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Blockchain in the Construction Industry

Wednesday, 04 October 2017

For those who have never heard of a blockchain, or have little to no idea what they do, they can be simply described as a database stored in many places (rather than just one location) which chronologically and securely records data. Whilst that may sound very ‘techy’ and far removed from the bricks and mortar world of construction, this technology could potentially change the way that projects are procured and administered, and lead to higher efficiency and better end products.


Perhaps the most eye-catching of the ways projects could be improved is the implementation of smart contracts. A smart contract is an algorithm that can, in theory, administer itself. This is achieved using the if/then principle. A basic scenario of this principle in action could be: if a consultant appointment is completed, then warranties in favour of beneficiaries will be issued for signature. By using the algorithm rather than leaving it in the hands of busy contractors and consultants, a degree of scope for human error and therefore uncertainty can be removed. This should increase trust in any given contract, as all parties can be assured that ‘x’ result will happen once ‘y’ conditions are met. It will also keep data on all actions that have been taken; giving those involved a complete record of what has been done, by whom, and at what time.


In the context of the construction industry today, the most useful change that smart contracts could bring about is the automisation of the payment procedure. As it stands, the Housing Grants, Construction and Regeneration Act 1996 (as amended) governs the administration of payments. Whilst the application of the Act becomes clearer as more cases pass through the courts, there are still plenty of grey areas. Smart contracts could potentially help reduce grey areas; parties will know exactly what conditions need to be met before payment will be sent, and that the payment will be sent via the smart contract, again taking some of the risks of and scope for delay out of the payment process.


Another improvement to projects that smart contracts could bring will be the way that Building Information Modelling (BIM) is used in conjunction with them. To use another example, through BIM the professional team will know how many ‘widgets’ are used in each stage of construction of a project. Therefore, if the BIM is incorporated into a smart contract, it will be possible to automatically order more ‘widgets’ as soon as or even just before the end of a stage is reached. Along with a reduction in delays due to automatic ordering, this could also lead to reduced waste as materials can be ordered in more precise numbers.


I have only briefly covered smart contracts and BIM in this article, but there are many more potential benefits to blockchain. It will hopefully not be long before we begin to see this exciting new technology used, applied and adapted to improve the building process from top to bottom.


Author: David Kingsford, October 2017

 

If you would like to contact our Construction Unit, please contact:


Head of Construction, Jan Grimshaw, e: jan.grimshaw@daviesandpartners.com;


Solicitor, Joanne Pritlove, e: joanne.pritlove@daviesandpartners.com;


Trainee, David Kingsford, e: david.kingsford@daviesandpartners.com

 

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