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Commercial Question

A smarter world: the challenge of building ‘smart cities’

updated on 16 November 2015


As cities’ populations continue to rise, what are the challenges in transforming our urban centres into a new generation of ‘smart cities’?


The global population of people living in cities is rising and policy makers are keen to promote sustainable growth – especially as greenhouse gas emissions continue to rise. By harnessing innovative information technology, the concept of the ‘smart city’ attempts to relieve some of these pressures.

In theory, technology can be used to help us live and build more sustainably and efficiently. These smart city solutions range from contactless payment systems to smart meters which monitor our energy use. However, a multitude of challenges remain in creating a smarter urban environment. These include forging successful collaboration between industry sectors and selecting appropriate funding structures.

These challenges are not insurmountable and early examples have shown that building an innovative smart city is an achievable prospect.

The growth of the ‘smart city’ idea

The United Nations Department of Economic and Social Affairs estimates that city dwellers currently make up around 54% of the global population. This is expected to rise to 66% by the middle of this century. The rise and rise of urban conurbations means that governments and businesses are forced to react to achieve the ultimate goal of sustainability. The increasing impact of global climate change exacerbates the problem and requires innovative solutions to reduce the carbon footprint of our growing cities.

The idea of the smart city claims to solve many of these problems. While there is no universally agreed definition, we can say with confidence that the smart city uses integrated technology and digital systems to promote efficiency and sustainability in our urban centres. These solutions range from technology which monitors and reduces energy consumption in buildings, to smart passenger systems which direct public transport to areas with the highest demand.

An early illustrative example of smart city technology is London Underground’s Oyster Card. This has speeded up commuter journeys and reduced Transport for London’s surprisingly high ticket production costs. This technology is also a good example of future-proofing a city’s supporting infrastructure; the Oyster system began over a decade ago, but was prepared for the recent introduction of contactless debit and credit cards in 2014.

Smart city policy has expanded beyond the supporting infrastructure and into the construction of actual infrastructure itself. For example, London’s Crossrail project has integrated wireless sensor technology in its tunnels to monitor the stability of the new structures. This will provide live data to ensure problems are highlighted during construction and also to make ongoing maintenance a more intelligent and efficient process.

As policy makers attempt to roll out the smart city model on bigger and more diverse projects, trying to turn these ideas into reality raises significant issues. This article addresses some of the challenges that governments, businesses and lawyers should bear in mind.

Integrating industries

Crucially, the development of smart city initiatives requires integration between industry sectors. Such collaboration has already begun, with various companies sourcing expertise outside their primary industry focus. Notably in the United Kingdom, British Gas acquired AlertMe for £44 million in February 2015. AlertMe provides the software platform for British Gas' Hive smart meter system which allows consumers to monitor and reduce their energy consumption. Outside of the energy sector, the construction and engineering industry is starting to find new ways to assimilate resources and expertise. For example, in 2014 the French construction firm Vinci acquired the ICT division of Imtech for €255 million. Vinci recognised that constructing smart buildings in a smart city requires information technology input at every stage of the development.

In the context of smart cities, the lines between different industry sectors are blurred and we should understand that traditional models are shifting. The digital experts will continue to supply the technology, but it will be up to engineers and construction firms to incorporate the smart initiatives into the buildings and infrastructure themselves. Those firms that maintain a closer relationship with the technology industry may find that ‘intelligent buildings’ are an easier feat to achieve.

For this collaborative approach to work, corporate acquisitions and joint ventures are likely to be a growing feature of smart city developments. Therefore it is important for lawyers and advisers to be aware of the need for integration and to facilitate solutions to meet the challenge.

Government support

Smart cities will only arise with sufficient government and regulatory support. This may include, for example, attractive tax incentives for when funds are directed towards smart infrastructure. Also crucial will be stable and pragmatic legal regulation which allows the flow of data in a safe, but accessible manner.

While integration between industry sectors is crucial, collaboration between different cities and countries is equally important. The European Union and its international reach will allow smart city ideas to be exported across national borders. Furthermore, the ability of the European Union to set European-wide standards may help encourage investment in smarter infrastructure.

In the United Kingdom, government support is growing. The 2015 Budget included £140 million directed towards smart city solutions. However, some figureheads in the campaign to build smarter cities say that they are waiting for the policy makers to show a stronger intention.

Dan Byles, a former MP and vice president of corporate development at Living PlanIT, has indicated that infrastructure procurement rules should be better formulated to create the demand for smart city technology. For example, when the Ebbsfleet ‘garden city’ tender was published, there was a requirement for construction firms to demonstrate how smart city initiatives would be integrated into their proposals. Therefore, perhaps a stronger desire to develop smart city ideas in public sector procurement will be an important factor in encouraging their development.

Funding models

Developing smart city initiatives needs to be a financially attractive option for both the private and public sector. Investing in smarter infrastructure is expensive and the temptation may be to stick with the status quo rather than innovate. Therefore sensible funding models need to be available.

Obviously public sector funding will dominate much of the smart city infrastructure developments in the coming years. However, as governments begin to promote more and more projects, they are likely to require private sector expertise and funding to realise their aims. This is particularly true at a time where public sector budgets are extremely tight. Therefore it seems likely that public-private partnerships (PPPs) will play an important role in the construction of smart city projects.

A successful example is the EU programme known as the Future Internet Public-Private Partnership (FI-PPP). This is a joint public-private initiative aimed at accelerating the development of technologies designed for smart infrastructure. These technologies can then be implemented on an EU-wide basis to businesses and the public sector for use in smart city developments.

Selecting the right financing model will be crucial in getting smart city ideas off the ground. Lawyers should be aware that more of these types of collaborative funding schemes will be vital to pool resources from the public and private sectors.


In some respects, the development of smart cities is inevitable. The expected population growth and focus on energy efficient living will mean that urban environments will have to adapt to more intelligent ways of existing. However, inevitability does not remove the substantial challenges that remain.

None of these challenges described above are insurmountable. The smart city concept has been embraced by some in industry and government, and progress is undoubtedly being made. But to stay ahead, we will all need to spot the opportunities and innovations at an early stage. The collaborative nature of smart city initiatives will require legal support at every step to make the complex relationships and structures work.

Tom Connock is a first-year trainee in the construction and engineering department at Taylor Wessing.