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Procurement Contracts, Innovation and Productivity in the Construction Sector: Five Studies
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.ORCID iD: 0000-0002-6193-4427
2015 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

With its size, large number of actors, and its impact on everyday life, the construction sector plays an important role in every nation’s economy and in the improvement of the built environment. The recognition of this fact by the sector, in combination with the reputation for being conservative, problematic, having low productivity growth, and low pressure for change leads to a focus on different strategies that can be used to improve of the sector. Suggestions to improve the productivity in sector have been many during the years. One example is enhanced procurement contracts that encourage long-term orientations to improve the performance outcome and increase innovations.

This thesis consists of five studies with specific objectives. The overall objective is, however, to increase the understanding of how to enhance the conditions to improve the construction sector. This is a response to the concerns that the actors on the market have difficulties carrying out necessary measures to make improvements in the construction sector. Procurement contracts were studied in two ways; bundled procurement contracts with service as a key to create incentives for innovations (Paper II) and the difficulty in evaluating the effects of different procurement contracts because of unclear concepts (Paper I). Innovations were also studied in two ways: the importance for creating incentives for “good” innovations and how to open up for more transparency with respect to innovation (Paper III), and the direct and indirect effects a specific innovation have in the design choices of construction in profit-maximising firms (Paper IV). Policies are based on data and misleading data can lead to mistaken recommendations. Indications of measurement errors in the calculations of productivity have been reported which leads to an interest to increase the reliability of productivity calculations (Paper V).

The first paper has the focus to make the evaluation process easier, for the scholar, the actors on the market as well as for governmental institutions which formulate policies, by trying to make the relation between different contract types clearer with a new framework for structuring procurement contracts. The second papers are showing that bundling construction with service will not automatically increase profit for firms in the sector, rather that it might be an alternative way to transfer the risk in construction projects. Moral Hazard problems can also reduce the potential positive effects.

Paper III wants to shift the focus from the quantity of innovations to how incentives can nourish “good” innovation and suggests a new classification system for technical innovations. The objective is to achieve increased transparency and reduced information asymmetry in the construction sector. Paper IV takes it starting point in an indicated shift in developers’ planning and construction practices for laundry facilities in owner-occupied multi-family buildings. The mapping of the shift shows that a change in regulations can have an effect on how we build, and that developers are using spaces in innovative ways, which in turn can have unforeseen external effects. The finding indicates that even though the number of appliances has increased since the 1990s, the energy consumption has not necessarily increased during the usage phase, depending on the energy performance of the appliances and on user behaviour.

Paper V highlights the effects of including more rigorously and detailed gathered indicators of characteristics in the calculations of productivity development figures in the sector. By including more cost-driving characteristics, it should be easier to distinguish pure price changes from price changes related to increase in quality. 

It is, important to bear in mind that there are several projects yearly that are delivered on time, within budget, with good quality and where innovations have been used. Seen against the background of this thesis, it can indeed be stated that improvements are needed if we intend to create an innovative friendly work environment that will contribute to productivity growth. However, the contribution here is also a warning that the evaluation tools that are used to describe the sector might not measure what we intend to measure.

Abstract [sv]

Byggsektorn är stor och består av många olika aktörer. Den påverkar alla i samhället på ett eller annat sätt och spelar en viktig roll i varje land ekonomi och hur den byggda miljön utvecklas. I kombination med att byggsektorn tampas med ryktet om att vara konservativ, har kvalitetsproblem, dålig produktivitetsutveckling och låg förändringsgrad har lett till diskussioner om många åtgärder för att förbättra sektorn. En utgångspunkt för åtgärderna har varit att uppmuntra till långsiktighet i projekten så att incitament skapas för att förbättra kvalitén i sektorn och en miljö som främjar innovationer.

Den här avhandlingen består av fem studier som var och en adresserar en specifik forskningsfråga relaterad till upphandling, innovation eller produktivitet. Det övergripande syftet med avhandlingen har varit att öka förståelsen för förutsättningarna att komma till rätta med problemen i byggsektorn. Upphandling undersöktes på två sätt; entreprenadkontrakt med helhetsåtagande med service som en viktig komponent för att skapa incitament för innovationer (Artikel II) och svårigheterna i att utvärdera effekterna av olika entreprenadkontrakt på grund av oklara begrepp (Artikel I). Innovation studerades också på två sätt: vikten av att skapa transperens och incitament för “bra” innovationer (Artikel III), och den direkta och indirekta effekten av en innovation i design av vinstmaximerande byggbolag (Artikel IV). En policy kan baseras på data men om uppgifterna den baseras på är bristfälliga, kan det leda till felaktiga rekommendationer. Mätfel kopplade till beräkningar av produktiviteten i byggsektorn har rapporterats, vilket har lett till ett intresse att öka tillförlitligheten i dessa beräkningar (Artikel V).

