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Exploring Applications of Blockchain Technology in The Construction Industry

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Abstract

Blockchain provides a secure decentralized information management system that can solve many common problems facing the construction industry. The loose structure of the construction industry, the way that public and private projects are tendered, and the supply chain system it uses for material and service delivery provide unique challenges and problems. New information technology management systems such as BIM and RFID are used to address some of these issues, though not completely. Blockchain technology can be used to further improve the information management systems in construction, provide more automation and mitigate many possible legal conflicts by default. Implementation of blockchain technology in the construction industry can also result in the use of smart contracts with fewer administrative struggles, improve the flow of the project, material, and service delivery, and increase the security and currentness of BIM or project documents. This study aims to explore the applications of blockchain technology in improving the construction industry's information management systems. It is concluded that not only the blockchain technology has potential in addressing some of the common problems in the construction industry but also it is adaptable to the construction industry structure and the way it is practiced. Thus, blockchain technology is a viable option for adaptation in the construction industry.
Interdependence between Structural Engineering and Construction Management
Edited by Ozevin, D., Ataei, H., Modares, M., Gurgun, A., Yazdani, S., and Singh, A.
Copyright © 2019 ISEC Press
ISBN: 978-0-9960437-6-2
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EXPLORING APPLICATIONS OF BLOCKCHAIN
TECHNOLOGY IN THE CONSTRUCTION
INDUSTRY
ALIREZA SHOJAEI
Building Construction Science, Mississippi State University, Mississippi State, USA
Blockchain provides a secure decentralized information management system that can
solve many common problems facing the construction industry. The loose structure of
the construction industry, the way that public and private projects are tendered, and the
supply chain system it uses for material and service delivery provide unique challenges
and problems. New information technology management systems such as BIM and
RFID are used to address some of these issues, though not completely. Blockchain
technology can be used to further improve the information management systems in
construction, provide more automation and mitigate many possible legal conflicts by
default. Implementation of blockchain technology in the construction industry can also
result in the use of smart contracts with fewer administrative struggles, improve the
flow of the project, material, and service delivery, and increase the security and
currentness of BIM or project documents. This study aims to explore the applications
of blockchain technology in improving the construction industry’s information
management systems. It is concluded that not only the blockchain technology has
potential in addressing some of the common problems in the construction industry but
also it is adaptable to the construction industry structure and the way it is practiced.
Thus, blockchain technology is a viable option for adaptation in the construction
industry.
Keywords: Smart contract, Information technology, Supply chain management, BIM,
Circular economy, Facility management.
1 INTRODUCTION
The construction industry is often critiqued because of its inefficiency and low productivity. The
disaggregated structure of the construction industry, its sequential nature where works need to be
done in a sequential and chain resembling system, and the number of stakeholders with different
interests involved in each project are named as root causes of its problems. Coordinating all the
necessary tasks, contract administration, handling claims, and supply chain management through
manual paperwork is proved to be troublesome and inefficient. Blockchain is an information
technology that inherently adapts to these structural problems. Blockchain can provide a direct
solution to each of these problems or provide a comprehensive platform where project design and
management happens in a blockchain backed Building Information Model (BIM) integrated with
a self-enforcing smart contract supplied by vendors chosen and managed by a blockchain network
in a larger scale of circular economy. This technology is capable of bridging the lack of trust
between the stakeholders (Mathews et al. 2017), automate a lot of currently manual processes,
Ozevin, D., Ataei, H., Modares, M., Gurgun, A., Yazdani, S., and Singh, A. (eds.)
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provide a secure and reliable infrastructure for collaboration and information exchange while
increase transparency and provide a reliable chronological record keeping.
