PHAM NGOC LIENBLOCKCHAIN APPLICATION IN CONSTRUCTION SECTOR: AN EMPIRICAL SMART BLOCKCHAIN-BASED FRAMEWORK IN CONTRACT AND STAKEHOLDER MANAGEMENT Major: Construction Management Major co
INTRODUCTION
Problem Statement
Financial wellbeing plays an essential role in driving the success of any industry and the fate of its organizations Construction projects, with their various types, scales, requirements and locations [1], usually involve multiple parties with complicated collaboration, in which, poor financial management may result in construction companies’ bankruptcy [2] According to a report in USA, construction companies have 14% higher failure rate than most companies [2] It is crucial to manage the relationships among project stakeholders to ensure project common goals are achieved while individual interests, including healthy cash flow and financial status, are satisfied
However, the construction industry is now facing various challenges in collaborative operations [3] Firstly, as construction projects involve a dynamic group of several enterprises (clients, architects and engineers of multiple professionalisms, general contractors, subcontractors, and suppliers, etc.) who possibly have never worked together before must invest handful of resources to execute the project key indicators (See Figure 1.1), and are dismantled at the end of the project [4], trust issue becomes a problem Secondly, due to the discontinuity and fragmentation in the processes of funding, designing, bidding, manufacturing off-site and constructing on- site [3] [5], a trustworthy and resourceful information reservoir across the supply chain does not exist [3] Thirdly, during contract execution, a stakeholders’ individual, for example, site manager, designer or quantity surveyor, occasionally must, at his discreet, act on behalf of his organization The freedom in his choice and the ‘uncertainty’ level of the circumstances may result in various outcomes, including negativity like difficulties and costs arising [6] Lastly, provisions of progressive payments in construction projects are prone to unfairness [7] Due to the bargaining power of upstream parties (client and/or general contractors) and complicacy of work acceptance, payment verification, approval and transaction processes, arguments regarding late payment and/or non-payment usually arise Late payment and non- payment have negative impacts on downstream parties’ finance (i.e subcontractors and suppliers) as mentioned, along with upstream parties’ reputation and result in other project failure risks
Figure 1.1 Construction Project Stakeholder Relationship Map
In summary, construction project stakeholders nowadays must face a lots of operative issues, either subjective and objective, leading to project goal failure and individual financial and productivity loss A trustworthy, transparent and traceable platform to manage relevant contractual relationships and issues including payment and conflict is necessary for a project success Conventional centralized management fashions where client and/or general contractor play the key roles and have overpowering force over others have been proven not effective in solving aforementioned problems or sometimes even worsen the process It is required that a peer-to-peer network, or a technology eliminating information asymmetry and facilitating automatic execution with limited human interference to improve mutual trust, collaborative transparency and efficiency with win-win motive to exist.
Research Objectives
Blockchain technology is believed the solution as it has been applied successfully in many other industries with similar existing problems This research aims to introduce a smart blockchain-based contract, payment and stakeholder relationship management framework to address above issues in the construction sector Key functions and characteristics of the framework are illustrated in Figure 1.2
Figure 1.2 Blockchain-based Framework's Expected Key Functions and
The proposed framework is expected to facilitate the process in 03 dimensions: contract management, payment management and stakeholder relationship management, simultaneously Regarding contract management purposes, the framework is expected to be a transparent yet secure information platform for project parties with agreed level of ownership The record of all valid transaction/data in the shared ledger with credible timestamps enables auditors to trace the sequence and logic of all contract events On the other hand, the model is expected to facilitate the acceptance of work for payment verification, as well as to make sure the procedure applied aligns with agreed payment terms and conditions written in the contract Payment automation either in cryptocurrency or fiat money can contribute in avoiding both innocent and intended late transfer while transaction charge is reduced as bank presence is not mandatory As in stakeholder relationship management dimension, it is expected that the overpowering of a single node, typically client or general contractor is prevented The blockchain-based framework also acts as a platform to obtain multi-lateral consensus should a request for mutual acceptance/rejection arises (i.e: conflict solving regarding delay damages, responsibility for work failure, etc).
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 contract stakeholder from Figure 1.1 is further simplified for the ease of study (See Figure 1.3) Two most important parties are Client and General Contractor enter a master contract for construction service of a project They both have other contractual relationships and non-contractual relationships with other stakeholders like subcontractor, quantity surveyor, architect, engineer and supervisor to implement project activities while having bond providers like bank or insurance company as financial back-up for the risk of contract bleach and/or failure Further studies in the future may expand the number of stakeholders to explore better scalability
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 construction sector: To gain insights on recent contract and stakeholder management practice in construction sector; identify advantages and disadvantages of utilized administration tools to pinpoint potential of blockchain application as a more effective alternative;
- Current knowledge and application of blockchain in construction sector: Acknowledge how blockchain presents in construction sector nowadays; discover potential integration of current blockchain application with other tools and techniques to create a highly functional system in contract and stakeholder management
Summary of literature review findings and studied papers are presented in Chapter 2 of this dissertation
In Chapter 3, a framework is proposed by formalizing construction contracts into smart contract format in a multiple-domain systematic structure with comprehensive description of who-does-what The contract is executed on a blockchain based framework which consolidates both network nodes’ consensus and data collected from an authentic third-party source for resolutions based on agreed terms and conditions of the smart contract whenever stimulus requiring certain stakeholders’ actions are identified Suggested instruments to obtain network consensus and assure system security are also presented in this chapter
In Chapter 4, two prototypes of proposed framework are developed, including (i) interim payment to a general contractor and a subcontractor and (ii) project delay resolution In addition, structured interviews to gather experts’ opinions regarding the feasibility of proposed framework are conducted and discussed in this chapter.
