Blockchain application in construction sector an empirical smart blockchain based framework in contract and stakeholder management

VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY PHAM NGOC LIEN BLOCKCHAIN APPLICATION IN CONSTRUCTION SECTOR: AN EMPIRICAL SMART BLOCKCHAIN-BASED FRAMEWORK IN CONTRACT AND STAKEHOLDER MANAGEMENT Major: Construction Management Major code: 8580302 MASTER’S THESIS HO CHI MINH CITY, August 2022 THIS RESEARCH IS COMPLETED AT UNIVERSITY OF TECHNOLOGY – VNU – HCM CITY Instructor: Assoc Prof Dr Pham Vu Hong Son Examiner 1: Assoc Prof Dr Tran Duc Hoc Examiner 2: Dr Nguyen Thanh Viet Master’s thesis is defended at HCMC University of Technology, VNU- HCM at room 409A4 – Building A4 – HCMUT Campus on 22nd August 2022 The board of the Master’s Thesis Defense Council includes: Dr Do Tien Sy - Chairman Dr Nguyen Anh Thu - Member, Secretary: Assoc Prof Dr Tran Duc Hoc - Reviewer Dr Nguyen Thanh Viet - Reviewer Dr Nguyen Hoai Nghia - Member Verification of the Chairman of the Master’s Thesis Defense Council and the Dean of faculty of Civil Engineering after the thesis being corrected (If any) CHAIRMAN OF THE COUNCIL Dr Do Tien Sy HEAD OF FACULTY OF CIVIL ENGINEERING Assoc Prof Le Anh Tuan i VIETNAM NATIONAL UNIVERSITY SOCIALIST REPUBLIC OF VIETNAM HO CHI MINH CITY Independence – Freedom - Happiness HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY THE TASK SHEET OF MASTER’S THESIS Full name: PH M NG C LIÊN Student code: 2070687 Date of birth: 10.06.1995 Place of birth: Hanoi Major: Construction Management Major code: 8580302 I THESIS TOPIC Blockchain Application in Construction sector: An Empirical Smart Blockchainbased Framework in Contract and Stakeholder Management TÊN TÀI: ng D ng Công Ngh Blockchain Trong L nh V c Xây D ng: Vi c Trên N n T ng Blockchain Qu n Lý H p Xu t Khung Làm ng Và Các Bên Tham Gia D Án II TASKS AND CONTENTS - Identify existing problems in current construction cost and stakeholder management practice - Identify Blockchain potential applications in said fields and limits of extant literature of Blockchain in the industry - Propose an empirical framework to manage contract and stakeholder relationships using Blockchain architecture and state-of-the-art ii III TASKS STARTING DATE : 01.03.2022 IV TASKS ENDING DATE: 30.06.2022 V INSTRUCTOR: Assoc Prof Dr Pham Vu Hong Son HCM City, 29th August 2022 INSTRUCTOR Assoc Prof Dr Pham Vu Hong Son HEAD OF ACADEMIC DEPARTMENT DEAN OF FACULTY OF CIVIL ENGINEERING Dr Le Hoai Long Assoc Prof Le Anh Tuan iii ACKNOWLEDGEMENT I would like to acknowledge and give my warmest thanks to the lecturers, admins and classmates of International Master Program – Ho Chi Minh City University of Technology, who have made this program a huge success and continuously supported me during the course The completion of this research could not have been possible without kind support and guidance of PhD/ Associate Prof Pham Vu Hong Son, my admirable thesis instructor Your brilliant comments, suggestions and connections have been extremely helpful for me, not only on this journey of undertaking my master’s thesis research, but also in my future career and life I would like to send my special thanks to the interview participants who have facilitated their precious time and efforts to review the research outcomes and shared with me their best advice Last but not least, I am forever grateful to my family members and friends, in Ho Chi Minh city, in my hometown and overseas, who have always been understanding and given me enormous emotional support during difficult times iv ABSTRACT Construction projects, with their complex nature, large scale and various uncertainty, usually involve many parties with complicated collaboration It is crucial that a network system to improve mutual trust, collaborative transparency and efficiency with win-win motive to ensure overpower of one single party is minimized and common goals are achieved while individual interests, including healthy cash flow and financial merits are satisfied, to exist Conventional centralized governance fashions where client and/or general contractor play the key roles and have overpowering force over others have been proven not effective in settling current loopholes Blockchain, a distributed ledger technology with high transparency, immutability and security, is believed the solution as it has been applied successfully in many other industries with similar aims This dissertation seeks to present a comprehensive empirical Blockchain-based contract management framework applicable in construction sector to reduce