Blockchain is an implementation of distributed ledger technology, where peers are the data
storage nodes. In such a system, the information is shared with everyone completely and
verifiably with complete traceability and chronological order. The technology itself is free and
implementing a blockchain system is far cheaper than any other shared database system such as
common cloud solutions. There have been three generations of blockchain so far, that is,
Blockchain 1.0 for digital currency, Blockchain 2.0 for digital finance, and Blockchain 3.0 for
digital society. Blockchain 1.0 is solely regarding the decentralize transaction of money and
payments. Blockchain 2.0 works in a more general way and covers transactions related to any
kind of asset. For instance, smart contracts and smart properties are examples of the second
generation’s implications. Blockchain 3.0 goes beyond the concept of asset transaction recording
and covers areas such as government, health, science, and culture. Blockchain implementations
in supply chain management and banking systems show it is highly secure and reliable (Morabito
2017). Public, consortium, and private blockchains provides different information management
systems frameworks that can address different needs based on the level of openness and access it
is needed (Morabito 2017). A public blockchain is accessible by anyone, and the data can be read
or be written by any user, whereas, in a private system only the selected few can access the
system. A hybrid or consortium blockchain allows exchange between separate blockchain
networks. The absence of administrative power in blockchain and the power of crowed over the
data validity is the source of its power.
Blockchain is identified by Wang et al. (2017) as one of the tools that can help to overcome
the acknowledged lack of trust and inadequate information sharing technologies in Architecture,
Engineering, and Construction (AEC) industry (Lau and Rowlinson 2010). Blockchain, due to its
working system, would eliminate the need for trust between the parties or the need for
confrontational contractual relationships due to the lack of trust. Five areas of blockchain
technology’s applications in the built environment sector is investigated in this study. Namely,
smart contracts, supply chain management and circular economy, BIM, facility management, and
sustainability. Finally, the challenges of using blockchain technology in the built environment
sector are discussed, and directions for future research are suggested.
2 SMART CONTRACT
A smart contract can be defined as a computer program consist of if/then statements dividing the
work into smaller measurable work packages and automating the process of compliance and
payment (Lamb 2018). The conditions where each work package or milestone is considered
complete is defined, and the completion of each one would trigger the predefined compensation
automatically. This approach of breaking the project into smart contracts would provide a new
type of work breakdown structure, which would help all the stakeholders to better understand
their obligations, requirements, and liabilities as well as how other work packages is going to
affect theirs or vice versa. As a result, a better holistic view of the project before execution and
also during execution would be provided, where the real-time progress of the project can be
tracked and provide a well-recorded track of developments during project execution. Controlling
the contract governance with a computer program would decrease the number of uncertainties
involved in project execution as the outcomes and the triggers to each outcome is completely
predefined and expected. Signing off payments would become automatic dependent on the proof
of work and compliance and reduce the need for administrative support in that aspect of the work.
The if/then system would ultimately reduce the disputes from contract stipulations as the
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conditions and compensations of the work is clearly stated by if/then statements and is governed
automatically by a computer program. Blockchain can be the platform for implementation of
smart contracts as a digital protocol. The information recorded in blockchain would clearly show
who is responsible for what work at what time. Any tempering and change in the project data
would make that block of information invalid, and it is fully traceable to the party at fault. In
other words, the data recorded in the blockchain network is secured and tempered proof.
The underlying assumption of construction contracts is that most of the rights and obligations
of stakeholders are against each other. This environment is in direct contrast to the new
collaborative project delivery methods, such as BIM requires. The shared data environment
provided by blockchain would allow a seamlessly automated compliance evaluation and provide
an instrumental data record for dispute resolution. Consequently, using smart contracts and
blockchain would eventually change the landscape of use of escrows, liens, and other sorts of
bonds in the construction industry. Smart contracts provide extreme transparency and Potentially
reduce the number of conflict points and also provide an unalterable track of project progress
which can be used for conflict resolution in case it becomes necessary.
Cryptocurrencies such as Bitcoin are suggested to be used as the form of payment or
collaterals in smart contracts (Cardeira 2015), but it is not necessary and not practical with current
fluctuations in cryptocurrencies values. Payments and collaterals could still be hard currencies
handled through banks by integrating existing payment accounts and the blockchain network.