Contribution to Academic and Practical Fields
The proposed smart Blockchain-based framework is expected to contribute to existing construction contract and finance management body of knowledge and be accepted as a comprehensive guideline for project stakeholders in various project characteristics, to reduce the risk of payment and cash flow failure and strengthen overall project management procedure
To expand body of knowledge on Blockchain in general and Blockchain in construction sector in particular Since its establishment in 2008, the technology has gained its significance in many other aspects and industries like Data management and storage, Operation of smart cities, Payments and Banking solutions [9] Although the potential of Blockchain in construction sector has been studied in several researches, recent researches on its exploitation is, in fact, rather limited
In addition to linking existing applications of Blockchain in a systematic architecture throughout focused project life cycle stage (construction stage), state-of- the-art of the proposed framework is discussed, allowing future reference on technology endorsement
The framework is believed to become an effective tool for future contract and stakeholder management practice The framework is expected to:
- Be cryptographically programmed on a permissioned blockchain network, immersed with modern information management technology to record and manage agreed contract where various stakeholders (clients, general contractors, sub- contractors, suppliers, engineers, inspectors and banks) can access project data and verify transactions of agreed level of authorization
- 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
- Be able to execute contract payments automatically with high sense of trustworthiness, timeliness and dignity, in accordance to agreed payment terms and completed work or parts of work certified by engineers and inspectors where bank involvement is not mandatory
- 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
On the other hand, the research introduced two prototypes regarding automatic construction interim payment process and conflict solution related to delay responsibility with clearly described mechanism and example, giving stakeholders comprehensive reference of possible future trials prior to commercial mass application.
LITERATURE REVIEW
Concepts and Definitions
Contract refers to a mutual agreement of representation between an offer and an acceptance by at least two parties, including mutually binding terms and conditions to obligate the contractor to provide the specified products, services, or results and to obligate the client (or buyer) to provide monetary or other valuable consideration [10] Contract management involves multiple logical tasks and techniques to safeguard agreed conditions of contract are followed, contractual risks are mitigated and necessary actions are taken in the event there is breach of contract by any party, to reduce actual project damage and keep the performing party harmless in term of time and payment, etc
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 Engineering Advancement Association of Japan, stakeholders are people concerned with business activities and specific people concerned with a specific project are called project stakeholders [11] There are two hierarchies of project stakeholder (or otherwise called project participants): Primary stakeholder and Secondary stakeholder Primary stakeholders are those who have contractual or legal obligation and authority to manage and commit resources to fulfill project schedule, cost and technical performance objectives Such persons usually participate in the design, engineering, development and construction, and logistic support of the project Secondary stakeholders are those who have no formal contractual relationship to the project but have righteous interests in the project status, like local community or professional researchers, etc
Construction projects involve many stakeholders with different interests and requirements Project stakeholder management is a systematic approach, associated with appropriate skills of project managers to accommodate stakeholder interests while best project outcomes are achieved [12]
A major matter in any industry, especially one with complicated stakeholder relationships like construction industry, is dispute resolution
Generally, there are three dispute resolution models including: state court litigation, professional private arbitration and crowdsource arbitration (including Blockchain dispute resolution) [13] State courts’ main advantage is that the jury’s judgement is backed up with the force of state authority, resulting in strong lawful action However, state court procedures are usually lengthy and costly, hence not favorable among medium and small sized businesses [13] Professional arbitration services can also be provided by private dispute adjudication boards, for instance, Vietnam International Arbitration Centre (VIAC) in local office, which is normally faster and judgement quality is guaranteed thanks to the knowledge and reputation of the board committees In recent years, in order to adapt with increasing needs for fast, fair and cost-effective resolution process, private arbitration can be organized on online platforms, for example, the European Online Dispute Resolution which solves over 36,000 cases in the year 2018 [13]
Unlike the above, crowdsourced arbitration involves untrained juror members instead of competent and professional attorneys It is a common solution for smaller groups who wish to manage resolution themselves by establishing common ground rules to facilitate community adjudication in a timelier and affordable manner Crowdsourced dispute resolution can be both offline and online With the advent of Blockchain technology, online Blockchain dispute resolution become an effective tool for solving conflicts with lower risk of manipulation, less cost and better time- efficiency Thus, Blockchain-powered crowdsourced arbitration shall be presented in
Section 2.2.2.4 of this research as a recommended methodology to resolve conflicts in construction project delay matters
Blockchain is chosen as the backbone infrastructure of the whole framework Its definition, characteristics and strength are presented in this section
Created in 2008 by a person or an organization named Satoshi Nakamoto, blockchain, a type of database technology consisting of a distributed ledger, a consensus protocol and cryptography [14], is a promising solution to presented contractual issues in construction sector Blockchain is most known for its Bitcoin cryptocurrency Technically, blockchain – as the name suggests – is a chain of blocks of information [15] Blockchain technology uses a shared ledger on a peer-to-peer network to store data across several devices without a centralized server, validate the data authenticity and sufficiency, to verify transaction Once verified, it updates each block with the information from that transaction with a credible timestamp The nodes in the network can get reward for their efforts in transaction verification (mining) The embedded information cannot be altered once added to the chain, transforming the chain of transactions into a valid and highly protected record All transactions are visible to every node in the blockchain network Anyone can check the data and track the history through a device on the network to ensure the reliability of information [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]:
- Decentralization: Blockchain operates on distributed ledger on decentralized peer-to-peer network There is no intermediary or centralized server so the risk of single-point of failure is eliminated All nodes may have equal rights and obligations (depends on the network purpose)
