A smart contract means a ‘computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract.’ [source]

A smart contract is therefore the code – it has been said to be neither smart nor a contract! Smart contracts are also referred to as intelligent contracts.

Contracting

There are 3 key stages in the process of contracting:

  1. plan (inception): from verification to tendering
  2. make (creation): from contract choice to award/completion
  3. use (operation): from contract to dispute management

Smart contracts can deal with all these stages of the process. It would digitally create and then negotiate an agreement, verify their content and signature, and digitally enforce their performance. While doing these tasks it will also collect data…

Construction Contracts

I have spent the last 20 years planning and creating construction contracts. The legal terms reflected in those contracts are a very small part of the documentation that needs to be signed and agreed by the project team. A construction contract also needs:

  • articles of agreement – the contract overview
  • contract particulars or data – the project overview
  • specifications, drawings and data – the details for the works, goods and services (and bills of quantities where used)
  • pricing information including rates, analyses and so on
  • information, communication and BIM protocols – to help the supply chain work seamlessly together
  • works programme(s) and schedules
  • statutory information eg the construction phase plan where CDM 2015 applies
  • miscellaneous documents like bonds, guarantees, extracts from third party agreements, policies, procedures and so on.

Being able to create, negotiate, sign and then manage the terms of the contract digitally will be a huge improvement.

However, until all documents relating to the project can be created, stored, indexed and recovered digitally, the prevalence of paper-based wet-signed complex contracts will continue to blight the industry.

Smarter Contracting?

Intelligent (or smart) contracts will make it easier to plan, negotiate, create and sign contracts as the system can:

  • track the negotiation of clauses (as one document and individual clauses; also compare against existing clause banks)
  • log telephone calls, tasks, appointments, emails and correspondence relating to contract negotiations
  • automatically send contracts and contract documents to the relevant person to authorise (according to pre-set delegations and permissions)
  • allow contracts and relevant records to be signed digitally (by staff with relevant authority)
  • store and record all relevant works documents (and their approved updates) with version control and a full log of when documents are accessed.

These benefits will mostly be felt by the lawyers and procurement teams responsible for the pre-contract mechanisms. But what about the project teams who actually do and manage the works?

Smarter Projects?

Being able to enforce performance means smart contracts could also:

  • send, store and record changes to the project, works or tasks
  • track time and money expenditure on specific items of works
  • track programme changes and their causes
  • automate payments
  • automate certificates (once completion or take over criteria are measurable)
  • automate awards for extra time or money
  • create audit trails for claims
  • log minutes of meetings
  • log permissions, instructions, orders, directions of the contract administrator(s).

What Should You Do?

The future of contracting is using technology to simplify the contract process and the administration of a project, to build trust, avoid disputes and start a project quicker.

But before you rush to automate, check that your contracts and their processes are simple, digitally-enabled, and fair. There is no point automating rubbish!

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