One technological advancement that could potentially alter the entire project delivery method is the continued development of blockchain technology. Undoubtedly, you have heard the term “blockchain technology” - associated with crypto currencies such as Bitcoin. At its core, blockchain technology is simply a platform that permits the upload, transfer and sharing of encrypted information within a secure “decentralized” database.
How does Blockchain work?
Blockchain, as the name suggests, is a database that is comprised of information “blocks” that are “chained” together with each other and subject to constant verification and authentication by independent users that utilize the database. Database users securely upload the encrypted information into time-stamped blocks. Those blocks are then subsequently linked together to form the “blockchain.” This blockchain database is decentralized, meaning that the information is not actually stored in a central location, such as a server. Instead, the information is spread across a network of users within the database. The internal authentication allows for the database to self-function without a third-party authenticator, such as a bank or government. Once a block of information is chained, it cannot be altered or unchained without the database user’s knowledge.
What effect does Blockchain have on the Construction Industry?
Blockchain technology, due to its decentralized nature, is most ripe for use and will have its greatest impact on IPD, and specifically, BIM modeling software.
IPD & BIM Modeling
Arguably one the biggest technological advancements currently transpiring within the construction industry is the development and implementation of full-scale Building Information Modeling (“BIM”) software in conjunction with the Integrated Project Delivery (“IPD”). IPD emphasizes and creates a collaborative environment with the free flow of information among all the project participants in the early stages of design and construction. One critical component of IPD is BIM software.
BIM software produces a three-dimensional, real-time, dynamic building model, which encompasses building geometry, spatial relationships, geographic information, and quantities and properties of building components. Further, the model generated is a parametric, digital design, which means that when one aspect of the design is altered, the other aspects of the design impacted by that change adjust automatically. Due to these capabilities, BIM software is an invaluable asset to the IPD method, as it provides a platform for collaboration of the parties and integration of their respective expertise and experience.
One obstacle that BIM software continues to face is the tracking of information and any changes made by project users accessing the construction model. Construction contracts, change orders, and design modifications have to be manually implemented into the model and distributed to the project parties. In its current state, BIM software lacks the ability to track and verify the information and modifications to the model itself. Enter blockchain.
By implementing blockchain technology, all users with access to the BIM project model can actively monitor and authenticate any changes or modifications to the project. Users will be notified in real time of any changes or uploads, who made the changes, and what the actual changes were without any further discussion. Simply put, implementing blockchain technology within the BIM/ IPD framework would streamline the collaboration efforts of all parties by gathering, maintaining, updating, and archiving all of the project information/ designs within a secure, reliable, transparent, and decentralized database.
A smart contract is the digital equivalent of today’s paper contract, in which the terms and conditions are actually source codes. When functioning correctly and/or fully implemented, the provisions within the smart contract become partially or fully automated (based on the code) without the need for any human action or direction. The implementation of smart contract automation also is reliant on blockchain technology. For example, in the context of payment provisions and procedures, smart contracts utilizing blockchain technology may eventually prevent the often exhausting and time-consuming payment delays that so frequently occur on a project. Once a subcontractor or trade completes a task, the completion is logged into the BIM software, and the funds are subsequently and instantaneously released to the contractor from the owner’s connected account. Any necessary documentation, such as lien waivers, could also be sent back to the owner based on the terms of the contract. By implementing and combining BIM software and smart contracts, the parties could avoid unnecessary delays and forego the submissions of paper pay apps and/or invoices all together.
Several major US retailers, including but not limited to Microsoft, Overstock, Home Depot, Starbucks and Tesla, currently accept limited forms of crypto currencies as payment for their respective products. Based on the sheer sizes and market shares of these aforementioned companies, it’s very likely that this is just the beginning.
The use of Crypto payments, especially in the construction industry, presents several benefits. For one, there are fewer fees and taxes incurred per transaction. Unlike traditional payments, crypto payments are not subject to bank transfer fees or credit card processing fees. Transactions typically cost less than one cent per transaction. In addition, the funds received in a crypto exchange are almost instantly available and do not require a lag period to confirm receipt.
Significant concerns and hurdles remain that need to be addressed before the use of crypto currencies can be fully integrated into the economy, including:
- Once the crypto currency is sent, the sender has no means to get the money back.
- Vendors that receive crypto payments may be subject to capital gains taxes if the value of the crypto received increases before they withdraw it from their account.
- Parties exchanging crypto will need to track and keep accurate records of the values of the currency they receive on each transaction to ensure compliance with applicable tax laws.
- Depending on the nature and size of the project, these additional tracking requirements could place a heavy strain on a company’s accounting department.
The continued development and expansion of technology within the construction industry over the course of the next decade will continue to alter the project delivery landscape.