Canada: BIM, Blockchain And The Smart Construction Contract

While the construction industry has traditionally been criticized for being too slow to innovate, the last several years have seen it embrace new business practices, new software and new technologies. The increased use of Building Information Modeling (BIM) is a good example of this. Developments of other technologies – at first glance unrelated to the industry – such as Blockchain and smart (or intelligent) contracts, have in the meantime continued to accelerate, with Blockchain being heralded as having a potentially transformative effect on our increasingly interconnected and online lives.

The use of BIM, Blockchain and smart contracts together could disrupt not only the way construction projects are planned, designed and executed, but also transform the construction contract itself.

BIM and the Future of Collaboration

Although, at its most basic, BIM is a software enabling the generation and management of digital 3D models of a construction project, it has the potential of encouraging collaboration between project participants. Construction projects are complicated and risky endeavours. They can be less so when parties involved in the project are well-informed of one another's activities and where collaboration is fostered. Information management, transparency and trust among project participants are therefore key to ensuring the success of a construction project. BIM can play an important role in this context.

A BIM model is intended to be far more complex than a CAD-based 3D model, enabling not only the graphical representation of construction drawings that were traditionally paper-based, but also the integration within the model of a variety of data from multiple sources. The model can for instance capture pricing information for components of a construction project: from the largest and most complex piece of equipment down to the smallest screw. It enables 4D (or time-based) analyses, allowing users to run simulations of how a project's construction is sequenced. The ability to integrate every single component of a project within the model has demonstrated a number of benefits, not least of which is the identification of conflicts among these components and more efficient construction scheduling. Once compiled, the model can be continuously updated during the execution of works and serve as a repository of project information afterwards: useful for managing everything from change order pricing to life-cycle costs. BIM can therefore serve as a "single source of truth"1 for all project participants, from initial planning and design to execution, operation and demolition.

To the extent it is used on a construction project, most organizations are currently working at the so-called BIM Levels 1 or 2. While Level 1 implies the use of both 2D and 3D models, Level 2 moves the project entirely into the 3D realm. However, project participants might not all be working within a unified model and may instead be sharing with each other models for their own particular scope of work through a common file format, which can then be merged.2

For many, BIM represents the future of construction projects. Through its data-driven approach to project delivery, its use has been shown to simplify the exchange of information and documentation among project participants, reduce costs and increase the chances that projects will be delivered on time and on budget.3 Governments have taken notice and are encouraging the use of BIM on public projects. The UK in 2016 made BIM Level 2 mandatory for all public sector projects. In Quebec, the Société Quebecoise des Infrastructures is progressively implementing a number of integrated design practices, including BIM, with a target date of 2021 for it use on their public-sector projects.

The development of BIM will continue past Level 2. At Level 3, all contractors and professionals involved in a construction project will have online access to a single project model. The ultimate vision is for each project participant – the owner, the general contractor, subcontractors and suppliers – to have access to the same model in an open and transparent manner. They will each be able to view the project as a whole and, to the extent they are permitted, make changes to the model's content.

The BIM Level 3 approach to construction design and execution should theoretically drive more trust and collaboration among project participants and increase the benefits outlined above, such as reduced costs. However, it raises a number of important issues, such as the need to ensure the incorruptibility of information stored on the model and the identity of the one making changes to it. In this regard, Blockchain may have a role to play.

Blockchain as the Foundation for BIM

Blockchain is a database technology that ensures secured exchanges and storage of any information uploaded to the database. Information is sequentially uploaded and compiled into immutable and time-stamped blocks. These blocks are then linked together (thereby creating the block-chain) and the links between the blocks of information are constantly verified on a peer-to-peer basis by other computers forming part of the same database. There is no need for a third party to verify the accuracy of the information stored in the Blockchain; the database essentially verifies itself. Effectively, once a block of information is chained, it can never be altered without database users knowing about it. It is also relatively simple to verify when a block was created, when any changes were made to the Blockchain and by whom.

At present, Blockchain technology is mainly used to enable cryptocurrency transactions (e.g. Bitcoin), given how critical it is to be able to securely and immutably store and transfer these currencies. However, thanks to increased use of and interest in the technology, its potential applications are being expanded at a remarkable rate.

