Construction: An entrenched business

August 30, 2018
Chris Wheal

Blockchain could be the foundation for the next big building innovation. When it wants to innovate, the construction industry can pull off some stunning successes. People still marvel at how the Pyramids were built, 4,500 years on. Even Stonehenge leaves people scratching their heads. More recently, techniques have evolved to bring us the skyscraper in all its forms. Construction is an industry with some serious smarts.

But, when it comes to the more mundane processes that keep the whole operation running, the construction business still lags far behind the rest. Information exchange and paperwork just doesn’t seem to be its thing, and its unwillingness to move with the times costs the global construction industry the GDP of Canada every year.

The McKinsey Global Institute researches digitalization levels across various sectors and has found construction languishing at the bottom as one of the most resistant to change. This has a profound effect on productivity. The organization suggests that labour productivity growth in the construction sector has averaged only 1% per year over the past two decades. That stands in stark contrast to the 2.8% across the total world economy, representing a $1.6 trillion annual deficit.

This productivity lag stems from a highly fragmented industry. A wide variety of stakeholders must work together on complex projects. These include not only building owners but also engineering, procurement and construction (EPC) companies, architects, engineers and construction (AECs), fabricators, building materials vendors, contractors and the many subcontractors that they deal with. 

All of this leaves owners and buyers trying to navigate opaque marketplaces. It creates poor project management and a lack of innovation that cripples the industry, McKinsey says.

The analyst company points to several areas for improvement. Construction companies could rethink contractual frameworks, improve procurement and supply chain management, and improve on-site execution. Digital technology and advanced automation are key recommendations that tie all those things together. Could the blockchain help?

Putting BIM on the blockchain

Another area in which blockchain technology could help construction stakeholders is in improving design and construction workflows and reducing the friction between them by streamlining the exchange of information. The Construction Blockchain Consortium (CBC) highlights computer-supported collaborative work as an area ripe for innovation, as is building information modelling (BIM).

BIM involves producing digital representations of a building’s physical characteristics. By working from a detailed, accurate representation of a building’s makeup and function, a range of loosely-coupled stakeholders can make decisions more quickly and productively during design, construction and operation.

This digital building model is a reference point for everyone. Construction work is done in stages that must accurately reflect the model once completed so that the owner can release funds for the general contractor.

One of the challenges facing building information modelling today is tracking who contributed what to the model and when. All stakeholders have to agree on these changes because millions of dollars in revenues can rest on decisions made using that data.

Blockchain technology’s ability to store data that is both immutable and agreed by all participants makes it a suitable technology to manage this BIM data. Some initiatives are already taking shape. In France, Bimchain is developing blockchain-based technology to serve this use case. It offers overlapping use cases to different stakeholders.

In Bimchain’s solution, architects get to preserve their intellectual property and limit their liability in the case of future disputes. Building control officers get control over certified documents, and insurers get better data about the properties they are underwriting. The client reduces their project risk, and the facilities manager for the completed building gets a certified building history. Common to all of these stakeholders is a paperless process that speeds up the flow of information.

An end-to-end accounting system for construction

Beyond simply singing from the same hymn sheet, blockchain technology could help to reduce fraud and improve quality in building construction. 

The key could be smart contracts, which would formalize the approval procedure for stages in the construction process. By moving building inspections and sign offs onto the blockchain, project milestones could be subject to multi-party approval which could be digitally documented and time stamped. 

Marrying this with IoT sensors that could measure water pressure or airflow, for example, could enable some aspects of quality control to be automatically gathered and digitally communicated.

In an ideal world, contractors and their subcontractors could even be paid automatically as construction phases are approved. In practice, though, it’s likely that many construction contractors would prefer hard cash than a tokenized asset. 

Supply chain blockchain

Other players hope to make project management and construction accounting more efficient with blockchain technology. 

Construction supply chains include many products and materials vendors, along with the contractors that buy from them. Recording all the transactions along that chain is an important part of a building’s lifecycle. Yet with so many different back-end systems and manual processes, this is always been a challenge.

US firm Brickschain has a blockchain-based system for stakeholders including facilities owners, contractors and facilities managers. It enables all parties to write every transaction related to a building into the shared ledger, ranging from the sourcing of foam insulation to the installation of a light fixture.

One use case that Brickschain suggests is asset provenance. If a material is found to be hazardous, a blockchain-based accounting system with unchangeable data would enable a facilities owner to check their own liability and arrange remediation measures.

Rome wasn’t built in a day

While some work painstakingly on the technologies and complex commercial relationships to support these concepts, there are already far more futuristic ideas floating around. One consultant envisions direct contractual relationships that use blockchain technology to disintermediate business relationships in the construction industry.

In this scenario, he suggests that a building could have its own decentralized autonomous organization (DAO), which is an organization run entirely through smart contracts. The building’s management system, connected to IoT sensors, would know when it needed new lights or a pipe fixed. 

It would then place a direct order with a contractor based on their reputation, which would have been immutably written into the blockchain. The contractor would do the work and the building would effectively pay them itself. Which saves leafing through the local business directory, we suppose.

What a fabulous idea, in principle. But the construction industry may need to learn to walk before it can run. In fact, based on its digital innovation record, it may first need to learn to tie its shoelaces.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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