Galvanizing the Construction Industry with Blockchain | SangHyun Lee

How can blockchain help the construction industry?

Think blockchain as your back office, matching purchase orders with actions, a system that generates a payment automatically without accounting approval. Or a single source of truth, created by all the participants on a given project, that’s plain for everyone to see. Blockchain keeps everyone honest.

What if the dozens of companies that depend on each other on a construction site could easily align? How nice would it be if construction projects were more efficient; stayed on budget and schedule?

Civil and Environmental Engineering Expert, Professor SangHyun Lee, leads the Dynamic Project Management Laboratory at the University of Michigan.  He engages us in how blockchain technology will change the way construction is done. We learn exactly how blockchain adds value to one of the oldest and largest sectors in the world economy with increased productivity and transparency.

Transcript

Lauren Weymouth (00:05):
According to the Harvard Business Review, blockchain technology is among the most disruptive forces of the past decade with its power to record, enable and secure huge numbers and varieties of transactions. It's still early days, but it's important to have a good idea of how blockchain can enable companies and sectors to be more productive. Today. We're speaking with Professor SangHyun Lee, civil and environmental engineering expert at University of Michigan. Professor Lee leads a dynamic project management group that aims to understand and manage construction dynamics and human infrastructure interface through sensing, data analytics and computer simulation. We are interested in finding out all about what this means. Welcome Professor Lee.

SangHyun Lee (00:47):
Thank you for having me Lauren. It's pleasure to be here.

Lauren Weymouth (00:51):
So tell us a little bit about yourself.

SangHyun Lee (00:53):
I'm a professor who is sitting in the office all the day, but fortunately my major is in construction, so I often go to the field and look at the, how things are built. And I'm interesting in improving how we built all our infrastructure and buildings, which everybody maintains their life.

Lauren Weymouth (01:13):
So what got you to major in construction?

SangHyun Lee (01:15):
Well, my father is architect and I kind of get used to the design the building, how the building is constructed. So I actually wanted to be a architect as well, but the, when I kind of had an internship during my undergraduate in the architectural firm, I found that the building itself is way more interesting designing in the office. So I just change it my major to the actual building and then making things better in the construction.

Lauren Weymouth (01:48):
But you get to collaborate with architects, right?

SangHyun Lee (01:51):
Absolutely. Yes, that is actually one of my major motivation, because when I was sitting in the office to design something, I realized that the communication with the folks in the construction side is a really important to, for all the details. At that time, there was like a 20 years ago, we are just the things like information technology was starting to be deployed in the site to facilitate the communication between architect engineer and the construction contractors. So that's where I got more interest in kind of the connection between architects and the construction side. Eventually I got into the construction field.

Lauren Weymouth (02:33):
And so is that what the Dynamic Project Management Group does? It facilitates this communication and connection between all the stakeholders?

SangHyun Lee (02:40):
Right. So that is one of my major motivation. That's what I'm trying to do. But also at the same time, when we think about the collaboration, basically it's all about the human, right? So we communicate, and we coordinate, and we collaborate. But it construction site, it is not easy. So that's why I'm more interested in supporting collaboration, particularly focused on kind of human nature, how we can support human to better communicate and better coordinate to build something in a right way.

Lauren Weymouth (03:11):
Do you remember the first time you started hearing about blockchain?

SangHyun Lee (03:16):
Uh, yes (laughs) At, at that time, I think there's a model about who invented the blockchain and the Bitcoin. Like everyday in the newspaper, particularly for something in the information technology and the computer sector. So, that's where I first heard about the, the concept of the blockchain. And immediately I was very intrigued by kind of the decentralization that the blockchain is pushing, because that is actually one of the things that I found is very interesting concept particularly for the construction.

Lauren Weymouth (03:51):
This is an exciting conversation because the construction sector is one of the largest in the world economy. You can Google that, it's 10 trillion is spent on construction related goods and services every year, but there's also a lot of articles on how the industry's productivity has trailed other sectors for decades, right? So you are here to tell us, how does blockchain help solve those productivity challenges.