the risk of payment, cash flow and conflict resolution failure and strengthen overall project management procedure Demonstration of two prototypes: Automatic interim payment with presence of a general contractor and one nominated subcontractor; and Determination of delay responsibility between a client and a general contractor and implementation of subsequent contractual events, are also discussed The research outcomes were reviewed by a committee in which members are either experts in construction sector or Blockchain field via a written structured interview questionnaire Merits, shortcomings and barriers of the proposed methodology were studied and recorded as foundation of future research Keywords: Blockchain, Construction, Contract Management, Smart Contract, Procurement, Delay Resolution v TÓM T T LU N V N TH C S Các d án xây d ng, v i tính ch t ph c t p, quy mô l n nhi u y u t khơng ch c ch n, th ng có nhi u bên v i s h p tác ph c t p R t c n thi t ph i t n t i m t h th ng m ng l i đ c i thi n s tin c y l n nhau, h p tác minh b ch hi u qu v i đ ng c đơi bên có l i đ đ m b o gi m thi u quy n l c c a m t bên nh t đ t đ c m c tiêu chung l i ích cá nhân, bao g m dịng ti n lành m nh giá tr tài đ thơng th c th a mãn Các mơ hình qu n tr t p trung ng ch đ u t và/ ho c t ng th u đóng vai trị ch ch t có s c m nh ch ng nh ng ng i khác đ c ch ng minh không hi u qu vi c gi i quy t l h ng hi n t i Blockchain, m t công ngh s phân tán v i tính minh b ch, b t bi n b o m t cao, đ c cho gi i pháp đ thành công nhi u ngành công nghi p khác v i m c đích t c áp d ng ng t Lu n án mong mu n trình bày m t khn kh qu n lý h p đ ng d a Blockchain, đ c áp d ng toàn diên l nh v c xây d ng đ gi m r i ro tốn, dịng ti n th t b i gi i quy t xung đ t c ng c quy trình qu n lý d án t ng th Hai mơ hình đ c mơ phịng: Thanh toán t m th i t đ ng v i s hi n di n c a m t t ng th u m t nhà th u ph đ c ch đ nh; Xác đ nh trách nhi m ch m tr gi a ch đ u t t ng th u vi c th c hi n s ki n h p đ ng ti p theo c ng đ lu n Các k t qu nghiên c u đ c th o c xem xét b i m t y ban, thành viên chuyên gia l nh v c xây d ng ho c l nh v c Blockchain thông qua m t b ng câu h i ph ng v n có c u trúc b ng v n b n Nh ng u m, khuy t m rào c n c a ph ng pháp đ c đ xu t đ n n t ng cho nghiên c u t c nghiên c u ghi nh n đ làm ng lai T khóa: Blockchain, Xây d ng, Qu n lý h p đ ng, H p đ ng thông minh, Mua s m, Gi i quy t ch m tr vi THE COMMITMENT OF AUTHOR I, Pham Ngoc Lien, author of master’s thesis entitled “Blockchain Application In Construction Sector: An Empirical Smart Blockchain-Based Framework In Contract And Stakeholder Management” hereby declare that the thesis was done by the author under the supervision of the instructor All works, ideas and materials gained from other references have been cited in the correct way Author Ph m Ng c Liên vii TABLE OF CONTENTS THE TASK SHEET OF MASTER’S THESIS i ACKNOWLEDGEMENT iii ABSTRACT iv THE COMMITMENT OF AUTHOR vi TABLE OF CONTENTS vii LIST OF FIGURES ix LIST OF TABLES xi LIST OF ABBREVIATION xii INTRODUCTION .1 1.1 Problem Statement 1.2 Research Objectives 1.3 Scope of Study 1.4 Research Methodology 1.5 Contribution to Academic and Practical Fields 1.5.1 Academically 1.5.2 Practically LITERATURE REVIEW 2.1 Concepts and Definitions 2.1.1 Contract Management 2.1.2 Stakeholder Management and Dispute Resolution 2.1.3 Blockchain 11 2.1.4 Smart Contract 13 2.2 Related Studies 15 viii 2.2.1 Overview of contract and stakeholder relationship management researches 15 2.2.2 Blockchain technology 18 FRAMEWORK STRUCTURING 25 3.1 Architecture of proposed framework 25 3.2 State-of-the-art of proposed framework 27 3.2.1 Consensus mechanism 27 3.2.2 Consortium Blockchain on Ethereum 30 3.2.3 Data access using OTP 31 FRAMEWORK VALIDATION .32 4.1 Model Development 32 4.1.1 Automatic interim payment 32 4.1.2 Delay Resolution 36 4.2 Structured Interviews 51 CONCLUSION AND FUTURE RESEARCH 55 5.1 Research Outcome and Limitation 55 5.2 Future Research 56 REFERENCES 57 APPENDIX .62 Appendix No.1 – Specimen of Research Interview Questionnaire 62 Appendix No.2 – Responses of Research Interviewees 73 67 Example of payment execution is demonstrated in below figure The process starts with the nominated subcontractor submitting a payment application comprising information like payment application reference number, total claimable amount, cumulative paid amount, detailed quantity description and retention amount to the general contractor The claims shall be verified by the general contractor and submitted as an integrated part of general contractor’s payment request to the