These inefficiencies include administrative drag, the hidden costs involved in multiple player projects and hardened mistrust between parties and project stakeholders. All three of which can be solved with technology. As a notoriously sluggish industry when it comes to adoption, we are often asked, where is the best place to start?
Understanding Root Problems
Every capital project is a novel event that catalyzes relationships between numerous companies, vendors, suppliers, contractors, subcontractors and so on. Each event involves a new intersection of disjointed contracting models, disparate systems and outmoded paper-based document workflows. The administrative burdens associated with this manual work often involve spreadsheets, phones and faxes — work that’s time-intensive and error-prone. Multiply this paper workload along a full-scale project life cycle and it’s easy to understand the productivity drag.
Laborious paper-based project approaches include significant financial consequences. Lack of a central information hub, coupled with the industry’s cash flow challenges, induce a waterfall-like cascade that makes it difficult to garner a clear financial picture of any project in real time. Combine this scenario with DSO metrics that regularly exceed 100 days and there is no easy cut path to clarity around costs.
To further complicate money and workflow matters, mistrust is a standard business to business (B2B) operating characteristic. Without a single source of truth to provide visibility, transparency and connection, counterparties and project stakeholders get trapped in a blame game. Human emotions, hardened by fear and further exacerbated by lack of neutral data, force legal disputes and hefty back office admin work to eat into resources and skyrocket project completion times and costs.
Smart Contracts are the Answer
The good news is that there’s an answer to these pain points: smart contracts.
Backed by blockchain technology and Industrial Internet of Things (IIoT) operating field data, smart contracts are software programs that enable project participants to capture performance metrics, ensure contract obligations are fulfilled and automate payments.
As an immutable record of truth, blockchain solves the trust issue between project participants. This central source of neutral data gives visibility into productivity, schedule and safety necessary to alleviate the administrative paper-based workflow responsible for disjointed systems. And lastly, by automating payments the transactional delays and friction associated with the layers of participants can transform, reducing friction and costs.
Looking to Implement
Varying contracting models lend themselves to smart contracts: cost-reimbursable, lump sum, performance-based and linear construction contracts to name a few. Any approach where incremental progress can be measured, automated and executed is a candidate.
The most applicable use cases for smart contracts are where parties can be defined, terms agreed upon and payments set to automatically transact.
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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.