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What does blockchain mean for construction payments in the GCC?

Blockchain can reduce instances of payment delays and cost hikes, but is the industry ready?

Blockchain is expected to save Dubai more than $1.5bn per year in document processing costs.
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Blockchain is expected to save Dubai more than $1.5bn per year in document processing costs.

Dubai has an ambition to be the first city in the world powered by blockchain. The belief is that this will unlock billions of dirhams in savings from document processing, create an environment for entrepreneurialism, and improve the transparency and security of point-to-point payments.

This last factor is particularly pertinent for the construction industry, considering the well-documented issues of late payment and protracted disputes that continue to dog the market.

Somebody could have sold you cement, and when you pour it, and the smart contract identifies that the payments can be released.

Using blockchain-powered contracts with automated payment mechanisms may help to mitigate payment delays and disputes, disruptive technology proponents claim. Chief executive officer of 8Lock Blockchain Solutions, Mohammed Aziz, advises government organisations in Saudi Arabia and the UAE on the technology, and says smart contracts, while still nascent, can be a powerful tool.

“For example, somebody could have sold you cement, and when you pour it, and the smart contract has identified that [this work has been done], the payments can be released.”

While the idea that smart contracts can unlock incremental payments upon completion of certain targets is exciting, Aziz says mature industries such as construction and oil and gas need to understand how to use blockchain first.

His advice to contractors is to work on a proof of concept, and speak to a consultancy to simulate blockchain-powered contracts, to “learn how to use the technology for a potential roll-out in the future”.

Prashant Gulati, known as PK, is the founder of Dubai-based community innovation hub, The Assembly. It works with innovators and industry leaders such as the chief strategy officer at Dubai Holding Group, and the CEO of the Mohammed Bin Rashid Establishment for Small Medium Enterprises Development. Together, they explore how disruptive technology can be put to practical use.

Blockchain is a technology that puts trust and identity at the centre of any transaction,” PK tells Construction Week.

“The construction industry has a large variety of stakeholders, and therefore trust can sometimes be at a deficit, and can lead to delays – meaning costs – to the completion of projects.”

He says there are many reasons why the slow-to-change construction industry should explore how blockchain-powered contracts can be used here. These include making supply chains more efficient and secure, increasing transparency, boosting productivity, and making documents accessible to all parties in a project.

While the theoretical argument for adopting blockchain powered-contracts with automated payments is compelling, it is unclear whether any major construction companies in the Gulf are making strides in this area at present.

The construction industry has a large variety of stakeholders, and therefore trust can sometimes be at a deficit and lead to delays.

Further up the chain, however, real estate is an area of the market in which blockchain could be a powerful force, according to industry experts. Last year, the senior director of innovation at Dubizzle and OLX Ventures, Dobo Radichkov, penned an opinion piece for Construction Week’s sister title, ITP.net, in which he laid out the benefits of blockchain for the property sector. The process of buying and selling property is archaic and needs to be digitised, so that it can work better for all parties, he said.

“With the right infrastructure in place, blockchain technology could significantly help in facilitating the exchange of information during this process and making the experience easier, quicker, and less prone to errors,” he explained.

Blockchain technology is a pillar of Dubai’s drive for economic opportunity and digital innovation. Launched by the Crown Prince of Dubai, HH Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, the Dubai Blockchain Strategy is a collaboration between the Smart Dubai Office and the Dubai Future Foundation. On the official website of Smart Dubai, it is claimed that the strategy “will usher in economic opportunity for all sectors in the city and cement Dubai’s reputation as a global technology leader”.

The organisation states that by adopting blockchain technology, Dubai stands to unlock $1.5bn (AED5.5bn) annually in savings in document processing alone, which it states is “equal to one Burj Khalifa’s-worth of value every year”. For construction firms willing to explore the new technology, the advantages will undoubtedly abound. 

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