client (primary node), with consideration of predefined profit and attendance fee rate Each of the secondary nodes can only access certain data related to their trade to assess and express their approval or rejection For example, the site supervisor compares the claim description with actual on-site performance while architect and engineer checks the work done against the design in an impartial basis The quantity surveyor shall check whether the amount claimed built-up goes according to agreed unit rates and quantity, as well as if all calculations of retainage and/or recoupment of made payments are correct Upon collecting all engineers’ evaluation, the client shall have the evaluation of their own before the committee finally decides whether to approve or reject the payment request The decision is recorded to the Blockchain with a timestamp which shall sets the time and date of the payment certificate and the end of a grace period when money shall be eventually released automatically from a secure cryptocurrency account 68 6.2 Delay resolution Construction delay is among the most common causes of disputes globally Unsolved disputes, in return, further delay the project as contractors potentially don’t want to compromise A conceptual approach to determine who should be responsible for time overrun between a client and a general contractor using Blockchain as facilitating platform is proposed and discussed in this section The proposed approach consists of two main tasks: determination of responsibility (via Blockchain online crowdsourced jurisdiction platforms) and automatic implementation of contractual subsequent affairs (including reimbursement of LAD, payment of contractor’s claim and notice of EOT, via smart contracts) The procedure first starts with checking of performance bond type, whether it’s unconditional bond or conditional bond In the event the performance bond is an unconditional one, beneficiary, which in most cases the client, shall submit an original of a written demand for payment and the original of the bond itself to the bond provider before the expiry date and time to request for a payment of LAD for a specific delay period following the predefined contract terms and conditions, with consideration of the maximum advance amount and allowed number of callings On the other hand, in the event the performance bond is a conditional bond, it is required that determination of delay typology and subsequent actions following contract logics is conducted, to supplement documents to the bond provider, who has joint responsibility for the performance of the contractor As supporting documents are usually results of an arbitration, the study suggests to utilize Blockchain 69 crowdsourced arbitration platforms Smart contracts designate a platform as their arbitrator in case of dispute with conditions of court type and number of jurors etc, Accordingly, when a dispute emerges, members of a crowdsourced jury are randomly selected to study the case evidence and vote for a verdict Once determined, subsequent contract events including payment/reimbursement if any are implemented following coded smart contract terms, leading the workflow to an end 70 Conclusion, Limitation and Future Research The author has studied current practice of construction project contract and stakeholder relationship management, thus, proposed a conceptual Blockchain-based framework to improve the mentioned management process, with two detailed prototypes of interim payment automation and delay resolution By introducing smart contracts to facilitate payment application, acceptance and transaction and crowdsourced arbitration solution to determine delay responsibility apportionment and automatic resolution accordingly as parts of an overall contract management procedure, the proposed approach is expected to reduce implementation time and overhead cost due to employment of third parties like banks and lawyers; as well to reduce the risk of injustice and arbitrary thanks to incentive mechanisms and power of Internet population However, due to limited resource and current technology available, the research outcome is limited to an empirical framework only, smart contracts are yet to be coded and developed to perform aforementioned payment process In addition, contract life cycle management on Blockchain are all still in early development stage Most Blockchain crowdsourced juror platforms are recently established startup companies with many of juror members are not trained legal experts, with limited 71 programming interface to link smart contracts with oracle