Blockchain & Construction Projects - The Fourth Industrial Revolution.
Business in general requires payment for delivery of goods and services. Construction Agreements particularly require performance guarantees.
Banks usually take their time with confirmations and authorization of guarantees, performance securities and multiple payments from an Employer to Contractors. And as it is with any contract, an emphasis is placed on time in construction projects. Moreover, there is human error involved with banks at some point between the thousands of transactions on a single project. On Publish 0x, you all know where I am heading with this. Yes, blockchain once again.
Blockchain is a shared digital record book of transactions (called blocks) that are linked together in sequence (chain). Everyone who shares this record book has the ability to validate the transactions and add records, but not modify existing records. Super-fast clearance of large amounts in money. Less margin for human error.
The pros. All the pros in the world.
Imagine welding a beam to a structure and the transaction clears as you pack up equipment to move to the next beam. The Employer knows the amount due and the reason for it being due, because the QC gave the green light and the supervisor prepared a request for payment with a few simple clicks on the dApp during the welding process. This applies to Requisitions, Purchase Orders, Requests, Work Orders, Inspection Forms and other documentation that has the same characteristics: Records with sequenced line items that are tied to linked transactions.
Don't imagine it, implement it. There are many industries that could benefit from blockchain tech.
- Transactions are super-fast.
- Quicker network verification.
- Super low fees for large amounts.
- Low energy cost for transactions
- Transactions are private and could be very secure with P2SH wallet addresses (I mean a P2SH address for a stable coin).
- Saves companies billions or large construction projects.
- Creating certainty of timely delivery and to budget, and generally improving the productivity of the construction sector.
- Achieving carbon-neutral assets and reducing waste in the course of construction.
- Improves supply chain management and policies.
According to a whitepaper of the Centre for the Fourth Industrial Revolution UAE (C4IR UAE), the Dubai Future Foundation (DFF) and the World Economic Forum (WEF), blockchain technology could save over $ 3 Billion USD. That is a note-worthy amount to contribute to another skyscraper project. The technology could further eliminate 398 million printed documents and 77 million work hours per year - saving time, money and resources, all in one go. More than 100 stakeholders from over 60 governmental and non-governmental entities are actively exploring or implementing blockchain. City of the future - right? Check out WEF documents here:
http://www3.weforum.org/docs/WEF_Shaping_Future_Construction.pdf
http://www3.weforum.org/docs/WEF_Introduction_to_Blockchain_for_Supply_Chains.pdf
The issues, cons and sticky situations
The main issues stem from the regulatory side. Policy frameworks need to be extensive and all stakeholders will need to be well-informed and educated, including government. Between contractors and sub-contractors, locating and investigating transactions can become tedious if you have to look for a specific address in a list of addresses. Forensics might be a daunting task.
Confidentiality and privacy is critically important in the relationship between architects, engineers, suppliers and owners. There are often complex contracts in place to protect the Intellectual Property (IP) of these organizations. Instituting an open record book of transactions is a challenge in this environment due to the IP. Each project’s overall data management strategy needs to be established from the very beginning to account for types of transactions and the data structure of each block, respecting the privacy and confidentiality of every organization.
Industry standards in construction are almost non-existent from an Information Systems (IS) standpoint. Today, each project enacts its own standards but by working with key stakeholders early in the project they will be able to champion wins with industry-leading organizations like the Contstruction Industry Institute (CII) and FIATECH to start the process of developing Blockchain standards for Construction Supply Chain and Materials Management.
Every organization has different technological capabilities. It may be difficult for some organizations to contribute to a complex ecosystem of integration or even host basic required components (e.g. servers, IT infrastructure, etc.) for a Blockchain implementation. While Blockchain simplifies the execution of data strategy for construction projects, there are still the age old challenge of getting all stakeholders to buy in on a single methodology.
Solving the issues
More often than not, records of transactions are distributed across different databases belonging to different companies. In litigation, this could pose a serious issue when it comes to procuring and leading evidence in a dispute. With blockchain technology it's not such a fuss as it is with traditional systems. Five-dimensional rendering of construction project lifetimes and life-cycles with time-stamps could illuminate the issues that are related to the disruption of non-payment. The auditing environment for certification of payments will be revolutionary, especially with dApps.
Should a company or organisation implement their own blockchain network with their own currency for proof of work between the parties to a contract, regulatory problems are narrowed down to a specific set of addresses. By implementing KYC for the accounting officer of each company involved, we can know who paid [address], who received [address] and what amount [request amount] for what work [embedded transaction message]. Cryptocurrency (stable ones) are offered as security with a third-party custodian (because the Employer has to return the performance security if all goes well). Ethereum, a newer cryptocurrency similar to Bitcoin has incorporated in each coin its own programmable rule-set and ability to create smart contracts. This would allow for the transactions themselves to understand the overall contract landscape of a project and change its own behavior accordingly. Native dApps that are open and transparent between accounting officers will enhance control and authorization hurdles to clear payments.
I would definitely recommend blockchain [cough...'Ethereum smart contracts'] technology applications to construction firms.
