Subcontracting in project-based firms: Do you follow the same pattern across your different projects?

This article analyzes an important dimension in which the organization of the projects performed by the same firm can differ: the insourcing or outsourcing of an activity that needs to be undertaken in each of the different projects. Analyzing the variability of a firm's insourcing or outsourcing decision across its projects gives us a better understanding of the firm's decision-making process in terms of the stability of its choices across projects and the main determinants of that variability. This analysis is valuable because a firm that manages multiple projects can benefit from the careful analysis and consideration of the interactions among and the specificities of its projects. Using a comprehensive database of construction firms and projects, we conclude that firms demonstrate variability in their insource or outsource choices across projects and that this variability is explained by factors such as the number of projects simultaneously undertaken, the variability in a project's complexity, and their market power in local markets. These results suggest that the theories explaining firm boundaries in project-based firms should be expanded to include interrelationships between projects and the individual project characteristics that drive differences in insource or outsource choices.

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