As mentioned, the use of BIM will likely progress to a level where all project participants are theoretically capable of making changes to a single and unified project model. Furthermore, there is no reason why BIM software should be limited to generating 3D project models, and could serve to compile within its software all project information and documentation, such as change orders, invoices and payment information, lien waivers, etc.

If project participants are to effectively collaborate within BIM and use it to its full potential, they will need to trust the information it contains. A system will need to be put in place to securely and permanently track the evolution of the model and any other information uploaded to it. Blockchain can address issues surrounding secure access to the model and allow for a reliable audit of who made changes, when they were made, and what those changes were.

But concerns with the use of a BIM model go beyond data reliability. Having multiple project participants contribute to a unified model raises important issues surrounding ownership of information within the model and the liability of those who contribute to it. Contributors to the model will seek to maintain copyright over their contributions. Project participants (and their lawyers) will be concerned with whether a party having contributed a design element within the model can be held responsible for any defect or other issue that arises with that element during or post construction.

Attempts have been made to adapt construction contract documents to the reality of BIM, most notably by the Institute for BIM in Canada, which in 2014 published a standard contract document (the IBC 100-2014) that can be appended to consultants' services or construction contracts. However, given the dynamic nature of the BIM model and the fact that it exists entirely within the digital realm, certain compromises had to be made in this standard language. The IBC 100-2014, for instance, at Section 1.9, specifies that contributions to the model by contractors and subcontractors do not constitute design services, unless otherwise specified. The standard contract document's accompanying guide specifies in this regard that "Clauses 1.8 and 1.9 clarify the distinction between professional responsibilities for A & E's doing design, as regulated by legislation, and contractors providing shop drawings, as there is some concern with BIM that these lines can be blurred."4

If the lines are blurred now, they will only become increasingly so as the industry moves towards the use of unified models under BIM Level 3 and the ability for all project participants to contribute to such models.

By combining BIM and Blockchain, information contained in the project model could be gathered, maintained, updated and archived within an incorruptible, reliable and transparent database. Its potential to accurately record every single change made to the model could serve to "unblur" the lines within the model, leading to increased confidence in the reliability of the information it contains, better tracking of copyright and intellectual property, and increased accountability for contributors in the event something goes wrong.

While Blockchain could solve some of the issues that arise with the use of BIM, another technology on the horizon has the potential to revolutionise the relationships between construction projects and to upend longstanding contractual procedures.

The Smart Construction Contract

Smart contracts refer to computer protocols that set out the terms and conditions of a contract. The terms of the smart contract are not found on paper, but rather are compiled within source code. Contractual provisions within the smart contract can be partially or fully self-executing and self-enforcing, removing the need for intermediaries and, at least in theory, rendering unnecessary methods of encouraging or forcing parties to comply with their obligations, such as demand letters or court proceedings. In other words, traditional contractual processes that required human intervention and oversight can be partially or fully automated.

In the context of the construction contract, the potential for automation of some of the processes that traditionally rely on the interaction and decisions of multiple project participants is worth exploring.

Consider payment claim procedures. Payment delays are a long-standing and seemingly unresolvable problem in the industry. Indeed, in many jurisdictions the issue has become so significant as to require specific prompt payment legislation to be adopted to force project participants to pay one another within a reasonable period of time.

Innovation enabling prompt payment could instead come from industry through its use of automated payment processes made possible by smart contracts and supported by BIM. The payment claim procedure for any particular project could reside entirely within its associated BIM model. Once a supplier, for example, is ready to ship a component to the site, it would log this in the BIM software. The smart contract would be connected both to BIM and to a project account funded by the owner. It would verify the availability of funds to pay for the supply and confirm this with the supplier. Once delivered to the site, the project manager would confirm having received the component within BIM and, automatically, funds would be transferred from the project account to the relevant parties. The exchange of invoices and supplementary documentation in support of a payment claim (e.g. lien waivers) could also be completed automatically depending on the extent to which such functions are programmed within the smart contract.

Project participants will of course need to "trust" the smart contract and have confidence that the information it contains and the actions it takes are securely logged and unalterable.  As is the case for BIM, building the smart contract within the architecture of Blockchain could resolve these concerns, allowing smart contracts to thrive.

