INTRODUCTION
Problem Statement
Financial wellbeing is vital for the success of any industry, particularly in construction, where projects vary widely in type, scale, and location The sector often involves complex collaborations among multiple parties, and inadequate financial management can lead to bankruptcy for construction companies, which have a 14% higher failure rate than other businesses in the USA To ensure that project goals are met while maintaining healthy cash flow and financial stability for all stakeholders, it is essential to effectively manage relationships among them.
The construction industry is currently grappling with several challenges in collaborative operations One significant issue arises from the diverse group of stakeholders involved in projects—clients, architects, engineers, contractors, subcontractors, and suppliers—who often lack prior working relationships, leading to trust issues and resource investment challenges Additionally, the fragmented nature of funding, design, bidding, off-site manufacturing, and on-site construction creates a lack of reliable information across the supply chain During contract execution, individual stakeholders, such as site managers or designers, may need to make discretionary decisions on behalf of their organizations, which can lead to unpredictable outcomes and increased costs Furthermore, the payment processes in construction projects are often unfair, with upstream parties wielding significant bargaining power, leading to disputes over late or non-payment that adversely affect the finances of downstream parties like subcontractors and suppliers, ultimately jeopardizing project success.
Figure 1.1 Construction Project Stakeholder Relationship Map
In today's construction industry, stakeholders face numerous operational challenges that can lead to project failures and financial losses To ensure project success, a reliable and transparent platform is essential for managing contractual relationships, payments, and conflicts Traditional centralized management approaches, where clients or general contractors hold excessive power, have proven ineffective in addressing these issues and may even exacerbate them Therefore, the adoption of a peer-to-peer network or technology that reduces information asymmetry and enables automated processes with minimal human intervention is crucial for fostering mutual trust, enhancing collaborative transparency, and improving overall efficiency, ultimately benefiting all parties involved.
Research Objectives
Blockchain technology is emerging as a viable solution to address prevalent issues in the construction sector, having proven effective in various other industries facing similar challenges This research presents an innovative framework that integrates smart blockchain-based contracts, payment systems, and stakeholder relationship management to tackle these problems Key features and functions of this framework are depicted in Figure 1.2.
Figure 1.2 Blockchain-based Framework's Expected Key Functions and
The proposed framework aims to enhance contract management, payment management, and stakeholder relationship management It serves as a transparent and secure information platform for project parties, ensuring clear ownership and enabling auditors to trace all contract events through a shared ledger with credible timestamps Additionally, it streamlines payment verification processes, ensuring compliance with agreed terms, while automating payments in both cryptocurrency and fiat money to minimize late transfers and reduce transaction fees by eliminating the need for banks Furthermore, the blockchain-based model prevents the dominance of a single party, such as a client or general contractor, and facilitates multi-lateral consensus for conflict resolution, addressing issues like delay damages and work failures.
Scope of Study
A typical construction project’s life cycle consists of 06 stages: Appraisal; Definition, Design; Construction; Commissioning and Operation [8] The research sets a demarcation focusing on contract management in construction stage
The simplified contract stakeholder model highlights the primary relationship between the Client and the General Contractor, who enter into a master contract for construction services In addition to this central agreement, both parties engage with various other stakeholders, including subcontractors, quantity surveyors, architects, engineers, and supervisors, to facilitate project activities They also rely on financial support from bond providers, such as banks or insurance companies, to mitigate risks associated with contract breaches or failures Future research may broaden the stakeholder scope to enhance scalability in project management.
Figure 1.3 Research Stakeholder Relationship Model
Research Methodology
Research methodology is summarized in Figure 1.4
Literature review of recent researches on contract management and blockchain in construction sector shall consist of 2 main topics:
Contract management in the construction sector is crucial for understanding recent practices in contract and stakeholder management It is essential to evaluate the advantages and disadvantages of current administrative tools to identify areas where blockchain technology could serve as a more effective alternative By pinpointing these aspects, stakeholders can enhance efficiency and transparency in construction projects.
Blockchain technology is increasingly recognized in the construction sector for its potential to enhance contract and stakeholder management By integrating current blockchain applications with other tools and techniques, the industry can develop a highly functional system that improves transparency, efficiency, and collaboration among all parties involved.
Summary of literature review findings and studied papers are presented in Chapter 2 of this dissertation
Chapter 3 introduces a framework that transforms traditional construction contracts into smart contracts within a multi-domain systematic structure, clearly outlining the roles of each party involved These contracts are executed on a blockchain framework that integrates consensus from network nodes and data from verified third-party sources, enabling resolutions based on the agreed terms whenever specific triggers necessitate stakeholder actions Additionally, this chapter presents recommended tools for achieving network consensus and ensuring system security.
Chapter 4 presents the development of two prototypes for the proposed framework: one focusing on interim payments to general contractors and subcontractors, and the other addressing project delay resolution This chapter also includes structured interviews aimed at gathering expert opinions on the feasibility of the proposed framework, providing valuable insights into its practical application.
Contribution to Academic and Practical Fields
The innovative Blockchain-based framework aims to enhance the existing knowledge in construction contract and finance management, serving as a comprehensive guideline for project stakeholders across diverse project characteristics This approach seeks to minimize the risks associated with payment and cash flow failures while strengthening overall project management processes.
Blockchain technology, established in 2008, has significantly impacted various industries, including data management, smart city operations, and banking solutions Despite the growing interest in its applications, research specifically exploring the potential of Blockchain in the construction sector remains limited Expanding the body of knowledge in this area is crucial for harnessing Blockchain's benefits in construction.
The article discusses the systematic integration of Blockchain applications within the construction stage of project life cycles, highlighting the advanced framework proposed for future technology endorsement.
The framework is believed to become an effective tool for future contract and stakeholder management practice The framework is expected to:
A permissioned blockchain network, equipped with advanced information management technology, enables secure and transparent recording of contracts among various stakeholders, including clients, general contractors, subcontractors, suppliers, engineers, inspectors, and banks This system allows authorized parties to access project data and verify transactions, ensuring compliance and accountability throughout the project lifecycle.
