Problem in Construction Industry and How Blockchain Can Help

Blockchain technology is among the most disruptive forces of the past decade. Its power to record, enable, and secure huge numbers and varieties of transactions raises an intriguing question: Can the same distributed ledger technology that powers bitcoin also enable better execution of strategic projects in a conservative sector like construction, involving large teams of contractors and subcontractors and an abundance of building codes, safety regulations, and standards? “Increasingly, we are thinking more carefully about when and where we need to compete and what can we share and collaborate on,’ said David Bowcott, global director of growth, innovation, and insight in Aon’s global construction and infrastructure group. Using blockchain to automate the contractual processes and paperwork underpinning these complex projects could save money, free up valuable resources, and speed up project delivery. (Unless otherwise noted, quotes are from interviews we conducted as part of our research.) Blockchain-Enabled Real Estate Development Projects In commercial real estate, Amsterdam-based HerenBouw is applying blockchain to a large-scale development project in the city’s harbor.

Revolutionising construction contracts

Our industry is going through a revolution. This transformation is partly digital, in order to improve efficiency and digital workflows, partly a business practice change.

Blockchain technology has the potential to affect both changes and facilitate this innovation. It can do so by shifting current payment and project management systems towards a more transparent and fair practice.

By reducing late payments, remediations and disputes, small and medium enterprises are no longer placed in continuous cash flow risk. Instead, the industry as a whole can become a more trusted entity.

Through smart contracts, business processes and administrative tasks can be automated to increase efficiency and always be aligned with the agreed contractual terms. This can result in significant cost savings, increment in the low margins of the industry, and better control project costs.

Procurement and asset life-cycle management

Blockchain can deliver a more streamlined procurement process, reducing the high level of fragmentation and complexity of major projects.

The provenance of the materials can reduce waste and drive quality of products and service forward with high accountability. Such systems can enhance predictability with regards to procurement, but also in the case of the whole project delivery.

Together with BIM (Building Information Modelling), blockchain can create the single source of truth for all aspects of a construction project.

Such a model can become the trusted digital twin of an asset supporting not only its design and construction, but its operation and maintenance along the whole lifecycle.

The construction industry has regularly been cited as one of the world’s most fragmented, high impact sectors. The best examples for this phenomenon are

all those capital infrastructure projects around the world which have a highly fragmented, scattered and complex supply chain. For example, the Crossrail project in London, with more than 700 various suppliers just from the UK, or the Burj Khalifa, with over 12,000 workers from more than 100 countries on site at the peak of its construction. To manage such an extended supply chain, keep track of work in progress, schedule, cost and payments, enormous effort and resources are needed. On top of these challenges construction projects experience different forms of mistakes, delays and accidents at various stages and to varying degrees. The lack of accountability in the construction industry has been an ongoing issue for decades and with extremely squeezed profit margins, firms are poised to find ways to cut corners and deflect blame from the resulting failures.

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