This article would not have been possible without the generous insights and expertise shared by practitioners working at the intersection of contracts, delivery, and innovation. I am deeply grateful to Jeremy Power for his perspectives on collaborative contracting and risk allocation; Massimiliano Manno for illuminating the fabrication coordination challenges and the structural impacts of the construction pyramid; Aaron Traylen for his sharp analysis of temporal lock-in and data fragmentation; Anna Stark for highlighting the client mindset and organizational inertia; Simon Dilhas for his crucial distinction between physical and process realm innovation; Jesse Hallen for clarifying the commercial implications of IP clauses; Jenny Tseng for developing the Innovation Maturity Model framework; Michael Calcoen for his observations on the evolving adoption of collaborative methods; and Maegan Spivey for her professional review of the article and her contract expertise. Their willingness to share hard-won knowledge from major projects has shaped every dimension of this exploration.
Introduction
Industry practitioners across major AEC projects reveal a paradox: while traditional contracts create barriers through risk misallocation, temporal lock-in, and adversarial structures, proven collaborative models like Integrated Project Delivery demonstrate that contracts can enable innovation when properly structured. This exploration examines insights from Jeremy Power, Massimiliano Manno, Aaron Traylen, Anna Stark, Simon Dilhas, Jesse Hallen, Jenny Tseng, and Michael Calcoen on how procurement frameworks either stifle or accelerate innovation. The question isn’t whether contracts limit innovation, but whether we’re willing to write them differently.
Contracts don’t just limit innovation in AEC; they reflect the industry’s deepest tensions around risk, ownership, timing, and trust. The complaint is widespread enough to feel like settled truth: contracts are the bottleneck preventing stakeholders from working collaboratively.
But is this actually true? To find out, I asked practitioners involved in major projects, those who read and negotiate contracts far more than I do, a simple question: do you think contracts limit innovation in our space?
Ask anyone in the industry and you’ll likely get an immediate “yes.” But spend time with the question, really interrogate it with people working at the intersection of contracts, delivery, and innovation, and a more complex picture emerges. The most forward-thinking practitioners recognize something else: procurement is “the link and enabler between advocacy and reality” for driving innovation. The question isn’t whether contracts limit (they do), but whether they might also enable, if we’re willing to write them differently.
The risk allocation
Jeremy Power puts it bluntly:
“Many construction contracts today actually slow down innovation. The root of the problem is the adversarial, risk-shifting mindset baked into these agreements.”
The mechanism is straightforward but insidious. Owners draft contracts designed to push risk “down the construction pyramid,” away from themselves and onto contractors and subcontractors. Those at the bottom, the ones who must actually build, who encounter site conditions and sequencing challenges, who might spot opportunities for better methods, carry virtually all the downside risk of trying anything new.
“When those actually building the project are saddled with virtually all the downside risk, they become far less inclined to try new ideas or technologies,” Jeremy explains. “No contractor wants to be the one experimenting under a contract that penalises any failure.” The constraint isn’t only psychological; it’s operational. Contractors already working on tight margins and compressed schedules lack the time and resources to test innovations when every deviation risks a penalty.
Massimiliano Manno, who works extensively in fabrication coordination, identifies how this economic pressure creates a structural trap. The construction pyramid operates as a clear hierarchy: owners and principals at the top, general contractors and design consultants in the middle, and subcontractors, fabricators, and suppliers at the base. This structure creates what Massimiliano calls a “deliverable gap”: those at the top often provide incomplete specifications; those at the bottom must transform vague inputs into precise, detailed construction outputs. Information asymmetry becomes a control mechanism; contracts structured as lump-sum payments with deliberately incomplete scope force fabricators to absorb the cost of resolving ambiguity.
To survive this economic structure, fabricators increasingly outsource detailed work to lower-cost international markets. The consequence isn’t just geographical displacement; it’s operational fragmentation. Teams producing the detailed deliverables aren’t integrated into the project process, can’t leverage the data they create for future work, and remain outside the fabricator’s direct control. Innovation requires iterative learning from production to inform design; outsourcing severs that feedback loop.
This pattern hinders the development of knowledge. When detailed work on each project is carried out by disconnected offshore teams, learning doesn’t build up over time. The intellectual property that could serve as a foundation for innovation, along with a comprehensive understanding of how designs are turned into physical products, fails to consolidate into reusable frameworks. The pyramid structure that shifts risk down the hierarchy also prevents the accumulation of knowledge that could enable it to be managed through innovation.