network, but the future is bright as both academic research and enterprise parties are increasingly developing Blockchain, Cloud Computing, Oracle and IoT integration In conclusion, future works must exploit more hybrid technologies, deeper analysis and trial to validate the proposed system’s feasibility, economics, legal significance and scalability PART 2: STRUCTURED INTERVIEW QUESTIONNAIRE In order to assess and validate the feasibility of proposed Blockchain-based construction contract and stakeholder management framework, you kind sir are requested to answer 04 questions But first, please help to provide your background and level of knowledge regarding relevant technical subjects (An example is provided in italic font) Level of knowledge Full name Background (Acceptable inputs: None/Low/Medium/High) Construction Blockchain Pham Ngoc Lien Client- Cost & BIM, IoT Contract Smart and other Management contract technologies High Medium Low Procurement Manager With reference to above Part 1: Summary of the research and your personal insights and opinions, kindly provide answers to the following 04 questions: 72 Question Content Answer Type Do you acknowledge and think that Yes or No, with S/N Blockchain, associated with other modern explanation technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: What are the advantages of the proposed Free-listing framework? Answer to Question 2: What are the disadvantages of the Free-listing proposed framework? Answer to Question 3: What you think may hinder the development and application of the proposed framework? Answer to Question 4: - THANK YOU - Free-listing 73 Appendix No.2 – Responses of Research Interviewees Remarks: Individual responses of the questionnaire will be used for general analytical purpose only Identity of all interviewees shall remain anonymous unless an official written request is registered by an authorized person from VNU-HCMUT or government body Interviewee ID Background Consultant Engineer Question S/N – Civil Level of knowledge (Acceptable inputs: None/Low/Medium/High) Construction Blockchain BIM, IoT and Contract Smart contract other Management technologies Medium Medium Medium Content Answer Type Do you acknowledge and think that Yes or No, with Blockchain, associated with other modern explanation technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: Có Tính minh b ch b o m t cao, vi c ng d ng Blockchain vào ngành ngh xây d ng th tr ng c n thi t Trong trình s n xu t, c n m t s thơng minh đ theo dõi q trình v n hành,qu n lý thông tin giao d ch … Blockchain s thay th thi t b c đ c p quy n qu n lý, nâng cao hi u qu t ng đáng k n ng su t c a qu n lý chu i cung ng What are the advantages of the proposed Free-listing framework? Answer to Question 2: C i thi n đ xác b ng cách lo i b s tham gia c a ng i vào trình xác minh Gi m thi u chi phí b ng cách lo i b trình xác minh c a bên th ba Tính phi t p trung làm cho vi c gi m o tr nên khó h n 4.Giao d ch an toàn, riêng t hi u qu 74 What are the disadvantages of the Free-listing proposed framework? Answer to Question 3: V n đ c a blockchain l u tr m i th mãi, có th gây m t s lãng phí l n v khơng gian l u tr Làm t n b ng thông m ng, có th nh h ng l n t i m ng Internet khu v c xây d ng m ng blockchain ng d ng di đ ng b t kh thi gi i h n v n ng l c tính tốn t xác minh m i giao d ch đ m b o gian l n ph i th c s ho t đ ng t t What you think may hinder the Free-listing development and application of the proposed framework? Answer to Question 4: có v n đ tr ng y u nh h ng đ n s phát tri n Nh ng website nh blockchain.info cho phép b n t o ví l u tr chìa khóa l i đ a h th ng v toán l u tr t p trung, d dàng b hacker ghé th m đánh c p ti n n c p ý t ng n u cung c p thông tin cho khách hàng đ i th c nh tranh v n có th xem copy thơng tin Interviewee ID Background Contractor – Coordinator Question S/N Project Level of knowledge (Acceptable inputs: None/Low/Medium/High) Construction Blockchain BIM, IoT and Contract Smart contract other Management technologies Medium Medium Low Content Answer Type Do you acknowledge and think that Yes or No, with Blockchain, associated with other modern explanation technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: No Most change and argument is in a field (site) in construction stage Smart contract is only efficient in management of cost 75 What are the advantages of the proposed framework? Answer to Question 2: - Transparency - automatical payment and safety - reduce paper work - more efficient claims management - better coordination between stakeholders - Greater efficiency and shorter