The end result would be a reduction in the number of people involved in contract administration
and a better record keeping of the procedures followed. Reduction of intermediary parties and
paper processes such as payment applications would increase the efficiency of the industry, not
because of the increase in productivity but because it would smooth the administrative process
such as compliance and financial procedures and automate many of the processes involved, which
would increase the speed of project governance. Ultimately, such a system would smooth the
project delivery process and provide a transparent and traceable payment system. Auditing the
project cost, progress, labor practices, and any other project’s record would be much faster and
more reliable compared to the conventional project delivery systems. Consequently, the industry
would become more efficient and inherently more ethical. The increased transparency would also
result in better accountability and better project governance.
Implications of blockchain in construction and contract administrations go beyond the scope
of smart contracts. Issues such as temporal equipment lease (Wang et al. 2017) and temporal
insurance policies (Kakavand et al. 2017) are already being discussed where the user only pays
for the time construction workers are present at the job site, and the validity of this and other
conditions under question can be securely verified through blockchain network. Having a
complex construction project executed though smart contract and blockchain might not be
feasible in the near future (Gabert 2018). However, the viability of the concept is evident and
implementing such a system in simple projects or subcontracts would be an appropriate first step
to evaluate its performance in the real world.
3 SUPPLY CHAIN MANAGEMENT AND CIRCULAR ECONOMY
The decentralized and fragmented structure of the construction industry’s supply chain very well
pair with the decentralized ledger system of blockchain. Blockchain can provide the
infrastructure needed to securely and reliably advance material traceability (Hultgren and Pajala
2018, Petersson and Baur 2018) and promote the circular economy (Rudolphi 2018). Smart
contracts can play a role in supply chain management and material tracing too. Both supplier and
buyer can be assured that they are going to get compensated for their money/product by using a
Ozevin, D., Ataei, H., Modares, M., Gurgun, A., Yazdani, S., and Singh, A. (eds.)
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smart contract. As a result, the purchase could happen more directly between the source and the
end user without the need for local suppliers. The payments can be sequential and proportionate
to the status of material/product delivery, and the final payment could be tied to the final
inspection/commission of the material/product.
There is also a high potential for integrating internet of things or RFID tags with blockchain
to provide real-time material monitoring system resulting in better site management practice and
increase in construction efficiency. Using a blockchain network for supply management would
help vendors to easily show their certification of identity from authorities. The buyers can easily
validate those certifications of identity and also see the track record of the vendor to check their
reputation and capacity from previous works. As a result, a buyer and a vendor without knowing
and trusting each other can engage in a transaction.
On a grander scale, a true circular economy is achievable through blockchain. When a raw
material is extracted, its information can be stored on a blockchain network, storing its source and
characteristics. Then producers can use that network to order and obtain their raw materials.
Each order is also stored, and it is traceable that each product consists of what raw materials from
where. This chain of information continues to the end user who is buying the product and
installing it in their project, which would increase the material transparency in the construction
industry. Furthermore, during the lifetime of a product when maintenance is necessary or if there
is a question regarding its source or its materials’ source it is clearly traceable. There will be a
chain of information from raw material source to factories, vendors, sub-contractors, contractors,
and the final project. That would allow a fully transparent material usage in the industry, where
planning for reusing of materials are possible through pre-planning and current knowledge of
materials status and their background.
4 BIM
The introduction of BIM to the AEC industry provided a shared data environment where all the
information is stored in a shared project file. The location and maintenance of this shared data
environment presented a new challenge. Blockchain technology is a promising solution to such a
problem (Turk and Klinc 2017). An always current distributed ledger system with high security,
which can be used as an infrastructure for maintaining up to date BIM models during the project
Lifecycle between the involving stakeholders. BIM provides a single project environment where
all the information regarding the project is created and stored there. Blockchain provides a single
platform to maintain and update that project environment and connect it with the reality of site
work. This would provide a time-stamped, tampered proof data. The peer-to-peer structure of
blockchain aligns well with the collaborative way that a BIM model is developed by different
stakeholders, and ultimately, it would improve collaboration. The tampered proof track record of
changes to the model by each user can be used to find a party at fault in design or
miscommunication. Any change to the model is recorded and communicated to other people
linked in the blockchain network. Consequently, the BIM related claims during the project
lifecycle can be solved much more natural.
