The construction sector is stuck in a technology rut resulting in hefty inefficiencies. Up to $40 billion dollars are wasted each year due to financial and informational friction between project participants.

Recent advancements in business intelligence, project management, information sharing, payments and other workflow processes on capital projects have not delivered intended improvements. When compared to other sectors like agriculture or manufacturing, both considered to be operating at Industry 4.0 — a term used to define interconnected systems that communicate, analyze and source data to inform better, smarter real-world decisions — construction remains drastically behind the times, a huge detriment to productivity.

One of the simplest ways to address the industry’s biggest pain points — transactional waste — is through implementing a shared, single source of truth across stakeholders that enables efficiencies and uncovers existing hidden value. Smart contracts powered by blockchain is transformative technology that will change the very operating system across the built environment.

Free Working Capital

Approximately, 40% of project capital is wasted on transactional friction; a staggering number resulting from distrust, financial inefficiency, siloed paper-based workflows and a deeply entrenched habit of pushing risk down the supply chain. That number also can be ascribed to non-value adding field operations and a heavy load of credit and debt finance charges that sit within the supply chain cost structure.

Blockchain provides an immutable digital record of truth that uses operating data from existing legacy systems, project information management systems, integrated design (BIM) models, sensors, GPS trackers, scanners, drones and other common sources in industry to corroborate physical events in a digital fashion. Smart contracts are software programs that automate transactions based on the pre-agreed terms continuously updated and verified by the inputs of data stored on the blocks.

With the estimated growth for construction output expected to hit $15.5 trillion by 2030, implementing smart contracts can reduce the cost of capital and shrink Days Sales Outstanding (DSO) from an average of 60 to 75 days down to one or two days. This technology empowers capital projects by streamlining information sharing between project counterparties to improve real-time accuracy, visibility and to radically accelerate cash flow.

Smart Contracts: A Better Tomorrow for All

The construction industry’s C-suite leadership cares about three things in today’s age: predictability of project ROI, capital efficiency and sustainable operations. At the same time, contractors want fair profits, to get paid in a reasonable amount of time and to perform their jobs without taking on too much risk. These desires are not mutually exclusive, but they are seldom achieved because today’s construction operating system prevents it.

Smart contracts are foundational for forging the business model of the future and it’s one based on transformation from paper-based processes to a digital operating model rooted in trust.

To find out more about leveraging smart contracts to eliminate transactional waste in capital projects, register here for our upcoming webinar “Crush Transactional Waste” presented with PrairieDog Venture Partners on June 24.

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