Aaron Traylen frames it even more starkly: contracts act as “innovation antibodies rather than enablers.” When contractual liability sits entirely with whoever deviates from specified methods, even proven innovations become too costly to implement. The result? Teams stick to safe, proven methods to protect themselves, even when those methods are inefficient or outdated.
Research bears this out. Contractors responsible for the whole project execution under lump-sum turn-key arrangements face multiple risks due to unbalanced contracting methods. One building contractor captured the sentiment: “I don’t like using new products and I like to hear that people have been using it for at least 10 years to see the long-term negative effects.”
This problem is so pervasive that inadequate risk distribution ranks among the most common mistakes in construction contracts. When contracts fail to explicitly “define risk and identify who’s responsible for delays, defects, interruptions,” the default behaviour is to avoid any action that might increase liability, including innovation.
The paradox is complete: innovation must happen at the delivery level, but risk allocation makes innovation most dangerous precisely there.
Risk allocation creates one barrier to innovation; the timing of contractual commitments creates another.
Locked in time
Anna Stark describes the temporal trap:
“If a contract is very strict and prescriptive, it leaves little room for introducing innovation mid-process. Even if you come up with a new idea, there’s uncertainty about whether it can be implemented within the agreed scope.”
Aaron Traylen puts numbers to it: “Traditional procurement models lock projects into rigid technical specifications written 12-24 months before implementation, essentially mandating yesterday’s solutions for tomorrow’s problems.”
This temporal misalignment creates absurd situations. Teams regularly identify superior digital workflows mid-project: better platforms, more efficient data protocols, innovative collaboration tools, but can’t adopt them because contracts specify exact systems and processes. By the time contracts are signed, the specified technology is already outdated.
“Some contracts do allow for ‘variations’ or ‘change requests,'” Anna notes, “but the administrative and financial burden of going through that process can discourage proposing innovative changes once the project is underway.”
Many contracts compound this by lacking any formal change management process. Without stipulating “a formal process for communicating, approving and making changes that is followed by all,” even beneficial mid-project innovations become sources of conflict rather than value. The absence of structured change protocols turns adaptive project management into a liability.
The 2025 construction technology landscape reveals how acute this problem has become. The industry is shifting toward design-build contracts, integrated workflow platforms, and supply chain visibility tools. But contractual frameworks written for paper drawings can’t accommodate the data fluidity these innovations require. As Aaron observes, “We’re asking teams to deliver 21st-century infrastructure using contractual frameworks designed for paper drawings.”
The ownership puzzle
Jesse Hallen cuts to the commercial heart:
“How a contract impacts innovation in an AEC project depends on how the IP clause is written.”
When innovation is the goal, ambiguity kills initiative. “If IP transfers to the principal, this should be reflected in the fees,” Jesse emphasises. “If the consultant isn’t compensated for transferring IP, it is a disincentive to innovate, and the project may suffer.”
Anna Stark raises the practitioner’s anxiety: “To whom does that innovation belong? Intellectual property is in question. Could companies prevent developing something innovative because the intellectual property will not belong to them?”
It’s a rational calculation. If a firm invests in developing an innovative approach mid-project, and the IP automatically transfers to the client without additional compensation, why would they make that investment? The firm bears the development risk and cost but can’t leverage the innovation on future projects.
The industry’s fragmented structure amplifies this problem. With 97% of AEC firms being small enterprises, there’s limited capacity for R&D investment. When even successful innovations can’t be protected or monetised, the economic case for innovation collapses.
The mirror effect
Simon Dilhas offers a crucial counterpoint:
“Contracts reflect the underlying mindset of the client and the industry. If the mindset prioritises lowest price over best outcome, contracts will reinforce that behaviour.”
He distinguishes between two realms. In the physical realm, the actual building, clients are conservative for good reason. “They build something that must hold up for a century or more. A building is not an app that can be shipped buggy and fixed later with an update.” This natural conservatism creates a hard barrier to rapid experimentation.
But in the process realm, something different happens. “Many clients neglect project setup and default to a ‘divide and buy cheap’ strategy,” Simon explains. “While this approach may produce the lowest acquisition price, it rarely delivers the best overall outcome.”
