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Blockchain in construction industry: Advantages and Limitations

Blockchain technology is a revolutionary tool used to record transactions and link them together to form a “chain” that’s known as a distributed ledger. Companies are using blockchain to take control of supply chains and contracts in ways that weren’t possible just ten years ago.

As more construction companies adopt blockchain, even very large construction projects will become easier to manage.

What Is Blockchain?

Blockchain is a linked series of “blocks” of data that form a distributed ledger, which is no more than a collection of accounts. This ledger is home to transactions or contracts that define a project.

It can be thought of like a literal chain, each link a separate transaction in a project. If one supplier completes a delivery and fulfills their contract, the completed contract is finalized and added as a new “block,” or link in the chain. This gives blockchains a natural order that’s easy to follow when looking for information.

The three principles of blockchain define it as secure, decentralized, and scalable to any size project.

  • Secure: Multilayer encryption using mathematical functions hides data in a coded string of characters that are difficult to crack.

  • Decentralized: Connections called “nodes” automatically check transactions, leading to a digital paper trail of verified records.

  • Scalable: Because the information isn’t stuck on a central server, blockchain can be scaled to fit very large projects.

Because blockchain projects are spread out, they take away the typical hierarchy of information in a project. This improves project transparency, reducing the need for back-and-forth communication over simple objectives. The result is that any project can be made more efficient with blockchain technology.

Blockchain Means a More Efficient Construction Industry

While blockchain has implications for many industries, in the construction industry, it streamlines project management. It’s not uncommon for construction projects to encounter snags. Communication between consultants and stakeholders can delay completion timelines. Blockchain adoption is a trend that will help the construction industry become more efficient overall.

There are six immediate benefits to the construction industry that blockchain technology provides:

  1. Predictive asset maintenance

  2. Smart contracts that stay on track

  3. Proactive third-party oversight

  4. Accelerated payment processing

  5. Instantaneous collaboration

  6. Streamlined supply chains

Predictive Asset Maintenance It is estimated that a big percentage of information about a construction project is lost in the transition to the completed project’s first owner. The distributed ledger in blockchain can store lifecycle information about every asset in a building project, like warranties, certifications and replacements.

Blockchain offers predictive maintenance schedules

Using Building Information Management (BIM) technology, an immutable digital replica of the construction project is set up within the blockchain. This acts as a model to ensure the project is within scope, but also as a virtual home for assets so they can be easily searched and quantified. Monitoring an individual asset’s lifecycle and scheduling maintenance become automated processes, especially if equipped with artificial intelligence.

Contracts That Stay One Step Ahead

Smart contracts infuse blockchain technology into traditional, written agreements. Because data is decentralized and readily available throughout the network, the need for document duplication is eliminated. All contracts live in the blockchain and are accessible with a simple search.

The sequential nature of a blockchain setup holds contractors accountable by requiring a project to meet specifications, or else the contract is unfulfilled. Change orders and delays are immediately traceable to a point of origin, eliminating the need for time-consuming oversight.

Proactive Third-Party Oversight

When dozens of subcontractors are hired to complete tasks, additional oversight is needed to ensure a complex project will adhere to local standards and regulations. This might be legal consultation to comply with government regulations, safety management to monitor worksite processes, etc.

For projects that adopt blockchain technology, these third parties can be seamlessly integrated into project oversight. They have access to crucial documents from the moment they’re included in the blockchain, reducing time wasted in submitting information requests.

Accelerated Payment Processing

Processing payments via blockchain is free in most cases. No authorization or processing fees mean faster payments and less back-and-forth. Blockchain’s strict boundaries, enforced with smart contracts, ensure payment is received for work that’s done according to the project framework.

Smart contracts work on milestones, so when each milestone is achieved, payments will automatically proceed. The blockchain framework ensures that work is completed to specifications, and the hassle of authorizing or collecting payment is nonexistent. Payment automation reduces overhead and cost overrun, keeping all parties happy.

Instantaneous Collaboration

We’ve established that all eyes have access to the entire blockchain in enabled projects. While this boosts transparency, it also fosters an environment of open collaboration where parties make recommendations to improve an aspect of the project. The specific benefit of blockchain is that it encourages round-the-clock input from all involved parties.

Smart contracts restrict projects from modifications that might derail them. They don’t eliminate the opportunity for change, however they just ensure that changes are properly vetted and implemented. When all parties including subcontractors have access to project plans, efficiency-boosting changes are welcome.

Streamlined Supply Chains

Procurement can become especially tedious when dealing with complex projects. Inviting suppliers into a decentralized blockchain network allows project managers to track materials throughout the entire project, and even ensure the efficient utilization of those materials. The blockchain would also incorporate construction equipment to manage rental timelines or depreciation costs.

Digital keys function as unique IDs for one party in a blockchain network. In construction, assigning keys to vendors would allow their work to be tracked through the blockchain. This would create a permanent work portfolio that could be used to appraise vendors for projects.

Blockchain Will Transform Future Construction Projects

Blockchain’s possible benefits to the construction industry as a whole are exciting. It is estimated that the global market for blockchain construction projects will near USD$200 billion by 2025. However, blockchain’s impending takeover raises some important challenges that will slow implementation.

Blockchain implementation can be costly because it requires investment by all parties involved in a project. The virtual infrastructure required is beyond what many construction firms are capable of implementing today, but blockchain implementation firms are pioneering the technology in skyscrapers and other large-scale projects.

Industry skepticism is another challenge to wide-scale implementation. Many construction contracting partnerships are built from preexisting relationships. Investing in infrastructure for project planning accounts for less than 1% of revenues in the construction industry, much less than related costs in similarly high-tech industries.

These challenges are not impossible to overcome. As the blockchain technology market grows, less expensive ways to access blockchain technology will ease mainstream adoption. Security, decentralization and scalability can benefit construction projects of any scale, and the conventional benefits of blockchain will be too tempting for even the most skeptical critics.


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