- Be applicable to manage both off-site material fabrication and delivery works and on-site construction works
- Be applicable for both short-duration and long-duration construction projects of different executive natures, i.e Design-Bid-Build, Design-Build and Engineering- Procurement-Construction
Automate contract payments with a high level of trust, punctuality, and respect, ensuring compliance with agreed payment terms based on completed work or certified parts by engineers and inspectors, all without the need for bank involvement.
- Be able to assist project managers to address certain conflicts among contractors/subcontractors in term of coordination of work and verification of work completed in cross-discipline projects
The research presents two prototypes for automating the interim payment process in construction and resolving conflicts related to delay responsibilities These prototypes feature clearly defined mechanisms and examples, providing stakeholders with a thorough reference for potential future trials before widespread commercial implementation.
LITERATURE REVIEW
Concepts and Definitions
A contract is a mutual agreement between at least two parties that involves an offer and acceptance, establishing binding terms and conditions This agreement obligates the contractor to deliver specified products, services, or results, while also requiring the client or buyer to provide monetary or other valuable consideration.
Contract management encompasses various tasks and techniques aimed at ensuring compliance with agreed contract terms, mitigating contractual risks, and implementing necessary actions in the event of a breach by any party This process is essential for minimizing project damage and protecting the performing party regarding time and payment obligations.
Process workflow of contract management is spread out on the whole project life cycle Basic tasks and common difficulties of contract management are illustrated in Figure 2.1
Figure 2.1 Basic Tasks and Common Difficulties in Contract Management
2.1.2 Stakeholder Management and Dispute Resolution
According to the Engineering Advancement Association of Japan, stakeholders are individuals involved in business activities, with specific project stakeholders being directly concerned with a particular project Project stakeholders are categorized into two hierarchies: primary and secondary Primary stakeholders hold contractual or legal obligations and possess the authority to manage resources, ensuring the project meets its schedule, cost, and technical performance objectives These individuals typically engage in the design, engineering, development, construction, and logistical support of the project In contrast, secondary stakeholders do not have formal contractual ties to the project but have a vested interest in its status, such as local communities and professional researchers.
Effective construction project management requires a systematic approach to stakeholder management, as various stakeholders have diverse interests and requirements Skilled project managers must navigate these differing perspectives to ensure that stakeholder needs are met while achieving optimal project outcomes.
A major matter in any industry, especially one with complicated stakeholder relationships like construction industry, is dispute resolution
There are three primary dispute resolution models: state court litigation, professional private arbitration, and crowdsource arbitration, including Blockchain dispute resolution State courts offer the advantage of enforceable judgments backed by state authority, but their lengthy and costly procedures can be a disadvantage for medium and small businesses In contrast, professional arbitration services, such as those provided by the Vietnam International Arbitration Centre (VIAC), are typically faster and ensure high-quality judgments due to the expertise of the adjudicators Recently, the rise of online platforms for private arbitration, like the European Online Dispute Resolution, has addressed the growing demand for quick, fair, and cost-effective resolution processes, resolving over 36,000 cases in 2018 alone.
Crowdsourced arbitration utilizes untrained jurors rather than professional attorneys, making it an appealing option for smaller groups seeking to resolve disputes independently through established ground rules This method of dispute resolution can occur both online and offline The emergence of Blockchain technology enhances online dispute resolution by reducing manipulation risks, lowering costs, and improving time efficiency Consequently, Blockchain-powered crowdsourced arbitration is proposed as an effective methodology for addressing conflicts related to construction project delays, as discussed in Section 2.2.2.4 of this research.
Blockchain is chosen as the backbone infrastructure of the whole framework Its definition, characteristics and strength are presented in this section
Blockchain, created in 2008 by Satoshi Nakamoto, is a revolutionary database technology that addresses contractual challenges in the construction sector Best known for powering Bitcoin, blockchain operates as a chain of information blocks within a decentralized network, utilizing a shared ledger and cryptography to validate and secure transactions Each verified transaction is timestamped and added to the chain, creating an immutable and highly secure record that enhances data authenticity The transparency of blockchain allows all network nodes to access and track transaction history, ensuring reliable information for users.
[3] Basis of blockchain operation [16] is described in Figure 2.2
Figure 2.2 Mechanism of Blockchain operation
Below are some of blockchain’s most significant characteristics [17], [18]:
Blockchain technology functions on a decentralized peer-to-peer network, utilizing a distributed ledger that eliminates the need for intermediaries or centralized servers This structure significantly reduces the risk of a single point of failure, as all nodes in the network may possess equal rights and responsibilities, depending on the specific objectives of the network.
- Immutability: Once recorded to the blockchain, transactions cannot be updated or deleted
- Transparency: In a public blockchain network, all nodes are informed whenever a transaction occurs
Blockchain technology offers robust security through its decentralized nature, making it highly resistant to attacks To compromise a blockchain, an attacker would need to simultaneously hack multiple devices across the network, which is both costly and nearly impossible The system employs hashing algorithms that transform data strings into unique values, ensuring that the original data cannot be retrieved without significant computational resources Additionally, blockchain utilizes asymmetric-key cryptography, allowing only authorized users with the correct private and public key pairs to execute transactions, further enhancing data security.
- Auditability: Whenever transaction is made, it is recorded in the ledger with a timestamp, enabling auditors to trace back the series of events when necessary
- Trust: The majority of network nodes must express consensus to add data to the blockchain That eliminates the risk of overpowering force of a single node in the network
Blockchain technology is being effectively utilized across various industries, particularly through a blockchain-based contract management framework This framework enhances information transparency among project stakeholders and facilitates multi-party transactions, such as work acceptance records, conflict resolution, and payment processes It draws inspiration from smart contracts, which are among the most prevalent applications of blockchain technology.