Connecting a project’s BIM model to a smart contract would need an information system to
link project elements to reality and reflect the project progress on the model. Blockchain can be
used separately or in adjunction of governing the smart contract to link the BIM model to the
smart contract and update the BIM model according to the project progress. The smart contract
program can be applied to the BIM model elements and linked to the project’s reality through
blockchain. As a result, the actual construction should match the model to get compensated. If
the contractor finds a clash or an error, he can send a change order or RFI, and it would be
Interdependence between Structural Engineering and Construction Management
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securely time stamped and recorded. The granular work progress can be tracked on the model
with or without reality capture technologies. The inspection process can be done by manual
inspection or automatically through reality capture technologies such as 3D laser scanning or
Lidar. The end result would be a streamlined contract administration and better project
governance.
5 FACILITY MANAGEMENT
Integration of blockchain and BIM or Building Maintenance System (BMS) would provide a
reliable integrated system which can provide the complete history of the project and also trace
every detail of the building to its source (Mathews et al. 2017). Furthermore, this integration can
stretch to the future and use smart contracts when maintenance is needed to automatically place a
work order and upon the verification of completeness, release the payment to the contractor. The
concept of Decentralized Autonomous Organization (DAO) is introduced as an organization,
which is governed via multiple smart contracts. A DAO can be attributed to a building through
its lifecycle where everything from design and construction to operation, maintenance and
demolition is done by smart contracts cohesively and autonomously. Blockchain is one of the
few technologies can bear the burden of supporting such complex interactions through time.
Longitudinal health record (Angraal et al. 2017) is an example of a similar concept from a
different industry.
6 SUSTAINABILITY
The material transparency discussed in supply chain section would have an impact in
sustainability in areas such as whole life cycle cost, carbon emission estimates, and raw material
verification. For instance, the designers or users can make a sustainable choice by using material
traceability through blockchain up to the source of any product’s raw materials. Typically, the
supply chain would provide the specific information required by the clients. A blockchain
platform would enable not only the direct suppliers to provide the required information but also
the indirect suppliers such as the raw material providers to a prefabrication factory can also put
their information in the database for more accuracy and verifications. This process would
provide consistent and structured asset information. This database can be used not only for
decision making during the design, procurement, and construction but also would be beneficial
for the post-occupancy management of the facility. A blockchain network can also help energy
management on a grand scale to achieve a smart grid (Mengelkamp et al. 2018). First, both
energy consumption and production should be tracked using a blockchain. Then, this could
provide a basis for a better supply and demand control and ultimately a true dynamic pricing for
energy.
7 CONCLUSION
Successful implementation of blockchain in other industries such as accounting, financial
technology, and commodity market shows the viability of this technology. Blockchain can
hypothetically provide a platform for supporting the link between the physical world and the
digital one. It can also cover the whole Lifecycle of a project from material sourcing, contract
administration to the operation, maintenance, and eventually demolition and material reusability.
Blockchain would help to smooth the project development processes and reduce the need for
intermediary parties. One necessary step for this technology to become prevalent is becoming
prevalent as much as possible so the software providers would enable their software to use push
Ozevin, D., Ataei, H., Modares, M., Gurgun, A., Yazdani, S., and Singh, A. (eds.)
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and pull data by integrating with blockchain. A common standard and template for each
application area is crucial. Thus a loosely structured industry such as construction can use this
system. Consequently, everybody in the supply chain would be able to input their data and use the
other stakeholders’ input in a meaningful manner. One important issue raised in this study is
while cryptocurrency can play a role in each discussed section, it is not necessary to be part of the
system and blockchain can be used regardless of the cryptocurrency state.
