Ishara Rathnayake
Gayan Wedawatta
Gayan Wedawatta
2,* and
Algan Tezel
Algan Tezel
UniSA STEM, University of South Australia, Mawson Lakes, SA 5095, AustraliaDepartment of Civil Engineering, School of Infrastructure and Sustainable Engineering, Aston University, Birmingham B4 7ET, UK
Authors to whom correspondence should be addressed. Buildings 2022, 12(12), 2082; https://doi.org/10.3390/buildings12122082Submission received: 5 October 2022 / Revised: 30 October 2022 / Accepted: 17 November 2022 / Published: 28 November 2022
(This article belongs to the Section Construction Management, and Computers & Digitization)On-time delivery of documentation and contracts has been recognized as a crucial requirement for the successful delivery of projects. However, the construction industry still depends on time-consuming traditional contract processes, which negatively affect the overall productivity of projects in the industry. The use of Smart Contracts (SCs) is highlighted as a suitable novel technology to expedite the contract processes and establish a reliable payment environment in the construction industry. Whilst there has been an increase in the debate about the use of SCs in construction in recent years, their use in practice still seems to be in its infancy. As such, the topic will benefit from a thorough review of benefits, drivers, barriers and strategies that can enhance the implementation of SCs in construction. This article presents the key findings from a Systematic Literature Review (SLR) on SCs in the construction industry, critically assessing existing studies on the topic. The study initially involved 171 research papers for the SLR process, and out of that 49 research papers were filtered for further analysis after reading their abstracts. A total of 30 papers were finally filtered after the full-text reading for the SLR. Descriptive and content analysis were used to analyse the full-text findings. The study graphically mapped the bibliographic materials by using the Visualization of Similarities (VoS) Viewer software. As per the findings, the topic has mostly been researched in Asia and the Pacific as a region and China as a country. It was noted that there were more empirical articles than theoretical studies related to SCs, evidencing the industry relevance of the issue. A total of 55% of the articles reviewed have been published in journals with a Q1 ranking. All the articles were written by multiple authors, with 30% of the journal articles having international co-authors and benefitting from the collaboration between authors. Key advantages identified in the literature go beyond contract and payment provisions and include aspects such as logistic handling, decentralized applications, business process management, automated payments, etc. Key drivers for adoption are supply chain pressure, competitive pressure, top management support, simple layout, reduction in risks of clients, clarity in responsibility and risk allocation, whereas the key barriers include insecurity, limited observability, incompatibility, inactive government collaboration and limited storage capacity. Key strategies to enhance the application of SC in construction include integrating theorems proving symbolic execution, using the selective transparency method and lock fund system, testing the integration of SCs with other systems at the initial stage, incorporating semi-automated consensus mechanisms for payments, constructing a mechanism to actively engage with government bodies, etc.
Globally, the construction industry is expected to spend $ 15.2 trillion by 2030 [1]. According to the Construction Output Census 2022 report, the annual rate of construction industry output price increases was around 7% in the year through March 2022, and this was the strongest annual rate since 2014 [2]. Although the construction industry is among the prominent industries in any country, it is still plagued by various issues. The three main constraints of time, cost and quality are often considered the most important factors in a project’s success or failure, and these metrics are, therefore, consciously managed throughout the project duration [3]. However, various issues (e.g., disputes, delays, overruns, etc.) related to these factors are common occurrences in construction projects. The contract process involved in construction is highlighted as a root factor for such issues in construction [4]. The construction industry mostly relies on traditional contracts and information-intensive payment applications, which are time-consuming to create and essentially depend on a human workflow [5]. Hence, project stakeholders suffer from delays or non-payments, making construction projects credit-heavy and financially challenging [6]. These payment issues are substantially contributing to various problems related to suppliers and subcontractors [7]. Further, a study conducted in 2017 by the McKinsey Institute recognized difficulties making traditional contracts as one of the seven major barriers to the progress of construction projects [8].
