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Building smart buildings

Smart technology is becoming a feature of life and developers must, by necessity, turn their attention to constructing smart buildings.

October 2018

Songdo International Business District in South Korea is an ambitious, multi-billion pound development project; often dubbed the "city of the future". In part, this is because of thoughtful planning emphasising green spaces and public transport and cycle routes over roads. Also key to vision is that the buildings are designed to be 'smart'.

Smart technologies are also permeating UK homes on a growing scale. Smart speakers, having been largely unheard of two or three years ago, are fast on their way to becoming ubiquitous; as are other smart appliances, such as utility meters, central heating systems, lighting, and even doorbells. All connected through the internet to allow the owner to control them and monitor their use.

As ever, with the new technology, come new legal and technical challenges which need to be carefully considered at the start of a project.

What is a smart building?

'Smart' buildings are those designed with connection to the internet of things in mind. That is, buildings with internet connectivity for devices and infrastructure built in to them.

There are a number of potential benefits to smart buildings. They offer convenience to their end users, allowing them to control heating, lighting and security remotely, for example.

Smart buildings allow their owners to collate ever greater information (subject to data protection requirements) and have allowed buildings to be designed and operated to achieve cost and energy efficiency, to the point where "smart" and "green" are seen to go hand in hand. Owners of smart buildings may also find themselves in possession of new streams of information about how the buildings are used by tenants, customers or other users, presenting opportunities to monetise the same.

The operator of a smart building would be able to monitor an ever growing amount of a building's functions. A smart central heating system could use software to manage a building's temperature without human input. Equally, the right smart system could pinpoint the location of a system failure and eliminate the need for time-consuming 'process of elimination' investigation. Much of this could be monitored off-site and with limited human input.

Construction procurement for smart buildings

While we are far from the point where the typical building being constructed in the UK could be described as "smart", certain networked technologies are common, such as security and fire suppression systems. However slowly, the average building is being designed and built 'smarter'. Developers should consider whether changing their approach to procurement to allow the requirements of smart technologies is necessary.

If a developer identifies a provider of a smart security system who is to be responsible for physically installing the system, it is common to see their appointment handled like that of a traditional contractor. A price and works programme would be agreed and an appropriate industry standard building contract entered into. However, such a system is likely to use proprietary software, which either needs to be managed by, or licensed from the provider, and this gives the transaction a different shape. The relationship is changed from one where the provider carries out the works, hands over the operating instructions, and leaves, to an ongoing management or licensing relationship that may last years.

This is a significant shift which should be factored in at the tendering stage. For example, the supplier may have a reputation for providing a good product and quality workmanship but is their aftercare of the required standard? The supplier may have adequate covenant strength to make them suitable to take on a package of works that may last for a fixed period, but do they present a greater long-term insolvency risk that makes them inappropriate for a long-term services requirement? Equally, if the provider were to go insolvent, could the system be operated by another party or would it become redundant?

This new, altered arrangement must be reflected in the contract from the outset. A purchaser who entered into a building contract for the works, with the intention of later agreeing an acceptable long-term management agreement or software licence, would find themselves in a weakened bargaining position against a supplier who is the only person capable of operating the system or providing the software.

A revised edition of the most commonly used construction contract in the UK, published by the Joint Contracts Tribunal, was published in 2016, and did not make allowance for these new types of relationship. Purchasers of combined offerings of works and future services should consider bespoke amendments or a second parallel agreement for operation.

Futureproofing integrated solutions

The Songdo International Business District has been under development since 2002, an understandable timescale for such an ambitious construction project but a period of a generation or more where technological progress is concerned. Articles about the scheme highlight the inclusion of technology to control utilities and make video calls from a panel built into the walls of apartments; something that now can be cheaply and more easily achieved using the smart phones that were developed in the intervening period.

The rapid progress of technology and how to integrate it into a scheme is a dilemma for developers. From concept design to the opening of even a modest development can take a number of years and the buildings and systems within them are generally intended to last for decades longer still. How is this long term thinking to be reconciled with the likelihood that the technology will be superseded before the building opens?


Smart buildings rely on the internet to operate and this means a potential vulnerability to cyber-attacks, which have already been seen to target buildings. This is something that owners of such buildings must be mindful of and the risk relating to such matters should potentially be an element of the negotiations referred to above.

Data protection

Smart buildings are likely to collect a large amount of personal data. Under the General Data Protection Regulation 2016 (GDPR), data protection must be embedded by design and default into new products, technologies and services. Wherever possible, data should be anonymised to reduce the amount of personal data being processed and the occupants of the building and visitors to it will need to be told what is happening to their personal data.

The relationship between the operator of a smart building and the various suppliers as to whether they are controllers, joint controllers, or processors of personal data generated by the connected elements of the building will need to be considered, agreed and documented.

There are a number of obligations on data controllers and data processors under the GDPR which must be taken seriously given that penalties for failure to get it right can be up to the higher of 4% of annual global turnover or EUR20m. For more information about the GDPR, visit our Global Data Hub.

More to think about?

As buildings become smarter, the considerations that must be put into procuring developments will multiply. Developers procuring smart buildings must consider how those technologies are to be operated once installed and put appropriate contractual and practical arrangements in place to ensure they comply with the law and have adequate legal and commercial protection.

If you have any questions on this article please contact us.

Construction workers on site
Andrew Wood

Andrew looks at some of the headline issues developers need to consider when constructing smart buildings.

"As buildings become smarter, the considerations that must be put into procuring developments will multiply."