- 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
- Security: Blockchain’s decentralization characteristics is an effective protocol to prevent itself from attacks In order to get a blockchain under control, attackers must at the same time hack multiple devices over the network, which makes it very expensive and nearly impossible Blockchain uses hashing algorithms (the process of transforming any given data string into another value using a hash function and the new string cannot be decoded back to its original value as recalculating these hashes would cost “enormous and improbable” computing power [19]) and protective asymmetric-key cryptography algorithms (only authorized persons who have a correct pair of private-and-public keys can permit transactions) to ensure data security The state-of-the-art of Blockchain security is shown in Figure 2.3 [20]
- 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
With aforementioned features, Blockchain technology is now effectively applied in various aspects and industries A blockchain-based contract management framework can enable information publicity among project stakeholders, as well as a platform to perform all multiple-party transactions, including information record of work acceptance, conflict settlement and payment process The framework is inspired by smart contracts, one of the most common applications of blockchain
A smart contract is executable code that runs on the blockchain to facilitate, execute and enforce the terms of a contract agreement between untrusted parties [21] Smart contract operation mechanism [22] is illustrated in Figure 2.4
Figure 2.4 Mechanism of Smart Contract operation
Once contract terms and conditions are discussed and agreed, they are encoded into public Blockchain platforms like Ethereum or permissioned Blockchains written on modular foundations like HyperLedger with limited access The contract defines respective parties’ rights and obligations Record of any fulfillment or breach of contractual obligation, partially or entirely, is bounded with reasonable subsequence, either payment, penalty or contract termination All records of contract implementation are saved in the ledger, enabling relevant stakeholders to monitor and audit the process In the era of Industry 4.0, thanks to Internet of Thing (IoT), record of contract fulfillment or violation can be not only manually verified by authorized persons in the Blockchain, but can also be automatic input of trusted third-party information sources (called “oracle”) [23] [24], Automatic execution is the key to smart contract operation as it enables smart contracts to execute themselves following the occurrence of some defined event without requiring human intervention [25]
Today, smart contracts are mainly applied in construction material supply chain and logistics as it executes the payment among stakeholders once agreed contract agreement terms (for example: on-time material delivery with required inspection proofs) are satisfied Smart contracts are also applied in construction work- done interim payments to eliminate payment and cash-flow issues as they may settle payment to general contractor automatically using an embedded fund upon the validation of payment request of relevant stakeholders (quantity surveyor, supervisors, etc.) [11] [12] Moreover, smart contracts can be linked to create a “web of payment” [26] , once payment is transferred to a general contractor’s wallet, linked relevant conditions of smart contracts between general contractor and their agencies, subcontractor or supplier for instance, triggers automated payments to these downstream parties Generally, existing smart contracts only consist of rather simple and straightforward contract conditions with the intention of reducing paperwork hassle whilst many other construction project real-world conflicts and complicated situations are not being considered On the other hand, awareness of Blockchain potential in the industry among construction companies are rather limited According to Construction in a Digital World, a survey conducted in 2020 by KPMG Canada and Canadian Construction Association, only 5% of the companies have implemented Blockchain technology in their production practice, while 57% have got no plan to exploit the technology in near future [27].
Related Studies
2.2.1 Overview of contract and stakeholder relationship management researches
Construction contracts in the past were managed in a paper-based fashion, where information associated with stakeholders’ rights and obligations, copyright and intellectual property and further legal consequences were contained in binding books of signed and stamped papers [15] Paper documentation marked the first era of specialization of businesses and processes wherein companies specialized either in information processes (i.e inspection, planning, design and engineering) or material processes (i.e fabrication, construction, maintenance, and demolition) [15]
Increasing demand of higher professionalism and executive coordination of modern construction projects wherein information in general and contractual information to be specific among project stakeholders must be delivered in a timely and accurate manner is urging the industry to shift its contract management fashion from paper-based to digitalization Electronic contract was introduced to automates and simplified the contract creation and management throughout four stages of a contract or any legally binding agreement’s life cycle: Contract Creation, Contract Execution, Change Management and Contract Closure [28] Digital payment management enables project stakeholders to complete the payment process online instead of using paper, resulting in the reduction of payment processing effort by 84% [24]
However, it can be observed that among the world’s past and present digital revolution, the application of modern technology in construction industry is fairly humble compared with many other manufacturing industries, for instance automotive, pharmaceutical and biotechnological production
Not until the advent of Building Information Modeling (BIM) that great opportunities to increase the quality of building information and construction management were revealed since the model serves as a ‘single version of the truth’ [17] Relevant parties including designers of different professions, clients, contractors, inspectors and operators can view the building information through 3D visualization and furthermore exploit its various information dimensions such us scheduling (4D), cost (5D), sustainability (6D), etc Even though real-life BIM maturity is not up to its full potential, related researches on BIM in building information management have grown abundantly However, there are several outstanding issues hindering BIM from becoming an effective tool in contract management such as dispersed legal significance [15], information redundancy [4] and data storage capacity Service provider Oracle integrates BIM with cloud computing technology to build a cloud-based platform for project information storage and contract governance (called Aconex) [29] However, centralized cloud-based platforms like Aconex are operated on a pay-as-you-go third-party administrator’s server, making it prone to security and operation issues including loss of data, data privacy, denial of data access and trust issues [30] [31]
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 been a hot research topic in recent years By July 2019, there had been over 1,000 Blockchain-related journal articles worldwide, many of them are products of inter-national cooperation [32] Most discussed topics are cybersecurity, smart contract, Bitcoin technology and Internet of Thing (IoT) Research in Asia focuses on the technology in two main areas: Blockchain application layer (e.g., privacy protection, smart contracts, IoT) and underlying technology (e.g., architecture, edge computing, algorithm, frameworks) Research in non-Asian countries focuses on application of Blockchain in solving economic and social issues, in addition to technology [32]