A smart contract is a self-executing code on the blockchain designed to automate, enforce, and execute the terms of an agreement between parties that do not trust each other Its operational mechanism is visually represented in Figure 2.4.
Figure 2.4 Mechanism of Smart Contract operation
Once contract terms are agreed upon, they are encoded into public Blockchain platforms like Ethereum or permissioned Blockchains such as HyperLedger, which have restricted access The contract outlines the rights and obligations of the parties involved, with records of any fulfillment or breach linked to appropriate consequences, including payments, penalties, or termination All contract implementation records are stored in the ledger, allowing stakeholders to monitor and audit the process effectively In the context of Industry 4.0, the Internet of Things (IoT) facilitates not only manual verification of contract compliance by authorized individuals but also automatic input from trusted third-party information sources, known as "oracles." This automatic execution is crucial for smart contracts, enabling them to self-execute upon the occurrence of predefined events without human intervention.
Smart contracts are increasingly utilized in the construction supply chain and logistics, automating payments among stakeholders when contract terms, such as timely material delivery and inspection proofs, are met They also facilitate interim payments for construction work, addressing cash-flow issues by automatically disbursing funds to general contractors upon validation of payment requests from relevant parties like quantity surveyors and supervisors Additionally, smart contracts can create a "web of payment," where funds transferred to a general contractor trigger automated payments to subcontractors and suppliers based on linked contract conditions However, most existing smart contracts are simplistic, failing to address the complex conflicts that arise in real-world construction projects Furthermore, awareness of blockchain technology's potential in the construction industry remains low, with a 2020 KPMG Canada survey revealing that only 5% of companies have adopted it, while 57% have no immediate plans to do so.
Related Studies
2.2.1 Overview of contract and stakeholder relationship management researches
Historically, construction contracts were handled through a paper-based system, where stakeholders' rights, obligations, copyright, and intellectual property were documented in signed and stamped books This reliance on paper marked the initial phase of business specialization, with companies focusing either on information processes like inspection, planning, design, and engineering, or on material processes such as fabrication, construction, maintenance, and demolition.
The growing demand for professionalism and effective coordination in modern construction projects necessitates timely and accurate delivery of information, particularly contractual details, among stakeholders This shift is driving the industry towards digital contract management, moving away from traditional paper-based methods Electronic contracts streamline the creation and management of agreements through four key stages: Contract Creation, Contract Execution, Change Management, and Contract Closure Additionally, digital payment management allows stakeholders to process payments online, significantly reducing payment processing effort by 84%.
Despite the global digital revolution, the construction industry has seen relatively modest adoption of modern technology compared to other manufacturing sectors like automotive, pharmaceutical, and biotechnology.
The introduction of Building Information Modeling (BIM) has unveiled significant opportunities to enhance the quality of building information and construction management, as it provides a 'single version of the truth.'
Relevant stakeholders, including designers, clients, contractors, inspectors, and operators, can utilize 3D visualization to access comprehensive building information, including scheduling (4D), cost (5D), and sustainability (6D) aspects Despite the growing body of research on Building Information Modeling (BIM) in construction management, real-world BIM maturity remains limited due to challenges such as fragmented legal significance, information redundancy, and data storage issues Oracle addresses these challenges by integrating BIM with cloud computing through its Aconex platform, designed for project information storage and contract governance However, the reliance on third-party servers for centralized cloud-based platforms like Aconex raises concerns about security, data loss, privacy, access denial, and trustworthiness.
As the relationship between project stakeholder is complex and transforms from project to project [1], it is required to analyze the factors influencing it
According to [5], 20 factors are identified to have impacts on the collaboration among construction project stakeholders during construction phase Among which, 5 most influencing factors are summarized in Table 2-1
Table 2-1 Most influencing factors in project stakeholder collaboration during construction stage
1 Honesty between project stakeholders Whether the stakeholders are willing to take his responsibility when failures occur or try to conceal their faults and blame others
2 Business philosophy Whether the stakeholders collaborate on win-win profit sharing mindset or work for their own interest only
3 Discontinuity and fragmentation of the construction industry supply chain
5 Contract type Whether the project is a
Design-Build, Design-Bid-Build or Turnkey Project as contract type affects resource and risk apportionment among stakeholders
Blockchain has emerged as a prominent research area, with over 1,000 related journal articles published globally by July 2019, largely through international collaboration Key topics include cybersecurity, smart contracts, Bitcoin technology, and the Internet of Things (IoT) In Asia, research primarily targets the application layer of Blockchain, emphasizing privacy protection and smart contracts, alongside the underlying technology such as architecture and algorithms Conversely, non-Asian countries concentrate on utilizing Blockchain to address economic and social challenges, in addition to technological advancements.
In 2013, Vitalik Buterin established Blockchain 2.0 with the launch of Ethereum, introducing its cryptocurrency Ether, which expanded the use of blockchain technology beyond monetary transactions This innovation paved the way for decentralized applications (DApps) and smart contracts, impacting various sectors such as asset ownership, healthcare, education, and voting The construction management industry quickly recognized the potential of blockchain technology; however, early research primarily concentrated on its conceptual possibilities rather than exploring its comprehensive applicability.
2.2.2.1 Public, Consortium and Private Blockchain
In term of openness and access level, there are three general types of blockchain system [33]
Public or permissionless blockchains are open to anyone with internet access, allowing users to create data, develop smart contracts, and operate as network nodes Participants are incentivized to act in the network's best interest, enabling transaction verification without a trusted intermediary However, this transparency poses privacy risks, as all users can access and modify data Additionally, the extensive number of nodes can lead to longer verification times for adding blocks to the blockchain.
In Private (or Permissioned) Blockchains, access is restricted to selected individuals who have received permission from the network administrator, making it ideal for organizations that prioritize control over their data and internal policies, particularly in financial and auditing systems This structure allows for quicker consensus and enables a higher volume of transactions to be processed in a shorter timeframe.