This procurement approach pushes every party to the limit of their contract, creating what Simon calls “a race to the minimum.” In such an environment, no company has an incentive to spend extra time thinking about better ways of working. “Yet innovation requires exactly that: more thinking, more coordination, and more long-term vision.”
The crucial insight: “Contracts don’t directly stifle innovation. Contracts reflect the underlying mindset of the client and the industry.”
This creates a fundamental contradiction with the common belief that fixing contracts will unlock innovation. Research on project complexity exposes this tension directly. As procurement expert Gerard de Valence argues, “contractual relationships are more tactics than strategy”; they cannot resolve fundamental project management weaknesses. Contracts are tools that execute a strategic vision; without that vision, no contract structure will drive innovation.
The implication challenges the entire premise of contract reform: you can redesign every contractual clause, adopt collaborative models, and clarify IP ownership, but if the procurement mindset still prioritises the lowest bid over the best outcome, the new contracts will simply formalise the same old behaviours in a different language.
De Valence proposes a framework that recognises different projects need different contractual approaches. Simple, standardised projects with low risk suit fixed-price contracts. Complicated projects requiring significant development benefit from early contractor involvement. Complex projects with high uncertainty need collaborative implementation and negotiated contracts.
Here’s the contradiction the industry faces: we know different projects need different contracts, yet we keep applying simple-project contracts to complex-project realities. Part of this persistence reflects human behaviour; we fear the unfamiliar and default to proven templates even when evidence suggests they’re inappropriate. The innovation barrier isn’t contracts themselves; it’s the mismatch between contract type and project complexity. We complain that lump-sum fixed-price contracts stifle innovation on megaprojects, but those same contracts work perfectly fine for simple, standardised work. The problem isn’t the contract; it’s using the wrong contract for the wrong project.
Anna Stark echoes this:
“Sometimes it’s not just the contract, but the client’s appetite for innovation is low. A contract can reflect a client’s unwillingness to take a risk or change process, even if the engineering company is capable of them.”
The implication is profound. Reforming contract language won’t drive innovation if the procurement mindset remains unchanged. Yet the challenge is circular: few parties will adopt new contract language without incentives, but those incentives can’t exist within contracts that preserve risk-averse procurement mindsets. As Anna observes: “Fixed budgets and rigid schedules in contracts may force teams to prioritise delivery over innovation. Clients often want predictability more than creativity.”
Even when clients want innovation, another structural problem emerges: how to contract for something unproven.
The maturity valley
Jenny Tseng identifies a structural problem: “Innovation often begins as a hypothetical concept. Until it is validated through a proven track record or supported by a well-defined strategy, its value and benefits can be difficult to assess, making it a potential risk in contractual agreements.”
This creates a catch-22. Clients want proven solutions they can confidently contract for. But innovations must be unproven before they can become proven. How does an innovation cross this valley?
Jenny proposes an Innovation Maturity Model: a framework illustrating the journey from Ideation through Concept Development, Prototype & Testing, Validation & Strategy, Implementation, and finally Value Demonstration. The model serves two purposes: it provides a structured path for developing innovations, and it helps demonstrate value propositions to clients at each stage.
Consider a smart mobility app moving from brainstorming (Ideation) through pilot testing to city-wide implementation with measurable outcomes.
The framework makes innovation contractable at each stage. “Establishing a clear innovation maturity model will help demonstrate the value proposition to clients more effectively,” Jenny argues. It provides transparency, measurable outcomes, and alignment with client expectations: the prerequisites for contractual commitment.
This framework reveals the gap between possibility and practice: Jenny’s framework shows exactly how innovation could be contracted at progressive stages (ideation, prototyping, validation, implementation). But current procurement practice demands the opposite: fully-proven, validated solutions before any contract is signed. The framework reveals that the path exists; industry practice reveals we’re not taking it.
Even this elegant framework runs into Simon’s observation: it requires clients willing to engage with a staged innovation process rather than demanding fully-baked solutions from day one. The contradiction is complete; we know how to contract for innovation maturity, but we structure procurement to require maturity before contracting.
Even when clients embrace staged innovation pathways, another barrier emerges: contracts fragment responsibility across the supply chain, making holistic implementation nearly impossible.
Fragmented by design
Aaron Traylen identifies how contractual fragmentation prevents holistic innovation:
“Most critically, contracts fragment data ownership and interoperability responsibilities across the supply chain, making holistic innovation nearly impossible.”
