Jonas Lundqvist, CEO at Haidrun, explores how B2B blockchain technology can add trust to construction supply chains and deliver scalable sustainability
When it comes to managing projects and dealing with complex supply chains, the construction industry presents some of the most challenging environments. Coordinating stakeholders from architects and engineers to building firms, materials suppliers and accountants, is a major undertaking.
Typically compounded by an abundance of building codes, safety regulations, and standards, the whole process is prone to inefficiencies, error and mistrust. Increasingly, the drive to be – and be seen to be – more sustainable, is a key driver and performance target for all construction projects.
Over recent years, the construction industry has been changing its business practices and embracing digital transformation to adapt to and address these challenges and one of the key emerging technologies helping to drive this evolution is blockchain.
Back in 2018, the ‘Blockchain Technology in the Construction Industry’ report published by the Institute of Civil Engineers, cited blockchain as a ‘disruptive technology that could revolutionise the industry’.
In his forward, Nathan Baker, the then Director of ICE Engineering Knowledge, said: “Make no mistake, blockchain has arrived, offering immense opportunity for industry to become more effective, transparent, productive and sustainable.”
The report highlighted three main features of blockchain that offered many competitive advantages for the industry: transparency, traceability and collaboration.
What is blockchain?
Blockchain is a special type of distributed database or ledger technology, differentiated by the way it stores and manages files of information into groups of data. These so-called blocks are then cryptographically signed and linked together to form a chain.
As well as the data itself, each block contains a record of exactly when it was created, producing a complete timeline history, rather than the snapshot offered by traditional databases, which cannot be corrupted, lost or changed. Essentially, it creates a single immutable source of truth.
The distributed nature of blockchain technology means it is duplicated across all computers running the blockchain node that make up a Peer-to-Peer (P2P) network and any one of them can view the entire blockchain. The transactions or records are processed by nodes in the P2P network, which verify the data and achieve an agreement – or consensus – on their validity. This makes the process completely transparent and accountable.
The first public blockchains appeared in 2008 largely driven by the emergence of Bitcoin and other cryptocurrencies. They can be described as fully decentralised where there is no single entity in overall control and anyone can download the software, view the ledger and interact with the blockchain. But for businesses that want to run enterprise applications, this model presents many challenges around management, privacy, accountability and cost.
That’s why a new generation of B2B blockchains has emerged, where a single authority or organisation ultimately retains control and no one can enter this type of network without proper authentication. B2B blockchains are ‘permissioned’ and focus on companies and institutions where the blockchain empowers and supports the business rather than the individual users.
Smart contracts are a key feature of B2B blockchains
Smart contracts are a key feature of B2B blockchains and are simply a computer program or piece of business logic that should automatically execute, control or document legally relevant events and actions according to defined terms of a contract or an agreement.
The objective of smart contracts is to reduce or eliminate the need for trusted intermediators and to automate the process to reduce delays. Cost savings can be made on arbitration and enforcement, as well as the reduction of fraud losses and other malicious or accidental exposures.
B2B blockchain and the use of smart contracts can deliver a more streamlined and transparent procurement process, reducing the high level of fragmentation and complexity of major projects.
Furthermore, the provenance of the materials can be traced back to support sustainability claims, meet ESG targets and reduce waste, as well as driving the quality of products and services with high accountability.
For construction projects, all information on the materials bought can be visible on the blockchain, such as production and quality certificates, together with the track of transportation, until delivery to the site.
Through this immutable chain of custody stakeholders can have confidence in the quality, safety specifications and standards of materials at any point of the supply chain,. Together with BIM, blockchain can create the single source of truth for all aspects of a construction project to deliver transparency and trust.
Blockchain technology can be used to deal with fraud
Fraud affects organisations of all sizes and can occur at any step in a supply chain from bribes offered during supplier selection to fraudulent payments, guarantees, and forged cheques as well as the introduction of fake and counterfeit materials into the system.
Blockchain technology can eliminate suspicious and duplicate transactions by securely and chronologically logging and time-stamping each transaction. Once verified using an advanced consensus algorithm and then cryptographically sealed into data blocks, the transaction is immutable and tamper-evident to everyone on the network. This also means that the information is always accessible.
This is important when you consider that construction solutions and services firm Aon estimates that 95% of information about a construction project is lost in the transition to the completed project’s first owner. Using a blockchain based system can store lifecycle information about every asset in a building project including warranties, certifications and replacements.
Blockchain can prevent cyberattacks against the construction industry
A recent report published by The European Union Cybersecurity Agency (ENISA) precited a four-fold increase in supply chain attacks during the last six months of 2021.
The ENISA-sponsored study Threat Landscape for Supply Chain Attacks found that older frameworks used to defend against supply chain attacks no longer provide adequate security and that organisations must find new means of securing against supply chain threats. In 62% of analysed attacks, cyber criminals exploited supplier trust to reach critical access points and 20% of supply chain attacks targeted data.
But yet, a 2020 survey by the UK government found that only 70% of domestic construction firms considered cybersecurity a high priority, as compared to 80% for the average business.
With B2B blockchains, it is far more difficult for cyber criminals to compromise the network and penetrate supply chains as each block contains a record of exactly when it was created, producing a complete timeline record that cannot be corrupted, lost or changed without everyone knowing about it. The immutable and tamper-evident storage of data provides security, provenance, verification and evidentiary audits.
Importantly, B2B blockchains do not need to use cryptocurrencies or native tokens for the network. Any association with cryptocurrencies, good or bad, is not part of the B2B solution and as fewer resources and participants are required to run the B2B blockchain, the result is reduced costs on a far more predictable scale.
As the ICE report concluded, “blockchain technology has the potential to affect both changes and facilitate this innovation” in the construction industry. By migrating the current supply chain and project management system towards a more transparent and fair practice, the industry can become a more trusted entity.
