Introduction: Blockchain Technology For Construction
Blockchain technology is mostly linked to the operations of digital coins like Bitcoin and Ethereum, however specific applications go beyond cryptocurrencies. One of the most favorable industries for the application of blockchain technology is construction. Construction is badly known for its long supply chains, ineffective practices, excessive expenditure and poor accountability. The picture above shows the pain as there are opportunities to enhance project management, contract management, and supply chain management through the implementation of blockchain technology.
What Is Blockchain Technology?
In simple words, it is a distributed digital ledger that allows transactions to be recorded across a number of computers and is demonstrably safe from interference as well as tampering. The record of each transaction is kept in a “block” that is chronologically appended to the preceding block forming a “chain.” This system does away with the central bank controlling the economy since users can perform transactions without any third parties as intermediaries.
The construction sphere can derive benefits from distributed ledgers and smart contracts technologies in coordination of processes such as bidding, remuneration to contractors, procurement of items and reporting on the compliance of regulations.
Key Applications of Blockchain in Construction
1. Smart Contracts
Building on the phenomenal advantages offered by smart contracts in construction is exactly how one can define how ‘transformational’ this particular technology is. Smart contracts are also defined as contracts that are programmable; the terms of the contract are written in code and not as text. When the parameters of the contract are satisfied, the contract virtually performs itself because this is just a metric programmed within the contract. This negates the need for people at the center of contracting such as lawyers and project managers.
Benefits:
Automatic Payments: Payments are made when certain milestones are achieved as specified in the smart contracts, thereby minimizing the chances of delays or disputes.
Transparency: All the parties to the contract have access to the contract’s details and to the proceedings at every stage which makes the parties accountable to each other.
Cost savings: Administration costs are bound to be lower with fewer facilitators in the process.
Example: Using the example of a construction company, funds for a task such as laying of a foundation can be automatically released using a smart contract when someone else has accepted completion of that task.
2. Supply Chain Transparency
As with any construction project, this is also dependent upon a large network of suppliers and subcontractors which when operated, becomes very difficult and unhelpful due to so many operational complexities causing time and resource wastages. Implementation of blockchain indeed creates a picture of a transparent supply chain as it ensures that every material from steel to concrete is tracked from its source and how it gets delivered to the construction site.
Advantages:
Practical Responsibility: As materials are being delivered, there is the possibility of tracing all the materials at a real time hence the risk of forging or replicating materials is very minimal.
High Effectiveness: Because all of the participants within the supply chain have access to the progress status, it also facilitates timely delivery of materials as well as tracking of all delays through the use of blockchain.
Sustainability Monitoring: All materials being used by any construction firm can be tracked on whether they are environmentally friendly or not.
Example: A construction company especially from developing cultures can apply blockchain and tracking in procuring building material by obtaining only materials which qualify a certain level of required certification in terms of eco-friendliness.
3. Project Management and Collaboration
Since the construction includes many stakeholders, blockchain can reduce the construction project management complexities by acting as the trusted and reliable place of information. It is able to keep track of project schedules, budgets and milestones which will keep each party well informed.
Advantages:
Up-to-Date Information: General contractors, civil engineers, architects or anyone else working on the project can get one instant update of changes pertaining to the project.
Traceability: Nothing goes without being documented on the blockchain, every possibility of changes should take place either on the construction or financial aspects is illusory.
Reduction of Disputes: The blockchain reduces the number of disputes or delays in projects by having rules on the contracts and implementing payment schedules on the due dates.
Example: Blockchain can be helpful to set timelines for the project while preventing the release of certain funds until certain project goals are reached or even set specific milestones.
4. Regulatory Compliance and Permitting
Construction projects involve abiding by several local and national rules and laws, which is often tough. Most of the necessary documentation, certifications, and approvals that are typically required for the compliance and permitting phase of construction projects can be stored in a secure environment and retrieved in normal circumstances from a database.
Advantages:
Enhanced Participation: All approvals from regulators, building permits, and standards safety certificates can be placed on the block chain permitting immediate retrieval and confirmation of necessary documents.
Centralized Monitoring: The dispatching of the disbursements or the completion of milestones of a project can be conducted and ensured by the use of smart contracts only when every regulatory issue has been dealt with.
Document’s Security: No document can be changed or created under the blockchain, hence documents’ accountability cannot be contested without risk of fraud/mlac.
Example: All permits and safety certificates can be processed by a system based on blockchain technology generated and stored in a distributed ledger so that any papers are relevant and can be confirmed at any time in the future.
The Benefits of Blockchain Technology for Construction
Increased Efficiency
One of the ways in which the efficiency of construction works is enhanced is in the elimination of the third party as blockchain technology cuts most of the intermediary out of construction works. While smart contracts eliminate manual operations, clear supply chains guarantee that the materials are available and in the right amount when they are required.
Cost Reduction
Cost management is also achieved through the introduction of blockchain in that it minimizes the work involved with tasks that had to be done with manual work such as bringing contracts into engagement or verifying payments. In addition, because of the enhanced management of the supply chain, firms are able to escape unproductive time and material deficits.
