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The stimulation of circular economy in the Dutch construction industry : how procurement processes can realize a transition arena that is required in order to stimulate the transition to a circular economy

Pots, J. (2018) The stimulation of circular economy in the Dutch construction industry : how procurement processes can realize a transition arena that is required in order to stimulate the transition to a circular economy.

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Abstract:Stepping away from the linear/recycle economy and embracing the circular economy is vital to ensure a sustainability environment for generations to come. The Dutch construction industry is currently responsible for 40% (23,8Mt of waste) of the total waste generated in the Netherlands. Implementing circular economy could reduce this amount of waste and reduce CO2 emissions by 10% and additional €7.3 billion of revenue can be generated which can result up to 54.000 additional jobs in the Netherlands. However, this transition to a circular economy is a system change which requires stimulation to ensure that industries are committed to the transition. The Dutch construction sector is project based and is challenged to compete by procurement processes, which makes it challenging to introduce a different economic system such as circular economy. The objective of this research is to determine how, which and to what extent procurement processes can be used to stimulate the transition to a circular economy in the construction industry. The first step in achieving this objective was to determine what circular economy is, what business model is currently used and which business model should be applied. The construction industry in the Netherlands is a sector based on the linear model and has some aspects in common with the recycling model. This business model is focused on competition and is characterized by realizing turn over and short-term relations which has the result that the market realizes what is asked by a client. This results in a segmented business model and verification between the construction phases of design, construction, and maintenance. This linear approach has to change in order to realize a sustainable future for generations to come by embracing the circular economy. The circular economy has the ambition to not let materials leave the economic system by applying circular strategies during the life cycle of a construction product. This requires cooperation to ensure that circular strategies can be applied and that value is created and preserved throughout the life cycle. The business model of circular economy focusses on a collaborative effort which change the roles and responsibilities in the construction process. The contractor needs to take a coordinative role instead of a leading role, which will force manufactures to step out of the shadow and participate in the construction process. Designers have to use the knowledge of the manufacturers by cooperating to ensure that circular strategies can be applied. To ensure that manufacturers feel responsible for the materials that they use, different types of ownerships can be applied. Leasing and providing a service are different types of ownerships that realizes that the market becomes the owner and not the client, which realizes different business opportunities. However, what type of ownership should be applied depends on the life cycle of the product. Construction objects have a life span that can vary from 1 to 100+ years, which makes it challenging to have a single type of ownership for the entire construction object. The next step in the research was to determine the basics of the Dutch legal framework and to broaden the research base by regarding circular economy as an innovation that has to be stimulated by using procurement processes. The legal framework describes procurement processes (such as open and competitive dialogue) but it is decided to focus on the three pillars that are used within these processes. Boundary conditions, selection criteria and award criteria are the three pillars on how a partner is selected and awarded within the procurement processes. In innovative orientated procurement, it is crucial to understand the influence of the current level of development of the innovation to determine what transition arena is desired. An early stage of development, as an innovation in this thesis is, requires a transition arena that is focused on learning and developing which also requires a collaborative effort that is focused on adopting an ambition and not on solving a problem. Determining how procurement process should be applied to stimulate the innovation was not feasible because it depends on the type of innovation. A small innovation requires a small transition arena while a complex system innovation will require a transition arena that is applied on several projects to ensure that it is possible to learn and develop the concept. However, innovative orientated procurement provided the subjects of cooperation, specifications, capabilities of procurer, risks, desire to innovative, magnitude of the contract and the management of intellectual property rights as the seven subjects that have to be addressed when an innovation is stimulated. These subjects in combination with boundary conditions, selection criteria and award criteria are used as input for the stimulation of circular economy by applying procurement processes. The transition to a circular economy is in an early stage of development, which means that the transition arena should focus on adopting the concept of circular economy by learning. The procurement process enables this transition arena that is focused on adopting the concept by setting goals and ambitions by specifications. To determine how the procurement process should be set, interviews with Dutch construction companies are conducted, structured by the theoretical framework of innovative orientated procurement. The first option that is discussed by the interviewees focus on a design, building, finance and maintenance contract in which the contractor is in the lead. The contractor is chosen on a mixture of qualitative criteria and construction costs that are determined on the schematized design that a contractor made in the procurement phase. This schematized design is based on the functional specifications of the procurer to enable that decisions on material, component and product level are still possible. During the project, the contractor is still in the lead as in current construction model. However, the client contributes to the transition by not demanding certain certificates or in acquiring certain permits to realize that additional circular solution can be seized. This approach is an example of the coopetition. The second option to stimulate circular economy is an approach that is known as the cooperation approach. In this approach, the partner is selected during the initiative phase based on qualitative criteria such as their ambition or vision on circular economy. The aim of the procurement process is to select a partner that can help the procurer to finish the project. After the procurement phase, the procurer and partner work together to realize that maximum value and circular strategies are applied for the budget that is available. This process requires equality and transparency between the procurer and the partner to ensure that this cooperation is effective and successful. The coopetition and cooperation approach describe a certain procurement process and project in which the transition arena that is required is realized and provides room for learning. However, to effectively cooperate, the current procurer and partner segmentation has to change. Transparency, equality, early procurement, cooperation, functional specifications and risks sharing are all required in this procurement process and project to stimulate the construction industry to embrace and apply the principles of circular economy. Equality realizes that the partner can apply innovative circular solutions or ideas and transparency realizes that the client has sufficient confidence in the partner. To provide enough opportunities for innovative solutions, functional specifications have to be applied in combination with procuring in an early stage based on qualitative criteria to enable as many circular solutions as possible. This collaborate attitude also requires risk sharing in the process and a risk budget to realize that there is room for learning in this collaborative effort. However, in order to finish the project in a collaborative way, the procurer needs to have sufficient capabilities to also work on the project on an equal way. These capabilities are also of importance in assessing the bids of the possible partners because knowledge is required to assess the qualitative bids to ensure that the best partner is chosen. These subjects are the necessary within the procurement process that are required to effectively stimulate the transition to a circular economy. Stimulating the transition to a circular economy, in which adopting a solution or ambition instead of solving a problem is incorporated, requires a cooperative approach based on the procurement process that is previously described. The procurement process can realize the desired transition arena in the concept of circular economy can be developed. It will pave the way to new business models and ownership models as is required for a circular economy to thrive. However, the transition to a circular economy is not a one-time project and has to be stimulated over time in multiple projects to ensure that circularity and seizing circular possibilities becomes the new standard to realize the sustainable future for generations to come.
Item Type:Essay (Master)
Clients:
KplusV
Faculty:ET: Engineering Technology
Subject:56 civil engineering
Programme:Civil Engineering and Management MSc (60026)
Link to this item:http://purl.utwente.nl/essays/76141
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