Consortium Blockchain represents a third category of blockchain systems characterized by a moderate level of openness and access In this model, multiple organizations contribute nodes to manage the network collaboratively This type of blockchain is particularly advantageous for facilitating transactions among businesses.
Cross-chain bridges enable the linking of data across various Blockchains by facilitating the exchange of smart contract information, cryptocurrencies, and non-fungible tokens (NFTs) between different networks While current cross-chain applications primarily concentrate on cryptocurrency trading, the technology holds significant potential to enhance information storage by connecting large datasets across multiple Blockchains.
In every blockchain network, the consensus algorithm is crucial for ensuring the system's safety and efficiency It addresses key challenges such as double spending and the Byzantine Generals Problem, regardless of the blockchain's accessibility level.
Double spending occurs when a single token is used for two simultaneous transactions, a risk mitigated by the verification processes of numerous distributed nodes across the network These nodes ensure the legitimacy of transactions before approval Each transaction triggers an update to the entire system, with a new data block added, making changes visible to all members of the network.
The Byzantine Generals Problem, introduced in 1982, highlights the challenge of achieving information consistency in computer systems compromised by dishonest nodes, known as "traitors." In networks with three or fewer nodes, ensuring consistency is impossible; however, with four or more nodes, systems can tolerate up to one-third of the nodes being traitors, a concept known as Byzantine Fault Tolerance (BFT) Addressing the Byzantine General Problem is crucial for the reliable operation of networks, particularly in distributed environments In 1992, the Practical Byzantine Fault Tolerance (PBFT) algorithm was developed to enhance response times while effectively managing the risks posed by faulty nodes, malicious attacks, and software errors.
There are numerous variants of consensus algorithms available in both public and permissioned Blockchain Description of some of the most prominent ones is summarized in Table 1 [36] [40] [41]
Table 2-2 Summary of Common Consensus Protocols
Public Users to solve a complicated puzzle to solve block hash value
Power consuming; Long response time
Public User to prove the ownership or the currency amount they own
Private A primary node is responsible for ordering the
(PBFT) transaction Others to vote only if they have received votes from over 2/3 of all nodes response time
The evolution to Blockchain 3.0 has addressed the limitations of Blockchain 1.0 and 2.0, particularly in speed, scalability, and privacy This advanced ecosystem features enhanced smart contracts, transaction systems, and decentralized applications (DApps), significantly boosting the technology's presence in construction-related research.
FRAMEWORK STRUCTURING
Architecture of proposed framework
In order to facilitate the process of contract management in construction sector, a conceptual framework based on Blockchain infrastructure (Figure 3.1) is proposed in this study
Figure 3.1 Blockchain-based Contract and Stakeholder Management Framework in
The proposed framework consists of 5 domains (E-Procurement, Ledger,
Nodes, Off-chain Database and Outcomes) and 6 schemes (Formalization, Request,
Verification, Consensus, Trigger and Record)
The procurement of construction works, specifically the selection of a general contractor, is increasingly conducted on electronic procurement (E-Procurement) platforms, ideally utilizing Blockchain technology through decentralized applications (dApps) This approach allows for the seamless extraction and organization of agreed terms and conditions into a systematic structure, clearly outlining responsibilities in a smart contract coding format By linking E-Procurement data with smart contract data, the process of formalization is significantly streamlined, eliminating the need for contract managers and IT developers to convert contract language into code.
To establish an appropriate level of authorization for project stakeholders, including clients and general contractors, an organizational breakdown structure is essential Utilizing smart contracts alongside embedded cryptocurrency funds enables automatic and rapid payment processing, safeguarding contractors, suppliers, and subcontractors from the negligence of upstream parties Additionally, payments can also be made using fiat currency In Vietnam, several commercial banks have implemented Letter of Credit services through third-party blockchain channels to streamline cross-border payments for international trade.
At the outset of smart contract execution, project stakeholders, such as contractors, architects, or site engineers, submit various requests, including payment approvals, design modifications, or penalty claims for violations Upon receiving these requests, a consensus process begins among stakeholders, as detailed in Article 3.2 of this study Consensus is reached when stakeholders approve or disapprove the requests Additionally, the contract's predefined conditions, such as unit price and quantity, can be verified using off-chain or cross-chain data collected from on-site sensors, real-time BIM updates, or market price changes, facilitated through APIs for cross-chain interoperability Furthermore, the integration of IoT applications with Cloud computing, referred to as the Cloud of Things (BCoT), enhances open data access for decentralized computing in conjunction with Blockchain technology.
Once network nodes reach a consensus, the transaction, detailing who approved what, is timestamped and added to the distributed ledger This configuration, whether acceptance or rejection, triggers subsequent events based on predefined contract logic Outcomes can be monetary, such as payments, or non-monetary, like site instructions or requests for rework Successful implementation of these automatic outcomes is recorded back onto the Blockchain, signifying the completion of the contractual event within the proposed framework.
The proposed framework enhances traditional platforms like Aconex by not only recording payment applications but also automating the payment process to downstream parties through a secure, tamper-proof verification system By integrating Industry 4.0 technologies such as the Internet of Things for real-time site updates, cloud computing services, and linked BIM storage, it significantly improves project information quality and contract control while leveraging the expertise of project stakeholders Furthermore, it allows for the submission of tamper-proof records of completed construction work, including technical designs and materials, which may gain legal recognition in the future, thereby facilitating streamlined compliance inspections and certification processes.
State-of-the-art of proposed framework
To mitigate the risk of dominance by a single party or system failure caused by malicious nodes, such as misinformation or corruption attempts, it is essential to establish a protocol that facilitates consensus across the network.
