Innovation, Procurement and Construction Industry Development

The implications for analysis of innovation in construction of theoretical developments in industrial organisation are considered in this research, as an attempt to outline a new approach to construction innovation incorporating the ideas found in knowledge based, technology centred models. The paper firstly summarises characteristics of the construction industry, focusing on their effects on innovation, before surveying some of the ideas about the sources of innovation and the expansion and application of knowledge. Construction can be seen as an industry with limited scope for knowledge externalities, where the procurement methods used by the industry‟s clients do not pay for innovation. The following discussion uses recent developments in the research on the economics of innovation and industrial organization theory, such as research intensity and the endogenous sunk costs in competitive, fragmented, low research intensity industries. The effects on R&D of procurement methods and on industry structure are discussed, with a focus on the appropriability of innovations and the role of the client on the Heathrow Terminal 5 project. The paper concludes that the procurement methods used for building and construction projects appears to be a determining factor in the level of innovation in the construction industry