a game, in characteristic function form, by a single number representing the
"value" of playing the game. Thus the value of a game with a set N = {1, . . . , n) of
players would be a vector of n numbers representing the value of playing the game in
each of its n positions. Shapley defined a value for games to be a function that assigns
to each game v, a number ( ) for each i in U. He proposed that such a function
obey three axioms. The symmetry axiom requires that players who are treated
identically by the characteristic function, be treated identically by the value. The
second axiom, usually called the carrier axiom, requires that the sum of ( ) over
all players i in any carrier N equal v (N). The third axiom, now called the additivity
axiom, requires that, for any games v and w, φ (v) + φ (w) = φ (v + w).

Objective Function
During construction activities, subcontractors endeavor to minimize costs of
resources. Regarding this, the objective function is to minimize the net cost, written
as

= + , comprising following two components:

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1. Cost of hiring fixed number of resources during the project:

CH = D .R .C
∈

Where D = duration of hiring resource type r; R = maximum requirement of

resource type r and C =daily cost of employing one unit of resource type r.
2. Cost of repair/maintenance:

= [ . ]
∈

Where =daily cost of repair/maintenance of one unit of resource type r and

=number of resource type r that are active during period t.

Example
Consider a construction project consisting of 21 activities. Three different
subcontractors are employed to undertake subprojects, each of them consisting of 7
activities. Table 1 and Figure 1 present the subprojects’ information and PERT charts.
Each activity’s predecessors, duration, and number of required resources assigned to
them are found in Table 1. Activities A, C, E, F, I, J, L, N, P, Q, S, and U are on a
critical path. Two resource types, R1 (machine type) and R2 (skilled worker), are in
common. Figures 2 to 4 present the Gantt charts of required resources for subprojects.
As presented in Table 1, R1 is assigned to activities A, E, G, H, J, K, M, N, P, S and
V. On the other hand, Activities B, C, D, F, I, L, Q, R, T, and U seek out R2. Table 2
indicates hiring and maintenance costs for R1 and R2. Daily Cost of hiring every unit
of R1 and R2 is $1000 and 250 while maintaining each unit, costs $300 and 100
daily.

Figure 1. PERT charts of subprojects

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Table
T 1. Subprojects’ Infformation
ACTIVIITY PRED
DECESSOR DURATIO
ON R1 PERR DAY R
R2 PER DAY
A - 10 6 -
B - 5 - 4
C A 15 - 8
SUB. 1

D A,B 10 - 4
E C 10 6 -
F E 15 - 8
G D,E 10 6 -
H - 5 4 -
I - 10 - 6
J H,I 15 6 -
SUB. 2

K J 5 2 -
L J 10 - 8
M K,L 5 4 -
N L 15 - 4
P - 10 6 -
Q P 15 - 6
R P 5 - 4
SUB. 3

S Q,R 10 10 -
T R 10 - 8
U S 15 - 4
V S,T 10 6 -

Figure 2.
2 Gantt charrt of subconttractor 1

Figure
F 3. Gaantt chart off subcontracttor 2

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Figure
F 4. Gaantt chart off subcontracttor 3