There are numerous variants of consensus algorithms available for permissioned Blockchains (Section 2.2.2.2) For this proposed framework, Practical
Byzantine Fault Tolerance (PBFT) algorithm [39] is suggested
BFT, or Byzantine Fault Tolerance, originates from the Byzantine Generals’ Problem, where lieutenants must reach a consensus on whether to attack or retreat to prevent a coordinated failure In this scenario, the lieutenants, positioned at remote locations, can only communicate through messages that are vulnerable to theft or alteration Even with secure message delivery, the presence of traitors exhibiting unpredictable behavior can lead to failure if their numbers exceed the fault tolerance threshold This principle is crucial in distributed systems, such as blockchain technology, where it is vital to avoid issues like message delays, duplication, or out-of-order delivery to ensure that the number of nodes experiencing individual failures remains within acceptable limits for the system to operate accurately.
In PBFT (Practical Byzantine Fault Tolerance), each node maintains an independent "internal state" that records specific information When a node receives a message, it updates its internal state to perform necessary computations and simultaneously communicates with other nodes to verify the transaction's validity Once all nodes provide their verification, the node broadcasts its approval or rejection to the entire network A transaction is deemed confirmed, or consensus is reached, when a predetermined number of nodes validate the transaction.
The PBFT (Practical Byzantine Fault Tolerance) algorithm is a type of state machine replication that processes a series of inputs, known as commands, to transition into different states and respond to subsequent inputs In this system, replication servers, or replicas, maintain the same application state by executing client commands in a consistent order, ensuring that all replicas achieve the same state after each command The replicas operate within various configurations called views, where one replica serves as the primary while the others act as backups The PBFT mechanism is designed to tolerate a maximum number of faulty replicas, denoted as f, enhancing its reliability in distributed systems.
- View 1 – Request: A client (denoted as C) sends a request of a service operation to the primary
- View 2 – Pre-Prepare: The primary (denoted as 0) multicasts the request to the backups (denoted as 1, 2…, R for instance).
- View 3 – Prepare and View 4 – Commit: The replicas, backups and primary, execute the request and send a reply
- View 5 – Reply: The client waits for F replies (F>f) from different replicas with the same result, this is the result of ultimate system consensus
In this research, the Practical Byzantine Fault Tolerance (PBFT) protocol will be utilized when stakeholders are required to vote on a contentious statement To achieve a consensus, the majority of stakeholders, denoted as F, must demonstrate uniform agreement or disagreement, adhering to a specified threshold, f.
Smart contracts offer a secure platform for the automated execution of contract terms without the need for intermediaries like attorneys or banks, enabling monetary transactions in cryptocurrency For enhanced information security and transaction speed, it is advisable to implement smart contract models on a permissioned consortium blockchain, particularly for projects handling sensitive data, such as bilateral contract cost indices Unlike public blockchain networks, consortium blockchains are more centralized, restricting participant entry to only those necessary for the network A permissioned consortium blockchain facilitates data exchange among parties with shared goals while protecting their intellectual properties Additionally, a suitable consensus algorithm for this framework is discussed in Section 3.2.2.
To evaluate the operability of the proposed framework, the author plans to implement two prototype smart contract models on Ethereum, one of the most widely used blockchain platforms with a significant market cap of $18.667 billion This makes Ethereum suitable for high-value construction projects, although other fiat currencies convertible to cryptocurrency can also be utilized for payment processes Future research may involve trials and comparisons of the blockchain-based framework across multiple platforms to highlight their specific advantages and disadvantages.
Data confidentiality is essential, particularly regarding sensitive information such as contract values and claimable payment amounts, which should be kept private Access to this data is strictly limited to authorized parties, including clients, general contractors, and quantity surveyors, who utilize a one-time password (OTP) for security This method prevents repeated access using the same password Research by Zhang et al (2019) demonstrates that blockchain technology effectively facilitates OTP authentication by leveraging its decentralized trust system, which enhances security against various attacks, including replay attacks.
FRAMEWORK VALIDATION
Model Development
Considering topics causing most disputes in the industry, in this section, proposed approach is zoomed in with two specific models
- Prototype 1: Proposed framework executes automatic payment procedure and monitors cash flow in a residential project with the presence of at least one general contractor and one nominated subcontractor
- Prototype 2: Conflict arises among client and general contractor in a project Determination of who should be responsible for delay and applicable liquidated damages if any is required
Cash flow control in construction contracts is very important to contractors
[2] Therefore, besides improving the accuracy of cash flow forecasting, ensuring in- time payment is essential
Smart contracts can be designed with multiple layers and various contracting parties, forming a complex web of payments The architecture for deploying smart contracts at the project level, based on a defined research scope, is illustrated in Figure 4.1.
Figure 4.1 Project Smart Contract Deployment Model
A process of a payment consists of 5 general stages as presented in Figure 4.2
Figure 4.2 General Payment Process in Construction Projects
In the payment execution process, the nominated subcontractor initiates the procedure by submitting a payment application that includes essential details such as the payment application reference number, total claimable amount, cumulative paid amount, a detailed quantity description, and retention amount to the general contractor The general contractor then verifies these claims and incorporates them into their payment request to the client, ensuring alignment with the established profit and attendance fee rate.
Figure 4.3 shows an example of how project stakeholders all evaluate and agree on a payment request by general contractor In this example, both F and f are
4 Upon the payment request is submitted by the contractor (request phase), the primary, client, sends out request for evaluation to the backups (pre-prepare phase) Each of the backups can only access certain data related to their trade to assess and express their approval or rejection (prepare phase) 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 (commit phase) before the committee finally decides whether to approve or reject the payment request (reply phase) 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 released automatically eventually
Figure 4.3 Consensus Achievement for General Contractor’s Payment Application
The consensus process for payment applications involves a mechanism where applications are either resubmitted by the general contractor if rejected or certified for payment if approved The payment certificate includes a detailed description of the accepted application along with the exact date and time of the transaction After a predefined period, cryptocurrency payments are automatically released from a secure account, akin to the Project Bank Account (PBA) model used in the UK and Australia, ensuring simultaneous payments to general contractors and supply chain members for enhanced payment security This automation also schedules subsequent payments from the general contractor to subcontractors after deducting fees, typically within three days of receiving client payment Given the impracticality of locking an entire project’s value in cryptocurrency, clients should update their wallet balances bi-weekly or monthly based on the agreed payment schedule If payments are delayed beyond the contract conditions, contractors are entitled to financing charges on the unpaid amounts.
