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Blockchain in E-Procurement for Construction

construction workers

Construction procurement is a process that enables clients to obtain goods and services for construction work. This process should be fair, transparent, competitive, and cost-effective in
order to deliver value for money. However, construction industry is heavily fragmented procurement processes are complex, time-consuming and sometimes lead to disputes with significant expenses involving middlemen. Large volumes of data are generated in procurement activities, which are challenging to capture, store, process and transmit via traditional construction procurement methods, causing inefficiencies, errors, and reduced trust. Traditional procurement systems rely heavily on contracts that are adversarial and require third party administration, with lowest bid appointment practices jeopardizing built asset quality. Several of these challenges of paper-based procurement can be mitigated by introducing digital technologies.

e-Procurement or digital procurement is a paramount function of present supply chains in any domain. Services covered by e-procurement include indent management, e-tendering, e-auctioning, supplier management, catalogue management, e-purchasing, and e-contract management. e-Procurement can be categorized into three distinct eras. The first era, in the 1980s, used digital storage media and emails to transfer procurement related documents. In the second era, which was web-based e-procurement in the 1990s, suppliers communicated directly with the client’s e-procurement portal. The third era involved cloud computing and system-to-system inter communication in the 2000s. In the third era, standardized application processes enabled supplier’s systems to communicate directly with client’s systems, thereby eliminating human errors, increasing cost savings, accuracy, and performance. However, low trust on traditional systems on cloud environments is a challenge to fully employ digital technologies for procurement. Furthermore, there are currently no unified systems to support all construction procurement processes and data exchanges and connect the varied stakeholders in the procurement process including manufacturers, suppliers, contractors, clients, and others on one platform.

Building Information Modelling (BIM) improves the exchanging and managing of information and enhances communication and collaboration among stakeholders of a project. BIM is most frequently used in the design stage for clash detection, 3D modelling, constructability analysis and cost estimation, but has failed to impact and solve issues related to procurement in the construction supply chains. Blockchain technology is a disruptive technology that has impacted multiple industries and presents a great potential to solve issues in the construction industry, including the reduction of existing gaps in digitization of construction procurement.

e-Procurement

Blockchain-based decentralised e-procurement solutions have the potential to be the fourth era of e-procurement. Smart contracts, which are a set of self-executing contracts written into a blockchain network, empower trust in a trustless internet environment without a mediator . Removing the middleman in the procurement process will automate transactions with high accuracy and lower costs. Therefore, smart contract enabled blockchain solutions will mitigate human errors and disputes in a complex situation and ultimately save significant costs with highly efficient and effective procurement operations.

Payment management

The construction industry has a long-chained payment settlement culture, and many late, partial, and non-payments occur in the industry, incurring additional costs due to the cost of finance, risk and low trust among parties. Implementation of smart contract enabled blockchain payment applications can provide greater trust on transactions with automation and effective operation to mitigate payment-related issues in the procurement process.

Supply chain

The construction industry produces one of the most complex and largest objects with many internal and external suppliers connected through dynamic and lengthy supply chains. Information Technology applications cannot completely eliminate uncertainty and transparency issues in construction supply chains, although information flow is made more efficient. Immutable blockchain records provide transparency of supply chain operations such as fast tracing of product provenance for quality assurance and compliance purposes. Therefore, blockchain can improve the efficiency, traceability, authenticity, compliance and trust in construction supply chains

Project and product certification

Procured construction materials and products should meet relevant regulatory standards and be certified as being fit for purpose. Completed construction work is also inspected, tested and certified for quality compliance, throughout a project and before final delivery. Integrity and authenticity of documents related to construction quality is key to building trust. Certifications regarding the quality of raw materials and products and quality and quantity of work progress can be stored in the blockchain so that all authorized stakeholders have access to authentic information. Since the records on the blockchain are tamper-proof, it will assist in enforcing compliance of work and deter possible record falsification

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