Australia: Blockchain in construction – its all about data, trust and productivity

Governments have often used the construction industry to kick-start the economy in times of recession, to sustain growth and stimulate employment. In Australia, construction generates over $150 billion in revenue (about 8% of the GDP) and employs over a million white-collar and blue-collar workers. But a new challenge has emerged as the construction industry modernises – a 'new-collar' workforce, embracing new technologies and skills, must now be prepared to lead a modern construction sector.

Challenges for the industry

The construction industry faces many challenges. Infrastructure projects are complex, and stakeholders must manage projects through a highly-fragmented supply chain of contractors, designers, materials and equipment manufacturers, suppliers, and transport providers – all while meeting a raft of regulatory requirements. Overlaying this are complex contractual frameworks to deal with risk allocation and project management, along with performance security and insurance requirements. And increasingly, project financiers and insurers are calling for more robust performance assurances.

In Australia, there has been recent push by governments towards collaborative contracting. Higher than expected bid costs, project delays, contractor claims arising from risk allocation under their contracts and inappropriate risk transfers have made it difficult to achieve single point accountability for project performance.

The added layers of design review, quality assurance and contract management processes – and the additional resources required to implement projects – have reduced sector productivity.

These factors have in part fed into the industry's regularly-reported quality and compliance shortcomings, with the potential to erode both the value of constructed projects and public confidence in them. They are also challenging the industry's traditional regulatory and governance frameworks.

Industry experts have been working to overcome these challenges, improve efficiency, and deliver projects on time and on budget.

A technical solution?

There has been much focus in the construction industry on the use of technology to lift project productivity. However, initiatives such as drones, 3D printing, Building Information Modelling (BIM) – which allows the integration of design processes – robotics, the Internet of Things (IoT), virtual reality and the like have delivered only modest to moderate gains. The construction eco-system remains stubbornly fractured and dysfunctional.

Re-imagining processes to improve information transparency, and to lift the industry's approach to traceability and responsibility for work product, will help project stakeholders properly consider risks and costs and to allocate responsibility for them. It will also lead to better-informed decision making.

Implementing this will require a reframing of trust levels between stakeholders. This includes reconsidering the whole supply chain– from design, procurement and sourcing of materials and manufacturing, through quality assurance to the incorporation of materials into infrastructure to complete its lifecycle. Emerging technologies are being applied in other industries to unlock these challenges – it is clearly time for construction to do likewise.

Key to these technological improvements are the capture, digitalisation and best use of data. However, trust is still a paramount concern. Can Blockchain technology help?

Blockchain – what is it?

Blockchain technology is increasingly being developed and used in a number of industries, including in the banking and agriculture sectors. It is a form of distributed ledger technology that enables the reliable integration and use of data that records or relates to transactions or processes.

Information is stored across a network of computers and protected by cryptographic technology – in essence, embedded algorithms that are stored chronologically and cannot be changed.

The technology allows approved stakeholders to access information in the ledger with a high degree of trust and transparency, through a verified and secure chain of records. Stakeholders can readily add to, and access, complex layers of design review, quality assurance processes, project management transactions and payment records.

Blockchain technology can deliver savings through the reduction of intermediaries and intermediate steps in a process – for instance, multiple layers of review and sign off in design review and quality assurance. By reducing risks, associated costs such as insurance and legal expenses can also reduce.

What problems can blockchain technology solve?

Payments

One of the construction industry's challenges is to ensure that timely payments are made to stakeholders. Regulatory frameworks and requirements such as the security of payment structure, defects bonds, retention trust and project bank accounts are attempts to bolster protection for payments made downstream to subcontractors and workers.

Blockchain technology will improve the accountability and integrity of the payment process by enabling secure, traceable payments. It will allow government bodies responsible for monitoring this and enforcing sanctions against violators to be alerted to incorrect information, and contraventions of regulations.

Work health and safety management systems

Site events (such as safety incidents, failures of materials, site conditions and weather conditions) are currently logged manually or via sensors and IoT tools. Blockchain technology can provide a secure source of WHS and site information, with greater accountability.

Supply chain management

Blockchain technology can be applied to all stages of supply chain management – from design to materials procurement, incorporation and construction.

