Balint Penzes, Consultant Engineer at COWI, discusses the latest ICE report ‘Blockchain technology in construction’ offering insights into how blockchain could disrupt the entire industry.
The construction industry has regularly been cited as one of the world’s most fragmented, high impact sectors and has regularly been challenged to improve its efficiency, productivity, and to embrace the opportunities presented by emerging technologies.
In the past decade, concepts such as Bitcoin and other emerging cryptocurrencies have indicated huge potential for transformation of our current business and payment processes. But how do built environment professionals and the construction industry recognise and capitalise upon this emerging technology?
What is blockchain?
Put simply, blockchain is a distributed ledger [a simple database, but with special properties] of information, such as transactions or agreements, that are stored across a network of computers.
That information is stored chronologically, can be viewed by a community of users, but is decentralised and is not usually managed by a central authority such as a bank or a government. Once published, the information on the blockchain cannot be changed.
As an example, just imagine a system where instead of having one central accounting book of all transactions between contracting parties, and there is a system maintaining multiple records simultaneously by every party.
There is, in its place, just one single source of information or single source of truth (immutable records of transactions, interactions) on the blockchain maintained by the network and its protocol – copied and shared with all parties who interact on the network.
Blockchain was first widely introduced almost 10 years ago as the underlying technology of Bitcoin.
It’s a business tool, not just a new technological innovation, which has the potential to facilitate a paradigm shift in the industry towards effectiveness, accountability and transparency.
Revolutionising construction contracts and payments
Our industry is going through a revolution. This transformation is partly digital, in order to improve efficiency and digital workflows, partly a business practice change.
Blockchain technology has the potential to affect both changes and facilitate this innovation. It can do so by shifting current payment and project management systems towards a more transparent and fair practice.
By reducing late payments, remediations and disputes, small and medium enterprises are no longer placed in continuous cash flow risk. Instead, the industry as a whole can become a more trusted entity.
Through smart contracts, business processes and administrative tasks can be automated to increase efficiency and always be aligned with the agreed contractual terms. This can result in significant cost savings, increment in the low margins of the industry, and better control project costs.
Procurement and asset life-cycle management
Blockchain can deliver a more streamlined procurement process, reducing the high level of fragmentation and complexity of major projects.
The provenance of the materials can reduce waste and drive quality of products and service forward with high accountability. Such systems can enhance predictability with regards to procurement, but also in the case of the whole project delivery.
Together with BIM (Building Information Modelling), blockchain can create the single source of truth for all aspects of a construction project.
Such a model can become the trusted digital twin of an asset supporting not only its design and construction, but its operation and maintenance along the whole lifecycle.
Challenges to implementation
The technology is new and there are several early challenges to tackle, but the potential of reshaping the industry for the better is simply too great to miss.
Construction is one of the largest industries in the world and the infrastructure it creates is the backbone of economic growth and productivity. It’s our inherent responsibility to facilitate its digital transformation to make it ready for the challenges of the 21st century.
Blockchain technology in construction insight report
To address these challenges, and to understand the wealth of innovation and opportunity presented by this technology, ICE has published the report ‘Blockchain technology in the construction industry'.
The report attempts to summarise the concept of blockchain and offer some clarity and direction on the opportunity presented to the construction industry. This includes smart contracts; payment and project management; procurement and supply chain management; BIM and smart asset management; and the challenges ahead for implementation.
ICE thanks the report author Balint Penzes, and the various contributors to this report, and we ask you to begin thinking about your systems, business and processes.
What could change? And could blockchain be right for you?