We often take a look at advances in construction technology on this blog, from drones to BIM, and today we are looking at smart contracts.
Contracts have been used to conduct business since the days of ancient Rome, and continue to be used every single day. Most contracts are long, heavily detailed documents full of complicated jargon, but a powerful new piece of tech has emerged to shake things up.
Introducing smart contracts…
What is a smart contract?
A smart contract is a contract that are negotiated, verified and automated through a computer protocol. Smart contracts will automatically validate conditions to determine the action that the contract requires, and acts as a replacement for paper-based contracts.
These digital based contracts can provide better protection than wet-signed paper contracts through digital archiving, they can be changed throughout the project, making them very flexible and they are easier to administer compared to current procedures, with cheaper, faster transactions.
The term “smart contract” was introduced back in 1994 by computer scientist Nick Szabo, being referred to as “used to bring the practice of contract law to the design of e-commerce protocols between strangers on the Internet.”
It is often a term that is used incorrectly to describe digital contracts/contracts produced electronically.
What are the benefits?
One of the main benefits to using smart contracts is the high level of accuracy, as these types of contracts are required to record all terms and conditions in absolute detail. It also avoids error usually caused when manually filling out documents, removing human error from the equation.
Having this level of accuracy means there is no room for miscommunication, improving efficiency in the process. You also get total transparency with smart contracts, allowing all parties involved to access the terms and conditions and refuting any potential disputes.
Combining the level of accuracy, little room for error and full transparency makes them a sound choice, instilling confidence and trust for the client.
Smart contracts use the highest level of data encryption available, keeping documents secure and increasing security. As these contracts are stored in the cloud, there is no fear of losing documents, with a permanent backup at all times.
It should also be noted that due to the software these contracts use, transactions are made in a speedy manner, shaving off hours from the usual process.
You can also expect a reduction in cost when using smart contracts, as there is no need for intermediaries thanks to the automated nature of the system.
Lastly, smart contracts contribute towards a more eco-friendly way of doing things, as going paperless helps the environment and reduces waste.
Are smart contracts and intelligent contracts the same?
An intelligent contract differs from a smart contract because it asks questions of the user. From these answers, an intelligent contract will plan, create and negotiate bespoke contracts.
Intelligent contracts were developed in the hope that the standard form of contract could be replaced by “one single access questionnaire portal”. They can be used for the following:
- Automating the delivery of agreed contracts for digital execution.
- Updating the programme of works based on variations or compensation events.
- Automating payments to the supply chain.
- Releasing documents.
- Submitting claims.
For a more detailed breakdown, click here.
Are there any downsides?
Despite the many advantages to using smart contracts, there are still some with some fair criticism of the system.
Some of the most common complaints include vulnerability to viruses, the taxation of transactions and the liability for errors. However, we believe this is something that is going to improve over time, especially if they are rolled out industry wide and with the advances in technology.
Currently we have well established contracting procedures, choosing the form for the project, negotiating the contract terms, and allocating risk and design information. But many acknowledge the current ways are not without flaws, and could definitely be improved upon.
Are smart contracts the solution to many of these flaws?
Implementing smart contracts might appear as a risk, but failing to adapt and take advantage of more efficient, accurate, secure procedures is a step in the wrong direction.
From what we’ve seen, companies that are able to understand how to use smart contracts are more likely to win bids, finish projects on time and speed up payment. In times like these when everyone is willing to almost lose out on any profit in order to secure the contract, this could be the upper hand you need to win.
But what do you think?
Are smart contracts the future of construction or do we need to continue to develop and find an alternative? As you’re already aware, the construction industry has been a bit slow to embracing the digital revolution, so who knows what the future holds.
Want to get involved in the conversation? Feel free to tweet us @utilitysearches and let us know your thoughts.
Brought in to help take the business to the next level, Jim’s role is to improve lead generation and customer satisfaction from over 3,500 registered clients. Jim loves interacting with potential and existing clients and has a wealth of marketing and sales experience through his previous roles at O2, the RAC and TalkTalk. Jim holds a BA (Hons) Business Studies degree majoring in Marketing. He has also become a regular visitor to the UEFA Champions League final of late 😉