Construction projects typically involve a supply chain consisting of hundreds of organizations, especially when used to deliver major construction projects and generate a vast amount of project information. With the advent of novel digital technologies, new opportunities have emerged for managing this vast amount of project information and solving various issues in the construction industry [5]. Today’s construction industry has access to digital technologies such as digitalized data, robotics technology, building information modelling, deep learning, machine learning, etc. Smart Contracts (SCs) is one such digital technology that has demonstrated a novel approach to addressing the inefficiencies in the payment system [9]. SC can be recognised as the algorithmic description of a contractual transaction protocol that is written in a programming language that is relevant to a specific domain and that is automatically executed according to the information provided by its parties [10]. SCs can be beneficial to the stakeholders in a construction project, including clients, contractors, consultants, subcontractors, suppliers and many more [11]. SCs can result in time- and cost-saving and facilitate a smooth contract process [12,13]. Especially, Verified Market Research reported that the global SCs market size was valued at around $ 145 million in 2020, and it is projected to reach approximately $ 770 million by 2028, recording a compound annual growth rate of 25% from 2021 to 2028 [14].
This paper presents a Systematic Literature Review (SLR) of SCs in the construction industry. Despite the revolution of digital technologies and their profound involvement in the construction industry, such an extensive SLR purely related to SCs does not exist yet in the literature. This research addresses this knowledge gap by presenting the results of an SLR of the literature related to SCs in the construction industry published from January 2005 to August 2021. This SLR contributes by improving our understanding of the current status of SCs in the construction industry and making the available evidence accessible to decision-makers. This research aimed to assess the demographic information in published studies on SCs in construction and review their content in terms of drivers, barriers and strategies to facilitate the implementation of SCs. The article first introduces SCs and their operation before discussing the method followed in undertaking the systematic literature review. A bibliographic analysis of trends observed in published articles is then presented. Finally, a summative analysis of drivers, barriers and strategies for implementation as reported in the published literature is presented.
Despite the major contribution of the construction industry to the national economy in any country, it is well known that the industry has long been plagued with late or non-payments [5,7]. Severe issues affecting the construction industry are delays in payments and other payment-related disputes among the parties in construction projects [15]. These issues result in cost and time overruns and difficulties in cash flows, as well as business bankruptcy [16]. Further, exceeding payment deadlines, lack of payment assurance, refusals and rejections to paying as the major contributing factors to contractual disputes in construction [17]. On the other hand, the construction industry has been traditionally slow in innovations and digital improvements [18]. Moreover, limitations in knowledge and understanding of various technologies among stakeholders in the construction industry might influence most of the issues. Apart from that, many studies highlighted that there is a poor implication of modernization-related technologies in the construction industry when compared with other industries, such as logistics, automotive, hospitality and mechanical engineering [19,20].
Even though contracts and payment processes involve automation techniques and digitalized data, most contractual applications still depend on ineffective and inefficient manual or human operator-based work processes that are time-consuming to design or prepare, review, approve and finally execute [5]. To mitigate these identified issues and enhance total productivity, the construction industry needs to adhere to digitalized mechanisms and novel technologies that are effective and efficient in cost, quality and time to implement and operate. Smart contracts are identified as one such technology that can deliver significant benefits to the industry.
SCs have contributed to various industries, such as healthcare [21], banking [22], hospitality, etc. Compared to other industries, the construction industry deals with failures related to payments and disputes in contracts on a recurrent basis [5]. The involvement of SCs is considered a potential initiative that could help the construction industry to mitigate such issues. For instance, they offer the ability to automate payments to be released on a set date without delay, thus removing the potential for late payment. The industry has long desired to establish a reliable payment environment to mitigate issues in the construction process, and therefore, any positive contribution from novel technologies is a welcome addition [15]. The construction industry, however, is seen as an industry that is resistant to adopting novel technology [23].