Table
T 2. Dailly Costs of H
Hiring and R
Repair
Parameteer R1 R2

ℎ 1000 300
250 100

There are
a seven avaailable coalittions based on cooperattive game theory. Three
onee-member co oalitions ({1
1}, {2}, {3}), three twoo-member cooalitions ({11,2}, {1,3},
{2,3}) and onee three-mem mber coalition
n ({1,2,3}) named Grannd coalition.. The Gantt
chaart of each coalition
c is presented in
n Figures 5 to 8. For eeach coalitioon, resource
leveeling is donee based on minimizing
m the
t cost of rresources asssigned to thaat coalition.
As an examplee, for coalittion of subccontractors 1 and 2, thhe leveling resulted in
emp ploying dailyy 10 machinnes (R1) and 12 workers (R2).
Table 3 presents thet objective function (Z) and its componentts for each
coaalition. The cost of hirin ng each resoource is reppresented in the second and fourth
coluumns while the third an nd fifth are assigned too maintenancce costs. Thhe objective
fun
nction is disp
played in the sixth colum mn, which is the sum of ccolumns 2 too 5. The last
coluumn shows the benefit of cooperaation for eacch coalition.. Take the ccoalition off
bcontractors 1 and 2 as an example. Cost of re sources for each of them
sub m, working
sep
parately is $844,000
$ (suum of 489,0 000 and 3555,000). Worrking togethher, it costs
$7660,000, resullting in a saavings of $844,000, whichh is called tthe cooperattion benefit.
As suggested in i the last column, thee highest beenefit is obttained from the Grand
coaalition.
The corre of the gam me, introducced in 19599 by Gillies,, is shown iin Figure 9,
representing alll possible paayoff allocattions. Wheree the core exxists, there aare different
soluutions propoosing the fairest allocatio
on between subcontracttors. The Shhapley value
is introduced as
a one of thee solutions. Table
T 4 indiicates the alllocation of game gains
for each subcon ntractor baseed on the Sh
hapley solutiion, and in T Table 5, subccontractors’
preferences oveer the coalitiions are rankked. (1 is ussed for the m
most preferreed coalition,
andd 4 for the leeast). As preesented in Table
T 4, beneefit allocatioon of Grand coalition is
$422,500 for firsst subcontracctor, $123,50
00 for the seecond, and $83,000 for thhe third.

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Figure.
F 5. Gantt
G chart off coalition {11, 2}

Figure.
F 6. Gantt
G chart off coalition {11, 3}

Figure.
F 7. Gantt
G chart off coalition {22, 3}

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Fiigure. 8. Gan
ntt chart of ccoalition {1,, 2, 3}

Ta
able 3. Valuees of the Objjective Funcction for eachh Coalition
R1 R2 BENE
EFIT OF

COALITION CH CR CH C
CR Z COOPERATION
{1} 270,000 45,000 144,000 300,000 489,0000 0

{2} 210,000 35,000 120,000 200,000 355,0000 0

{3} 500,000 62,500 105,000 23 ,000 690,5500 0

{1,2} 450,000 80,000 180,000 500,000 760,0000 84,,000

{1,3} 800,000 107,500 216,000 53 ,000 1,176,500 3,0000

{2,3} 500,000 97,500 240,000 43 ,000 880,5500 1655,000

{1,2,3} 800,000 142,500 270,000 73 ,000 1,285,500 2499,000

Figure 9.
9 The core sppace

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Table 4. Allocation of Game Gains

Table 5. Preference Order COALITION R1 R2 R3
COALITION Φ1 Φ2 Φ3 {1} 4 4 4
{1} 0 0 0 {2} 4 4 4
{2} 0 0 0 {3} 4 4 4
{3} 0 0 0 {1,2} 2 3 4
{1,2} 42,000 42,000 0 {1,3} 3 4 3
{1,3} 1,500 0 1,500 {2,3} 4 2 2
{2,3} 0 82,500 82,500 {1,2,3} 1 1 1
{1,2,3} 42,500 123,500 83,000

Discussion
Based on the objective function, the leveling is done in this example.
Regarding the large number of idle resources through individual network leveling, the
coalitions are formed, and the leveling process is repeated. Cooperation, without
exception, resulted in cost saving. In other words, all the subcontractors profit from
cooperation. The highest saving is gained through Grand coalition, because of its
potential to reduce number of idle resources. Saving in costs, due to cooperation, is
called benefit of coalition. It is allocated to subcontractors based on their contribution,
employing the Shapley solution. Grand coalition is also the most preferred coalition
among subcontractors, considering the ranking of each coalition presented in Table 5.
The largest amount is allocated to subcontractor 2 through this coalition. Every
coalition having subcontractor 2 as a member, gains in the highest benefit through
other available coalitions. It demonstrates that subcontractor 2 is the most beneficial
player of the game that results in further benefit for each of the players.
Conclusions and Future work
This study, corroborating previous studies, suggests that cooperation has the
potential to lead subcontractors to financial benefits, which is called win-win
opportunity in the context of game theory. Through win-win games, all the
participants profit from the game and no one loses. The result indicates that sharing
common resources through joint resource management is one of the ways to make
subcontractors more inclined towards cooperation. Among different solutions of
benefit allocation, based on game theory, the Shapley solution is chosen to solve the
allocation problem, while solutions like Nash-Harsanyi or Nucleolus could be
employed besides that. Assigning only one resource type to each activity and the few
number of activities in the example are the basic simplifications of our work. Also,
budget limitation should be considered in future works, bringing our model closer to
reality.

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