Den första artikeln syftar till att göra utvärderingen av entreprenadkontrakt enklare för forskare, branschen samt statliga institutioner som formulerar rekommendationer, genom att strukturera entreprenadformerna utifrån olika steg i beslutsprocessen och om hur risker fördelas för att tydliggöra relationen mellan dem. Den andra artikeln visar att entreprenadkontrakt med helhetsåtagande inklusive service inte automatiskt ökar vinsten för företag inom sektorn, snarare att det kan vara ett alternativt sätt att överföra risken i byggprojekt. Moral Hazard problem kan minska potentiella positiva effekter.

Artikel III flyttar fokus från mängden innovationer till hur incitament kan ge näring "bra" innovation och diskuterar ett nytt system för klassificering av tekniska innovationer. Målet är att uppnå ökad tydlighet och minskad informationsasymmetri i byggsektorn. Artikel IV tar sin utgångspunkt i en förändring i plan- och byggmetoder för tvättstuga i bostadsrättshus. Kartläggningen visar att en förändring av regle kan ha en effekt på hur vi bygger, och att utvecklare använder ytor på ett innovativt sätt, vilket i sin tur kan ha oförutsedda externa effekter. Artikeln visar att trots att antalet apparater har ökat sedan 1990-talet, har energiförbrukningen inte nödvändigtvis ökat under användningsfasen, beroende på apparaternas energiprestanda och på användarnas beteende.

Artikel V belyser effekterna av mer noggranna och detaljerat insamlade kvalitetsegenskaper från nyproduktion när produktivitetet i byggsektorn ska beräknas. Genom att inkludera mer kostnadsdrivande egenskaper borde det vara lättare att skilja rena prisförändringar från prisförändringar relaterade till ökad kvalitet.

Det är viktigt att komma ihåg att det årligen finns många byggprojekt som levereras i tid, inom budget, med god kvalitet och där innovationer har använts. Sett mot bakgrund av denna avhandling, kan det sägas att förbättringar behövs om vi har för avsikt att skapa en innovativ arbetsmiljö som bidrar till ökad produktivitet. Dock är bidraget här också en varning om att de utvärderingsverktyg som används för att fånga utvecklingen kanske inte mäter vad vi har för avsikt att mäta.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2015. , x, 35 p.
Series
TRITA-FOB-DT, 2015:8
Keyword [en]
Procurement Contracts, Innovation, Productivity, Construction Sector, Incentives
Keyword [sv]
Entreprenadkontrakt, Innovationer, Produktivitet, Byggsektorn, Incitament
National Category
Economics and Business
Research subject
Real Estate and Construction Management
Identifiers
URN: urn:nbn:se:kth:diva-177455ISBN: 978-91-85783-54-0 (print)OAI: oai:DiVA.org:kth-177455DiVA: diva2:872950
Public defence
2015-12-16, F3, Lindstedtsvägen 26, KTH, Stockholm, 15:00 (English)
Opponent
Supervisors
Funder
Swedish Research Council Formas
Available from: 2015-11-23 Created: 2015-11-20 Last updated: 2015-11-23Bibliographically approved
List of papers
1. Framework for Structuring Procurement Contracts
Open this publication in new window or tab >>Framework for Structuring Procurement Contracts
2014 (English)In: Australasian Journal of Construction Economics and Building, ISSN 1835-6354, E-ISSN 1837-9133, Vol. 14, no 4, 71-84 p.Article in journal (Refereed) Published
Abstract [en]

The aim of this paper is to propose a new framework for structuring contract types and payment methods. Concerning procurement contracts, the first important new feature of this framework is a stepwise structure with three main steps in the contract design: (1) what will be procured—should the contract only include construction, or should it include both construction and operation/maintenance (2) who will do the detailed design of the premise and (3) how many contractors will the client use? The second important new feature of this framework is that both step 2 and step 3 include a continuum of alternatives. Concerning payment methods, the new framework is primarily based on how the specific risks of the project are shared. These frameworks can be useful for policy formulation in that they can help to avoid some problematic ways of formulating policies.

Place, publisher, year, edition, pages
UTS ePRESS, 2014
Keyword
Procurement, Contract, Construction sector, Infrastructure projects
National Category
Construction Management
Identifiers
urn:nbn:se:kth:diva-157477 (URN)10.5130/ajceb.v14i4.4196 (DOI)2-s2.0-84915804161 (Scopus ID)
Note

QC 20150217

Available from: 2014-12-09 Created: 2014-12-09 Last updated: 2017-12-05Bibliographically approved
2. Service-led construction: is it really the future?
Open this publication in new window or tab >>Service-led construction: is it really the future?
2010 (English)In: Construction Management and Economics, ISSN 0144-6193, E-ISSN 1466-433X, Vol. 28, 1145-1153 p.Article in journal (Refereed) Published
Keyword
service-led construction, bundling, PPP, PFI
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-37476 (URN)2-s2.0-78649779149 (Scopus ID)
Note
CQ 20110812Available from: 2011-08-12 Created: 2011-08-12 Last updated: 2017-12-08Bibliographically approved
3. Good and bad innovations in the housing sector: General background and a policy proposal
Open this publication in new window or tab >>Good and bad innovations in the housing sector: General background and a policy proposal
(English)Manuscript (preprint) (Other academic)
Abstract [en]

Purpose – The purpose is to propose a classification system for techniques to increase awareness of the uncertainties and risk connected to new techniques and materials, especially when the buyer is a non-professional client. The new classification system should increase information flow and decrease the problem occurring in principal-agent relationships in terms of moral hazard. The aim is also to shift the focus of the discussion from the quantity of innovations to how incentives can be created to further "good" innovations and to reduce the risk of "bad" innovations. The paper explores how housing firms in Sweden, municipal and private firms, are positioning themselves to implement new techniques and contracts in the construction sector.

