Currently, the Ohio House is debating HB177 [i], which will allow Ohio government at all levels to use distributed ledger technology or “blockchains.” Blockchain technology has been in the news of late, not only for its use in Bitcoin, but also due to some controversial concerns raised by privacy advocates in Europe [ii] and elsewhere [iii].
Ohio confirmed its commitment to the use of this technology to encourage business growth and development in the technology sector through the passage of SB220 in 2018, the Data Protection Act. That bill amended R.C. 1306.01 and created Chapter 1354.01 et seq. Both laws are found under R.C. Title 13, Ohio’s version of the UCC, so it is arguable that government already has the ability to use this technology in contracting. And while these code changes are recent, in the world of technology, blockchain use is old news. What is new, however, is both the clear direction of Ohio lawmakers to keep the state in the forefront of technological economic opportunities and their encouragement of government to use these types of technologies in “the exercise of its authority.” See Proposed R.C. Sec. 9.16(B).
A consequence for construction contracts, intended or otherwise, will be the opportunity to use smart contracts and to embrace the advantages of the concept of Building Information Modeling (“BIM”) in the construction of public works projects, including roads, bridges, buildings, ports, etc. … both for horizontal and vertical construction across a multitude of industries.
BIM is multi-dimensional information about a facility that evolves with the creation and modification of the facility and incudes aspects of perpetual data retention and artificial intelligence. An excellent research guidebook entitled Beyond BIM Design Guidebook [iv], co-developed by CCI Engineering Services (owned by local business woman and entrepreneur Joyce Johnson), explains the details, challenges and opportunities of BIM.
Smart contracts are a series of digital commitments between the parties that trigger automatic reactions upon an action or execution of a portion of the contract. A blockchain is a collection of information (think database) tethered together in “blocks” that, when filled, are appended to the next block, forming a logical series or “chain.” As new information is added to the database, so is a new block in the chain. Blockchain technology is used in smart contracts through an intelligent and evolving database of contractual commitments.
A smart contract using blockchain technology enhances the advantages of BIM by taking the data that is generated through BIM and, at each stage, making digital commitments associated with the data, verifying it, recording it and creating a permanent ledger that was created through communication and collaboration of all the parties to the contract. A smart contract enhances project transparency and can eliminate disputes between parties since all collaborate in its evolution. A smart contract can also save time and money through the immediate and virtual transfer of funds after approval and acceptance of a portion of a contract or construction, thereby eliminating manual processes and human error. Essentially, work gets paid for almost as soon as it gets completed; shifting “pay when paid” into a new paradigm.
It may yet still be some time before Ohio governments put out a true smart contract for a public works project containing a BIM component. But this is certainly a topic of interest on the national front [v], with private industry [vi] and with government contracts in Europe and Asia [vii]. Hopefully, a forward-leaning political leader or agency will take advantage of the Revised Code section once enacted and work with industry to craft a project, bidding documents and contractual commitments through a smart contract platform and take Ohio one step further into a new cyber age.
[i] 00 (state.oh.us)
[ii] How Can Blockchain Thrive In The Face Of European GDPR Blockade? (forbes.com)
[iii] There’s No Good Reason to Trust Blockchain Technology | WIRED
[iv] BIM Beyond Design Guidebook | The National Academies Press (nap.edu)