University of Melbourne

In the world of construction, there are little to no inherent incentives for a contractor to make a project more sustainable or to build it in the most sustainable fashion. After all (respectfully), a contractor’s primary purpose is to make profit. This article explores how project owners can improve sustainability in construction by adding incentives into their contracts. Work in the field of behavioural economics suggests that there is a psychological distinction between the response of parties to positive and negative incentives. Applying this concept to the construction industry, this article seeks to provide preliminary classifications of common procurement tools as “carrots” (positive incentives) or “sticks” (negative incentives) and evaluate their effectiveness to motivate sustainable action.

Climate change is quickly becoming the predominant issue of our generation. It impacts every sector worldwide and is pressuring industries to reflect on their commercial and industrial practices to make sustainable change. The latest scientific reporting states that immediate and decisive action is needed to prevent further damage to the planet.2 However, in the absence of intentional and significant reform, there is little incentive for parties in the construction industry to innovate and adopt sustainable methods. As a result, there has arisen an opportunity for project owners to make an immediate impact by changing the nature of the contracts they put on the table.