Delegates told future of construction contracts to include AI, Blockchain

The Canadian construction sector remains a ways away from adopting full-fledged “smart” contracts that contain AI-controlled automatic payment regimes or Blockchain markers, delegates attending the Ontario Bar Association Institute’s recent future of construction law symposium held in Toronto were told.

But there are ample signs the emerging technologies will reshape the construction industry business model in the near future, said seminar leaders Lampros Stougiannos and Catherine MacInnis, so construction lawyers had better get a grasp of the basics now if they wish to continue to perform their duties with the competence the changing construction marketplace will demand.

“I think it is a question of adapting your practice,” commented MacInnis, associate general counsel with IBI Group, in an interview after her presentation. “We are in a period of great upheaval.

“This type of disruptive technology takes awhile but I think it’s here to stay…There are some of my colleagues who have not yet put their minds to it. Some of them have started to put their minds to it, but I think it is important for service providers like lawyers to keep up with their clients.”

The major technologies under discussion at the back-to-back presentations were AI — artificial intelligence — which when used to enable automated contract review has the potential to speed up contract processing by 80 per cent, said MacInnis, and the pairing of BIM (Building Information Modeling) with Blockchain, which Stougiannos, a partner in the Montreal office of Miller Thomson, said will transform BIM by enabling multiple partners to work collaboratively on projects at the same time along with simplifying project tracking and payment scheduling.

MacInnis explained the term “smart contract,” invented by digital futurist Nick Szabo in the mid-‘90s, describes the format of a contract, digitally empowered and using AI to control components of projects. At present there are no fully smart contracts being used to govern entire project execution in the industry, she said. The entry level, and first target, said MacInnis, is contract administration.

“That is in the future, it has not yet happened,” she said. “Smart contracts for the construction business are not there yet because it can’t yet deal with all the contingencies.”

Szabo defined smart contracts as a set of promises in digital form that includes protocols within which parties undertake those promises. Applied to construction contracts two decades later, the system includes bots that engage in robotic process automation. Smart contracts are not only more efficient and faster but they also significantly reduce errors and omissions, MacInnis said.

Projects with high digital or technical components are the best candidates for smart contracts, she said.

“Using BIM would likely be a good candidate because then it can communicate with other digital data to figure out whether the terms of the contract are being met,” she commented. “But ideally everything in the future will be digital so every contract could be a smart contract.”

While contract review automation as laid out by MacInnis is still in its infancy, the development of contractual provisions tailored to BIM is five years old, Stougiannos told delegates at the next session. Developed by the Institute for BIM in Canada, the IBC 100-2014 prescriptions are generally slotted in as an appendix to standard construction contracts but the appendix takes precedence over the main contract, he said.

The combination of BIM and Blockchain, he said, represents “technologies that might have a significant impact on the way construction contracts are planned and executed and I think may have a significant impact on our practice as lawyers in this industry in the next few years or even sooner.”

Blockchain works as a network of markers that contain information that is transmitted to all members of the network and creates a permanent and transparent record, Stougiannos explained. Used as a foundation for BIM, it captures all project information, records the contributions of project participants and ensures the reliability, security and tracking of each piece of information.

When Blockchain is incorporated into full level-3 BIM, Stougiannos said, it offers a solution to a number of concerns BIM participants typically have, such as ownership of intellectual property, liability, project oversight, data access and traceability.

As an example of how Blockchain adds efficiency, Stougiannos said, consider a simple process of a supplier asked to supply a product.

“You could imagine a system where you have a smart contract connected to BIM software and connected to the owner’s account, which also links to the various suppliers’ or trades’ accounts, and the smart contract will confirm the availability of funds,” he said.

“The supplier knows they get paid if they deliver the relevant supply, and automatically once someone logs that information into the BIM, the funds are transferred.”

Blockchain used in BIM leads to better trust in the information that is developed and that has several benefits as part of a smart contract, Stougiannos said.

“What that would enable is more trust in BIM, more trust in the digital space and thus driving more collaboration and more use of BIM,” he said.