The mechanism is systemic. Each tier has different data requirements, platform obligations, and IP protections. “We create a maze of competing constraints that favours lowest-common-denominator solutions,” Aaron explains.
Part of the problem is what one analysis calls “generic ‘one-size-fits-all’ contracts” that fail to reflect project complexity or unique requirements. When the same boilerplate contract is applied to radically different projects (from simple renovations to complex digital infrastructure), the result is increased misunderstandings and missed opportunities for tailored innovation approaches. Research suggests construction historically “adopts innovations from other industries, rather than being a source of innovation” itself; a pattern reinforced by contracts that discourage going beyond minimum requirements. When contracts fragment ownership and responsibilities, the industry lacks the cohesion needed to generate innovations internally rather than simply importing them.
The most valuable innovations (integrated digital twins, AI-driven design optimisation, predictive analytics) require data fluidity across the entire project lifecycle. But current contractual structures actively prevent this. When design data, construction data, and operational data reside in distinct legal and commercial domains with different ownership structures and access rights, integration becomes legally complex and commercially risky.
“The real innovation requires data fluidity that current contractual structures actively prevent,” Aaron argues. “Until we reimagine contracts as innovation frameworks rather than risk fortresses, we’ll continue automating inefficiency rather than transforming delivery.”
This fragmentation extends beyond data. Jeremy Power describes the human dimension: traditional contracts create adversarial relationships where stakeholders engage in “finger-pointing” and blame-shifting rather than collaborative problem-solving. The conventional approach pushes risk down the supply chain, with each participant seeking to avoid and transfer risk to other parties.
Research shows that subcontractors, often the source of innovation, are largely excluded from the benefits of innovation by repeated subcontracting and a widespread “risk transfer mentality.” Why innovate when you can’t capture the value?
The collaborative alternative
Jeremy Power is emphatic:
“Construction contracts need to become more collaborative in nature if we want true innovation.”
He points to emerging models like Integrated Project Delivery (IPD) and alliance agreements, where all key stakeholders (owner, contractor, designers) sign a single contract, share risks and rewards, and commit to a no-blame culture. “These collaborative contracts foster trust and transparency, which in turn promote joint problem-solving and innovation through teamwork, rather than adversarial posturing.”
The commercial structure matters. IPD fundamentally alters remuneration arrangements found in conventional fixed-price contracts. Instead of fixed prices that create zero-sum dynamics, IPD uses performance-based remuneration. Risks and rewards are distributed through a profit/incentive pool based on measurable project outcomes. This encourages candid communication and accountability for overall design and construction.
“When everyone has a stake in the project’s success, contractors are far more willing to suggest inventive solutions or adapt on the fly, because the contract environment supports that,” Jeremy explains. The shared risk model transforms constraints from individual burdens into collective challenges, forcing teams to innovate together to overcome obstacles. Early successes with collaborative approaches have shown improved cost and schedule performance compared to traditional contracts, with the added benefit of delivering greater client value through solutions that might never surface in adversarial structures.
If contracts inevitably limit innovation (the settled wisdom I started hearing years ago), how do we explain projects where procurement explicitly enabled innovation?
Real-world examples directly contradict the “contracts always limit” belief. Heathrow Terminal 5 used an integrated team approach across 147 sub-projects, rewarding innovation through collaborative structures. Sutter Health in California delivered over $1.5 billion in hospital projects using IPD and Lean construction, achieving a 99.7 percent inspection passing rate and finishing with more than $20 million in contingency balance on their flagship campus; outcomes enabled by collaborative contracts that aligned incentives across all parties. The UK’s HMRC Locations Programme deployed digital libraries to speed design and reduce costs; innovations enabled by procurement frameworks that pre-approved suppliers and created multi-project pipelines, giving teams confidence to invest in better methods. The Foreign & Commonwealth Office framework enabled innovative seismic protection solutions by structuring contracts around performance outcomes rather than prescriptive specifications.
These successes share common elements: innovation funds set aside in large contracts, program-based procurement providing visibility beyond single projects, early market engagement, and assessment of capability over bureaucratic evidence gathering. The AECOM research recommends flexible, proportionate responses with realistic timescales; precisely the opposite of inflexible, compliant procurement that leaves no room for innovation.
