Design-Build, innovation, and competition: The role of smaller contractors

Paper in proceeding, 2017

Design-build (DB) contracting can be used to promote innovation in the infrastructure sector. Alongside innovation, public clients often wish to encourage competition. At a first glance, these two ambitions could be conflicting. More risk on the contractors stemming from DB might not appeal to small and medium-sized enterprises (SMEs), as they, ceteris paribus, have a risk disadvantage compared to larger firms. The research question is how more DB contracting will affect competition from a SME perspective. A simple model is provided to show how DBB stimulates competition and DB encourages innovation. Supported by semi-structured SME interviews from Sweden, it is discussed how the hybrid version of a controlled DB contract is inferior to alternative contract designs. The controlled DB contract does not stimulate competition nor provide incentives for innovation