As developers find new uses for smart contracts in construction, leaders in that industry are using it to get ahead of competitors.
What you will learn
The construction industry can use smart contracts to streamline its byzantine payment process.
The use of apps in the industry is growing and the use of dApps is next in line.
Concerns about legal issues and potential loss of construction jobs continue to be roadblocks.
Since the popularization of blockchain technology, services like smart contracts, DeFi, and Web3 are building trust and revolutionizing digital and tangible services alike. Today, the use of smart contracts in construction has the potential to change the industry from the ground up.
Progress is notoriously start-and-stop in construction as projects are delayed and tripped up by financial transactions, supply chain issues, and poor coordination between subcontractors. Small- and large-scale builds alike leave robust paper trails of receipts, construction contracts, warranties, and more. Transitions between multiple subcontractors offer ample room for miscommunication and mistakes to cause changes to the build that weren’t in the customer’s original vision.
Smart contracts can increase productivity and streamline construction projects through general job site organization, managing pay applications, and coordinating equipment and supplies. Innate challenges impede the use of digital programs for such tactile work, but blockchain technology continues to expand and become more accessible for real-world industries.
In such a competitive industry, this new technology could propel risk takers ahead of their competitors by improving customer service and satisfaction. In the battle to win bids, speed up projects, and streamline payment processes, those willing to navigate the blockchain may gain a significant edge against their competition.
In this article we will look at some of the ways smart contracts are being used and developed for the construction industry.
A smart contract is a digital contract, built and agreed upon by the parties involved and stored publicly on the blockchain. It is self-executing, creating outcomes in an “if/then” fashion. If, for example, the timber framing of a home is finished by August 1, then payment will be automatically delivered to the company.
Builders and customers can use blockchain smart contracts for complex projects. Each deadline or milestone in a project can have a specific smart contract for it. Once the criteria of a construction process are met, payment can occur automatically. This would be a major advance for the construction industry, where the need to submit payment applications time after time can involve a great deal of paperwork going back and forth before anyone gets paid. An automated process would go a long way toward speeding up cash flow.
A fine or an interest penalty can be built into a smart contract in case one party falls short. These electronic agreements also can guarantee that there is money to fund the job. It can be written in the code for funds (or some form of collateral) to be stored in a crypto wallet, accessible for automatic payments.
Here's an out-of-the-box example of how smart contracts can help the industry. Construction companies increasingly use drones, particularly for inspecting hard-to-reach spots.
Neuron, a leader in British aviation technology and air traffic infrastructure, has leveraged the Hedera network, to demonstrate the capability to safely track the movements of military, enterprise, and government drones. Neuron makes drones and aircraft visible to one another, an essential service for the safe use of drones. Should an accident occur, the immutable data records that Neuron generates on drones can help resolve disputes between parties or in court.
Hedera can handle thousands of transactions a second at a predictable, low fee. Also, as a public ledger, Hedera enhances Neuron's data integrity over a centralized database or private ledger.
As we've noted, construction’s payment processes are very complex, time-consuming, and unique to each build. Pay applications require builders to exchange lien waivers for payment. Contractors must compile and submit daily progress reports, photo evidence, material tracking, and more. In addition to this robust documentation, most construction companies still use slow, paper-based 20th century payment systems for their employees.
The paperwork required for payment applications can be live on the blockchain, continuously managed, verified and kept secure. Utilizing blockchain technology, all the information of a build can be uploaded and immediately accessible in a more efficient process. Data on lien waivers, employee clock-in times, weather information and rental equipment fines can be stored on the distributed ledger. If any dispute arises over services, the information provided to the blockchain is fully secure and valid.
Apps for job site coordination, like PlanGrid, Fieldwire, or Accubuild, aren’t new to the construction industry. They collect and consolidate data of a build and then redistribute it across whatever devices have their app.
But as new “dApps” — or decentralized applications — are developed for the field, usability can improve. From a mobile device in your pocket or tool belt, you could clock in for work, snap photos of site progress, record transactions, or sign for product delivery. And all that information would be directly uploaded to the decentralized ledger.
It’s not just you or your site workers inputting data. dApps and oracles, data-gathering tools that upload to the blockchain, can collect information continuously, detailing what is done on site, where, when, and by whom. This can enable fluid transitions between contractors and help with the flow of deliveries. Contractors could also use dApps to coordinate changes to project plans.
Using dApps, a smart contract can coordinate when new supplies need to be ordered using camera monitoring, scales, and sensors. For example, when a product weighs beneath a certain threshold on its scale, a smart contract will automatically reorder. Or when a delivery is made, site cameras “see” its arrival and contribute that information to the blockchain. When bad weather stops work for a day or two, the smart contract could extend work deadlines accordingly. Thousands of data points about a build, which might overwhelm any site organizer, can now be collected, time-stamped, and arranged on the blockchain with ease.
Specific smart contracts can be designed to cater to whatever a site needs, from goods deliveries to rental equipment use. A contract clause could stipulate that “If the foundation is not finished by March 30, then we will renew rent for the cement mixer for two more weeks.” If March 30 rolls along and it’s unfinished, the smart contract will automatically trigger a renewal of the rental, with no interference or human coordination.
Using dApps, all subcontractors can access original build plans. Subsequent changes can be immediately updated and distributed to everyone. Customers will also be able to stay aware of any issues or delays from supply issues, tracking progress from off-site.
Transparent and consolidated storage of documents also makes it easy for inspectors to find code agreements and various information needed to clear the property for inspection.
Today, an estimated 95% of data on property construction is lost with the first owner. By using secure blockchain storage, all the information about products, quantities, warranties, receipts, and prices can be accessible to subsequent owners after a transfer of sale. From paint colors to plumbing fixes and the type of LED bulbs used in the upstairs bedroom, future owners will know how to best take care of their home, from the ones who designed and built it.
One of the biggest issues raising concern about using smart contracts in construction work is seen with other technological advancements: fear of job loss.
If dApps are as effective as they sound, would that make office or field site managers obsolete? Not if we look at current scalable practices for smart contracts in construction. Information will be stored on a blockchain, but the information must be uploaded by someone. Although the need for human oversight is minimized using these systems, it is still a need. Tracking and payment apps are the most efficient means to save time and money in the construction industry. Workers who understand their company will remain invaluable, but in a new way, as they master tracking and payment software.
A second major issue is the legal standing of the smart contract. For example, what if there is an error in the code?
Smart contracts do come with their inherent risks. It’s critical for smart contracts in business to have firm legal standing, which varies country-to-country. At present, some, but not all, states in the U.S. have validated legal smart contracts.
It’s also important to leave room in the code for dispute resolution and resolving errors. Coding is a human process, and can experience human error. If there’s misrepresentation in the coding process, you want your smart contract to be prepared for it and protect you.
For managing information on this scale and building complex smart contracts, the Hedera Network offers the Hedera Consensus Service to log and order information in real time. Hedera offers low transaction costs, fast speeds and performance, and high security through ABFT.