Smart Contracts In Construction Industry.

Smart contracts are self-executing contracts that are stored on a blockchain. They are a revolutionary technology that is transforming industries around the world, including the construction industry. By enabling secure and transparent record-keeping, smart contracts are designed to facilitate, verify, and enforce the negotiation or performance of a contract.

History Of Smart Contracts

Smart contracts were first conceptualized by computer scientist Nick Szabo in 1994. He envisioned them as computer programs that could automatically execute the terms of a contract without human intervention. The emergence of blockchain technology in the early 2000s provided the foundation for the development of smart contracts, as they can be executed on a blockchain, which enables secure and automatic execution of contract terms.

How the smart contract operate

Smart contracts operate through computer code that is stored on a blockchain network. The code is written to automatically execute certain actions or transactions when specific conditions are met. These conditions are typically based on pre-determined rules that are agreed upon by the parties involved in the contract.

When the conditions of the contract are met, the smart contract is automatically executed, without the need for any human intervention. The transaction is then recorded on the blockchain, which ensures that the contract is secure, transparent, and tamper-proof.

For example, in a construction project, a smart contract could be programmed to release payment to a contractor when certain milestones are reached, such as completing a certain phase of the project or meeting certain quality standards. The conditions for payment release would be agreed upon by both parties ahead of time and coded into the smart contract.

Smart Vs. Traditional Contract

The following points illustrate the main differences between the smart and the traditional contract:

1. Execution: Traditional contracts are executed manually by the parties involved, whereas smart contracts are executed automatically through computer code.
2. Intermediaries: Traditional contracts often require intermediaries such as lawyers, notaries, or other third parties to oversee and enforce the terms of the contract. In contrast, smart contracts eliminate the need for intermediaries.
3. Contract performance: In traditional contracts, performance is monitored and enforced by the parties or third parties, which can be time-consuming and expensive. In smart contracts, performance is self-executing.
4. Transparency: Smart contracts are recorded on a blockchain, which provides a high level of transparency as all parties can see and verify the contract terms and performance. Traditional contracts, on the other hand, may lack transparency as they may not be easily accessible or verifiable.
5. Security: Smart contracts are secured by the blockchain technology, which makes them highly secure and reduces the risk of fraud or hacking. Traditional contracts, on the other hand, are susceptible to fraud or hacking.
6. Customization: Smart contracts can be programmed to execute specific terms and conditions, while traditional contracts are tailored to specific needs and terms.
7. Cost: Traditional contracts may be expensive due to intermediaries and monitoring costs, while smart contracts reduce costs by eliminating intermediaries and reducing the need for monitoring.
8. Speed: Smart contracts are faster than traditional contracts, as they eliminate intermediaries and automate execution, which reduces processing time. Traditional contracts can be slow due to intermediaries and monitoring.

The Advantages of Implementing Smart Contracts in the Construction Industry.

Smart contracts have the potential to bring significant benefits to the construction industry by increasing transparency, efficiency, and security in contract execution. Here are some examples of how smart contracts can be used in the construction industry:

1. Payment automation: Smart contracts can be used to automate payment processes in construction projects, ensuring that contractors and subcontractors are paid promptly when specific milestones are reached or certain conditions are met. This can help reduce disputes and delays in payment.
2. Supply chain management: Smart contracts can be used to track the movement of construction materials and ensure that all parties in the supply chain are meeting their obligations. This can help reduce the risk of delays or fraud in the supply chain.
3. Quality control: Smart contracts can be used to enforce quality control standards in construction projects. For example, a smart contract could be set up to trigger an inspection when certain conditions are met, such as the completion of a particular stage of construction.
4. Dispute resolution: Smart contracts can be used to create a transparent and tamper-proof record of contract execution, which can help reduce disputes between parties. If a dispute does arise, the smart contract can be used as evidence to resolve the dispute.
5. Safety compliance: Smart contracts can be used to ensure that all parties in a construction project are meeting safety compliance standards. For example, a smart contract could be set up to trigger an inspection when certain safety protocols are not being followed.
6. Increased Accountability: With smart contracts, all parties can easily track contract performance and hold each other accountable for meeting contract obligations

What is next...

In conclusion, smart contracts are powerful tools that are transforming the construction industry. we don't exclude FIDIC (the International Federation of Consulting Engineers) from considering the smart contracts in their standard, however there has not yet made any official statements or guidelines regarding the use of smart contracts in construction. But, FIDIC has been closely following developments in technology and their potential impact on the construction industry.

In the end, as technology continues to evolve, we can expect to see even more exciting applications of smart contracts in construction.

References:

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3. Adam, B., Chakkalakal, J., Gopalakrishnan, B., & Pal, P. (2020). Smart Contract Based Construction Management Framework. In International Conference on Computing, Analytics and Networks (pp. 40-53). Springer, Singapore.
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6. Proxeus: https://www.proxeus.com/
7. LendLedger: https://lendledger.io/
8. BlockCAT: https://blockcat.io/
9. BuildCoin Foundation: https://buildcoin.org/