Blockchain in Construction
The burgeoning technology explained in simple terms
We’ve seen construction make headway toward going paperless and have witnessed a revolution in collaborative processes and workflows; we’ve even seen AI, in the form of driverless heavy equipment, get a foothold in the industry.
The next big thing to undergo radical transformation could very well be contracts—the bane of existence for many in AEC, from owners and architects to GCs and subs.
Blockchain, the technology behind the cryptocurrency Bitcoin, is making this possible by allowing for digital contracts, which are eminently traceable and transparent, that execute upon certain conditions being met.
IBM and Maersk have developed a blockchain system called TradeLens to institute blockchain on cargo ships. This could have implications for construction, as so much of the industry is beholden to global supply chains.
Additionally, global construction giant Arup has recently held a conference and published a white paper describing some of the potential benefits that blockchain could bring when incorporated into BIM technology.
You may have heard about blockchain before and found it confusing—you can dive deep into the technology and you’ll probably just emerge more confused. But it’s not that hard to understand on a very basic level.
Let’s say you’re a small manufacturer based in Seattle, Washington, called Emerald City Pods. You make modular bathrooms and have entered into a deal with an Atlanta-based contractor named Peach Builders to supply 50 pods for $500,000.
Peach pays a deposit of $50,000, with the remaining $450,000 due upon receipt of the units—that is, after they’ve been manufactured, shipped and finally received in Atlanta.
You’re excited. This is a big order and you know that Peach has just gotten several large contracts for hotels and hospitals. It could be the start of a great relationship. You have your factory working two shifts, and you make sure you get the pods finished on schedule.
You ship them, and a week later Sheryll from Peach Builders calls and says, “Pods received! Great doing business with you. We’ll get payment out to you shortly.”
According to the contract, Peach has to pay you within 30 days. But a month goes by. Then another month. You keep calling, but it turns out Peach has a lot of expenses, and you’re not really top of mind. Peach is a billion-dollar company; you’re a small fry.
Sheryll doesn’t take your calls anymore. So, you wait. And wait. You cancel the vacation you’ve been planning for years. Maybe you even have to lay off some workers.
Finally, six months later—and five months overdue—Peach sends you … $400,000.
That’s $50,000 less than you’re owed. They tell you they’ve deducted $50,000 due to some damaged units—damage they claim occurred before the units arrived in Atlanta, which you know they never mentioned at the time, although they claim they had a phone conversation with you on the subject.
But there’s really not much you can do. Peach knows you’re small, and they know that you know that if you take them to court, a) you’ll spend an arm and a leg on litigation and b) they’ll never give you their business again. You eat the loss and wonder if it’s worth doing business with them again.
That’s the old way of doing things.
Imagine the same scenario, except at every single point in the contract—from the initial signing to the receipt of the deposit to the shipping and finally to Peach Builders receiving the pods—there’s an electronic ledger that’s keeping track of all the steps.
What’s more, that electronic ledger is distributed around the world to tens of thousands of people, who each retain their own unique, yet identical, set of facts about your contract, without knowing your identity.
That’s very important. You have a username or an ID that nobody else knows unless you want them to—but which, if there’s a conflict, you can use to retrieve pertinent data. You can effectively remain anonymous.
Now, when Sheryll signs the ledger saying she’s received the pods off the trucks and that she’s counted them and they all look good, that information is distributed worldwide (again, in discrete form).
The distribution network is called the blockchain—it’s a “chain” made up of small “blocks” of data (your contract details)—and it has a digital trace that nobody can alter. Once a condition of the contract is met, the response is automatically triggered.
In the example above, once Sheryll registers receipt and doesn’t file any complaints about damage, payment within 30 days is triggered. As owner of Emerald City Pods, there’s no pleading, no unanswered phone calls, no layoffs.
The power dynamic is balanced, because a) the contract has been recorded, along with proof that conditions have been met; b) these facts cannot be disputed nor can the ledgers be hacked, since they are distributed far and wide, not just in a few places; and c) payment is automatic once the conditions for payment have been met. Once Peach signs that everything is alright, the company can’t hold up payment. It’s automatic.
Now expand the benefits realized by the one manufacturer in our example by the benefits potentially experienced by tens of thousands of subcontractors and manufacturers, and you can begin to understand the promise blockchain technology has for just this one aspect of business.
Contracts aren’t the only area of focus. Today there are initiatives underway exploring how blockchain technology could be used to improve logistics, manufacturing, digital signatures, building maintenance, project management, safety and regulatory inspections. Blockchain inherently creates trust and levels the playing field.
That sounds like a really good start for any innovative technology in any industry—but especially in construction.