Half a decade after the invention of Bitcoin, the backbone of Blockchain 1.0 era, in 2013, Blockchain 2.0 or Ethereum platform functionality was established by Vitalik Buterin The establishment of Ethereum and its cryptocurrency Ether enabled Blockchain technology to benefit from other applications besides monetary transaction with the introduction of decentralized applications (DApps) and smart contracts in many aspects of life, from asset possession, to healthcare, education and voting, etc Once introduced, the potential of Blockchain technology in construction management was quickly recognized However, researches during this period mainly focused on conceptual potential of the technology, rather than its full extent of 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) Blockchain is accessible to everybody with internet access, to create data, create smart contracts and run as network nodes [34] Everyone in the network is rewarded to act for the best outcomes of the network, hence, verification of a transaction can be done without the need of a trusted party [3] However, such transparency results in information privacy risk as everyone can access and initiate changes to the data In addition, it takes more time to verify and add blocks into the chain due to large number of nodes in the network
In contrary, in Private (or Permissioned) Blockchains, only individuals, who are known and chosen, with permission from the network administrator can join the network This is useful for organizations with preference to have control over their data and internal policy, especially financial and auditing systems [34] In private blockchains, shorter time is required to obtain the consensus in the network and more transactions can be processed within a period of time [3]
In Consortium Blockchain, the third type of blockchain systems with medium level of openness and access, several nodes belonging to multiple organizations participate in the network management It is recommended for transaction among businesses
Data across different Blockchains can be linked via cross-chain bridge Cross- chain bridges exchange smart contract information, cryptocurrency or non-fungible tokens (NFTs) from one Blockchain network to another [35] Even though most cross-chain applications at the moments focus on cryptocurrency trading, potential of the technology can be expanded to link sizable data for information storage improvement purpose
In every Blockchain network, consensus algorithm plays a vital role in maintaining system’s safety and efficiency Regardless of blockchain accessibility level, consensus is required to solve these two problems: double spending and Byzantine General Problems [36]
Double spending is using the same token for two transactions at the same time which can be prevented by the verification of many distributed nodes all over the network, to check the legitimacy of data before consenting Every time a transaction is made, the whole system is updated with newly added data block, and new changes are apparent to all network members [37]
Byzantine Generals Problem abstract was first introduced in 1982 [38] as a failure of exhibiting behavior in a computer system where conflicting information is sent out by dishonest nodes called “traitor” Generally, in a network with three or less nodes, it is impossible to ensure information consistency among the nodes But in a network with n ≥ 4 nodes, the system can tolerate up to n/3 traitors (Byzantine Fault Tolerance BFT) Solving Byzantine General Problem is necessary to ensure successful operation of all networks but the problem is even more difficult when it comes to a distributed network In 1992, Practical Byzantine Fault Tolerance (PBFT) was presented, the algorithm working in asynchronous environment is believed to be able to improve response time while tolerating faulty nodes’ malicious attacks and software errors [39]
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
Not until further attempts to overcome previous limits of Blockchain 1.0 and 2.0 related to speed, scalability and privacy issues, resulting in the development of Blockchain 3.0, an advanced Blockchain ecosystem with robust application of smart contracts, transaction systems, and DApps, the technology presence in construction- related research had increased
Nature of Blockchain and its various possible application areas in construction management are discussed in many researches According to Yun Wang (2017), three types of Blockchain-enabled applications are proposed to improve the current processes of contract management, supply chain management, and equipment leasing [26] In 2021, Perera, S., et al discussed four prominent application areas of Blockchain technology in construction procurement including e-Procurement, Payment management, Supply chain, Project and product certification [18] Boonpheng at el provided a more conceptual paradigm on how Blockchain may improve the construction engineering management in term of cost, time, quality, transparency and information security [42] First, the usage of Blockchain results in reduction of transaction, inspection and audit costs Second, time required for document validation is cut down as project stakeholders have access to project data on the shared ledger Third, Blockchain enables transparency of construction material origin and changes the way BIM stores project data, thus, increases the efficiency of project quality management Fourth, clearly Blockchain tightens poor mutual trust between project stakeholders as they only have to trust the system, not the people in it Blockchain is also an open book so that relevant stakeholders may trace back past events to deliberate their judgement in case of dispute Fifth, Blockchain limits access, it reduces the risk of counterfeit information and improve data confidentiality
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)
Procurement of construction works (selection of general contractor) is done on an electronic procurement (E-Procurement) platform, preferably on Blockchain also via a decentralized application (dApp) wherein all agreed terms and conditions can be easily extracted and compiled into a systematic structure with comprehensive description of who-does-what and transferred in smart contracts coding format (Formalization) The beauty of establishing a link between E-Procurement data and smart contract data is that efforts for Formalization is reduced significantly as contract managers and IT developers don’t need to “translate” the contract language into code
An organization breakdown structure must be obtained to set out appropriate level of authorization in the network for certain project stakeholders, not only client and general contractor but others whose rights and obligations related to the project can be legally spelled out It is proposed that smart contracts are used in conjunction with embedded fund of cryptocurrencies, so that payment can be implemented automatically and rapidly, thus, contractors, suppliers and subcontractors would be protected against careless acts of upstream parties [37] It is noteworthy that payment is viable via fiat money too In Vietnam, various commercial banks have established Letter of Credit services via third-party Blockchain channels to facilitate cross-border payments for foreign trading [50]
