Blockchain: Disruption is the name of the game in the construction industry. By Sajal Karanwal and Muneeb I Shah
For industries like engineering, construction management and real estate, collaboration and complexity are core aspects of their practice. Those involved in these sectors are often juggling multiple contracts, with varying deadlines. With so much money at stake in these interconnected processes, industries are perpetually prone to disputes and challenges surrounding cost, trust, data efficiency, payment terms, confidentiality, material tracking and traceability, multi-party aggregation, and adequacy of automation processes.
The high-risk environment of the construction industry partly contributes to stakeholders being overly cautious about sharing information. The sheer mass of documentation generated by construction projects means that even when digitised, accessing this documentation is challenging and can be time consuming, which results in higher costs.
Although in recent years, we have seen substantial technological innovation in the construction industry with systems such as Building Information Modeling (BIM), Energy Asset Management (EAM) and Radio Frequency Identification (RFID) in asset tracking, there have, so far, been limited advancements to assist and streamline transactions, but blockchain is fast becoming a change agent for this.
Blockchain acts as a decentralised data management and transaction system, existing between all the parties involved in a project. It allows a variety of groups to work more easily together using shared business processes that are encoded within a common platform. This means that blockchain can offer a solution to many of the challenges faced by the construction industry, as well as to the real estate and engineering industries by extension, by ensuring transactions are more secure and transparent. It can also ensure that investments are safer and faster for stakeholders.
Blockchain is a distributed and decentralised public ledger database that records every transaction. Data is created by each and every transaction made, with details of the purchaser, seller, date, time and purchase amount being recorded. This data is bundled as a ‘block’ and the blocks are chained sequentially using transactional generated algorithms. With the increasing use of smart contracts (a computerised protocol that negotiates, verifies and automates the performance of a contract) the integrity of the transactions are maintained, making it virtually impossible to manipulate or alter data.
Moreover, since each user is working from an identical record – the public ledger – there is no need for reconciliation. This means costs are reduced and fulfilment is accelerated.
Blockchain technology can aid the construction industry in a number of ways. Chief among them, blockchain will allow companies to save substantial sums of money, by removing the cost of intermediaries involved in contract processing and payment. Less documentation equals fewer fees. Music to the ears of all businesses!
Secondly, blockchain enables project delivery to be streamlined and payments to be simplified.
Construction projects, even in their earliest stages, require a vast array of expertise from a number of sources and companies – from builders and site managers, to structural engineers, architects, suppliers/manufacturers and lawyers. As a matter of course, this involves multiple complex contracts, mountains of paperwork and a lot of lost time through changing drafts and new iterations.
Blockchain, in this case, plays a pivotal role in allowing all records to be stored digitally. When utilising blockchain and smart contracts, a centralised tracking system is created in which the parties involved define the rules and penalties around the project. Blockchain can then automatically enforce those obligations as the project progresses, resulting in more efficient project management, along with a permanent, shared record of every transaction associated with a project and all the assets involved.
Everything is traceable
This auditable record of transactions and certifications of events in the life cycle of the building, results in increasing connections between the client, right down to the individuals carrying out the design, monitoring, trade staff and the manufacturers of products. In construction projects, having a shared record of every transaction within a project creates an unbroken chain of trust between all key stakeholders. Everything is out in the open.
Furthermore, this provides the teams investigating and facilitating payment and cash flow activities such as auditors, banks and financial institutions all the required information from a single incorruptible source, by means of the smart contract.
Supply chain transparency
Construction is a regulation-laden industry. The quality requirements are increasing, and the industry is looking towards ways it can ensure the sustainability of supply chain materials. Traceability and communication through the supply chain is growing in importance and this is another area where blockchain technology can offer support.
In the construction industry, blockchain can also help to remove third parties. For example, blockchain could replace the traceability certification body, PEFC, as a digital certification body, giving suppliers the opportunity to know exactly where their materials come from, rather than simply accepting that it is PEFC certified.
Additionally, with the simplicity of the smart contract, it becomes easier to track the entire process and identify areas of improvement or concern. For an ever more environmentally conscious world, blockchain can enable interested parties to monitor a project’s environmental footprint, by tracing the chemicals and substances that have been used throughout the supply chain, making it possible to activate change in the way materials are handled in future.
Using the blockchain’s permanent record, along with RFID, will allow materials to be traced to where they originate. This results in easier inventory management, the ability to receive goods only as they are needed and a high degree of accuracy, which all leads to increased productivity and a reduction in cost.
Smarter energy infrastructure
When it comes to creating an energy efficient infrastructure, 13blockchain technology can support distributed electrical grids, where energy efficient buildings of all sizes, from small households to large airports, can become producers and sellers of energy with a high degree of autonomy. As energy efficient construction projects grow in popularity, off the back of global pressure to reduce harmful emissions, blockchain can be a foundation on which interconnected communities work efficiently and securely, without huge cost implications.
The revolution is coming…
Blockchain technology promises to revolutionise business processes across the construction industry. So far, the use of blockchain has been limited, but by using it along with other disruptive technologies, there is an opportunity to reduce costs, increase trust and transparency and ramp up productivity across projects. In order to achieve its full benefits, firms seeking industry leading status must continue to push the boundaries of blockchain and experiment with its potential uses, to really reap the benefits of this challenging technology.
Sajal Karanwal is Managing Consultant – Digital Solutions, and Muneeb I Shah, is Blockchain Partner, Blockchain Consulting & Advisory, Service Transformation, at Wipro Limited. Wipro Limited is a leading global information technology, consulting and business process services company. It harnesses the power of cognitive computing, hyper-automation, robotics, cloud, analytics and emerging technologies to help clients adapt to the digital world and make them successful. A company recognised globally for its comprehensive portfolio of services, strong commitment to sustainability and good corporate citizenship, Wipro has over 160,000 dedicated employees serving clients across six continents.
For more information, please see www.wipro.com