How traditional construction procurement undermines innovation

The construction industry has never liked change. While many things contribute to this, one of the most significant and often overlooked factors – and one that holds back innovation – is the procurement process. The current structure of construction procurement, particularly in large-scale public and private projects, inadvertently discourages small and medium-sized enterprises (SMEs), stifles the introduction of new technologies and creates barriers for alternative materials from gaining market traction. This rigid framework, while aiming for control and risk mitigation, often achieves the opposite by stifling the very ingenuity required for progress, writes John Ridgeway.

Traditional construction procurement models, particularly those based on lowest-price tendering, are fundamentally risk-averse. The emphasis is typically placed on established track records, extensive financial solvency and adherence to rigidly defined specifications. This approach, while seemingly logical for managing large-scale public expenditure or significant private investment, inadvertently creates substantial barriers for entities that do not fit the conventional mould.

For Small and Medium-sized Enterprises (SMEs), the challenges are particularly acute. Many innovative SMEs possess niche expertise, agility and a strong drive for technological advancement. However, they frequently struggle to compete within traditional procurement frameworks. The typical requirements for large bond capacities, extensive insurance coverage that only large, established firms can easily secure and multi-year financial statements with high turnover thresholds often exclude them from even bidding on significant projects.

The administrative burden of preparing complex tender documents, often requiring substantial upfront investment in time and resources, is also disproportionately heavy for smaller companies with limited administrative support. This effectively locks out a segment of the market that is frequently the source of disruptive technologies and agile solutions. Even when smaller contracts are available, they may not offer the scale or consistency needed to sustain an SME focused on developing and implementing novel approaches.

Disincentivising new technology adoption

The procurement landscape also acts as a significant disincentive for the adoption of new technologies. When a new product, system, or software emerges that promises greater efficiency, cost savings, or improved performance, it often lacks the extensive track record that traditional procurement processes demand. Specifiers, driven by the need to mitigate risk and ensure compliance, naturally gravitate towards well-proven, 'off-the-shelf' solutions with readily available certifications and historical performance data.

Integrating new technology requires a leap of faith and a willingness to accept perceived, even if minimal, risk. Procurement processes, however, are designed to minimise all perceived risks. If a tender specifies a traditional method or material, proposing an innovative alternative can lead to disqualification or a lengthy, uncertain evaluation process. This necessitates significant investment from technology developers to achieve widespread recognition, obtain numerous certifications and build a demonstrable track record, often without early project opportunities. The 'chicken and egg' dilemma arises - developers need projects to prove their tech, but procurement processes demand proven tech before offering projects. This cycle slows down the adoption of advancements like advanced robotics, AI-driven project management tools, sophisticated modular construction techniques, or cutting-edge material science innovations.

Furthermore, the siloed nature of many procurement processes means that the long-term benefits of new technologies, such as operational cost savings, reduced carbon emissions, or enhanced building performance over decades, are often not fully factored into initial tender evaluations. The focus remains on upfront capital cost, penalising technologies that might offer greater value over a project's lifecycle, but have a higher initial price point. This short-term focus deprives the industry of long-term efficiency gains and sustainability improvements.

Barriers to alternative materials

Similar to new technologies, alternative materials face substantial hurdles in gaining widespread acceptance due to rigid procurement practices. Materials like advanced composites, sustainable bio-based products, or novel high-performance concretes often struggle against the established dominance of traditional materials such as steel, concrete, and timber.

The primary barrier is often a lack of specific inclusion in standardised specifications or building codes. Procurement documents frequently reference established standards and generic material types, making it difficult for an alternative material, even if superior, to be specified or accepted. Material manufacturers face a lengthy and expensive process of testing, certification and standard development, which can take years, even decades, to achieve the level of acceptance required for common procurement.

There is also a significant risk aversion from designers and contractors. Specifying an alternative material, especially if it requires different installation techniques or has a less familiar supply chain, introduces perceived risks regarding performance, durability and compliance. In a tender-driven environment where margins are tight and penalties for failure are severe, stakeholders are naturally disinclined to experiment. The limited opportunity to use these materials in smaller, less critical projects, which could serve as vital proving grounds, exacerbates this problem. The industry often defaults to what is known and established, even if less efficient or environmentally friendly, simply because it simplifies the procurement process and mitigates perceived risk.