At the beginning of the smart contract execution process, a project stakeholder, for example, a contractor submits a request for payment, an architect requests for a variation order to modify the design to adapt to site constraints or a site engineer requests that the contractor must pay a penalty for a HSE violation (Request) When the transaction of such request reaches the client, a process of consensus achievement begins (Consensus) Detailed of consensus mechanism is presented in article 3.2 of this study The consensus is achieved when all project stakeholder either approve or disapprove the named request Besides network nodes’ consensus, the predefined conditions of the contract, like unit price, quantity can be checked against using other off-chain or cross-chain data [35] collected from on-site sensor devices, real-time BIM point-cloud updates [24] or changes of market price indices on the internet can be also integrated via application programming interface (API) enabling cross-chain interoperation to support project stakeholder’s assessment (Verification) IoT application tasked delegated to Cloud computing, a concept named Cloud of Things is integrated with Blockchain (BCoT) to achieve open data access for decentralized computing [51]
Once consensus among network nodes is obtained, transaction including who- approved-what is added to the block (distributed ledger) with a timestamp The configuration of either acceptance or rejection, automatically triggers a subsequent event following predefined contract logics (Trigger) There are two types of outcome: monetary outcomes (i.e: payment) and non-monetary outcomes (i.e: site instruction, request for rework, etc.) Record on successful implementation of automatic outcomes is added back to the Blockchain marking the end of a full contractual event processed and monitored on proposed framework (Record)
Compared with published platforms like Aconex [29] where payment application is uploaded and approved via a workflow, the proposed framework is not limited to only recording the payment application and acceptance but as well handles automatic payment process to downstream parties upon nodes’ verification on a tamper-proof mechanism The system involves modern technologies of Industry 4.0 like Internet of Things (live records of actual physical changes at site), cloud computing services, linked BIM storage, etc to improve the quality of project information and contract control besides professional observation and judgement of project stakeholders In addition, tamper-proof records of completed construction work and its technical design, material and component, with plausible legal recognition in the future, may be submitted for authority to streamline compliance inspection and certification procedures.
State-of-the-art of proposed framework
To avoid the risk of dominant by a single party or system failing due to influences of malicious nodes (i.e: incorrect information, corruption attempts), it is required that a protocol to obtain consensus throughout the network to exist
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 is derived from the Byzantine Generals’ Problem (Figure 3.2), a situation where involved parties (lieutenants) must agree on a strategy to avoid a systematic failure (uncoordinated attack leading to defeat) [52] The situation involves a group of army scattering at remote locations attempting to attack a target fortress It is essential that lieutenants to together agree whether to attack or retreat The lieutenants can only communicate via messages which can be stolen or altered Even if messages are well delivered, there may be traitors who exhibit arbitrary behavior If there are too many traitors (fault tolerance is violated), failure is inevitable Similarly, it is necessary to prevent messages being delayed, duplicated or out-of-order delivered in a distributed system (i.e: blockchain system) so that the number of nodes with individual failures does not surpass the fault tolerance threshold which intervenes accurate operation of the system
In PBFT, each node exists in an “internal state”, which means each node has specific information recorded independently When a node receives message, they update the internal state to perform computation or task, and simultaneously send messages to other nodes to check if the transaction is valid Upon receiving verification from all other nodes, it will broadcast either its approval or rejection with all network nodes A transaction is confirmed or consensus is achieved when certain numbers of nodes express their verification [34]
The algorithms can be explained with higher technicality level as following PBFT algorithms is a form of state machine replication [39] A state machine is a concept in algorithms design, it reads a set of inputs (also referred to as commands) and changes it to a different state based on those inputs and causes a reaction on following inputs Replication servers, or replicas, replicate the application state and execute the same sequence of client commands in the same order, and after executing each command, every replica reaches the same state [53] The replicas move through a series of configurations called views In a view one replica is the primary and the others are backups [39] Assuming f is maximum number of fault replicas, PBFT mechanism is presented in Figure 3.3
- 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
For this research, PBFT shall be applied whenever involved stakeholders must vote for a certain arguable statement In order to reach a mutual decision, majority of stakeholders, F, must exhibit the same agreement/rejection given a predetermined threshold f
Smart contracts serve as a secure and trustworthy platform for automated execution of contract clauses, without requiring a trusted intermediary like attorneys or banks and monetary outcomes can be delivered in cryptocurrency As most well- known public Blockchains involve transactions among many nodes, the smart contract models are recommended to be operated on a permissioned consortium blockchain platform to tighten information security and transaction speed Consortium blockchain is especially useful for projects with sensitive data like bilateral contract cost index It is more centralized than public Blockchain networks as it has restriction to the entry of participants and allows only those required in the network [16] A permissioned consortium blockchain provides data exchanging channel among parties with a mutual objective but have intellectual properties that they need to uphold [44] Suitable consensus algorithm suggested for the framework running on permissioned and consortium blockchains is presented in above Section 3.2.2
In order to further assess the operability of the proposed framework, the author targets to implement two prototype smart contract models (which shall be presented in section 4.1 of this dissertation) on Ethereum Ethereum is among the most used blockchain foundations It has one of the biggest current market caps ($18.667 Billion [54]) thus it can address demands of high valued construction projects However, other fiat currencies that can be exchanged in cryptocurrency can also be used for payment process Further studies can focus on trial and comparison of proposed blockchain-based framework operating on multiple platforms to underline their particular pros and cons
As data confidentiality is crucial, information like contract committed value and claimable payment amount should be kept privately The access is strictly limited to only selected parties, usually client, general contractor and quantity surveyor with permission key, preferably in the form of one-time password (OTP) to ensure users cannot use the password to gain their access a second time Blockchain itself has been proven an effective instrument to perform OTP authentication in a study by Zhang et al (2019) Blockchain, on behalf of multiple untrusted service providers, can verify an OTP using its decentralized trust system to ensure resistance to several forms of security attacks including replay attack [55].
