Smart Contracts and Blockchain Technology: Transformation of the construction industry

  • October 17, 2019
  • Andrea Lee and Lena Wang, Glaholt LLP

While blockchain originated to serve as the public transaction ledger of cryptocurrency, the technology is now being explored for other purposes. Companies such as Walmart and British Airways have made use of blockchain to track and manage its data. Walmart's system was designed to help track down the source of bad food in case of product recalls. British Airways tested blockchain with the goal of stopping conflicting flight information from being reported at airports and on mobile devices.

It is only a matter of time before the construction industry engages in earnest with blockchain and benefits from the technology.

Blockchain is a decentralized data structure, similar to a ledger book maintained by a bank. Each party involved in a blockchain transaction has a copy of the transaction that took place, and the information cannot be modified by another party.

One of the key benefits of blockchain technology is its decentralized nature. The absence of a centralized body means the technology is largely impervious to hacking.

Smart contracts are computer programs built on blockchain technology. Smart contracts use automation to streamline the execution of that contract. The contract is set up based on a series of "if" and "then" conditions. A simple example is if the requisite amount of concrete is delivered to site, then the concrete supplier gets paid. A contract can be encoded to comply with the terms and conditions of the contract.

Application of blockchain and smart contracts to Canada’s construction industry

Canada’s construction industry is ready for a change. Projects are now more complex, wait times for payment have been growing and disputes are taking years to resolve. In Ontario, as part of an overhaul of the Construction Act (the “Act”) to address these challenges, prompt payment and adjudication were introduced on October 1, 2019. Federal and other provincial governments are in the process of reviewing applicable legislation and implementing prompt payment and adjudication rules as well. This shift across the country presents a perfect opportunity for the industry to examine and embrace technology that can transform the industry: blockchain technology and smart contracts.