How Blockchain Innovation Can Help Cost-Efficiency in the Construction Industry


Construction may not be the first industry that comes to mind when you think of areas ripe for disruption by blockchain technology.

The construction industry is not where digital innovation has traditionally made many inroads, and it can be hard to imagine how distributed ledgers might help people whose jobs are to pour foundations or sheath roofs.

Yet blockchains offer several promising innovations for the world of construction, especially when it comes to managing all of the data that is required to erect buildings today. This matters not only because it would make the jobs of architects, builders and inspectors easier but also because it would provide badly needed cost-efficiencies for the construction industry.

The Construction Industry's Challenges: Cost and Information Complexity

You might assume that the cost of constructing a building has gone down significantly over the past century because building materials and methods have become less expensive. But you'd be wrong.

It is true that building supplies and the labor costs associated with them have become more affordable. Drywall paneling has replaced labor-intensive plaster installations. The huge, unwieldy timber required for balloon-frame construction has been supplanted by less expensive commodity studs used for platform framing. More recently, plastic pipes have taken the place of costly copper and cast iron in many buildings.

Yet despite all of these cost-effective innovations, the median home price in 2000 was almost four times as much as the inflation-adjusted price in 1940, before many modern construction innovations had come into play.

The reasons for this "cost creep" are many and varied. Labor has become more expensive, the average home today is larger and safety standards have grown more rigid. Blockchain technology can't do much to address these core issues.

Still, a fourfold increase in median home prices is very steep, and these factors alone do not explain it.

Another critical issue driving cost increases in construction - and one that blockchain technology can help to solve - is the difficulty of managing all of the complex information that is required to construct a building today.

Information complexity is a significant challenge for the construction industry today. In contrast to the earlier 20th century, when construction materials tended to be sourced locally, building requirements were more lax and decisions about building design details - where exactly to lay pipes or run wires, for example - could usually be made on the job site, today's construction industry relies on a wealth of data that can be difficult to manage and communicate efficiently. This adds up to increased building costs.

Today, construction materials are sourced from around the world, and problems with scheduling or the delivery of one item can snowball and hold up an entire project. Modern building designs, which are often created by architects who never visit the construction site, include a huge amount of detail that builders must interpret effectively in order to avoid safety and liability risks. Property purchasers have little means of ensuring that builders do what they promise, especially because many of a building's crucial systems are hidden in inaccessible places where even professional building inspectors cannot detect problems.

Using Blockchain Technology to Improve Construction

By using distributed ledgers to store and share data, the construction industry can achieve three main innovations that will help to reduce building costs and improve quality.

1.Decentralizing Building Design Data

Instead of relying on centralized Building Information Modeling (BIM) platforms to communicate information about building design, architects, builders and building inspectors could move building design data to a distributed ledger.

The advantages of this approach include ensuring that a change made by one party (such as a builder at the job site who realizes that a certain detail of a building design cannot be implemented as specified due to a problem unforeseen by the designers) to building plans are communicated transparently to all stakeholders.

This type of immutable, distributed data would benefit investors, inspectors and architects in commercial as well as residential construction. And for the homeowner, it's easy to imagine the advantage of having an immutable record of a home's design and construction. If you have ever wondered, for example, where to cut into a wall in your house in order to tie into existing wiring and install a new outlet, you know that it's largely a guessing game because you have no record showing exactly where wiring was installed. If building plans were stored on a distributed ledger where any interested party with permission could access them, even decades after a building's construction, this type of information would become easy to obtain.

2.Reducing Fraud Through Smart Contracts

Moving building planning and construction records to the blockchain would also help to combat fraud by enabling the use of smart contracts. Instead of relying on building inspectors and conventional contracts to ensure that buildings are constructed as promised, smart contracts could prevent a builder from being paid or an item from being crossed off the job list, until the blockchain confirms that a certain condition is met.

In the near term, verifying whether requirements have been met might require manual inspection in many cases. But it's possible to envision a future where smart devices allow this data to be collected and fed to smart contracts automatically. For example, pipes - which can already be regulated and monitored using IoT technology - might include sensors that can confirm which type of material they are made of and where they are placed within a building. The sensor data would allow a smart contract to confirm that pipes are installed according to building specifications, even if they are hidden behind walls or in concrete slabs. In this case, sensors and smart contracts could virtually eliminate the risk that builders would lay an inadequately sized pipe or install one in an unsuitable location (such as along an exterior wall where it could freeze) without being caught.

3.Improving Supply Chain Management

Improving supply chain management is a key use case for blockchain technology across a variety of industries.

Today, if building material can't be delivered on time or the wrong material is shipped, the builders who are affected by these problems have limited ability to discover them ahead of time. If construction supply chain data were moved to a distributed ledger, however, they would be much better positioned to anticipate material delivery issues or defects and plan accordingly. For instance, if a builder knows that there has been a manufacturing delay with drywall panels that he planned to receive and begin installing in a week, he might switch his focus for the time being from installing interior wall studs (which will be used to hold the drywall) to sheathing the roof (which can be completed without waiting on the drywall delivery) in order to avoid wasting time.

All of these innovations would help to reduce the risk and inefficiencies that contribute to the spiraling costs of building construction, while at the same time making buildings safer and easier to manage for the people who live or work in them.

So far, blockchain-based innovations within the construction industry remain mostly a distant vision; few companies have begun implementing them. But organizations such as the Construction Blockchain Consortium exist with the goal of driving the types of innovations described above. And blockchain startups like BitRent are using distributed ledgers to enable a greater degree of transparency into construction projects for people who invest in them.

Blockchain technology may not disrupt the construction industry as quickly as it does others, but the need is clear and the technology is already making inroads.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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