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
As discussed, smart contracts can be structured in multiple layers involving various contracting parties to create a web-of-payments Architecture of smart contract deployment at project-level following pre-set research scope is presented 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
Example of payment execution is demonstrated in Figure 4.4 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, with consideration of predefined 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
A process of consensus achievement whose mechanism explained to be carried out The payment application is returned for general contractor’s resubmission if rejected, otherwise a payment certification if approved The payment certificate does not only contain quantitative description of the accepted payment application but also exact time and date of automatic transaction Upon a certain predefined number of days, the cryptocurrency payment is automatically released from a secure account of the client to the general contractor The concept of such secure account is similar to Project Bank Account (PBA) in the UK and Australia, a ring-fenced bank account from which payments are made directly and simultaneously to the general contractors and other supply chain members in order to provide security of payment and shorten the process in a supply chain [54] This payment automation also sets the date of the following automatic payment from the general contractor to the subcontractor upon deduction of profit and attendance fee after a period of pre-agreed period (for example, 3 days from the date general contractor receives the payment from the client in accordance to Client’s subcontractor nomination instruction) Limited to high value, it is impracticable to lock the entire value of a project in cryptocurrency fund Instead, client’s wallet balance should be updated on a bi- weekly or monthly basis, depending on agreed payment schedule and cash flow projection In the event the contractor does not receive payment in accordance with conditions of contracts and payment certificate due date, provision of financing charges compounded on the amount unpaid during the period of delay the contractor is entitled to should be exercised
Figure 4.4 Example of Automatic Payment Contract Execution
General contractor’s tendency to directly manage and pay subcontractor [54] to ensure his success in a project is an undeniable obstacle while imposing proposed model Therefore, it is suggested that the proposed model is first applied only for payment process of nominated subcontractor and material supplier Nominated subcontractor, whose obligation and right were negotiated directly with the client beforehand, is instructed to enter an agreement with the general contractor under specific attendance and management provisions Besides, as supply chain management of material supply has been improving significantly over the years thanks to the exercising of provenance blockchain [43], acceptance, verification and payment for construction materials and components on-site can be implemented with ease On the other hand, general contractor is still responsible and flexible to put his substance on domestic subcontractors; other mechanisms to protect domestic subcontractors must be enforced
It is also noteworthy that above described example involves the evaluation and acceptance of work(s) by project relevant personnel with professional judgement In other events, for example, harsh working conditions where physical examination is not feasible, it is recommended that the real capture technology to be applied, to translate product flow (job site result) to cash flow (in work-done payment) [24] in accordance to predetermined contract terms and automatic execution logics
Construction delay is among the most common causes of disputes globally [14] Unsolved disputes, in return, further delay the project as contractors potentially don’t want to compromise It is essential to establish an approach to promptly resolve conflicts among project stakeholder whenever delay occurs to prevent even greater stakeholder relationship damages and further project failures
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 (Figure 4.5) Different cases of dispute between any two project stakeholders can be resolved using similar concept
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) (Figure 3) following below assumption:
- The determination of delay typology, whether it is excusable, non-excusable or concurrent delay, should be studied (offline) by all project stakeholders, resulting in the shortlisting of a few most persuading arguments with detailed description of accountable party and subsequent events following contract logics like EOT, compensation, contractor’s claim, etc (Table 4-1)
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, repayment of monetary penalty is usually resulted by calling-on of performance bond, deduction in a due payment for contractor’s workdone or direct payment upon an adjudication of arbitration As this section focuses on the reimbursement of delay damages, the indemnity method of performance bond calling-on is selected Therefore, it is necessary that the involved bond provider, either a bank or an insurance company, to be assigned as a blockchain system node
- Delay resolution is a part of total project contract management on Blockchain infrastructure, where predefined lawful agreement terms and conditions from procurement stage are captured under smart contract format Decentralized ledger digitally documents all contract events on a fair and transparent basis Stakeholders are assigned as system nodes to perform evaluation and eventually input their approval/rejection whenever requests (for example, request for payment and request for variation) arise whilst engineering design and construction real-time data can be monitored and integrated with IoT/BIM integration technology
- 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
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 [56] As supporting documents are usually results of an arbitration, the study suggests to utilize Blockchain 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 [57]
Figure 4.6 Blockchain-based Delay Resolution Flowchart
Figure 4.7 Blockchain-based Project Delay Resolution Flowchart for Stand-alone