The disaggregated structure of the construction industry makes it a suitable match for using
blockchain. However, this loose structure is a disadvantage in implementing innovation and new
technologies. This problem is more noticeable when a grand scale change is requiered. As a
result, the administrative gap within the industry is a hindrance to blockchain technology
implementation in this industry. Even though computer aided design and BIM is digitizing the
construction industry, there is an apparent gap between the framework envisioned in this paper
and the current state of digitization of the construction industry. A looped two-step approach is
necessary to, first study the industry to find the requirements and applicable areas. Then, the
second step is to test the viability of the solutions and adjust the framework based on the
empirical findings. This study is a contribution to the first step, which is going to be followed by
testing each explored area with test cases in future works.
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The presented research project DiCYCLE aims at identifying, analyzing and mapping current End-of-Life processes in Architecture, Engineering and Construction, as well as optimizing these processes for digitalization, using Building Information Modeling, blockchain and smart contracts. The goal is to create new business models and enable sustainable digital design, construction and deconstruction workflows that facilitate the reuse and recycling of building materials and components along the building life cycle.
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Blockchain technology has gained attention across the globe within the last 10 years and has taken centre stage in the financial technology sector. Even though innovation that applies to the construction industry is sometimes different from what is obtainable in other sectors, they share the same unique features. Therefore, this makes blockchain technology relevant to the built environment. This study aims to assess the research studies carried out on blockchain technology in the built environment domain in a bid to draw knowledge from the present focus of these studies while identifying research gaps for future studies. To achieve this, a scientometric review was carried out, and SCOPUS database was searched for studies related to blockchain technology in the built environment. The retrieved documents showed the first publication on this study area was made in 2017. Hence, this study covered research publications from 2017 to 2021. The findings revealed that most of these studies are not experimental as they only rely on literature from other sectors to draw conclusions for the built environment. The study further revealed that most of the publications in this domain are from the USA, Australia, India and the United Kingdom with only two publications from the African continent. This shows a research gap that can be explored from the African perspective. From the cluster analysis, research in this domain has focused primarily on blockchain technology components and only a few practical fields of its application. It was thus recommended that experimental and case study research should be carried out on its application in asset management and transfer, smart city development, land use, data/information management, cyber-physical systems, among others. Practically, the study highlighted blockchain technology usefulness in promoting social and economic sustainability of the built environment through its different applicabilities.
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Blockchain technology enables distributed, encrypted and secure logging of digital transactions. It is the underlying technology of Bitcoin and other cryptocurrencies. Blockchain is expected to revolutionize computing in several areas, particularly where centralization was unnatural and privacy was important. In the paper, we present research on where and how this technology could be useful in the construction industry. The work is based on the study of literature on open issues that exist in construction process management. These are than matched to the capabilities of blockchain. We are motivated by the fact that construction projects involve a dynamic grouping of several companies. We study the degree to which the relationships among them are hierarchical or peer-to-peer and note that particularly in information intensive phases, centralization of information management was necessary because of technology. When using un-constraining technology, communication patterns among participants show a peer-to-peer nature of the relationships. In such environment, blockchain can provide a trustworthy infrastructure for information management during all building life-cycle stages. Even if building information modelling (BIM) is used, which assumes a centralized building information model, there is a role for blockchain to manage information on who did what and when and thus provide a basis for any legal arguments that might occur. On the construction site blockchain can improve the reliability and trustworthiness of construction logbooks, works performed and material quantities recorded. In the facility maintenance phase, blockchain's main potential is the secure storage of sensor data which are sensitive to privacy. We conclude that blockchain provides solutions to many current problems in construction information management. However, it is more likely that it will be built into generic IT infrastructure on top of which construction applications are built, rather than used directly by authors of construction related software. It has a potential to make construction processes less centralized which opens needs for research in that direction.
