Digital Contracts: Technology

At the 2017 CoMIT conference, I proposed that the three barriers to moving towards digital contracts were technology, language and conduct. Unsurprisingly for an audience attending a conference on the construction opportunities for mobile IT, 75% said technology would be the first barrier to digital contracts that we successfully remove (21% said it would be the biggest barrier). So let’s deal with that first.

Improving technology for construction contracts will take us from hard-copy wet-signed paper contracts, through electronic (Adobe) electronic forms, to digital forms (using a database of information and clauses to create, negotiate and complete the contract), and eventually to computer-executable smart contracts, based on blockchain. But before we dive into that narrow focus, I want us to learn from other areas debated at the conference.

At CoMIT there were lots of talks about how construction can innovate and to adopt technology:

  • Dr Ravi Margasahaya, from NASA, talked about how industries can learn and transfer ideas from other fields eg.g the use of microwaves to cook food. NASA’s mission statement is ‘innovate or perish’ and he believes it is only radical goals that will create the leaps we need to move into a digital future. He said that construction had failed to adapt to new technologies (McKinsey says we are the least digitised industry). One of his calls to action was radical innovation involving accepting some risk – which is what we will need to persuade lawyers to put down their paper stacks and quill pens and move to digital contracts.
  • Nick Tune, from Atkins, focused on the use of BIM to bring efficiencies into the construction process (NBS Survey 2018 said 57% thought it brought efficiencies). We need clients to understand their own needs before we can successfully translate them eg into the Employer’s Information Requirement document. Lawyers and contract writers need a similar approach and to ask clients want they want and need from their contracts before they can successfully translate them into one of the formats below.
  • Jennifer Macdonald, from Mott MacDonald, said that for Project 13 digital means ‘a new way of working, built around systems thinking and enabled by emerging technology’. She said the key aspects were people, process and technology. So new contracts could be based on processes – not language – and enabled by technology?
  • Felicity Heathcote-Márcz, a cyborg ethnographer from Atkins, had some fascinating insights into how we can understand design and future-proof our industry. She said that ‘the revolution of digital tools is accompanied by a revolution in immersive understanding’ which I have yet to see happen in relation to contracts…She also said that change is 80% people, only 20% technology. It would be interesting to see how her research would influence a contracts solution!
  • Benoit Jeannin, from Script & Go, introduced a digital tool that had has doubled the number of projects with zero defects on completion (an output that standard projects can only dream about). He said that paper-based project management leads to excessive waste, unsustainable processes, increased stress and poor collaboration – and that echoes my experiences of paper-based contract management. The legal specification and works specification could both travel with us to site.
  • Stephen Kennedy from Stantec said that on completion users want paper-manuals (like our obsession with paper contracts) which (like contracts) they never read. We clearly need to work on changing the mindset from paper is best.
  • Max Mallia-Parfitt of the Fulcro Group, said that technology is a barrier as people cannot see the benefits. In my experience if you ask them what they think of contracts, you get a whole bucketload of pains so perhaps we can persuade them to avoid those pains and then measure the clear efficiency gains once they have gone digital?

Wet-Signed

The NBS Survey 2018 shows that £30bn of construction work in the UK is started without a contract being in place and £3bn is finished without a contract ever being signed. The ARCADIS Global Disputes Surveys regularly point out that incorrect completion of contracts is one of the top 5 causes of disputes. My 2014 Survey showed that the majority of users wanted simpler contracts. So there is definitely something rotten in the state of contracting.

As Terry Stocks, Dept of BIS, said during day two of the conference, since 1944 there have been criticisms of the inefficiencies of contracts in the industry. He also noted that when things go wrong we get a ‘whoosh’ of laywers (presumably to dig out and then interpret the contracts so everyone finds out what they should have done).

Electronic

As an experiment, I successfully created electronic contracts with electronic signatures (either as graphic form or adopting a DocuSign widget) on jotform. For example, my signable electronic privacy policy is here. Other companies such as ISG plc have adopted an electronic contract process for negotiation, execution and use.

But often these are no more than a different format of the same adversarial and complex contracts that the industry loves to hate. The ARCADIS Global Disputes Surveys  continue to show that we cannot read, understand or use these types of contracts to avoid disputes.

The technology by itself will not resolve those issues, although it massively reduces the administrative burden of pre-contract processes.

Digital

Much of the disquiet over digital contracts is about digital (electronic signatures). But this is frankly a sideshow. Contracts don’t need any signature at all! Multi-million dollar global transactions are agreed by email every second without anyone signing on the dotted line. Multi-million pound construction projects are completed without signatures. Benoit Jeannin said that his system accepts handwriting and uses a smartphone – this could be adopted to contracts so we wouldn’t have to sign contracts differently, only use a digital pen on a smartphone.

Iain Miskimmin said that we need a form of ‘BIM for contracts’ ie digital contracts that we can interrogate properly to understand what each element of the contract means for the parties and the project. The contract should be part of the database of project information (and then becomes part of the digital asset handed over to the owner and occupier on completion). We can only do this properly with digital, not electronic, contracts.

Smart

At CoMIT my talk drew parallels between banking and construction. Back in the mid-19th century both moved to standard pre-printed forms: bank notes and standardised construction contracts. By 2004 more money was spent electronically (by cards) than in hard currency; but the majority of construction transactions are still paper-based…

Banking is based on trust as printed notes have no inherent value – a £5 note does not contain £5 worth of metal! We believe the ‘promise to pay’. We trust in this mechansim for exchanging value. That trust has been essential to the growth of other payment mechanisms and platforms. By 2009 Bitcoin had been developed and there are now 1800 cryptocurrencies with 1.8m unique users. Cyptocurrencies are just a form of value that we can exchange, and – like contracts – cyptocurrencies are just tools to help us do business.

Because of the massive rise of global trade, businesses wanted to choose a value exchange which was not dependent on either national jurisdictions or national currencies. Increasingly businesses want global contracts that are effective wherever they do business, based on peer-to-peer distributed technology – whether that is money, lending or contracts.

Max Mallia-Parfitt also talked about the use of blockchain for smart contracts – security is built not by a strongroom holding the now out-of-date hard-copy wet-signed contract, but through an unbroken chain of record. Advantages of smart contracts include:

  1. the contract (and each copy of it) can be simultaneously updated to reflect new information
  2. it would force users to comply with specific standards (otherwise, ‘computer says no’)
  3. payments and processes could be automated across the supply chain based on verified inputs such as delivery ntoes, test certificates etc.

What should we do?

At the CoMIT panel discussion, an audience member asked which of the technologies mentioned offered the most potential benefit to humankind. Max said “any technology that breaks down the walls that stop people from working together will solve this. Construction is too litigious, too adversarial – we need to work together to benefit clients and users.”

I couldn’t have said it better myself!

Thank you to all the speakers who provided ideas for this series of posts, as well as Su Butcher and Paul Wilkinson for live blogging the conference to jog my memory.

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