Figure 4.4 Example of Automatic Payment Contract Execution
The general contractor's direct management and payment of subcontractors can hinder the implementation of a proposed model; therefore, it is recommended that this model initially focus solely on the payment processes for nominated subcontractors and material suppliers Nominated subcontractors, whose rights and obligations are pre-negotiated with the client, should enter agreements with the general contractor that include specific management provisions Additionally, advancements in supply chain management, particularly through provenance blockchain technology, facilitate the acceptance, verification, and payment of construction materials on-site However, the general contractor must still maintain responsibility and flexibility regarding domestic subcontractors, necessitating the enforcement of additional mechanisms to protect their interests.
The evaluation and acceptance of work by qualified personnel using professional judgment is crucial, especially in challenging environments where physical inspections are impractical In such cases, it is advisable to implement real capture technology to convert product flow at the job site into cash flow for payment, ensuring alignment with predetermined contract terms and automated execution processes.
Construction delay is among the most common causes of disputes globally
Unresolved disputes can significantly delay projects, as contractors may be reluctant to compromise To prevent further damage to stakeholder relationships and avoid additional project failures, it is crucial to implement a timely conflict resolution strategy among project stakeholders whenever delays arise.
This section proposes a conceptual framework for assigning responsibility for time overruns between clients and general contractors, utilizing Blockchain as a facilitating platform Additionally, it discusses how similar disputes between various project stakeholders can be effectively resolved using this approach.
The proposed method involves two key tasks: establishing responsibility through Blockchain-based online crowdsourced jurisdiction platforms and automating the execution of contractual follow-up actions, such as reimbursing LAD, processing contractor claims, and issuing notices of EOT, through smart contracts.
Project stakeholders must analyze the typology of delays—excusable, non-excusable, or concurrent—offline to identify the most compelling arguments This analysis should include a detailed description of the accountable parties and the subsequent events in line with contract provisions, such as Extensions of Time (EOT), compensation, and contractor claims.
Table 4-1 Delay Typology and Proposed Solutions
Proposed Solution EOT Claim LAD Nil
S1 Excusable non-compensable Extreme weather x
S2 Excusable compensable Late site handover x x
S3 Non-excusable Late material delivery x
In construction projects, the repayment of monetary penalties often occurs through the calling-on of performance bonds, deductions from contractor payments, or direct payments following arbitration adjudications This article specifically addresses the reimbursement of delay damages, emphasizing the indemnity method for calling on performance bonds Consequently, it is essential for the bond provider, whether a bank or an insurance company, to be designated as a node within a blockchain system.
Delay resolution is an essential aspect of project contract management within Blockchain infrastructure, where predefined legal agreements from the procurement stage are encoded as smart contracts A decentralized ledger transparently records all contract events, ensuring fairness among stakeholders Each stakeholder is designated as a system node, responsible for evaluating and approving or rejecting requests, such as payment or variation requests, as they arise Additionally, real-time engineering design and construction data can be monitored and integrated with IoT and BIM technologies for enhanced oversight and efficiency.
- Smart contracts are used in conjunction with embedded fund of cryptocurrencies, so that payment if any can be implemented automatically and rapidly to prevent impact of intentional postponed transaction
Figure 4.5 Blockchain-Based Construction Delay Resolution Methodology The conceptual flowchart of construction project delay resolution using Blockchain smart contracts and crowdsourced arbitration is illustrated in Figure 4.6,
4.7 and 4.8 The procedure first starts with checking of performance bond type, whether it’s unconditional bond or conditional bond (Figure 4.6) Client, for his interests, usually requests that an unconditional bond to be procured by Contractor at the beginning of contract implementation period (with a fixed specimen captured as a requirement in the past tender process) However, disputed meaning of the words written in the performance bond may create arguments among relevant parties whether the bond is either purely conditional or purely unconditional (on-demand) bond [56], therefore careful selection of words is essential to avoid unwanted confusion and dispute 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
In the case of a conditional performance bond, it is essential to determine the type of delay and take appropriate actions as per contract guidelines, which involves providing necessary documentation to the bond provider, who shares responsibility for the contractor's performance Since supporting documents often arise from arbitration, the study recommends leveraging Blockchain crowdsourced arbitration platforms These platforms utilize smart contracts that appoint an arbitrator in the event of a dispute, specifying conditions such as court type and juror numbers When a dispute arises, a randomly selected group of jurors from the crowdsourced pool reviews the evidence and casts their votes for a verdict.
Figure 4.6 Blockchain-based Delay Resolution Flowchart
Figure 4.7 Blockchain-based Project Delay Resolution Flowchart for Stand-alone
The resolution of stand-alone and concurrent delays in construction projects involves distinct procedures, as illustrated in the P1/P2 flowcharts (Figures 4.7 and 4.8) Typically, four outcomes arise when a delay is identified and analyzed: (i) Notice of Extension of Time (EOT); (ii) Payment of Contractor’s Claim; (iii) Liquidated Damages (LAD) reimbursement to the client; and (iv) maintaining the status quo with no action taken by either party Resolving stand-alone delays is straightforward, as responsibility can be attributed to a single party In contrast, concurrent delays complicate matters, requiring stakeholders to navigate various scenarios and contractual obligations It is essential to clearly outline the responsible party and relevant events, including specific EOT durations and penalty amounts, before reaching a final decision, potentially through a third-party crowdsourced arbitration service Additionally, the use of different delay analysis techniques (DAT), such as As-Planned vs As-Built, Collapsed As-Built, and Time Impact Analysis, plays a crucial role in determining the outcome.