project lifecycles - Cost and resource savings - Reduction in errors Free-listing What are the disadvantages of the Free-listing proposed framework? Answer to Question 3: - Data control and decentralization - Don’t reduce variation order in construction stage - Stakeholder must have staff who get insight into blockchain and IT What you think may hinder the Free-listing development and application of the proposed framework? Answer to Question 4: - Legal and data privacy - The automated execution and enforcement of contractual conditions previously set by the relevant parties might also lead to inability to manage any contingencies arising during the execution of the smart contract - Consumers may not be aware of all blockchain and smart contract features, including the importance of proper management of publicprivate keys, as necessary - There might be also interoperability risk between different blockchains and lack of integration with internal legacy systems or issues related to the migration of legacy data into the new systems - No universal software platform - For effective results, BIM needs to utilized end to end for projects Interviewee ID Background Level of knowledge (Acceptable inputs: None/Low/Medium/High) 76 Client- Senior Engineer Question S/N Project Construction Contract Management Low Blockchain Smart contract Low Content BIM, IoT and other technologies Low Answer Type Do you acknowledge and think that Yes or No, with Blockchain, associated with other modern explanation technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: Yes Blockchain with the mechanism all of the data is stored on multiple devices of the network instead of a single main server and cannot be tampered with or deleted will provide reliable support in contract management Construction project management in the era of digitizing technology with priority on information integrity and accuracy Information sent in multiple stages between stakeholders needs to be transferred quickly and easily accessible, of course it should not be modified without transparency I think this is a great combination in near future term What are the advantages of the proposed Free-listing framework? Answer to Question 2: - Difficulties in contract and payment controls, delay and arising factors make all stakeholders want to use a transparent set of tools to minimize risk when managing construction project management What are the disadvantages of the Free-listing proposed framework? Answer to Question 3: - Obstructing the professional qualifications of individuals and company stakeholders when using new modern technologies - Software establishment to ensure program reliability should be tested and complied with without violating applicable construction project management legislation when operating in each country - Consider whether the operating cost is more expensive or cheaper when it applies (for each stakeholder) What you think may hinder the development and application of the proposed framework? Free-listing 77 Answer to Question 4: - Recognition law mechanism - Technology background and popularity - Human resources (qualifications) and cost Interviewee ID Background Subcontractor – Project Planning Senior Manager Question S/N Level of knowledge (Acceptable inputs: None/Low/Medium/High) Construction Blockchain BIM, IoT and Contract Smart contract other Management technologies Medium Medium Medium Content Do you acknowledge and think that Blockchain, associated with other modern technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: Yes Answer Type Yes or No, with explanation What are the advantages of the proposed Free-listing framework? Answer to Question 2: Reduces the amount of time required to create an application from scratch, hence increasing productivity It assists experts while adding to the structure of new projects What are the disadvantages of the Free-listing proposed framework? Answer to Question 3: The underdeveloped countries cannot afford to create their own framework since it is still a long and expensive process What you think may hinder the Free-listing development and application of the proposed framework? 