Enhanced Transparency
The use of blockchain is such that every transaction and each and every process that makes up the construction project has a record which is accessible to all. Such openness helps to mitigate the likelihood of the disputes and cases of fraudulent activities in the construction environment enhancing trust between the various parties.
Improved Accountability
A situation where the use of the blockchain is being advocated and information over action is recorded from the achievement of project milestones to purchase of materials is enhanced accountability in the case of construction. When one is aware that their actions have been recorded on an unchangeable ledger, subcontractors and suppliers are less inclined to break the rules.
Better Collaboration
In construction, architects, engineers, contractors, and suppliers are just some of the stakeholders that are usually involved in any project. By eliminating such challenges and making critical information insertion available through process incapability, safekeeping services make unification of CRM management easier.
Challenges to Implementing Blockchain in Construction
Even though blockchain is burgeoning with lots of opportunities for the construction industry, the follows are some of the barriers to its implementation:
- Technological Adoption: There seems to be a slow adoption of new technology in the construction sector. There might be an issue with educating the stakeholders about the new technology as well as training them to use it in a proficient manner.
- Integration with Existing Systems: Much of the projects in construction companies are conducted using management and procurement in the legacy systems. There are probably some costs that would be incurred in integrating this technology within the existing systems.
- Regulatory and Legal Framework: It is possible that regulatory bodies do not yet fully recognize both smart contract and record on the blockchain which defeats the purpose of applying them in legal disputes or compliance proceedings.
The Future of Blockchain in Construction
The construction industry, too, is on the way of digitization and therefore, blockchain technology will usher in more efficiency in processes and promote better partnerships. Considering the continuous growth of Building Information Modeling (BIM) and Internet of Things (IoT) technologies, a new paradigm can be established where there is a completely industrialized and digitally integrated construction centered on blockchain.
In this case, there will be a completely interconnected construction industry with different ecosystems existing in a blockchain network where every project, contract and materials used would be captured and verified in a distributed ledger. Not only will this save costs and enhance effectiveness but construction processes would be more transparent while being abandoned to more eco-friendly approaches.
FAQs: Blockchain Technology For Construction
How can construction projects be made more transparent by using blockchain technology?
Presumably, it would be relevant to mention how blockchain can assure completion at the necessary cost and time, given that all outstanding issues – how much a specific work item will actually cost, who does it and when, how materials are delivered and what final deadline is acceptable are recorded and visible in real time. Commercial construction works, in this regard, involve a great number of parties: clients, contractors, sub-contractors, managers, suppliers, etc. The quantum of fraudulent activities, disputes and inconsistent accountability throughout a project cycle is considerably reduced.
What are smart contracts and how do they work in the construction industry?
Smart contracts are programmed agreements which automatically execute the agreed-upon terms once conditions are met. In the industry construction, smartphones can be used to enhance payments, enforce contracts, and verify tasks. For instance, once the completion of the foundation as one of the milestones is satisfied and verified, funds can be automatically paid to the satisfaction of a sub-contractor using smart contracts. This cuts down the time taken, brokers and the processes are well geared towards the right constituents.
How blockchain can help in the management of construction supply chains?
The answer to this question is to detest as blockchain can add a great value when managing the supply chain ordinary. Managing the supply chain can be improved by the way all the stages are performed regarding the material people buy, where they come from, how they are shipped, and how they get to their destination. It helps prevent fraud, guarantees delivery of materials on time, assists in checking sustainability and regulation compliance.
What are the factors that limit the acceptance and use of blockchain in the construction industry?
Because of the preceding reasons, the following are the main challenges faced:
Technological Learning Curve: Official support is needed since many construction professionals have to be taught and educated on the subject of blockchain technology.
Integration with Existing Systems: Many construction companies are used to utilizing some older software and therefore this can prove a tiresome and costly affair to make it compatible with the blockchain platforms.
Regulatory and Legal Barriers: There is no uniform legal recognition of smart contracts and blockchain records and it may run several geographical boundaries which may limit the full incorporation of these technologies.
Initial Costs: In the long run, it is expected that assets would be effectively displaced because of eventual cost savings through the use of the blockchain system. But there are high expectations of incurring high directed beat up and implementation costs.
Do you believe that blockchain is applicable to small construction projects or should it be left for the elephants in the room?
In this regard, blockchain technology can be useful for projects of both types. When it comes to the larger projects, the advantages of blockchain would be more discerned because of the high level of detail that accompanies it, however, even smaller projects would still reap some of the benefits this technology brings as regards, speeded up processes and openness. With regard to small building firms, payment processes and monitoring of supply chain activities using the blockchain will alleviate time wastage, reduce operation costs and foster confidence in customers and suppliers.
Conclusion: Blockchain Technology For Construction
Blockchain technology offers numerous advantages for the construction industry, including, but not limited to, automation of contract management with smart contracts and enhancement of supply chain as well as regulatory compliance. Whereas challenges to adoption persist, one cannot deny the fact that blockchain has the ability to bring about the transformation of the construction industry. Moving forward, it is apparent that those who will be at the forefront of blockchain adoption and integration are construction companies.
Though there are more barriers to the general adoption of blockchain in the construction industry, the future will be different and the industry will surely digitize further thanks to the internet of construction Many projects will be more efficient, transparent, sustainable, and long lasting if the construction industry adopts this technology.
