What makes contract flexibility a double-edged sword: The impact of multi-level contextual embedding factors in China

The main reason for the low efficiency of ex-post execution of flexible contracts is the double-edged sword effect of contract flexibility, which is influenced by various contextual factors at different levels. Therefore, it is critical to understand the mediating and moderating roles of these factors to ensure that contract flexibility has a positive impact. This paper constructs a parallel and contradictory mediation model and identifies the boundary conditions from intra-organizational, inter-organizational, and institutional levels. Data were collected from 272 Chinese construction projects and analyzed using structural equation model techniques. The results indicate that contract flexibility has a double-edged sword effect on contractors' opportunistic behavior. Dynamic capabilities and the strength of auditing can intensify the relationship between contract flexibility and cooperative intentions or conflict, potentially stimulating the contractors' opportunistic behaviors. Inter-organizational trust enhances the supportive role of contract flexibility in cooperative intentions, but it also exacerbates conflicts and triggers contractors' opportunistic behavior. This research enriches the existing body of knowledge on Contract Reference Point Theory (CRPT) by uncovering the “black box” between contract and behavior. It explores the double-edged sword effect of contract flexibility within multi-level contextual frameworks, clarifying its boundary conditions.