One of the fundamental problems with construction is how money moves throughout the supply chain. The timing of when money moves from one company to another creates inefficient interest coverage and unnecessary control over companies and suppliers downstream.

For example when a contract requisition is prepared, there is lots of information that’s required before the owner makes the payment. Typically the payment is made by the owner 30 days after it is requested. The general contractor then holds onto the funds before he plays his subcontractor, who then holds on to the money for theirsubcontractor and finally the supplier gets paid. In fact, a supplier could provide the materials and not be paid until a year later.

Now imagine a scenario where, when work is completed, funds are automatically distributed to all parties on a hourly/daily/weekly basis. Welcome to Blockchain- otherwise known as the “World Wide Web of Finance”.

Blockchain is a decentralized ledger that tracks debits and credits, but it’s also a reliable and tamper-resistant method of record-keeping.  By having a decentralized ledger it ensures that no party relies on a single third-party to hold money for them. It’s effectively an automated escrow system.

The blockchain is designed to use a cryptographic hash and timestamps to make its records unalterable once they are created. The cryptographic information on each block of records is based on the information associated with the last block and contains a unique timestamp which makes visualization of the blockchain looks like the links in a chain.

Blockchain runs on multiple nodes that are capable of storing transaction data and the operation of processors that validates new data. The best way to think about it is that the nodes are equal servers that regularly update one another with data and makes it possible to authenticate clients to connect to them. This method also allows for a considerable considerable amount of redundancy.

Blockchain can not only be used for transacting money but also for keeping track of any data that involves a transaction of record of ownership.  For Capital Construction Solutions, we are working on mapping the quality genome that provides the mechanisms to ensure that there is a comprehensive way to ensure that once a task is complete that the records associated with those funds are comprehensive. After all, there needs to be a “sluice gate” to open the flow of money within the blockchain, and we believe that documented quality that adheres to best practices and the discrete elimination of risk is the way to qualify that work has been completed and verified.

Blockchain can also keep track of where supplies come which is especially important in construction when you need to be ensure that materials come from a specific country or region. Blockchain, in this case, can guarantee the authenticity of the products by rejecting any shipment that does not come from a recognized source.

Blockchain can also be used to manage workflow in that you can detect problems when a third party vendor isn’t delivering the quality of service you expect. Blockchain can also be used to track how many times that parties have reneged on a contract or trigger causes on their contract when a defect has been determined. This is essential for the construction industry where upwards of 18% of the cost of construction comes from quality defects.

Businesses that work together to maintain a smart contract system can gain a competitive advantages because the blockchain can track a business’s actual performances as opposed to just being part of a “good old boys club” which should also bring down the cost of construction and increase productivity.  There is no centralized authority that can choose winners and losers so it ensures that everybody gets a fair chance to play.

Blockchain is coming and it’s coming quickly.  For construction it’s the holy grail to solve the issue that few people are talking about- the inefficient flow of money throughout the supply chain.

via: Cory Davis