Resolution of stand-alone and concurrent delays is slightly different For easy comprehension, following procedures in the event delays are stand-alone/concurrent ones shall be presented separately in P1/P2 flowcharts (Figure 4.7 and 4.8 In a typical construction project, there are four possible resolving outcomes as a delay is discovered, analyzed and responsibility is determined, including: (i) Notice of EOT; (ii) Payment of Contractor’s Claim; (iii) LAD Reimbursement to Client; and (iv) Status quo (neither parties take any action) Decision of resolving outcome(s) is relatively simple in case of stand-alone delays since responsibility of a single-party can be pinned down However, if two or more delays occur simultaneously, apportion of responsibility isn’t as simple, resulting in several scenarios relevant contractually- bounded stakeholders may have to choose and perform accordingly Therefore, shortlisting of a few most persuading arguments with explicable description of responsible party and relevant event following contract logic (for instance, an exact EOT number of days and/or an exact penalty amount in payable currency) must be conducted before final decision to be obtained using a third-party crowdsourced arbitration service It is noteworthy that different delay analysis techniques (DAT) deployed (for example: As-Planned vs As-Built, Collapsed As-Built and Time Impact Analysis, etc.) might result in several different determinations of stakeholders’ responsibilities when applied on the same set of project data [58] Once selected, off-chain data of winning verdict linked to the smart contracts subsequently triggers the resolution outcomes based on established conditions of smart contracts
Figure 4.8 Blockchain-based Project Delay Resolution Flowchart for Concurrent
Structured Interviews
A structured interview, as its name suggests, is a systematic data collection method where interviewer asks all interviewees a set of predetermined questions in a set order [59] with limited-to-none intervention In order to assess and validate the feasibility of proposed Blockchain-based construction contract and stakeholder management framework, 7 interviewees specializing in either construction field or blockchain technology were invited to provide their inputs in a structured interview questionnaire The questionnaire consists of 2 parts In order to assist interviewees, a brief summary of research outcomes, including problem statement, concepts and technologies applied, model development and case study demonstration was provided in Part 1 of the questionnaire Part 2 consists of 04 questions including one dichotomous (yes or no) question and three free-listing ones The content of asked questions is as Table 4-4 and general information of 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 via personal messages from 30-May-2022 to 07-June-2022 Subsequently, responses from interviewees were collected from 01- June-2022 to 14-June-2022 Two interviewees (ID 1 and ID 6) provided their inputs in Vietnamese language while the rest replied in English language The specimen of sent questionnaire and original inputs of all 7 interviewees (anonymous) can be found in Appendix section of this dissertation For consistency, replies of interviewee ID 1 and ID 6 were translated, captured and analyzed as following
First, 6 out of 7 interviewees were confident in the potential of Blockchain- integrated technology to solve current problems in construction contract and stakeholder management practice Generally, the proposed approach was strongly believed to be a sound one-stop solution to manage project contract and stakeholder relationship, especially effectively in audit, claim and payment processes as it stored project data and operated systematically on a transparent, accurate and immutable manner However, interviewee ID 2 was in opinion that the technology might contribute to control project cost only and arguments among stakeholders possibly remained inevitable as most of them happened at site or resulted 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
Replying to the last question, interviewees expressed their areas of concern on what might prevent future development and mass adoption of the research proposed framework Recognized barriers are listed in Table 4-8 Interestingly, Interviewee 5 asserted, as I may quote, “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
The study 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, including two detailed prototypes of interim payment automation and delay resolution By introducing smart contracts to facilitate payment application, acceptance and transaction and crowdsourced arbitration solutions to determine delay responsibility apportionment and automatic resolution accordingly as parts of an overall contract management procedure, the proposed approach is expected to streamline the process, to reduce implementation time and overhead cost due to employment of third parties like banks and lawyers; as well as to reduce the risk of injustice and arbitrary thanks to incentive mechanisms and power of Internet population
First prototype is illustrated using a case study of an interim payment in a residential project with the presence of a general contractor and a subcontractor Records of application and approval, as well as payment automation is recorded, creating a transparent audit trail It is, however, recommended for the payment process of nominated subcontractor and mere material supplier only as general contractors usually wish for immediate control over their domestic subcontractors
Second prototype is validated by a case study of crowdsourced arbitration using Rhubarb platform to resolve disputes on who should be responsible and penalized for the delay of a garage construction project taken from an academic study on delay analysis techniques Blockchain-powered community jurors come to a conclusion in which the contractor must reimburse client’s financial loss following established terms and conditions on liquidated ascertained damages The process of reimbursement is automatic upon finalization of juror’s case verdict
A committee of 07 persons specializing in either construction sector or blockchain field with certain level of relevant technologies were invited to review the research outcomes and given their opinions of the introduced management framework, including merits and adversities The framework was believed by majority of interview participants to contribute to effective construction contract management, especially in audit and payment processes On the other hand, hiccups in the development and implementation of the proposed framework may occur due to difficulties in investment cost and time, legal recognition, technical infrastructure, user awareness and capability in construction industry, which is renowned for its slow adoption to innovative technologies and solutions.
