January/February 2022 - 99

BRIAN S. WOOD, PARTNER, SMITH CURRIE
LEGALLY SPEAKING
Considering Sophisticated Contract Demands
of Smart Construction
In this follow-up article to one in Sept/Oct 2021 about legal
issues of sustainability and smart design and construction,
I'll consider contract demands related to smart construction.
The term generally refers to using digital technologies,
processes and applications to optimize construction
planning, management and productivity. Smart construction
can include, but is certainly not limited to, using building
information models (BIM) to avoid conflicts between
elements of the design, drones to collect site and/or
construction data from difficult-to-access locations, data
analytics to identify patterns and trends of production and
safety incidents to plan to limit accidents and improve
production, and augmented and virtual reality to allow
designers to visualize in detail the completed design to make
changes at the outset and avoid rework.
Smart Contract Basics
With the digital transformation of construction, some
professionals have suggested that construction contracting is
due for a similar renaissance. Specifically, these commentators
have proposed the use of " smart contracts " on
construction projects (see the Nov. 5, 2019 Construction
Executive article by Frederick D. Crus and Seth Wamelink, and
the June 23, 2020, Levelset.com blog article by Tom Scalisi, for
example). Conceived of by computer scientist Nick Szabo in
the 1990s, a smart contract is " a set of promises, specified in
digital form, including protocols within which the parties
perform on these promises. " In other words, it is a computer
program intended to automatically execute, control, and/or
document actions and events according to the terms of an
agreement. While a smart contract embodies and effectuates
elements of an agreement, it does not fit the traditional
concept, and is rather a stored procedure based upon an
agreement (traditional contract); it requires programming of
the " rules " or terms of the agreement to allow for automatic
administration of the terms. The firmware of a vending
machine is a simple smart contract example. A program
determines if the consumer has inserted the agreed price for a
vended item, dispenses the item if that has been paid, and
resets only after sensors indicate the vended item has been
released for consumer access. Smart contracts are ideally
suited for agreements involving repeated - particularly,
frequent - severable transactions, where speed and efficiency
in determining the fulfillment of contractual obligations are
critical to the agreement's purpose and function. Accordingly,
smart contracts are common for cryptocurrency transactions
and other transactions utilizing distributed ledger technology
(such as blockchain). There, the smart contract software can
access necessary databases to determine the rate and other
terms and actions associated with the transaction.
Smart Contract Use and Limits
In theory, smart contracts could help optimize administration
of elements of a construction contract. A construction event or
action, such as the delivery of materials or completion of an
element of work and submission of an electronic application
for payment, would trigger automatic payment from an
escrow account. Smart construction technologies, such as
radio frequency identification (RFID) tags and related sensors,
could detect the type, date, time and quantities of materials
delivered, signaling and triggering payment processing for
such materials (think of the reverse of a vending machine).
There are, however, significant practical impediments
and/or limitations to using smart contracts in construction.
First, unlike digital financial transactions, construction
generally involves applying considerable professional
judgment and discretion (e.g., engineering, construction
and/or contracting expertise) to determine whether a
particular term of the agreement (detail, specification, etc.)
has been satisfied. Second, completion of an element of work
is not the only factor determining entitlement to payment. For
example, the timeliness of performance can affect the amount
paid. Third, many contract provisions expressly call for
subsequent negotiation to determine added terms of an
agreement. For example, a variation in estimated quantities
clause provides for equitable adjustments to unit prices in the
event actual quantities vary significantly from those
indicated in the contract. Other changes to the scope of work
or terms of performance, whether directed or constructive,
similarly call for equitable adjustments - which are
inherently unsuited for automation. Finally, no algorithm or
software application can resolve differences in interpretation
of technical and general terms and conditions of a contract,
particularly where ambiguities and conflicts in terms exist.
Human involvement, sometimes including dispute forums, is
required to resolve such disputes.
DEEP FOUNDATIONS * JAN/FEB 2022 * 99
http://www.Levelset.com
January/February 2022

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