Structured Interviews
A structured interview is a systematic method for data collection where interviewers pose a predetermined set of questions in a specific order, minimizing intervention To evaluate the feasibility of a proposed Blockchain-based construction contract and stakeholder management framework, seven experts from the construction and blockchain sectors participated in a structured interview The questionnaire was divided into two parts: Part 1 provided a brief summary of research outcomes, including the problem statement, applied concepts and technologies, model development, and case study demonstration Part 2 contained four questions, comprising one dichotomous question and three free-listing questions Details of the questions can be found in Table 4-4, while the general information about the interviewees is presented in Table 4-5.
Table 4-4 Research Structured Interview Question Content
1 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?
Yes or No, with explanation
2 What are the advantages of the proposed framework?
3 What are the disadvantages of the proposed framework?
4 What do you think may hinder the development and application of the proposed framework?
Table 4-5 Information of Research Interviewees
Level of knowledge (High-Medium-Low-None)
BIM, IoT and other technologies
7 Project Director (ODA PM unit)
The questionnaire was distributed through personal messages from May 30, 2022, to June 7, 2022, with responses collected between June 1, 2022, and June 14, 2022 Out of the seven interviewees, two (ID 1 and ID 6) responded in Vietnamese, while the others provided their answers in English For clarity and consistency, the responses from interviewees ID 1 and ID 6 were translated, documented, and analyzed, with all original inputs and the questionnaire specimen available in the Appendix section of this dissertation.
A significant majority of interviewees, specifically 6 out of 7, expressed strong confidence in the ability of Blockchain-integrated technology to address existing challenges in construction contract and stakeholder management This innovative approach is viewed as a comprehensive solution for managing project contracts and stakeholder relationships, particularly excelling in audit, claim, and payment processes due to its capacity to store project data transparently and accurately in an immutable format However, one interviewee raised concerns that while the technology may help control project costs, it may not fully eliminate disputes among stakeholders, which often arise on-site or from unavoidable variations.
Secondly, when being asked about merits of proposed framework, all interviewees named at least one Found dominant advantages were summarized in Table 4-6
Table 4-6 Interview Finding Summary: Advantages of Research Proposed
S/N Findings: Advantages of research proposed framework By
A2 Reduced cost due to third party presence 1,2
A6 More efficient payment and claim procedures 2,3
A7 High transparency/integrity/fraud-proof 2,5,7
Thirdly, on the other hand, the proposed empirical framework was believed to possess certain disadvantages needing further improvement and/or side solution as in Table 4-7
Table 4-7 Interview Finding Summary: Disadvantages of Research Proposed
S/N Findings: Disadvantages of research proposed framework By
B3 Requirement of Internet/ IT infrastructure power 1,5
B4 Difficulty to construct Mobile application 1
B5 Inability to reduce on-site variations 2
B9 Mass application difficulty, especially in developing countries with limited financial, IT and skilled human resources
B10 Necessity of high input data sufficiency and quality 6
In response to the final question, interviewees highlighted their concerns regarding potential obstacles to the future development and widespread adoption of the proposed research framework Key barriers identified are summarized in Table 4-8 Notably, Interviewee 5 remarked, “I don’t see any real blockers to stop the development It’s only the matters of investment and time being.”
Table 4-8 Interview Finding Summary: Barriers of Research Proposed Framework
S/N Findings: Barriers of research proposed framework By
C1 Public-private key security risk 1
C2 Difficulty in integrating and maintaining usage of modern technologies for entire project duration
C3 Limited user capacity, especially in smaller enterprises 2,3,6
CONCLUSION AND FUTURE RESEARCH
Research Outcome and Limitation
This study examines the current practices in construction project contract and stakeholder relationship management, proposing a conceptual Blockchain-based framework to enhance these processes It includes two detailed prototypes for automating interim payments and resolving delays By incorporating smart contracts for payment applications and transactions, along with crowdsourced arbitration for determining delay responsibilities, the proposed framework aims to streamline contract management This approach is expected to reduce implementation time and overhead costs associated with third-party involvement, such as banks and lawyers, while also mitigating the risks of injustice and arbitrariness through incentive mechanisms and the collective power of the Internet community.
The initial prototype is demonstrated through a case study involving interim payments in a residential project, featuring both a general contractor and a subcontractor This process includes meticulous records of application, approval, and payment automation, ensuring a clear and transparent audit trail However, it is advisable to limit this payment process to nominated subcontractors and material suppliers, as general contractors typically prefer to maintain immediate control over their domestic subcontractors.
The second prototype has been validated through a case study on crowdsourced arbitration using the Rhubarb platform, which addresses disputes regarding responsibility for delays in a garage construction project, based on an academic study of delay analysis techniques In this process, blockchain-powered community jurors determined that the contractor is liable for reimbursing the client's financial losses, in accordance with the established terms for liquidated ascertained damages Notably, the reimbursement occurs automatically once the jurors finalize their verdict.
A committee of seven experts in construction and blockchain technology reviewed the research outcomes and provided feedback on the proposed management framework Most participants believed that the framework could enhance construction contract management, particularly in audit and payment processes However, challenges in its development and implementation may arise due to issues such as investment costs, legal recognition, technical infrastructure, and user awareness, especially in the construction industry, which is known for its slow adoption of innovative technologies.
Future Research
The limitations of this study provide chances for further research
First, due to limited resource and current technology available, smart contract prototypes of proposed method and models is yet to be developed and tested
Smart contract solutions for resolving project delays and managing the overall contract lifecycle on Blockchain are still in the early stages of development Many Blockchain crowdsourced juror platforms are created by newly established startups, where most jurors lack formal legal training and have limited or no programming interfaces to connect with smart contracts.
Thirdly, it is also noteworthy that the knowledge of blockchain and smart contracts among interviewees is rather limited.
A comprehensive case study utilizing primary data is essential to assess the feasibility, economic viability, legal implications, and scalability of the proposed framework The project team must possess technological knowledge and skills relevant to the presented methods and algorithms The author is optimistic about the future of Blockchain technology, particularly its integration with Cloud Computing, BIM, IoT, and other modern technologies in the construction sector, as both academic and commercial researchers are showing significant interest in this area of research.
