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What if you never had to submit an invoice again, but still got paid, instantly, the minute you finished your next job? That’s the promise of using blockchain technology in the construction industry.
So far, blockchain is mostly known as the underlying technology for bitcoin and other cryptocurrencies. And that’s one of the biggest challenges in getting your head around this tech for construction.
Building pros say to really see blockchain’s potential in this business, you first need to forget everything you’ve heard about bitcoin and crypto, because blockchain is much more basic than that.
In fact, it’s a lot more boring, which is what makes it so potentially powerful for construction.
What you should know
At its foundation, blockchain is really just automated bookkeeping, with a twist: Not only does it get rid of physical documents, it performs the digital paper pushing without any human interaction.
That means if you’re a contractor pouring 100 yards of concrete at a job, a gauge on your truck could signal when you’ve finished that task, generate the invoice for your work, and trigger your client to instantly deposit funds into your account.
“It becomes your back office,” said John Chappell, director of energy business development for Brooklyn-based BlockApps, which develops enterprise-grade blockchain solutions. “It knows what was agreed upon, it matches the purchase order with that action, and then tells the system to generate a payment automatically. Nobody in accounting has to approve anything.”
The blockchain system “knows” to make that payment because it pulls the data from what’s called a distributed ledger, another aspect of the technology that’s similar to bookkeeping.
If you’re the kind of contractor who has run their business for years from a spreadsheet, this should come as good news. This is because a blockchain’s distributed ledger isn’t all that different from the spreadsheet you use to track your project’s progress — except that everybody else involved in the project, from the owner down to the subs, also has access to the ledger and can add to it, while using it to monitor their own progress.
That’s where the similarity to the spreadsheet on your computer ends, though.
In order to make sure information that’s entered can’t be lost, the blockchain automatically makes copies of itself, on thousands of different computers around the world, while constantly checking to ensure each copy is in agreement with the original.
“A blockchain is just a list of transactions copied so many times that a human being cannot go in and make a modification to a ledger without causing a lot of alarm bells to go off,” says Bassem Hamdy, CEO of Santa Barbara, Calif.-based Briq, a maker of construction financial forecasting solutions. “Just imagine an Excel spreadsheet where every time you made a change, it copied itself over 100,000 times across 100,000 machines so that it’s always in synch and up to date.”
This copying and synching is what makes a blockchain ledger “immutable,” or unable to be changed down the road. Like double-entry accounting software, you can’t just go back and fudge the numbers to balance the account.
And that’s the other big difference between your computer’s spreadsheet and the distributed ledger of the blockchain. While others can see it and add to it, the one thing they can’t do is change anything they, you or anyone else entered on the chain previously.
That means if a mistake is made, it’s there for everyone to see, forever. And that’s actually a good thing.
“The immutability actually works in our favor,” Chappell said. “We now see the mistake and are able to post the correction, explanation and supporting info to a later block on the chain. This keeps the audit trail complete, mistakes included.”
The result, construction pros say, is a single source of truth, created by all the participants on a given project, that’s plain for everyone to see.
That could have profound implications in an industry where multiple parties routinely come together to work on complex projects, and often disagree on the base facts of what led to the current state of a job.
Just look at the dispute over the Purple Line light rail public-private partnership (P3) near Washington, D.C., where a judge ordered contractors to keep working after they threatened to walk off the job due to a disagreement about cost overruns.
Had a blockchain recorded every action taken on the project from the very beginning, the contractors and owner could still disagree on who should cover cost overruns, but they wouldn’t be able to point fingers as to who did what.
“Blockchain keeps everyone honest,” said David Herd, managing partner in the Los Angeles office of U.K.-based engineering consultancy Buro Happold. “You could see a distributed ledger being applied to construction contracts. It could improve the smartness of the different transactions that go on between client, design team, contractor, subcontractor and supplier, where we've got all these handshakes from top to bottom.”
So far, there have only been a few real-world use cases of blockchain in construction.
Immutable project close out. One happened when Minneapolis-based contractor Gardner Builders, with the help of Briq, delivered a digital twin of a building to its owner on a blockchain. Doing so created a record of every component used in the structure, for all time.
Single source of truth. According to Harvard Business Review, blockchain has also been leveraged by Amsterdam-based HerenBouw to create an audit trail for a large-scale development project in the city’s harbor.
Provenance of materials. Briq (then known as Brickschain) also helped Australia’s Probuild ensure the authenticity, or provenance, of panels built in China, by recording all interactions in the supply chain along the way. That’s a key step to preventing counterfeiting or ensuring quality control of materials sourced globally, another potential application for the technology.
“You can use the blockchain to verify the chain of custody of materials, all the way from a factory in India, right down to the installation in New York City,” said Stephen Mulva, director of the Construction Industry Institute at the University of Texas at Austin, which has spearheaded an initiative called Operating System 2.0 to explore the use of blockchain in construction.
Smart contracts. Mulva said the technology has also been used in residential building for payment settlement to be triggered when certain milestones are met, similar to the concrete example above.
While there are a few examples of blockchain being used in construction, and plenty of potential use cases down the road, there is yet to be a wide-scale rollout of the technology for the building industries.
One reason is the nature of construction. “Our business is pretty risk averse and conservative,” Mulva said. “Companies are really hesitant to adopt new technology. They say, 'Well, our margins are really low anyway.'”
Indeed, Briq, which is often held up as a leading example of applying blockchain in construction, is still doing research and development on blockchain, but it isn't actively using the technology in its main business, according to Hamdy.
“It'd be great if the AGC (Associated General Contractors of America) or the ABC (Associated Builders and Contractors) backed a blockchain standard that allowed everybody to run it. It needs to be an industrywide initiative,” Hamdy said. “But just blockchain itself, it's hard to sell commercially.”
One reason why involves looking at which companies benefit from the current state of affairs in construction and which would benefit from deploying blockchain.
“The crux of the problem is, Who is benefiting from blockchain?” Herd said, referring to instant payment for the delivery of materials. “Is it the person commissioning the work who has the money, or the person doing the work who needs the money? Blockchain is a technology that could facilitate a rapid transfer of money, which removes the issue of trust. But it also takes control away from the clients. And clients don't like losing control.”
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