What Lies Over the Horizon

As we have seen, the use of BIM on construction projects is likely to significantly expand over the coming years, while at the same time moving towards Level 3 and the goal of a unified project model within which all project participants can contribute. With the advent of new technologies, construction projects are set to "go digital".

At the same time, lawyers will come under increased pressure to ensure their "paper world" of contracts, forms, waivers, invoices and the like are tailored to – and can keep up with – the digital environment in which construction projects will be planned, designed and executed.5

It is increasingly unrealistic to believe that, in ten- or twenty-years' time, project participants will continue to work together in the same manner as they have to date. It seems equally unreasonable to assume that the construction contract won't be affected in a significant way by these technological developments. New contractual methods and processes will need to be developed.

In some ways this is already happening. The use of project bank accounts (whereby a project-specific account is set up from which payments are made directly to the contractors, subcontractors and suppliers) and integrated project insurance (whereby all project participants, from the owner down to the last supplier, are insured under one policy) show signs of gaining ground in a number of jurisdictions, notably Australia and the UK. These new mechanisms are both a response to, and a tool to encourage, increased collaboration among project participants and the alignment of their interests with that of the project they are working on.

All contracts are structured on the premise that the rights, obligations and liability of one party to the contract is the flip side of the other party's. This binary architecture (if I have a right to be paid, you must pay me; if this property is yours, it's not mine; if you are professionally liable, I'm not) can be significantly disrupted by collaborative works processes such as BIM, where the contributions of project participants within the model could potentially be indistinguishable. As these participants become more and more integrated and encouraged – if not required – to collaborate closely with one another using BIM, contractual provisions that were previously based on clear lines of responsibility that were easily verifiable will become increasingly difficult to enforce.

In response to this reality, significant portions of the construction contract that were contemplated within a traditional contract can be embedded within the BIM model and secured by Blockchain. While it is perhaps unlikely that the entirety of a construction contract could be coded into software such as BIM, the "smart construction contract" would combine a traditional construction contract and reference the self-executing portions of itself that have been coded into the BIM model.

This smart construction contract could:

  • By leveraging Blockchain, resolve a variety of legal issues (liability, IP, etc.) created by its reliance on BIM;
  • Include all project participants as parties, particularly to the extent they will have access and contribute to the project's BIM model;
  • Connect to a project bank account, confirm to project participants that sufficient funds are available for them to be paid assuming they comply with their obligations, and automatically release payments to them once those obligations are met; and
  • Automatically and securely transmit data regarding the project and its progress to relevant stakeholders and third parties, such as lenders, insurers and governmental authorities.

Conclusion

Just a few years ago it would have been unthinkable to postulate that perhaps, thanks to the combination of BIM, Blockchain and smart contracts, construction contracts could one day exist – at least in part – within a software model whose information is stored on a completely secure and unalterable information ledger, and whose provisions self-execute. Such is the pace of technological development.

Obviously, the automation of contracts will have to be carefully considered. Can digital systems ever be trusted enough by the parties using them to allow for self-enforcing contractual provisions that require little or no human intervention? What are the archiving risks associated with using digital information and will the information even be accessible 10, 20 or 30 years after its creation given how quickly file formats change? Will courts recognize the enforceability of smart contracts? Do lawyers need to learn how to code? Answers to these questions are not immediately clear.

What is clear, however, is that construction industry stakeholders (including their lawyers) need to think about these issues and together develop the best possible tools and processes to address them.

Footnotes

1 D. Jellings, Is a single source of truth a prerequisite for Level 3 BIM?, February 5, 2017, http://www.bimplus.co.uk/people/single-source-truth-prerequisite-level-3-bim/

2 For more detail on BIM Levels see: https://www.thenbs.com/knowledge/bim-levels-explained

3 See also E. Poirier, BIM in Canada: moving toward a national mandate for building information modelling, December 6, 2016, https://www.constructioncanada.net/bim-in-canada-moving-toward-a-national-mandate-for-building-information-modelling/

4 Our emphasis. See Institute for BIM in Canada, Guide to the use of IBC Contract Language Documents, Page 15.

5 Z. Turk and R. Klinc, Potentials of Blockchain technology for construction management, Creative Construction Conference 2017, 19-22 June 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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