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Blockchain-Enabled Smart Contracts for Autonomous Construction Progress Payments

Block chain illustration

Project Team

Martin Fischer, Hesam Hamledari

Research Overview

Observed Problem: 

Construction progress payments are crucial to projects’ successful delivery. Traditional payment applications are time consuming to prepare, and they cannot take advantage of the myriad of digitized progress data, available thanks to the recent advancements in on-site reality capture.

Primary Research Objective:

This research explores the use of blockchain-based smart contracts to automate and decentralize the administration of progress payments, conditioning cash flow on job site observations without reliance on heavily intermediated and time-consuming payment applications. The proposed method will be tested in two real-life case studies of robotic data capture and BIM-based progress documentation. The blockchain-based payment system will be compared with current payment applications in terms of supply chain visibility, the level of payment granularity, and the level of effort

Potential Value to CIFE Members and Practice:

  • An automated and decentralized solution for construction progress payments
  • A means of directly utilizing on-site captured data for payments
  • Insights with regard to the effectiveness of blockchain-based payment system compared with current payment applications
  • Case study of the application of blockchain and smart contract for autonomous payment in two real-world construction projects

Research provides relevant insights for:

Owners, Architects, Builders, Operators

Research and Theoretical Contributions:

There are three theoretical contributions of this research. First, we will develop protocol that defines the VR use based on why, who, when and how. Second, we will build a framework to analyze what VR-augmented design reviews changes in design workflow. Third, we will identify a preliminary prototype of integrated, and VR-augmented design workflow.

Industry and Academic Partners:

Swinerton

Research Updates & Progress Reports

  • Fall 2020: finalizing the design of smart contract-based payment solution
  • Winter 2020: conducting charrette tests for evaluating the effectiveness of blockchain-based solution in comparison with current payment applications
  • Spring 2020: publishing the findings in the form of a few journal articles

Detailed Research Overview & Progress Updates

Progress Report - June 2021

Construction progress payments are crucial to projects’ successful delivery and their financial wellbeing. Traditional payment applications are time consuming to prepare, and they cannot take advantage of the myriad of digitized progress data, available thanks to the recent advancements in on-site reality capture. As a result, the payment processing continues to be labor intensive, time consuming, manual, and ineffective.

Additionally, the fragmented nature of today’s supply chain and the reliance on external financial institutions (banks) has pushed the physical and financial supply chains further apart; this has two broad implications for the construction and engineering industry: 1) a lack of integration between the flow of cash (payments) and the flow of products (progress of work at jobsites); and 2) a lack of visibility into today’s construction supply chain, creating asymmetric access to data.

The research addressed these limitations by its fourfold contributions:

I. The ‘why’ of smart contract and blockchain in payment processing

The researchers investigated the underpinning design of an automated payment processing solution based on blockchain-enabled smart contract. The research shed light on the true value proposition offered by smart contract compared with alternative technological solutions equally capable of automation.

The researchers argue that current payment applications, even if computerized, cannot support reliable automation of construction payments due to reliance on centralized mechanisms found in a server-client structure. The smart contract-enabled automation provides both a guarantee of execution and a decentralization of the payment administration.

The thesis was illustrated with a case study of payment automation in

The findings were summarized in a journal publication “Role of Blockchain-Enabled Smart Contracts in Automating Construction Progress Payments”.

II. The ‘how’ of smart contract and blockchain for payment processing

Given the crucial role these technologies can play in reliable payment automation (as detailed in [1]), the researchers then proposed and validated a payment automation solution based on smart contract; this novel solution provides construction and engineering firms to autonomously transition from on-site observations (product flow) to payment settlement (cash flow) on public blockchains such as Ethereum.

The method was successfully implemented on two retrospective case studies for processing payments to a total of 7 subcontractors. Additionally, the smart contract designed herein provides a means of coordinating lien rights to property using non-fungible tokens.

The findings were summarized in a journal publication “Construction Payment Automation Using Blockchain-Enabled Smart Contracts and Reality Capture Technologies”.

III. Supply chain integration: understanding the impact of smart contract-enabled payment automation

A comparison was drawn between supply chains relying on fiat currency and those using crypto assets (crypto currency and crypto token). The research elaborates how the use of crypto assets in place of fiat can enhance integration of cash and product flows; there are two facets to this crypto asset-enabled integration: 1) atomicity and 2) granularity. The former allows for data to sit together (rather than siloes) while the latter characterizes the scope of work compensated in each payment.

In a crypto asset-enabled payment system, cash and product flows can be directly linked together, stored together, and modified to include smaller scopes of work. This is in huge contrast with today’s supply chain where 1) financial and physical supply chains are stored across separate siloes, some within and some outside the project stakeholders; and 2) payments can only be processed in an aggregate level and monthly.

The findings were shared in a journal publication: "The Application of Blockchain-Based Crypto Assets for Integrating the Physical and Financial Supply Chains in the Construction & Engineering Industry."

IV. Supply chain visibility: understanding the impact of smart contract-enabled payment automation

Given the positive impact of smart contract on construction supply chain integration, the researchers explored whether such integration translates to improved visibility for stakeholders accessing the payment data. A charrette test method was designed to evaluate the accuracy and completeness of information accessed via payment platforms relying on today’s workflows and those using a smart contract.

The research revealed that the technology provides clear benefits at higher granularities; in contrast, it did not perform better than today’s digital payment systems when participants only required low granular data (e.g., total payments to GC in a given month). Additionally, the smart contract-based solution was observed to be resilient in the face of increased granularity. Under the same conditions, the accuracy and the completeness of information suffered in today’s payment systems.

The findings were shared in a journal publication: “Measuring the impact of blockchain and smart contract on construction supply chain visibility”.

Publications

  • Hamledari and Fischer (2021), "Construction Payment Automation Using Blockchain-Enabled Smart Contracts and Reality Capture Technologies", pre-print available at http://arxiv.org/abs/2010.15232
  • Hamledari and Fischer (2021), "The Application of Blockchain-Based Crypto Assets for Integrating the Physical and Financial Supply Chains in the Construction & Engineering Industry." Automation in Construction, Vol 127, doi: https://doi.org/10.1016/j.autcon.2021.103711
  • Hamledari and Fischer (2021), “Role of Blockchain-Enabled Smart Contracts in Automating Construction Progress Payments”, Journal of Legal Affairs and Conflict Resolution in Engineering and Construction, Volume 13, Issue 1. https://doi.org/10.1061/(ASCE)LA.1943-4170.0000442
  • Hamledari and Fischer (2021), “Measuring the impact of blockchain and smart contract on construction supply chain visibility”, Journal of Advanced Engineering Informatics (Under review)

Previous Related Research Project

Hamledari, Fischer, Lepech (2018), “CryptoBIM: Cryptographic and blockchain-enabled building information modeling”. Stanford, CA: Stanford Univ., Center for Integrated Facility Engineering

Original Proposal

Proposal

Funding Year: 
2021
Stakeholder Categories: 
Owners
Operators/Facility Managers
Designers
Builders