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APPENDIX Appendix No.1 – Specimen of Research Interview Questionnaire
Pham Ngoc Lien is a Master's candidate in Construction Management at the University of Technology, Vietnam National University Ho Chi Minh City Currently, Lien is focused on a master's thesis that explores the application of blockchain technology in the construction sector, specifically developing an empirical framework for contract and stakeholder management.
By this letter, I would like to seek for your kind review and comments on the said study outcomes The letter shall consist of two parts:
Part 1 – Summary of the research
Part 2 – Structured interview questionnaire (including 04 questions)
Estimated total reading time is 30 minutes
Your kind feedbacks shall contribute greatly to the success of the research; therefore, I hope to receive your feedbacks by end of Tuesday 14-June-2022
Kindly contact me if you have any inquiry I profoundly appreciate your kind assistance and look forward to hearing from you
(lien.pham.imp20@hcmut.edu.vn)
PART 1: SUMMARY OF THE RESEARCH
The research addresses critical challenges in construction contract management, focusing on three primary issues: the lack of trust among stakeholders, delays or non-payment to general contractors and downstream supply chain parties, and disputes arising from project delays.
A typical construction project’s life cycle consists of 06 stages: Appraisal; Definition, Design; Construction; Commissioning and Operation The research sets a demarcation focusing on contract management in construction stage
Research stakeholder relationship model is as below
Blockchain technology is recommended as the backbone infrastructure of the research framework Its definition, operation and security mechanisms and characteristics are discussed here
Blockchain is a decentralized peer-to-peer network that allows untrusted parties, or nodes, to conduct and record transactions on a distributed ledger This data is securely stored across multiple devices, making it resistant to tampering and deletion Key security features of blockchain include hashing algorithms, which convert data into a coded value that cannot be reversed, and asymmetric key cryptography, where nodes use private-public key pairs for secure transactions A prominent application of blockchain technology is smart contracts, which are self-executing agreements coded on the blockchain to enforce contract terms These contracts are recorded in the ledger, providing transparency for stakeholders to monitor and audit the process In the context of Industry 4.0 and the Internet of Things (IoT), contract compliance can be verified through consensus among authorized parties or by integrating trusted data from external sources known as "oracles," such as national news websites or on-site sensors.
Crowdsourced arbitration is an innovative blockchain application that addresses disputes by allowing multiple proposed solutions to be publicly voted on, either by a randomly selected anonymous jury or a panel of trained legal experts, depending on the case's complexity This tamper-proof verdict is linked to a smart contract, which automatically triggers subsequent actions based on predefined contract terms.
In order to facilitate the process of contract management in construction sector, a conceptual framework based on Blockchain infrastructure is proposed in this research
The proposed framework consists of 5 domains (E-Procurement, Ledger, Nodes, Off-chain Database and Outcomes) and 6 schemes (Formalization, Request, Verification, Consensus, Trigger and Record)
The procurement of construction works, specifically contractor selection, is facilitated through an electronic procurement (E-Procurement) platform, ideally a decentralized application (dApp) that organizes all agreed terms into a structured format with clear roles and responsibilities To ensure proper governance, an appropriate level of authorization must be established for various project stakeholders, including clients and general contractors, allowing for the legal delineation of rights and obligations Additionally, the integration of smart contracts with embedded cryptocurrency funds enables automatic and swift payments, thereby safeguarding contractors, suppliers, and subcontractors from potential negligence by upstream parties.
At the start of smart contract execution, project stakeholders can initiate transactions, such as payment requests from contractors, design modifications from architects, or penalty requests for HSE violations from site engineers Once the transaction is submitted to the client, a consensus process begins, where all stakeholders must approve or disapprove the request This consensus mechanism is detailed in article 3.2 of this study Additionally, verification of contract terms like unit price and quantity can be conducted using off-chain data from on-site sensors, real-time BIM updates, or market price indices accessed through APIs for cross-chain interoperability Furthermore, integrating IoT applications with Cloud computing, known as the Cloud of Things (BCoT), facilitates decentralized computing and open data access.
Once consensus is reached among network nodes, transactions detailing approvals are timestamped and added to the blockchain ledger This configuration triggers subsequent events based on predefined contract logic, leading to two types of outcomes: monetary (such as payments) and non-monetary (like site instructions or requests for rework) Successful implementation of these outcomes is recorded on the blockchain, signifying the completion of the contractual event within the proposed framework Unlike established platforms such as Aconex or SAP, which require payment applications to be uploaded and approved through a workflow, the proposed framework not only records payment applications but also facilitates automatic payments to downstream parties using cryptocurrency, eliminating the need for bank involvement.
5 State-of-the-art of the proposed framework
For optimal performance, it is advisable to implement the framework on a consortium blockchain, which combines the advantages of both public and private blockchains This hybrid approach enhances scalability, ensures data sensitivity, and improves transaction speed, leveraging the strengths of its foundational technologies.
Integrating BIM, IoT, and cloud computing technologies enhances data storage capacity and service functionalities To ensure data confidentiality, implementing a one-time password protection layer is highly recommended.
Note: Smart contracts can be structured in multiple layers involving various contracting parties to create a web-of-payments
The payment execution process begins with a nominated subcontractor submitting a payment application to the general contractor, which includes essential details such as the payment reference number, total claimable amount, cumulative paid amount, quantity descriptions, and retention amount The general contractor verifies these claims and incorporates them into their payment request to the client, considering predefined profit and attendance fees Secondary nodes, including site supervisors, architects, engineers, and quantity surveyors, assess the claims based on their specific trade data, ensuring accuracy against on-site performance and design compliance After gathering evaluations from engineers, the client conducts their assessment before a committee decides to approve or reject the payment request This decision is recorded on the Blockchain with a timestamp, marking the payment certificate's date and the end of the grace period for automatic fund release from a secure cryptocurrency account.
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