SangHyun Lee (04:14):
When we take a look at the construction industry, you just hit the nail that our productivity is kind of stagnant. I describe it as a kind of fragmentation. Our older players are very fragmented. And if you look at the construction project, basically all the different stakeholders come to the site and work together, which doesn't necessarily mean that they have known each other, but they just come to the site, work together for several months or longer projects, one or two years and several years and they go to the different site. So which means they each a little bit different way of collaboration, and also at the same time, the older knowledge and learning from the site is hard to be transported to everybody because they just gathered together to finish this project. So it is a more like a temporary alliance. So that's why collaboration going to be a very challenging in construction. So now what blockchain can do is, is that the actually the data is a more like a decentralized way, but at the same time, the data is a secured and the transparent and accountable. So actually even though everybody come to site for only this project, we really don't have to worry about all the transparency and the accountability issue because the data will be secured and transparent and you even with the timestamp. So then you can build up the trust among the different stakeholders. I think that has a profound impact on the construction industry, because once we share the data without any problem, and then we allow us to do, smart contracts, all the closes in the contract can be automatically executed. And then at the same time, we have all the transaction history. So even though there is a dispute, we really don't have to, have a battle between all the different stakeholders because the history and the transaction is there and the all the records are there. So it kind of reduce the, all the dispute issues, in the construction industry.  And then what I'm really hoping is that that data can generate value in the end. It is very hard to, maintain, uh, all the good data, but the, once we have a blockchain, we'll have this such a good data, and then this good data can be used for kind of value generation down the road, meaning that improved productivity improve the process. That is what I see a potential from the blockchain.

Lauren Weymouth (06:57):
So it streamlines the collaboration, but it also streamlines the contracts using smart contracts. In a previous podcast, we recently learned how smart contracts will automate the farming supply chain distribution, updating and recording transactions without intermediaries to save time and money. So it sounds like it can do the same thing for the different parties in the construction industry. Would it also be used for, for payments or supply-

SangHyun Lee (07:20):
Yeah.

Lauren Weymouth (07:21):
... chain management?

SangHyun Lee (07:22):
I think that that's a very interesting point as well, and now it really understand the fragmentation as well as also trends on nature. Now you can imagine that, uh, several hundred different sub contractors can work together. And then we need to make sure that they, deep writing people came on, but now several hundred sub-contractors are working together means that many of them, they are tasks are interdependent. So we need the rate a little bit to make sure, "Oh, this contractor did the right thing. So they are eligible for payment." So typically it can take a month to get the payment for the, what the work has been done. So, but if you think about the contractor, they are providing service without much upfront cost. So that delay of the payment actually causes a lot of problems to the particular sub-contractors because they provide the service, but they haven't paid yet, but they have to go to the different sites and put the more their your resources, and then they should, they are relying on the basically working capital from the bank. So these quick payment allowed from blockchain and also the smart contract I also see the potential of the blockchain cryptocurrency as well.

Lauren Weymouth (08:38):
So it's fair to say that it's really just streamlining the exchange of information?

SangHyun Lee (08:43):
Right.

Lauren Weymouth (08:44):
So I can hear that one of the big stakeholders are the contractors. Can you describe to us who else is involved in this process? The other players in this industry that would benefit from there being the data transmitted over blockchain, or an app that they can use that's going to take them from start to finish, whether it's a small project or a complex multi-year project?

SangHyun Lee (09:09):
Contractors means that the general contractor who oversee the project, or it could be specialty contractors like, HVAC Systems or any concrete work and et cetera. Also, it could be different consultants. And we have also engineers, and we also, we have an architect firm, and even the facility owners and facility users. Now, once we built something and they, all the data will be transferred to the facility management team, and they can use the data generated from construction, for example, three years, and the kind of the warranty over the material, for example, and those can be transport to the facility management team, which can be continuously used. And even the building users or occupant in the building. So those are basically all the stakeholders and players 

Lauren Weymouth (10:00):
So improves the different transactions between everyone from the design team, with the contractor, a subcontractor of suppliers. Does it also benefit,

SangHyun Lee (10:10):
Yes. particularly for the direct client and owners who does continuous, building the project, like for example, good example could be public owners. They keep, constructing, our infrastructure or big companies, uh, they built their plant, their offices all the time and also franchise restaurants, that's what they do. They are building continuously the physical property. So of course the owner will have a tremendous benefit from the data that they are generating from the different contractors and from the different projects.