Accordingly, SCs have been recognized as a promising technology to expedite time-consuming contract processes. Szabo first introduced the concept of SCs in his study conducted in 1994, which explains the SC as a transaction protocol that executes the terms and conditions of a contract [24]. A SC can be described as a computerized transaction protocol that replicates binding contracts through codes [24]. Further, SC is one of the essential elements of blockchain technology, which uses computer protocols to facilitate beds of automatic implementation of pre-defined and pre-agreed legal conditions based on decentralized network coding [25,26]. However, there is no generally accepted definition of SCs. Even though terms such as digital contracts and intelligent contracts are used to refer to the SCs, all of these terms seem to share similar ideologies. SCs are used as an alternative to traditional contracts, also known as paper contracts, that result in negotiation among construction parties, and which are created to represent parties’ obligations in relation to a specific work [27]. Moreover, SCs are established by coding traditional paper contracts in a digital or computer environment. Because of the digital and code-based nature of SCs, the requirement for the physical presence of parties is excluded from drafting the contract clauses, and the virtual presence of parties is only expected. Due to this virtual interaction, a digital signature is replaced with a wet signature to approve and sign the contract clauses [15]. Contract overhead costs and other transaction costs are significantly decreased because of the absence of intermediaries [28]. Accordingly, a SC guarantees the trustful chain of interaction and payments between project parties [15]. Moreover, expenses regarding notaries and administrations are also mitigated. It also helps to minimize time and cost overruns [15]. Apart from that, the reduction of mistakes, improved transparency and trust-building, and better predictability in cash flows can be recognised as benefits of SCs when compared with traditional bank-related payment methods. A cryptocurrency is a peer-to-peer digital currency system that is used to exchange currency units through a computer network and the transaction fees for cryptocurrencies such as Ethereum are between 0 to 4 dollars, which are lower than bank transaction costs.
In SCs, clauses and instructions required for the operation of a contract can be coded into a computer programme and can be programmed to be actioned automatically when the coded contractual conditions are fulfilled [10]. Therefore, SCs are known as a self-enforcement type of contract [10]. SCs allow a digital transaction—for example, the payment amount—to be embedded in the system and then automatically transferred to the contract parties [28]. Moreover, payment security is also ensured in this process by blocking the amount to be paid, and no single person can access the blocked money [15]. The blocked amount is only released to relevant parties if the coded terms and conditions are satisfied. Therefore, SCs are decisive because of the presence of a binary logic, which dictates the input and output are the same, and the functions of contract conditions rely on coded scopes [15].
Additionally, Cardeira introduced a payment platform that depends on SCs and implements multiple participants in a project to facilitate the payment process by using coded programs [29]. In this web payment system, once the instructions are fulfilled, the amount is released automatically, and therefore, the contractor is unable to withdraw the payment unless the subcontractors are paid. Since SCs are decentralized, third parties involved in a project, such as banks, can be minimised in the payment process. In detail, project parties can code contract clauses—such as the amount, the due date of payment, etc.—in the procurement stage of the project, and this payment amount and due date need to be embedded in an SC. Moreover, none of the project parties can access this amount until the due date of the payment. Then the supplier can notify the receiver through the SC as the equipment or material is ordered away, and the receiver can notify the supplier when the ordered goods are delivered. By considering the self-implemented feature of SCs, both parties verify the coded clauses, and then the payment is released to the exporter’s cryptocurrency account [15]. Li, Kassem, Ciribini and Bolpagni investigated an approach to integrate SCs with digital ledger technology, BIM, and IoT [30]. In addition, Jin studied the integration of BIM and SCs and identified the working principles by analysing various use cases. These studies emphasised the technical aspects of SCs [31].
Contracts are legal agreements and inevitably involve legal and contractual implications. If a SC is to replicate binding contractual arrangements, it will essentially be subjected to the same jurisdictional legal provisions as a regular contract. Considering the legal nature of SCs, the rapid development of information and communication technologies of SCs has highlighted the concerns related to legal regulations. For instance, in the United States, a “contract” is considered an agreement that is legally binding and enforceable in a court of law. In order to assess the enforceability, state courts normally assess whether common law requirements such as offer, acceptance and consideration are satisfied. The state versions of the Uniform Electronic Transaction Act (UETA) have been amended to incorporate aspects of blockchain and smart contracts [32]. This suggests that jurisdictions, especially in developed countries, are on-board with the implementation of smart contracts. Despite initiatives to make the process more collaborative, construction as an industry still remains an adversarial one, and disputes between parties to a contract are a common occurrence. The objective and streamlined decision-making involved in a smart contract could offer the potential to minimise such contractual disputes between parties. However, if a dispute crystallises, it may inevitably end up in Alternative Dispute resolution (ADR) or ultimately in courts. The right to ADR and legal appeal is guaranteed in standard form contracts used in construction, e.g., JCT and NEC contracts in the UK. Whether SCs could incorporate more collaborative dispute resolution methods, whether they will be subjected to the same legal rights of appeal or whether they will be able to circumvent such provisions will have a significant impact on the operation of SCs. However, some of the ADR provisions, such as adjudication as used in the UK, seem to offer greater potential to be included within SCs due to the more defined process involved. The adjudication provisions used in the UK for construction involve a strict timeline and decision-making process [33]. Therefore, whilst the implementation of SCs will raise important legal implications, it is probable that well-defined legal rules and regulations can be linked with smart contracts to enhance enforceability.