Michael Calcoen sees the movement happening: “It’s positive to see more and more discussion around collaborative contracting methods, fair allocation of risk and how to drive project outcomes, but we have a fair while to go.” In the US, momentum is building for IPD on large, complex projects, though smaller projects often don’t justify the perceived administrative overhead. Yet an interesting pattern emerges: contractors who experience Lean methods (Last Planner, collaborative problem-solving over blame assignment) often attempt to implement these practices on all their jobs, even when clients don’t formally structure contracts around IPD. The methods prove valuable enough that practitioners adopt them unilaterally, recognising benefits to their own work regardless of contractual structure.
The research supports this optimism. Collaborative contracting models address many innovation barriers by sharing risk rather than transferring it, creating incentives for collaborative innovation. But adoption remains limited, particularly in public infrastructure where low-bid procurement is often mandated.
The most striking gap isn’t knowledge; it’s action: Practitioners describe deep frustration with contracts limiting innovation: temporal lock-in, risk misallocation, IP uncertainty, fragmentation, adversarial structures. Yet academics and forward-thinking firms have developed frameworks and proven approaches that directly address each complaint. De Valence’s complexity matching. Jenny’s maturity model. The Heathrow T5, HMRC, and FCO case studies. IPD and alliance contracts. Innovation funds and program-based procurement.
The solutions exist. The evidence exists. The frameworks exist. Yet the problems persist. This isn’t a knowledge gap; it’s an adoption gap. The tension isn’t between what’s possible and what’s impossible; it’s between what we know works and what we actually do.
The path forward requires both
The question (do contracts limit innovation?) has a dual answer.
Yes, current contracts often limit innovation through risk allocation that creates defensive behaviour, temporal lock-in of specifications, IP ambiguity that kills incentives, fragmentation that prevents systemic solutions, and adversarial structures that favour lowest-common-denominator approaches.
But contracts also enable innovation when structured properly. The Heathrow Terminal 5, HMRC digital libraries, and FCO seismic protection cases prove that procurement can be “the link and enabler between advocacy and reality.” The difference isn’t whether to use contracts (all projects require them), but whether contracts execute a strategic vision for innovation or merely formalise risk avoidance.
As Simon Dilhas observes, contracts are mirrors. They reflect industry and client mindsets that prioritise predictability over creativity, lowest price over best outcome, and risk transfer over risk sharing. And as Gerard de Valence argues, “contractual relationships are more tactics than strategy”; no contract structure can compensate for absent strategic vision or fundamentally weak project management.
The path forward requires both contract reform and mindset shift. On the contractual side: match contract type to project complexity, institute formal change management, clarify IP ownership with fair compensation, and move from generic boilerplate to tailored agreements. On the mindset side: stop procuring with “divide and buy cheap” strategies, stop treating procurement as bureaucratic compliance, stop defaulting to risk transfer over risk sharing.
Anna Stark captures the industry’s structural challenge: “I often think of engineering consultancies as giant ships; massive, complicated and painfully slow to change course. The question is will they eventually sink simply because they can’t adapt fast enough?”
The encouraging signal: practitioners and clients are having this conversation more openly. Jenny Tseng’s innovation maturity frameworks, Jeremy Power’s advocacy for collaborative contracting, Michael Calcoen’s observation that procurement methods are evolving, the AECOM research on rethinking procurement, Gerard de Valence’s complexity frameworks; these point toward an industry wrestling with how to build faster, better, more sustainably while managing the genuine risks of construction.
The path is visible. Move from inflexible, compliant procurement to flexible, proportionate responses. Replace generic boilerplate with project-appropriate contracts. Institute formal change management processes. Clarify IP ownership and ensure fair compensation. Match contract complexity to project complexity. Set aside innovation funds. Create program-based procurement for pipeline visibility. Pre-approve frameworks. Assess capability over bureaucratic compliance.
Most critically, recognise that contracts are tactical tools that execute strategic vision, not substitutes for it. Write them as enablers, not just risk fortresses. Structure them for the innovation you seek, not the litigation you fear.
Can engineering consultancies adapt fast enough? They can. But only if they’re willing to turn the wheel. The choice between risk fortresses and innovation frameworks isn’t inevitable; it’s intentional. The question isn’t whether contracts limit innovation. The question is whether we’ll write them differently.