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
Secondly, smart contract-based solutions in project delay resolution, and overall contract life cycle management on Blockchain are all still in early development stage Most Blockchain crowdsourced juror platforms are products of recently established startup companies with many juror members are not trained legal experts, with limited to none programming interface to link to smart contracts
Thirdly, it is also noteworthy that the knowledge of blockchain and smart contracts among interviewees is rather limited.
A fully developed case study, preferably with primary real data, project team equipped with technology information knowledge and skills based on presented methods and algorithms should be exploited to validate proposed framework feasibility, economics, legal significance and scalability Nevertheless, the author believes that future of Blockchain alone and its integration with Cloud Computing, BIM, IoT and other modern technologies in construction sector is certainly bright as both academic and commercial researchers are expressing their extensive interest in this research area
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APPENDIX Appendix No.1 – Specimen of Research Interview Questionnaire
My name is Pham Ngoc Lien, a Master of Construction Management candidate in University of Technology – Vietnam National University Ho Chi Minh City I’m currently working on my master’s thesis with the topic namely “Blockchain application in construction sector: An empirical smart Blockchain-based framework in 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 aims to resolve existing issues in construction contract management, the most significant issues include (i) lack of trust between relevant stakeholders, (ii) late/non-payment to general contractor and other downstream parties in the supply chain and (iii) delay dispute
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
Generally, Blockchain is a peer-to-peer network which enables untrusted parties (nodes) to enter, execute (permit transaction) and record all transactions on a distributed shared ledger The data is stored on multiple devices of the network instead of a single main server and cannot be tampered or deleted Blockchain security mechanisms include hashing algorithms (the process of transforming a data string into a coded value using hashing functions and the coded value cannot be decoded back to its original value) and asymmetric key cryptography algorithms (network nodes are given a pair of private-public keys to permit transactions) The framework is inspired by smart contracts, one of the most common applications of Blockchain A smart contract is a self-executable contract that is coded and operated on blockchain platform to facilitate, execute and enforce the terms of a contract agreement All records of contract implementation are saved in the ledger, enabling relevant stakeholders to monitor and audit the process In the era of Industry 4.0, thanks to Internet of Thing (IoT), contract fulfillment or violation could be verified by authorized persons in the Blockchain, (consensus achievement) or automatic input of trusted third-party information sources (called “oracle”) like national news websites or at-site sensor devices etc
Another potential blockchain application utilized is crowdsourced arbitration The philosophy of crowdsourced arbitration is whenever a dispute arises, several analysis options with proposed solutions are put up for public vote, either by a randomly anonymous selected jury or a board of assigned well-trained legal experts depending on the complicity of the case presented The selected verdict is tamper-proof It links to the smart contract and automatically activates following events in accordance to 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)
Procurement of construction works (selection of contractor) is done on an electronic procurement (E-Procurement) platform, preferably a decentralized application (dApp) wherein all agreed terms and conditions can be easily extracted and compiled into a systematic structure with comprehensive description of who- does-what, and transferred in smart contracts code format (Formalization) Appropriate level of authorization in the network for certain project stakeholders, not only client and general contractor but others whose rights and obligations related to the project can be legally spelled out must be set (Nodes) It is proposed that smart contracts are used in conjunction with embedded fund of cryptocurrencies, so that payment can be implemented automatically and rapidly, thus, contractors, suppliers and subcontractors would be protected against careless acts of upstream parties
At the beginning of the smart contract execution process, a project stakeholder can request for a transaction, for example, a contractor submits a request for payment, an architect requests for a variation order to modify the design or a site engineer requests that the contractor must pay a penalty for a HSE violation (Request) When the transaction reaches the client, a process of consensus achievement begins (Consensus) Detailed of consensus mechanism is presented in article 3.2 of this study The consensus is achieved when all project stakeholder either approve or disapprove the named request Besides network nodes’ consensus, the predefined items in the contract, like unit price, quantity can be checked against using other off- chain or cross-chain data (Off-chain Data) collected from on-site sensor devices, real- time BIM point-cloud updates or changes of market price indices on the internet can be also integrated via application programming interface (API) enabling cross-chain interoperation to support project stakeholder’s assessment (Verification) Further IoT application tasked delegated to Cloud computing, a concept named Cloud of Things is integrated with Blockchain (BCoT) to achieve open data access for decentralized computing
Once consensus among network nodes is obtained, transaction including who- approved-what is added to the block (Ledger) with a timestamp The configuration of either acceptance or rejection, automatically triggers a subsequent event following predefined contract logics (Trigger) There are two types of Outcome: monetary outcomes (i.e: payment) and non-monetary outcomes (i.e: site instruction, request for rework, etc.) Record on successful implementation of automatic outcomes is added back to the Blockchain marking the end of a full contractual event processed and monitored on proposed framework (Record) In term of monetary outcomes, compared with established platforms like Aconex or SAP where payment application is uploaded and approved via a workflow, the proposed framework is not limited to only recording the payment application and acceptance but as well handles automatic payment process to downstream parties using cryptocurrency without the need of a bank’s presence
5 State-of-the-art of the proposed framework
It is recommended that the framework is operated on a consortium blockchain, a hybrid of public and private blockchains to inherit the merits of its parent technologies, including scalability, data sensitivity and transaction speed, etc
To increase data storage ability and service functions, the network is integrated with BIM, IoT and cloud computing technologies As data confidentiality is crucial, one-time password protection layer is also recommended
Note: Smart contracts can be structured in multiple layers involving various contracting parties to create a web-of-payments