Introduction
It is widely recognised that productivity is one of the greatest challenges faced by the construction industry. Data from the Office for National Statistics (ONS) shows that this is a long-term issue with little change in productivity seen in the past 50 years.
Index 1970 = 100 Note: Multi-Factor Productivity is the unexplained growth in output after accounting for growth in capital and labour inputs.
The Farmer Review (Construction Leadership Council, 2016) highlighted that ‘Numerous failures account for the industry’s poor productivity, including fragmented transactional and risk transfer interfaces, lack of early well-defined client briefs, a propensity for clients to change their requirements late in the process, design — procurement — construction process separation, and large-scale industry re-working and defects rectification.’
Advances in technology as the world evolves will be further embraced by the construction industry to ensure continued efficiency and sustainability. The COVID-19 pandemic accelerated the ‘digital revolution’, which saw transformation required at pace to adjust to changes in the way we live and work, and organisational, cultural and operational barriers being broken down.
Artificial intelligence (AI), robotics, cloud technology and the Internet of Things are being widely used across many industries and revolutionising how things are done. Distributed ledger technology (DLT) is another example which is growing in use, particularly in banking, cyber security, payment processes and government initiatives.
Opportunities for DLT in construction
The construction industry has several areas where DLT can improve productivity. It can also reduce uncertainty and provide greater transparency and trust than the traditional technologies we use today.
Data and intellectual property
DLT can be used as an immutable vault for project data, such as contract data, Building Information Modelling (BIM), health and safety records, supply chain data, instructions, notices, early warnings, invoices, payments and other transactions, as well as a secure registry of intellectual property.
Agency, legal and coordination cost would be drastically reduced. Furthermore, traceability, authentication and visibility of modifications and updates would be easier on the blockchain because of its structure and use of cryptography.
Procurement
DLT relies on what has been termed 'smart contracts', that is contracts whose terms are expressed in a programmable language instead of legal language, allowing automation.
However, construction projects in England and Wales are procured using a variety of contracts prescribed by the various professional bodies which represent the industry (JCT, NEC, FIDIC and ICC). These are supported by commercial law, the courts and a long history of precedence stretching back to Hammurabi of Babylonian times.
Therefore, one of the early challenges will be to bridge the gap between smart contracts and the existing legal framework. We believe this is a cornerstone of integrating blockchain into construction, and although a complex issue, it can be solved through a combination of translation and AI. Once this has been addressed, blockchain can transform the procurement process to become more seamless, reduce transaction times and ‘atomise’ complex multi-party supply chain relationships.
Blockchain could support records of procurement criteria, parties’ submissions, assessments, decisions and outcomes. Once in contract, the parties can then rely on native payment systems that would not need third party verification or backend to process transactions. The smart contract will authenticate and validate both data and financial transactions on its network, in real-time, with full user accountability. This would reduce costs associated with administration of payments and also generate electronic documents, as opposed to the traditional process which includes a reliance on hard copies of documentation and authentication by third parties.
Late payments and related cash flow issues have long been problems for the construction industry. Automation and enforcement of payment received for work completed according to the project framework would help to resolve this and likely prevent disputes arising.
There is also opportunity for enhanced governance; for instance, the building model could be used with parties working to match physical construction to the prototype included in the contract. Any deviation from the original design could result in change, and by incorporating BIM, payment could be awarded as the project is constructed against the model.
Collaboration
The blockchain has potential to enhance transactional collaboration to increase efficiency and cut cost. Everyone on the network sees the same information and updates in real time.
Because DLT verifies and authenticates information, legal entities have more time to deal with operational interfaces, at the heart of successful delivery. Furthermore, parties can gain access to the right information, skills, materials and equipment at the right time, reducing the need for CAPEX reserves and operating cost.
The trusted network aspect of DLT, which is less prone to manipulation, creates opportunities for equipment sharing arrangements. We are seeing this in the peer-to-peer sector, including car-pooling and bike sharing, allowing businesses to pay for only what they use and when they use it, rather than bearing ownership costs.
A blockchain powered pay-as-you-use system will complement a just-in-time system in construction. The blockchain can support an industry-wide system for planning and tracking projects from a regulatory and governance point of view.
Collaborative working
Collaborative working is on the increase as companies, especially those in the construction and manufacturing industry, have joint projects and manufacture bespoke equipment which requires cross functional teams and inputs.
The blockchain would provide a secure network which is accessible but controlled and governed by smart contracts to ensure credibility and integrity of information provided. The beauty of the blockchain is its promise of a real-time distributed ledger and its ability to replace batch processing with instant processing of every single transaction or update which can then be grouped into a block, signed using cryptographic technology and stored safely.
Project execution models such as BIM and just-in-time could thrive on the blockchain network as they rely hugely on information networks. The blockchain would remove third party verifications and eliminate much cost associated with human interface. Teams can work on the same documents in a real-time, digital environment, supported by smart contracts and cryptography for validation and authentication.
Supply chain and logistics
The technology in blockchain can enhance supply chain security, reduce fraud and cut bottlenecks that arise from third party verification. Logistics currently relies on much documentation that is typically faxed-based or posted, including bills of lading, invoices and other paperwork authenticating shipments. However, the blockchain would automate these documents and consequently increase efficiency, reduce delays and slash the cost associated with managing logistical operations.
It would also allow for the tracking of materials throughout an entire construction project; tracing physical materials from origin to destination, improving transparency and allowing greater awareness of the provenance of materials, important for quality assurance, health and safety, material standards and sustainability.
In addition to management, another area of the supply chain that the blockchain can re-engineer is financing. Invoice settlements could be automated over the blockchain for members of the network, without the need for a third party, drastically reducing transaction times and minimising delays across the supply value chain.
Key benefits of DLT for construction
Accuracy
Transparency
Risk management
Compliance
Cost effectiveness
Increased collaboration
Many of these benefits have recently been realised on HS2. Howard Mitchell, head of innovation at HS2, explained to New Civil Engineer that blockchain has helped with material origination, smart contracts and payment automation. This has led to an increased speed in payments by 50-60 percent, and significantly reduced the number of business processes for timesheets and invoices.
Summing up
There is huge potential for DLT to play a part in overcoming long-standing issues in the construction industry, helping productivity and sustainability.
Our proposal is to collaborate with investors, clients, project managers, designers, builders, academia and DLT specialists to develop solutions for the industry’s participants and a platform for the industry. The DLT4 consortium is comprised of AG Midgley Ltd, Trowers and Hamlins LLP and INDUSTRIA. If you are interested, please contact:
This article is based upon a report titled the ‘Distributed Ledger Technology in the Construction Industry’ written by Alan Midgley, Damian Kozak and Dr. Barry Childe while head of DLT at HSBC.
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