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The increasing amount of renewable energy sources in the energy system calls for new market approaches to price and distribute the volatile and decentralized generation. Local energy markets, on which consumers and prosumers can trade locally produced renewable generation directly within their community, balance generation and consumption locally in a decentralized approach. We present a comprehensive concept, market design and simulation of a local energy market between 100 residential households. Our approach is based on a distributed information and communication technology, i.e. a private blockchain, which underlines the decentralized nature of local energy markets. Thus, we provide energy prosumers and consumers with a decentralized market platform for trading local energy generation without the need of a central intermediary. Furthermore, we present a preliminary economic evaluation of the market mechanism and a research agenda for the technological evaluation of blockchain technology as the local energy market’s main information and communication technology.
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Purpose – The paper aims to report on a thesis completed in 2005 that had relevance to the project management community. The thesis dealt with trust relations in the construction industry in respect of strategy formulation and to provide a hierarchy model to explain the concept of general trust of the individual and the industry, situational trust, a value-based trust, inter-personal and inter-firm trust via quantitative and qualitative study. Design/methodology/approach – A pilot study with structured questionnaires and a case study approach are adopted to collect both quantitative and qualitative data from ten projects operating with partnering and non-partnering approach. Findings – The findings help to explain trust relations with three issues: a group perspective of value-based trust; the perception of trust by clients and contractors in the construction industry; and the hierarchy of a trust model based on the moral, social and work dimensions of trust. Research limitations/implications – The paper indicates that the value of clients and contractors in the construction industry are different and affects the overall project performance. For multiple parties working therefore requires identification of the deficient areas or constraints when managing differences among people. Further work needs to be done in respect of the behavioural outcome. Practical implications – This theoretical framework is used as the foundation of a trust model (the analytical hierarchy process model) to evaluate the types of trust prevailing at the time of measurement. The model can be used in any situation requiring understanding of the relationships among the parties under investigation. This paper puts the subject in context by using project case studies, which provide a better understanding of trust in a situation involving multiple parties. Originality/value – The thesis is of value to both practitioners and academics/researchers in the management development of construction projects in a multi-party working situation by modeling in a hierarchy process of the factor components affecting trust relations.
Smart Contracts and Possible Applications to the Construction Industry
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Cardeira, H., Smart Contracts and Possible Applications to the Construction Industry, in The New Perspectives in Construction Law Conference, Bucharest, Romania, 2015.
Blockchain and Smart Contracts in The Swedish Construction Industry -An Interview Study on Smart Contracts and Services, MSc Thesis, Department of Real Estate and Construction Managament
  • H Gabert
Gabert, H., Blockchain and Smart Contracts in The Swedish Construction Industry -An Interview Study on Smart Contracts and Services, MSc Thesis, Department of Real Estate and Construction Managament, Royal Institute of Technology in Stockholm, Stockholm, Sweden, 2018.
Blockchain Technology in Construction Industry-Transparency and Traceability in Supply Chain, MSc Thesis, Department of Real Estate and Construction Managament
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Hultgren, M., and Pajala, F., Blockchain Technology in Construction Industry-Transparency and Traceability in Supply Chain, MSc Thesis, Department of Real Estate and Construction Managament, Royal Institute of Technology in Stockholm, Stockholm, Sweden, 2018.
Blockchain and Smart Contracts : What The AEC Sector Needs to Know
  • K Lamb
Lamb, K., Blockchain and Smart Contracts : What The AEC Sector Needs to Know, Centre for Digital Built Britain, CDBB_REP_003, 2018.
Impacts of Blockchain Technology on Supply Chain Collaboration
  • V Morabito
  • E Petersson
  • K Baur
Morabito, V., Business Innovation Through Blockchain, Cham, Springer International Publishing, 2017. Petersson, E., and Baur, K., Impacts of Blockchain Technology on Supply Chain Collaboration, MSc Thesis, Business Administration, Jönköping University, Jönköping, Sweden, 2018.