The blockchain is a concept you’ve likely recently come across repeatedly in the wake of the bitcoin craze of late last year. It’s one of those technologies many people have heard of by now, largely owing to the recent meteoric rise of cryptocurrencies, but few people actually understand.
This technology has wide-ranging implications for how the construction industry handles contracts, payments and collaboration.
But blockchain technology is much more than the technology underpinning the digital gold rush of bitcoin, it also has potentially wide-ranging implications for how the construction industry handles contracts, payments and collaboration.
Simply put, the blockchain is a means of distributing digital information. It creates an encrypted ledger system for money to be exchanged for goods and services outside of the traditional monetary system. It stores and records all transactions, keeping all such transactions permanently available and visible to be called up and referenced as needed.
It can be utilized to take the place of escrow, which before blockchain, was the most prominent method of storing and distributing money upon completion of a contract. The blockchain is being used to create a sort of “smart contract,” embedded with specific key milestones which must be satisfied before any payment will be made to the vendor or contractor. This eliminates the need for costly middlemen, such as lawyers, and drastically reduces the chances of disputes over payments, ensuring all agreed-upon work is completed before any actual money changes hands.
Since the blockchain creates a viewable list of contract terms, essentially a checklist, this makes the payments process more transparent, and could come in especially handy in the case of construction projects involving multiple vendors with numerous contracts. With such smart contracts, every stakeholder can view the project terms, and gain a holistic view of the project’s completion status in real-time on one continuous line of data, which improves back-end workflows and reduces friction on the contract side, streamlining both payments and project delivery.
Unified Ledger System
Each task for each subcontractor involved in a construction project using a blockchain-based smart contract can essentially receive its own contract. All would be available for viewing at any time as individual “blocks,” which then get added to the chain as new transaction information or contract terms are created. Once they submit proof the work has been completed, the smart contract is considered completed and the payment is automatically triggered, all without any paperwork.
There is no longer a need for someone to sign off to release payment, which takes finance teams out of the process and speeds up payment times.
Since payments are made automatically upon verification of a task’s completion, there is no longer a need for someone to sign off to release payment, which takes finance teams out of the process and speeds up payment times. Companies can even incentivize contractors who complete jobs early, which again is all detected and managed automatically using smart blockchain-based contracts.
A typical construction project involves huge troves of data from multiple sources, some of which is subject to fudging or manipulation. Storing that data in a unified ledger system, like blockchain, brings it all together in one, unalterable place. This is similar to the way Building Information Modeling (BIM) unifies project models and the movement of materials in a collaborative workspace.