Purpose – This paper aims to investigate an optimal framework for distributing project outcomes among various levels of subcontracting in construction projects, encompassing contractors, subcontractors, sub-subcontractors, and other related parties. Design/methodology/approach – To formulate the optimization problem, the principal-agent model is utilized. The theoretical development is validated through an experiment conducted with employees from road construction companies. Findings – When distributing outcomes among various levels of subcontracting, the sharing should be determined by their contribution to the outcome, effort costs, level of outcome uncertainty, and risk preference. Originality/value – This study proposes a new model for outcome-sharing arrangements in construction contracting to address the problem of suboptimal arrangements that can lead to inefficiencies, disputes, and project failure. While previous research has examined outcome-sharing arrangements in construction contracting, the proposed model considers the risk attitudes, contributions and effort levels of multiple downstream parties and provides insights into the optimal outcome-sharing strategy. Specifically, the model proposes a method to determine the optimal outcome-sharing strategy that balances the risk and effort cost of each subcontracting level. To the best of authors’ knowledge, this is the first model to consider the impact of effort costs of each subcontracting level on outcome-sharing arrangements in construction contracting. Despite some research on outcome-sharing arrangements in construction, sharing with downstream contracting parties has received limited attention in the literature. This is a significant gap as lower subcontracting levels play a crucial role in project delivery and are often the most vulnerable stakeholders in the construction supply chain. This study addresses this gap by investigating