78 Answer to Question 4: This framework is incredibly tough to construct Rich and established nations are able to establish their own conceptual frameworks, but emerging nations find it highly time-consuming and costly Interviewee ID Background Blockchain Developers/Tokenomist Lead Question S/N Level of knowledge (Acceptable inputs: None/Low/Medium/High) Construction Blockchain BIM, IoT and Contract Smart contract other Management technologies Low High High Content Answer Type Do you acknowledge and think that Yes or No, with Blockchain, associated with other modern explanation technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: Yes, Blockchain provides the transparency, immutability and autonomous in triggering events for contracts These features are suitable to solve current challenges in construction contract and stakeholder management practices What are the advantages of the proposed Free-listing framework? Answer to Question 2: The proposed framework has outstanding points in term of fraud handling and keep all the processes in transparency Decentralized the authorization is the new approach in construction contract but it’s also the strength of blockchain technology Choosing that technology empowers the stakeholder the worry-free in breach of contract or issues in payment What are the disadvantages of the Free-listing proposed framework? Answer to Question 3: The framework is great in concept and has clear vision about what we should However, it also requires the development to have testament From my experience, the smartcontracts which could fufill the conditions are complicated and have strong demand in infrastrucutre to process 79 What you think may hinder the Free-listing development and application of the proposed framework? Answer to Question 4: I don’t see any real blockers to stop the development It’s only the matters of investment and time being Interviewee ID Background P.G Ban QLDA Question S/N Level of knowledge (Acceptable inputs: None/Low/Medium/High) Construction Blockchain BIM, IoT and Contract Smart contract other Management technologies Cao Trung b̀nh Trung b̀nh Content Answer Type Do you acknowledge and think that Yes or No, with Blockchain, associated with other modern explanation technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: Có Vì, T ng h p đ c t t c tình hu ng th c t c ng nh cách x lý gi i quy t v n đ th c t x y What are the advantages of the proposed Free-listing framework? Answer to Question 2: T t c d li u, h s ch ng t đ u đ c s hóa.; ki m sốt đ c th i gian x lý; bi t đ c t n đ ng h s khâu What are the disadvantages of the Free-listing proposed framework? Answer to Question 3: C n ph i chu n hóa đ c qui trình x lý; thi u thơng tin có th d n đ n x lý sai What you think may hinder the development and application of the proposed framework? Free-listing 80 Answer to Question 4: i u ki n qui mô doanh nghi p Interviewee ID Background Project Director Question S/N Level of knowledge (Acceptable inputs: None/Low/Medium/High) Construction Blockchain BIM, IoT and Contract Smart contract other Management technologies High Low Medium Content Answer Type Do you acknowledge and think that Yes or No, with Blockchain, associated with other modern explanation technologies, has the potential to solve current problems in construction contract and stakeholder management practice? Answer to Question 1: Yes, an application of Blockchain is Smart Contract which I think has high potential for construction contract in practice, especially in sub-fields like audit, claim management, payment, etc What are the advantages of the proposed framework? Answer to Question 2: - Clarity processes and procedures - Adequacy of construction contract management What are the disadvantages of the proposed framework? Answer to Question 3: No further comment Free-listing Free-listing What you think may hinder the Free-listing development and application of the proposed framework? Answer to Question 4: Regulations, readiness of stakeholders, acceptance of cryptocurrency, any clear proposed roadmap/plan of application from the study? 81 PROFILE Full name: PHAM NGOC LIEN Date of birth: 10th June 1995 Place of birth: Hanoi, Vietnam Address: District 2, Thu Duc City, Ho Chi Minh City, Vietnam Email: lien.pham.imp20@hcmut.edu.vn TRAINING PROCESS (Starting from university to now): 09/2013 - Now WORKING PROCESS (Starting from work to now): 08/2018 - Now ... birth: Hanoi Major: Construction Management Major code: 8580302 I THESIS TOPIC Blockchain Application in Construction sector: An Empirical Smart Blockchainbased Framework in Contract and Stakeholder. .. Contract management in construction sector: To gain insights on recent contract and stakeholder management practice in construction sector; identify advantages and disadvantages of utilized administration... practice and body of knowledge of Blockchain technology in information, contract and conflict management within construction sector Blockchain has been studied and applied in several aspects of the industry,