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Blockchain Technology for the Construction Sector

Blockchain is such a transformative technology that can affect just about every business process that requires a trusted environment. Construction is a sector where trust is much-needed. An industry that is undergoing an important transformation with the introduction of digital technologies. On the construction site blockchain can improve the reliability and trustworthiness of construction logbooks, works performed and material quantities recorded. In the facility maintenance phase, blockchains main potential is the secure storage of sensor data which are sensitive to privacy.

The construction industry has regularly been cited as one of the world’s most fragmented, high impact sectors and has regularly been challenged to improve its efficiency, productivity, and to embrace the opportunities presented by emerging technologies.

Blockchain and Smart Contracts

The construction 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.

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. It is a rules-based piece of code stored on the blockchain which automatically self-executes on receipt of the required data.

Smart contracts are used to execute an action when criteria are fulfilled. It is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. In addition, it allows the performance of credible transactions without third parties.

Smart contract is another promising application of the blockchain technology that will have to be tested for its applicability. All the contractual conditions that currently exist on a piece of paper will have to be coded. Then the series of ‘if-then’ conditions will self-execute on meeting the conditions and approval by the concerned. This would mean reduction in waiting time for the payment and thus mending out a major hurdle from the perspective of a beneficiary.

With the number of cryptocurrencies that are under circulation in the market, one may unmistakably consider that the finance sector did succeed in implementing the technology. Although the success did take a solid number of years to be recognized, it certainly has tipped the scales in favor of blockchain and has made the other industries to look at it as a possible solution to the challenges faced. The diagram below shows the key benefits of using smart contracts in the construction industry.

Blockchain and Smart Contracts
Image taken from https://www.ice.org.uk/ICEDevelopmentWebPortal/media/Documents/News/Blog/Blockchain-technology-in-Construction-2018-12-17.pdf

Procurement and Asset Life-Cycle Management

Asset Lifecycle Management is the process of optimizing the profit, generated by your assets, throughout its lifecycle. The lifecycle of an asset usually contains several sequences of stages. In simple term lifecycle of asset management is nothing but the life of an asset, from its first establishment through its acquisition, operation and any maintenance or upgrading. Asset lifecycle will allow the company to figure out the desired future condition and help make decisions about attaining this condition in terms of both tasks and costs.

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 the 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. 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.

Asset management is often one of the last options to maximize cost savings in a competitive global economy due to its intrinsic complexity, especially in many developing countries. Asset management in the process industry must consider the commissioning, operational and end-of-life phases of physical assets when commencing a design and implementation project.

An asset life cycle management (ALCM) model is subsequently proposed for assets in the process industry, which integrates the concepts of generic project management frameworks and systems engineering with operational reliability in order to address these inefficiencies.

Procurement and Asset Life-Cycle Management
Image taken from https://www.guru99.com/initiation-phase-project-management-life-cycle.html

Challenges to implementation

The technology is new and there are several early challenges to tackle, but the potential of reshaping the industry for the better is simply too great to miss. Construction is one of the largest industries in the world and the infrastructure it creates is the backbone of economic growth and productivity. It’s our inherent responsibility to facilitate its digital transformation to make it ready for the challenges of the 21st century.

Blockchain is a business tool, not just a new technological innovation, which has the potential to facilitate a paradigm shift in the industry towards effectiveness, accountability and transparency.

We have demonstrated the potential of this technology through the examples presented in this report and how this immutable shared record together with smart contracts can affect not just payments, project management, and the procurement of construction projects, but the future development of BIM as well.

Payment and Project Management

Payment systems are part of the Control Procurement process in project management. As part of the bigger process that involves the monitoring and dissemination of payments to the seller, payment systems is defined as the provision and tracking of the invoices from the supplier. It is also a system that provides payment for the products and services rendered by the supplier thus the name.

Payment is only made once there is a certification of satisfactory work provided by the authorized person (usually the project manager) from the project team. The payment systems allow project managers to determine which deliverables have already been paid for. And since the system needs to be tracked and controlled, all payments made to all project management processes should be documented in accordance with the terms stipulated in the contract agreement.

In the construction industry, payment can be the source of a great deal of controversy. Not only are the sums involved very large, the duration of projects very long, but the total amount payable tends to change over time. In addition, contractor, subcontractor and suppliers face considerable risk when pricing construction projects and optimistic pricing or late payment scan quickly cause cash flow problems.

A construction project manager has to obtain a variety of skills and competences in order to navigate through the project and to establish a functional connection with the numerous teams. Construction projects have a continuous need for alterations and in that sense project management is key to the stability of the whole procedure.

BIM and Smart Asset Management

BIM methodology can introduce a greater degree of transparency, cost certainty and on-going use for clients when dealing with both capital and operational requirements. BIM from the outset allows project teams to collaborate, this has been seen to take hold particularly in the design stage of the project, and is increasingly capable of supporting and driving collaboration in the construction and through to operation.

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Nicky. (2019).” Asset Management Lifecycle Optimization & Procurement Management”. Retrieved from https://itassetmanagement.in/asset-lifecycle/, accessed 21/06/2019.

Tea Min Lyn, GDSCM. (2019). “Five Application of Blockchain Technology For a Digital Supply Chain”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/five-applications-blockchain-technology-digital-supply-chain/, accessed 21/06/2019.

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Tai Cheoh Wei
Tai Cheoh Wei
Tai Cheoh Wei has substantive years of experiences in the field of procurement, inventory planning, and control, and specifically in the construction industry. Cheoh Wei holds the Diploma in Procurement and Supply Management. She is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Graduate Diploma in Procurement Management (GDPM) in July 2019 at SIPMM Institute.

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