6 minute read
OP-ED
Can Blockchain save construction
in the GCC? BY MICHAEL LAWRENCE, FOUNDER OF BLOQWORK
Even though the construction sector was classed as a vital sector of the economy and largely escaped any resultant lockdowns due to COVID-19, the industry has suffered from the effects of the pandemic. According to an analysis by MEED there was a 37% fall in contract awards in 2020 as compared to 2019. Those projects which have continued through the pandemic have been impacted by infections, labour transport bans, disinfection drives, and inefficiencies resulting from maintaining safe distances. In 2021 MEED expects the market to recover to a value of $84.4bn from $67.2bn in 2020 but still short of $106.7bn in 2019.
With infection rates falling in the UAE as vaccination rates rise, there is reason for optimism that construction could get back to some sort of normal. A report by the Construction Think Tank however reminds us that the sector was damaged before the pandemic. This has only exasperated an already desperate situation, caused by short-sighted standard practices resulting in endless disputes, and increased payment delays, putting businesses under severe financial stress or even the threat of bankruptcy. This was demonstrated in early 2021 with the demise of Arabtec.
In many respects the construction sector in the UAE and the GCC in general, suffers the same problems as the industry does Worldwide. Projects are late, over budget, uncoordinated and have poor safety and quality records. The industry worldwide also contributes approximately 39% of all carbon emissions with 28% arising from
Michael Lawrence, Founder of Bloqwork
operational emissions from buildings such as heating and cooling, according to the World Green Building Council. Clearly something must change.
The good news is that despite the industry’s record as conservative, slow to change and with low rates of investment on research and development, changes are happening. The solutions are complex and multiple, ranging from more collaboration, and greater use of off-site fabrication through to increased government initiatives including legislation, and rethinking the financing of projects. There is also agreement that greater use of digital technologies represents an opportunity to improve productivity and reduce waste through improved measurement and management of performance.
One of the potential digital solutions to improve construction, is the use of blockchain or distributed ledger technology. So how can the technology which launched a digital currency, Bitcoin in 2008 help with construction?
So firstly, what is blockchain technology and why is it so potentially revolutionary and of any use to construction? Definitions and metaphors abound on the internet and a simple explanation can be found if you google, “What is Blockchain? Simply Explained by a 15-Year-Old?” Nick Paumgarten succinctly explained it in a New Yorker article in 2018: “Broadly speaking, a blockchain is an evolving record of all transactions that is maintained, simultaneously and in common, by every computer in the network of that blockchain, be it Ethereum, Bitcoin, or Monero. Think, as some have suggested, of a dusty leather-bound ledger in a Dickensian counting house, a record of every transaction relevant to that practice. Except that every accountant in London, and in Calcutta, has the same ledger, and when one adds a line to his own the addition appears in all of them. Once a transaction is affirmed, it will— theoretically, anyway—be in the ledger forever, unalterable and unerasable.”
People quickly realised however that it’s not just transactions in the monetary sense as records, but any information that can be recorded. The true revolution of this technology however lies in the fact that it allows for the transfer of value over the internet as well as information.
Now let’s turn to some of the top problems that impact the construction industry starting with performance guarantees. The banking industry has been issuing financial instruments via blockchain technology for several years. The technology could enable bonds to be issued throughout the supply chain from Main Contractors to subcontractors and sub-subcontractors all linked to defined performance parameters via smart contracts, which are basically programs stored on the blockchain that run when predetermined conditions are met. Similarly, the huge issue of slow payments, poor cash flow and transparency of payments, in the supply chain can be governed by self-executing smart contracts.
THE SOLUTIONS ARE COMPLEX AND MULTIPLE, RANGING FROM MORE COLLABORATION, AND GREATER USE OF OFF-SITE FABRICATION THROUGH TO INCREASED GOVERNMENT INITIATIVES INCLUDING LEGISLATION, AND RETHINKING THE FINANCING OF PROJECTS. THERE IS ALSO AGREEMENT THAT GREATER USE OF DIGITAL TECHNOLOGIES REPRESENTS AN OPPORTUNITY TO IMPROVE PRODUCTIVITY AND REDUCE WASTE THROUGH IMPROVED MEASUREMENT AND MANAGEMENT OF PERFORMANCE.
If all project stakeholders are exchanging information and communication on a project through a blockchain based platform, then an immutable, searchable record of information is generated which can then be interrogated by consultants as well as the parties themselves, to avoid conflict or ease dispute resolution. Access to elements of project information could also be made available to statutory authorities who could then arrange virtual inspections on the basis that time stamped, photos or videos in real time would form a true and undeletable record of any inspection delegated to project consultants or who knows – in the future a drone!
The use of blockchain technology to trace the origin of materials in a supply chain in real time is already an established use case in other industries such as shipping, supermarkets, and luxury goods (to try and stamp out forgeries). The use in construction is therefore inevitable where it can be used to authenticate supplies, track delivery times, and confirm safety and environmental (carbon footprint) credentials.
Bloqwork is a platform which leverages blockchain technology for the management of information and ultimately payments in the construction industry. The platform is in the final stages of rolling out the first phase of its development, to create a marketplace of trusted and verified suppliers. Again, this is a blockchain use case already present in other industries such as the supply of components for manufacturing. Once the marketplace is established the Bloqwork platform will move to tendering and pricing via the network of trusted suppliers.
The next phase of the platform’s development will see Bloqwork Connect as a platform to exchange project information and communication which will then provide the foundation for the third phase of the roll-out Bloqwork Payments to enable payments and project bonding.
At present platforms exist to exchange information and communication but they are cloud based and therefore paid for and used by one or two project stakeholders, usually the Main Contractor and/or the Employer. But who should be trusted with paying for and holding all the project information? Is it either the Employer or Main Contractor, the project administrator, the subcontractors, the designers, or lawyers for one of the parties? It is in fact all these parties. Each should have access and hold its own information. Blockchain technology allows this whilst not revealing commercially confidential information. After all who would use email if all communication and information is visible to all, other than those on the “to” or “cc” list. Communications on the blockchain are in fact more secure than email since they are encrypted, and the level of transparency can be designed according to the type and use of information.
Blockchain will not save construction, but it will play its part in the digitalization of the industry and management of information and payments, particularly as the volume of data grows using the Internet of Things and AI.