The SLR method was utilized in this study to recognize and report on previous research findings in a methodical manner. The VoS Viewer tool was used to visually display the network findings of SLR. SLR is recognized as a rigorous and transparent method, especially for supporting future studies and decision-making [34]. This method builds theories and other relevant concepts by consolidating knowledge after evaluating several studies in a knowledge domain, establishing new knowledge and documenting the state of the art [35].
This research sought to obtain a better understanding of the current research on SCs in the construction industry. Moreover, this study provides new knowledge on the research scope by revealing research patterns that are essential for guiding future research. The study followed the steps of SLR as defined by Kitchenham et al. [36]. Kitchenham et al. developed this procedure as a rigorous and auditable method to conduct SLR [36]. Various studies have followed Kitchenham’s procedure to strengthen their research method [37,38]. Initially, five steps were followed to conduct the SLR and then synthesize the collected data and finally report the findings. Formulating research objectives, identifying the search process and inclusion and exclusion criteria, conducting data collection, performing quality assessment and conducting the descriptive analysis were considered when conducting the SLR [36]. Especially, all of the names of the authors were checked for data normalization and standardization to ensure the duplication results.
In the first step of the SLR process, the research objectives were formulated. The three research objectives (RO) addressed in this study are:
RO3: Analyse the drivers and barriers to adopting SCs in construction and strategies to overcome the identified barriers.
To fulfil these objectives, previous studies were examined where the use of SCs in the construction industry was discussed. To address RO1, previous studies were collected, analysed and reported in tabular formats and figures generated through the VoS viewer software. To address RO2 and RO3, a content analysis was conducted regarding the collected data.
A manual search regarding articles to be included in the study was conducted as the search process. For this research, the data collection sample consisted of peer-reviewed journal papers related to SCs in the construction industry that was published in the last 16 years from 2005 to 2021, a period where SCs in the construction industry research domain has visibly matured. Scopus was selected as the scientific database for this study due to considering its recognition as one of the largest academic online databases and considering the access to indexed articles it provides [39,40,41]. Therefore, the sample consisted of peer-reviewed journal articles published in the Scopus database. Books, book chapters and conference papers were excluded from the study. However, this exclusion can be recognized as a common exclusion in SLR [42]. The SLR focused on journal articles explicitly devoted to SCs in the construction industry and the built environment. The sampling was conducted according to the following procedures:
Define a search string according to the focus of the study and search for articles accordingly. The keywords were mainly categorized into two groups. The first group was “smart contract” OR “intelligent contract” OR “digital contract”. “Construction” OR “building” OR “built environment” OR “civil engineering” was included in the second group. The search string according to the keywords yielded 476 results in Scopus.
The articles were then refined according to the filters, namely, source type as Journal. Accordingly, 171 articles were found in Scopus. Out of that, only one article was not published in the 2005–2021 category, and it was published in 1996.
The 171 resultant articles were then screened by reading the article titles and abstracts. To ensure the high quality of the study, only peer-reviewed articles were included. Exclusion criteria of whether the articles were published in English, whether they were peer-reviewed, and whether they focused on an industry other than construction or the built environment were applied at this stage. Figure 1 presents the process of the SLR.
A quality assessment was conducted for the reviewed articles by following Kitchenham et al.’s quality assessment steps. Followed steps in this process were:
