Service‐led construction: is it really the future?

Abstract

In recent years it has been argued that bundling construction with operation/maintenance can increase profits in the construction sector. This idea is critically evaluated using different theoretical frameworks and the main points are: innovative organizational models only lead to higher profits in the short run, unless the firm can reduce long‐run competition. Many firms should however be able to bundle construction and maintenance. Several arguments have been put forward for the proposition that bundling is more efficient, but none of them are very strong. Knowledge about the construction phase is difficult to transfer also within firms, and it is not clear how a construction firm can build up knowledge of the long‐run effects of different construction alternatives. A long‐run contract for certain services is—just as a construction contract—difficult to write in a way that does not lead to surprises and future problems, so the gain from this perspective is not clear. The initiative for bundling came from the public sector; it was not an innovation from the private sector looking for higher profits. The motives for the public sector seem more related to financing and risk for cost overruns and delays. Taking over risk leads to higher profits, but this is just compensation for the risk and nothing more, if it is a competitive market.