Design/methodology/approach – The paper combines a literature review with an on-line questionnaire in combination with three face-to-face semi-structured interviews. The key data were collected from actors that build for their own management.

Findings – The paper reports two main findings. First, actors that build for their own management are risk-averse. Second, it seems that a classification system could be a good way to handle the uncertainties and risk connected to innovations in the housing construction sector. The study also underlines the need for an active public sector which takes responsibility for helping the sector to open up for more firms that will invest in the right kind of innovations.

Originality/value – The paper is one of the few that focus on discussing the potential of shifting the focus from the quantity of innovations to how incentives can be created to further "good" innovations and to reduce the risk of "bad" innovations. Also, it proposes a two-step classification system for new technical innovation to achieve increased transparency and reduced information asymmetry in the construction sector.

Publisher
18 p.
Keyword
Innovations, Housing construction, Procurement, Incentives
National Category
Economics and Business
Research subject
Real Estate and Construction Management
Identifiers
urn:nbn:se:kth:diva-176462 (URN)
Note

QS 2015

Available from: 2015-11-05 Created: 2015-11-05 Last updated: 2017-08-15Bibliographically approved
4. Organization of Laundry Facility Types and Energy Use in Owner-Occupied Multi-Family Buildings in Sweden
Open this publication in new window or tab >>Organization of Laundry Facility Types and Energy Use in Owner-Occupied Multi-Family Buildings in Sweden
2014 (English)In: Sustainability, ISSN 2071-1050, E-ISSN 2071-1050, Vol. 6, no 6, 3843-3860 p.Article in journal (Refereed) Published
Abstract [en]

The way in which we plan and produce buildings today will influence our energy consumption in the future. This paper explores how the types of laundry facilities provided in owner-occupied multi-family buildings in Sweden have changed since the 1990s and seeks to draw attention to how this may impact energy consumption for laundry. Three factors are analyzed that influence energy consumption: the number of laundry appliances, energy performance in laundry appliances and user demand for laundry. The results indicate that there has been a change in building practices, from the domination of communal laundry rooms towards in-unit laundry facilities. The findings imply that the changes in provision of laundry facilities increase the number of appliances but do not necessarily increase energy consumption during the usage phase depending on energy performance and user behavior. Thus, developers should consider laundry facility organization when designing multi-family buildings in order to optimize the use of space and resources, given user demand and building regulations. This paper is exploratory in nature and indicates a shift in building practices that up until now has been undocumented in a research context which in turn opens up for many new research questions related to resource use but also related to the economics of developers, housing firms and households.

Keyword
construction choice, new construction, energy consumption, energy efficiency, household laundry, multi-family buildings, building practice
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-148642 (URN)10.3390/su6063843 (DOI)000338747900035 ()2-s2.0-84904365391 (Scopus ID)
Note

QC 20140811

Available from: 2014-08-11 Created: 2014-08-11 Last updated: 2017-12-05Bibliographically approved
5. Quality Change and Implications for Productivity Development: Housing Construction in Sweden 1990–2010
Open this publication in new window or tab >>Quality Change and Implications for Productivity Development: Housing Construction in Sweden 1990–2010
2015 (English)In: Journal of construction engineering and management, ISSN 0733-9364, E-ISSN 1943-7862, Vol. 141, no 1, 05014014- p.Article in journal (Refereed) Published
Abstract [en]

Current procedures for computing building price indices do not adequately account for changes in the quality of new residential construction. This has resulted in an upward bias when it comes to price changes, which causes published productivity changes to be too low because of overdeflation. The aim of this study is to estimate productivity figures that take quality changes into account. Knowledge about the size of quality changes is important to quantify the true level of cost increases in the residential construction sector to obtain more reliable productivity development figures. This paper shows that productivity in the residential construction sector has been underestimated since the 1990s. The findings indicate that data collection for productivity calculations should be more detailed and rigorous to measure quality changes. The paper highlights potential improvements in the calculations of productivity changes.

Keyword
Productivity, Construction, Quality, Dwellings
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-156060 (URN)10.1061/(ASCE)CO.1943-7862.0000928 (DOI)000346342100005 ()2-s2.0-84920847955 (Scopus ID)
Note

QC 20150213

Available from: 2014-11-19 Created: 2014-11-19 Last updated: 2017-12-05Bibliographically approved

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