Mitigating disputes due to information asymmetry in the context of Sri Lankan construction industry

Abstract

Disputes are an inherent and recurring challenge in the construction industry due to its intrinsic complexity, multi-stakeholder environment, and uncertainty. Despite well-structured contractual arrangements, conflicts frequently arise from discrepancies in rights, obligations, and expectations of a project. Among the many causes of disputes, information asymmetry where one party possesses more accurate or complete information than another has emerged as a critical yet insufficiently addressed issue in the construction industry. This study investigates how information asymmetry contributes to dispute formation in the Sri Lankan construction industry and proposes effective mitigation strategies to enhance transparency, collaboration, and project performance. The research first identifies the broad causes of disputes, revealing interconnected factors related to owners, contractors, contractual provisions, project conditions, design issues, human behaviour, and external influences. The findings establish that ineffective communication, inconsistent documentation, fragmented information flows and strategic withholding or manipulation of information significantly intensify disputes. Information asymmetry in construction industry happens mainly in the forms of strategic information withholding, communication and coordination gaps, and knowledge and power imbalances. These asymmetries create adverse selection during tendering, moral hazard during project execution, and hold-up situations where dominant parties exploit information control, collectively escalating conflicts and undermining trust. To address these challenges, the study proposes a multifaceted mitigation approach comprising six categories of strengthened contractual and regulatory frameworks, early contractor involvement, digital information management systems, structured communication and knowledge-sharing practices, audit and verification mechanisms, and ethical and cultural enhancements. These measures collectively aim to enhance accuracy, transparency, and accountability in information flows across the project lifecycle. Finally, the study develops a comprehensive framework linking the identified causes of disputes, occurrence, impacts, and mitigation strategies of information asymmetry. The framework provides a practical, systematic guide to minimize disputes in Sri Lankan construction projects by promoting balanced information distribution, improved decision- making, and collaborative project environments.