Imagine secured data identifying the origin of materials, their compliance with specifications and quality checks, and incorporating delivery/packing notes from the place of manufacture. And tracking the materials through shipping, customs and delivery to a site, then site inventory and incorporation of the materials into the structure – along with the location of those materials.

This level of accountability for products and services will deliver a high level of transparency to stakeholders. It will encourage the right behaviour and trust – as the saying goes, 'you can run but you can't hide'. An efficient supply chain ecosystem will reduce redundancy, as less inventory will be required to deal with contingencies.

Building Information Modelling

A combination of BIM and Blockchain will allow high volumes of data to be collected from different design packages, presented to stakeholders in a dashboard format, and securely shared between them. Project progress can be monitored and updated, and work hours (whether man hours or machine hours) registered and compared.

BIM will allow an audit trial of a design review and approvals process, identifying IP ownership, any clashes between approved design and construction quality, proposed modifications and their impact on design and construction.

Some European governments, and the US FAO, already require BIM level 2 usage for government procured projects. Their goal is to eventually progress to 7D-BIM (which allows monitoring and management of a facility through its life cycle from construction to asset management) when time, cost and performance data are available.

Smart contracts

Blockchain technology allows the creation of 'smart contracts'. These are self-executing digital contracts that automatically transfer currency or an asset once the underlying code establishes that a predetermined condition has been met.

Smart contracts can be used to automate payments, track intellectual property rights, and transfer ownership of materials and equipment. They can also reduce 'paper-shuffling' between intermediaries. A payment between two parties in one location might automatically cause an order to be sent to a supplier in a different location, for production and delivery of materials relating to a different aspect of the project.

Effective carbon tracking

Australia's Data 61 helps industries like construction to engage in the global digital economy. Data 61 works with industry and the nation's key institutions to identify opportunities for sectors to achieve market impact above their 'normal weight'.

Australia's construction sector represents approximately 3% of global construction activity. Leadership in the use of new blockchain solutions could help the sector meet this challenge.

Using blockchain technology, many distributed data collections can feed into a common platform. Tracking both embedded carbon (making buildings) and operational carbon (using and maintaining them) is an increasing challenge for construction – blockchain could help solve this problem, as the industry adopts greater accountability for its environmental impact.

Where to from here?

A number of organisations are already initiating test and prototype blockchain or data-related projects to assist the construction sector.

For example, to drive the development of construction procurement and material provenance, Tata Steel has initiated a blockchain pilot project together with SAP, IBM and Arup as members of the Construction Smart Contract Committee. This aims to create a transparent chain of custody for all resources, with the pilot focusing on steel construction materials.

On another project, Maersk and IBM are creating a blockchain-based register to track shipping containers. 1

Various research bodies and universities in Australia and overseas are already researching the use of blockchain technologies in a range of industries including construction. Western Sydney University is undertaking various projects including integrating blockchain data with BIM for construction supply chains, developing a benchmarking methodology and a blockchain-based waste management platform for construction projects, and a methodology for estimating embodied carbon through a distributed ledger platform for construction supply chains.2

It is important that the integrity of the blockchain technology is preserved and not subject to cybersecurity threats.

Governments can take a lead – using their purchasing powers to set standards. Although the use of BIM is increasing, Australia still lags behind other countries. By comparison, the United Kingdom government (among others) has introduced a strategy requiring Level 2 BIM usage for all government-procured projects.

Data 61 estimates that Australia could save over $25 billion per year by adopting more integrated construction regulatory compliance systems – reducing reporting inefficiencies and duplication. This will require the creation of a new platform of pre-competitive system infrastructure.

As more blockchain research and pilot projects are rolled out, it is only a matter of time before this exciting technology delivers the project efficiencies that are promised. Stay tuned!

Footnotes

1 https://www.psimetals.de/fileadmin/files/downloads/PSI_BT/Events/2017/I40/9_1a_Vos_Tata_Digitilization.pdf ; https://www.ice.org.uk/ICEDevelopmentWebPortal/media/Documents/News/Blog/Blockchain-technology-in-Construction-2018-12-17.pdf

2 https://www.westernsydney.edu.au/scem/school_of_computing_engineering_and_mathematics/research/centre_for_smart_modern_construction

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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