Transforming the construction industry with blockchain

25 February 2019

How blockchain is revolutionising interaction in construction’s supply chains.

In the midst of the 2008 economic crash, blockchain made its public debut.

Created by Satoshi Nakamoto – whose true identity, despite much speculation, is still unknown – blockchain is a database that is shared across a network of computers.

It works by bundling records together into ‘blocks’, which are all linked using cryptography. This enables the information to be shared securely and accurately without the need for third-party involvement.

Originally, it was designed to underpin the cryptocurrency bitcoin, a peer-to-peer version of electronic money that allows people to send payments without a financial institution.

But roll on ten years and it looks as though blockchain could revolutionise far more than just the financial sector, with an increasing number of industries, including construction, starting to explore ways to apply it to their own fields.

"Blockchain helps people sitting at multiple locations to work in a very secure and reliable atmosphere,” begins Nisheeth Srivastava, Energy and Commercial Lead Partner at JLT Independent.

“So, in terms of contracting, awarding of contracts, submitting bids and evaluating those bids, in theory it can be used very effectively.”

The reason for this is because once a new ‘block’ of information is added to the chain it is very difficult to change.

Moreover, the network of computers that share the blockchain database run constant checks to ensure the copies of that database are all the same.

Srivastava says this could be particularly useful in improving the flow of sensitive and critical information across major infrastructure projects such as Special Economic Zones (SEZs).

“SEZs include such infrastructure types as power, water, roads and buildings where there are a multitude of contractors and levels of works taking place between projects.

“One project will determine the success or timely completion of another, so the transfer of information is key and very sensitive.

“Blockchain can provide real-time access to real-time users and accurate information here, which nobody can go ahead and corrupt because it’s so complex,” he says.

Going into more detail, Dave Hughes, Construction Consultant and General Manager of built environment software company Keepsite, comments that, “because of the complexity of some of the work [in the industry] and the sheer number of regulations and standards, there are still issues with trust and verification that compliant work has been carried out – the blockchain may help provide this.”

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He says there are four potential uses of blockchain within the construction industry. These include recording value exchange (such as bitcoin), administering smart contracts, certifying proof of existence for certain data and combining smart contracts to form a decentralised autonomous organisation (DAO) – the latter of which is an organisation administered through rules encoded similarly to a computer program.

Hughes explains that a building could be set up as a DAO at the start of a project, therefore integrating blockchain and the Building Maintenance System (BMS) and replacing the various supply chain processes and liability checks involved both before and during construction.

Transparency in the supply chain

Delving deeper, Hughes explains how smart contracts are a computer program based upon dependent variables. That is, a program that works on an ‘if/then principle’ to administer contracts.

"So, if the painter has painted the wall, then he requests it’s inspected. If the person responsible for inspecting the work agrees it’s of an acceptable quality, then the painter gets paid.”

Hughes says smart contracts can be used for each of these ‘if/then scenarios’, which are recorded on the blockchain.

This could provide a trustworthy way of delivering goods directly between a client and supplier, since the payment to the supplier would be staggered and liability transferred to different parties.

Hughes adds: “Take, for example, a piece of mechanical plant. A client could purchase direct from the supplier, pay a portion of the cost when it’s verified the plant has left port in the origin country, transfer liability to the shipping company, and release further payment when the plant arrives on site, again transferring liability – this time to the contractor responsible for installation.

“Then final payment can be issued once the plant has been installed and commissioned.”

Another application of blockchain in the industry could be through the adoption of the Quant currency, designed specifically for the engineering sector, says built environment consultant Arup in its 2018 Blockchain Technology Report.

“Any information that engineers produce for projects, such as specification documents or case studies, can be added to Quant’s blockchain using smart contracts, which automatically creates new Quant currency units.

The currency’s value would therefore be backed by the knowledge, skills and experience of engineers.

Individual pieces of engineering information would become commoditised, allowing external collaborators on a project, such as clients, to quickly and easily pay for specific information.”

Arup says this could usher in a “plethora” of possibilities, in terms of fee structures, as well as opening up the potential for engineers “to gain additional rewards for their important contribution to projects and society”.

Reducing corruption

Elsewhere, Andrew Anagnost, the CEO of global design software company Autodesk, which works in the built environment, believes blockchain could help to reduce corruption in construction.

Speaking at the 2018 Autodesk University event in Las Vegas, Anagnost says blockchain could be used to counter corruption by providing traceability and accountability between subcontractors on sites.

However, for a traditional industry that is slow at adopting innovative solutions, JLT’s Srivastava believes it will still be some time before the technology will be applied en masse across the construction sector.

As an example, Srivastava has seen no noticeable uptake of blockchain technologies by contractors in his home region of India, while only a limited number of firms are actively exploring blockchain elsewhere in the world.

Clearly, though, when that time comes, blockchain has the potential to revolutionise the construction industry and its supply chains.

TALK TO AN EXPERT

For more information, please contact Nisheeth Srivastava, Energy and Commercial Lead Partner at JLT Independent on nisheeth_srivastava@jltindependent.com.

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