Lauren Weymouth (10:45):
And do all these players have to understand this technology to use it?

SangHyun Lee (10:50):
Well, that's an interesting question, right. I kinda feel that the way that I see is that the blockchain is like the internet. That was like a several decades ago, two or three decades ago. So all the users do not necessarily have to understand how it works, but it is more like a backbone of our communication infrastructure. So everybody doesn't have to understand but somehow they are going to use it in the production like the way that we use the internet right now.

Lauren Weymouth (11:23):
I think we understand the full breadth of what you're trying to do. Can you talk to us a little bit about your research or your current project that you're working on?

SangHyun Lee (11:32):
Yes. I'm interested in blockchain, but at the same time, I'm trying to integrate blockchain with Digital Twin. So Digital Twin is kind of world which describes  synchronization between physical asset and the virtual asset. So what I'm working on right now is create, so to speak, construction Digital Twin. So based on the building information model, like the earlier CAD model, now we have virtual building model, which has all the property information about the buildings and infrastructure that we are building.

Now, I would like to add blockchain as a way to manage the older data in this virtual model in Digital Twin. So that... the main motivation for Digital Twin is everything is in the virtual model. So we can do what if a simulation and what if scenario, to make a better decision. So then if we want to make a decision based on the virtual model, we need to make sure that the old information is a transparent and accountable and the trustworthy. So that's how, I'm what I'm interested in integrating Digital Twin and the blockchain.

Lauren Weymouth (12:46):
So to make sure I understand, and our listeners understand when you say Digital Twin, do you mean like the recording of every step it takes to make a particular building to be able to replicate it but the next time you replicate it, to, have learned from what worked, what didn't work and be even more efficient the next time around?

SangHyun Lee (13:03):
Yeah. Eventually Digital Twin can do this. Let me put in this way. So let's say we created a virtual model, and so we know that they were kind of the building, they, we are going to build. And then throughout the construction process, we are going to keep monitoring. Okay, we put the foundation, we put the super structure, we put the slab, floors and et cetera. So that progress has been in the virtual model. So we can see the, what is going, what is happening in the construction site, in our virtual model. Then if let's say the steel piece has not been arrived in the site, so there is a delay in the project, so what we are going to do? Because all the real time data in the site is available in the virtual model, we can see the, what kind of decision making should it be done to remit the step is delayed deliberately in the site. So if we wanna make such a decision, we have to use the data, which is transparent, accountable, and trustworthy. That is what I integrating blockchain to make our data transparent and accountable.

Lauren Weymouth (14:11):
That was a real-time model being generated manually by a human or are there like IOT sensors in the build process that are recording everything?

SangHyun Lee (14:20):
Nowadays we are trying to use the IOT sensors in the construction site. So for example, if steel  pieces arrived on the site, already have kind of the CAD model of the steel pieces. And then we pay... put the IOT sensor, let's keep track of it, it's a location, if it is installed or not. And that, that information is on a real time basis, transport to the, our virtual model so that we know that such a strip has arrived, has been erected. So then in the virtual model, we can see the real time kind of replica of what is happening in the world. So yes, using the IOT sensors.

Lauren Weymouth (14:55):
And are there any particular examples that have already used this kind of model successfully already that you're, you're looking at to learn from?

SangHyun Lee (15:04):
Yes. Uh, in the, our industry we have in using, for example, RFID, like a location tracking technologies and all the tech based technologies, it could be UWB [inaudible 00:21:40] low energy, or the most common form is the RFID. And we put a tag on the still piece. So we keep track of is the delivery as well as are arrival, as well as the interaction. So that's what many construction site, particularly in the industrial construction as well as healthcare facilities have been using. And also nowadays we are using the computer vision, meaning they're just using the ordinary cameras or surveillance camera in the site. We are trying to reconstruct the virtual model, from the video of feed. Many startups are, there are many companies that are adopting these technologies. So there are many new technologies which allow us to collect the real time, real world data in the site.