The unseen economic impact

The cumulative effect of these procurement-induced barriers is a significant, unquantified economic cost to the construction industry and the broader economy. The most direct economic cost is the opportunity lost from inhibited innovation. When new technologies and materials cannot easily penetrate the market, the industry foregoes potential improvements in productivity, efficiency, safety and sustainability.

This translates to higher overall project costs, slower project delivery, increased environmental impact and a less competitive global standing for regions that fail to embrace innovation. Without the pressure of new entrants and new solutions, incumbent firms may have less incentive to innovate themselves, leading to industry-wide stagnation.

As a result, the exclusion of SMEs, due to burdensome procurement requirements, reduces the overall pool of potential suppliers. This can lead to less competitive bidding environments, potentially resulting in higher prices for services and materials from the limited pool of pre-qualified larger contractors. Reduced competition stifles market dynamics that would otherwise drive down costs and encourage value-added solutions.

This in turn means that companies investing in research and development (R&D) for innovative construction products and methods face a longer, more arduous path to market adoption if procurement processes remain rigid. This increases the risk profile for such investments, potentially discouraging future R&D spending and diverting capital away from truly transformative solutions. The economic return on innovation is diminished when market access is restricted.

A rigid procurement system makes the industry less agile and responsive to evolving challenges, such as climate change demands, material shortages, or shifts in client requirements. Without an easy pathway for new solutions to enter, the industry struggles to adapt quickly, impacting its ability to deliver projects that meet contemporary societal and environmental needs effectively. This can lead to missed opportunities for growth in new market segments like sustainable infrastructure or smart building technologies.

Longer term, regions or countries that maintain overly rigid procurement practices in construction risk falling behind globally. If innovative firms cannot find an accessible market, they may relocate to areas with more supportive procurement environments. This leads to a loss of intellectual capital, job creation and economic growth.

Towards a more enabling procurement framework

Addressing this issue requires a fundamental shift in procurement philosophy. The focus needs to move beyond simply securing the lowest upfront price to embracing "best value" and enabling innovation.

Shifting from prescriptive specifications (detailing exactly how something must be built or what material must be used) to performance-based specifications (detailing what the end result must achieve) allows for innovation. This encourages bidders to propose novel solutions that meet the performance criteria more efficiently or effectively, without being constrained by outdated methods.

Integrating specific "innovation clauses" into tenders can explicitly invite and evaluate new technologies or alternative materials. Procurement processes should include structured dialogue phases where bidders can propose and discuss innovative approaches without fear of immediate disqualification.

Furthermore, creating tiered qualification processes that are proportionate to project size and complexity can make it easier for SMEs to bid on suitable contracts. Actively encouraging collaboration between large contractors and innovative SMEs through joint ventures or supply chain mandates can also facilitate market entry for smaller players. Governments and large clients can implement programmes that specifically reserve a percentage of contracts for SMEs or innovative firms.

Moving beyond initial capital cost to a lifecycle costing approach in tender evaluation can also significantly benefit new technologies and materials that offer long-term operational savings, reduced maintenance, or improved sustainability. This "whole-life value" approach provides a more accurate economic assessment of different solutions.

Accelerating the development of robust, yet flexible, standardization and certification pathways for new materials and technologies can further reduce uncertainty and risk for specifiers and contractors. Industry bodies, regulatory authorities and innovators must collaborate to create efficient routes to market acceptance.

We can see therefore, that the current state of construction procurement, characterised by rigidity and risk aversion, is quietly stifling innovation. By inadvertently excluding SMEs, discouraging the adoption of new technologies and creating significant barriers for alternative materials, it imposes an uncalculated, but substantial economic cost on the industry.

This cost manifests as lost opportunities for efficiency, sustainability and competitive advantage. Transforming procurement processes from merely a cost-control mechanism to a strategic enabler of innovation is paramount. By embracing performance-based specifications, fostering open dialogue, integrating SMEs, adopting lifecycle costing and streamlining certification, the construction sector can unlock its full potential for progress, delivering more efficient, sustainable and economically vibrant projects for the future. The silent inhibitor must become an active catalyst for change.