Does complexity and prior interactions affect project procurement? Evidence from mining mega-projects

• We analyze governance choices in mining mega-project accruing 100 USD billions.
• Project complexity increases the use of engineering firms to implement the project.
• Project complexity increases the use of an EPCM contract with these external firms.
• If these firms participated in an earlier stage of the project, EPC is more likely.
• The latter is stronger in low complexity, suggesting a learning-to-contract effect.

We investigated mining mega-projects to analyze the effect of project complexity on (1) the “make vs. ally” choice for the implementation stage of a project and the “fixed-price vs. cost-plus” contractual choice when an “ally” was chosen; and (2) the extent to which prior interactions with a contractor at earlier stages of the same project impact the “fixed-price vs. cost-plus” decision. Contrary to expectations, we found that project complexity promoted allying with external contractors but that, as expected, it promoted the use of cost-plus contracts. In addition, we found that prior interactions promoted fixed-price contracts and that this effect was more pronounced for less complex projects in which learning and knowledge acquired during prior stages was more easily transferred into contractual detail. Given that fixed prices are contractually heavier than cost-plus agreements, this result suggests that complexity strongly moderates the relationship between formal and relational contracting.