Lauren Weymouth (16:02):
That's great how you're able to bring all these new techs  together to make something really functional. What stage are you at in the Digital Twin project?

SangHyun Lee (16:11):
We already develop the kind of proper type system with the blockchain, so that we are tested how blockchain can work to share the information, real-time information. And then also even it can be connected to the payment. So we already tested it, We're now in the stage where we are trying to marry the blockchain and the real-time progress monitoring to be useful to future decision making.

Lauren Weymouth (16:38):
What is your timeline for market readiness? When do you think this will be ready for adoption?

SangHyun Lee (16:44):
I think it'll take time because there are some technical challenges we have to address,  which we are working on right now, but at the same time, it is very important to make the players and the stakeholders understand the need for blockchain. What is the potential of the integrated Digital Twin and the blockchain? That's what we are working on. The promising things are many peoples are talking about the blockchain, even in the construction industry and I know that also there are several companies who actually, pitch their system based on the blockchain. So it already has been the adopted in the industry, even though it is early stage, but I would see the more and more adoption in the construction industry.

Lauren Weymouth (17:32):

I think it's a fair answer. I'm really glad that you brought up while simultaneously you're heads down, building the tech and building, facilitating the technology to be able to be used. There also needs to be an effort about educating the industry, right? I read that the industry is somewhat conservative, like they're hesitant to adopt new technology. So I wonder how do we propel an industry wide initiative of adopting blockchain? And is it something like you have to engage the Associated General Contractors of America or the Associated Builders and Contractors to understand, this technology first to get them to back a standard that will allow everybody to run it?

SangHyun Lee (18:15):
This is very important question. And the also given the fact that the, our industry is fragmented and the many players working for OSI, so it will be very challenging to adopt a new technology across the different players. I think we just need to get exposed to this technology. We keep educating our surveys, what this technology can do. And also, I believe that the different players have a different are laws. For example, me, myself, as a researcher, I need to make sure that technically all the potential challenges can be addressed by technologies. So we don't wanna create a new layer of the technology where people feel burdened about adopting such technology to their practice. So that's why I particularly liked the notion of a blockchain will be one of our communications infrastructure, which means that my role would be address the technical challenges. So it will be seamlessly working with the other things that they are using, like a Digital Twin and the building information modeling or IOT sensors.  We need a kind of a collective effort from the owner side, contract side, even the policy makers side, we need to have an open discussion about the use of blockchain, how we can use the benefit of the blockchain to improve our industry.

Lauren Weymouth (19:46):
Very smart. All right. So we've heard about what the challenges are in the construction industry, how blockchain can help the industry be more productive going forward and how to get them to potentially adopt this new tech. Is there anything that we haven't discussed yet that you would like to share with our audience?

SangHyun Lee (20:02):
I think sharing data across the different players and having accountable information in  decentralized way is a something that can transform our industries very efficiently and very effectively. Once we have a mechanism to share the data in the decentralized way, I think the value will be created, and this value can have a tremendous impact on our infrastructure building and the maintenance.

Lauren Weymouth (20:33):
And where do you wanna send people to find out more about this?

SangHyun Lee (20:36):
There is like a construction blockchain consortium in the UK, which is the good resource, but also at the same time, uh, you can reach me out to talk more about the use of the blockchain. I have my group website where periodically the update of my blockchain project. So those are resources that people can take a look at.

Lauren Weymouth (20:56):
And what's the web address of your project site?

SangHyun Lee (20:58):
My lab address is tpn.engin.umichi.edu.

Lauren Weymouth (21:06):
Thank you, Professor Lee for challenging the system to make it better, for the work you have done so far, and we wish you all the luck in releasing this into the marketplace.

SangHyun Lee (21:15):
Thank you so much.

Lauren Weymouth (21:16):
It was a pleasure hosting you on UBRI's podcast, All About Blockchain. And listeners, thank you for giving us your ears. If you have any questions about this episode or any feedback for new episodes, please reach out to ubri@ripple.com till next time.