The Digital Revolution in Construction

James L. Salmon, Esq.

Readers of the BYH Law Newsletter know virtual planning and design positively impact delivery of construction services. Real time access to digital assets associated with facilities, infrastructure and residential real estate, (FIR Assets) from inception through operations, empowers owners of such assets to procure higher quality assets at better prices and to manage those assets more intelligently over time. The built industry's historic waste rate - which exceeds 60% - provides enormous opportunity for application of continuous improvement.

Smart Contracts deployed on public or private blockchain may prove one path to such improvement. A companion article in next quarter's BYH Law Newsletter, Smart Contracts on the Blockchain, will touch on the use of Smart Contracts and the idea that public and private blockchains may emerge as new generation operating systems on the worldwide web. The article excerpted and linked below delves into the adoption and deployment of new solutions to old problems in construction. Specifically, lenders and insurers recently joined forces to develop mechanism for valuing new construction processes.

Traditional insurance and lending practices fail to adequately address risks associated with component parts of FIR Assets manufactured and or assembled off-site. For example, mortgages used to secure construction loans typically attach to real property but not the component parts not yet onsite. Securing a construction lenders interest in such component parts isn't practical under current lending instruments. Similarly, multiple traditional insurance products must be patched together to address risks associated with the production, transportation, installation and long term use of such components.

The new certification and assurance process detailed in the excerpted and linked article below explores this issue in more detail. Authored by David Chandler, FAIB out of Sydney, Australia, the article serves as a reminder of the global nature of digital disruption the fact that the built industry is no more immune than any other industry. At BYH we are committed to staying abreast of these developments and providing cutting edge legal services to our clients.

Excerpts and a link to Chandler's article follow.

A briefing in Kent presented progress on a Property Assurance Scheme (BOPAS) developed by Lloyd's Register EMEA, Building Life Plans (BLP), Buildoffsite, the Royal Institution of Chartered Surveyors and the Council of Mortgage Lenders. The scheme aimed to assure the lending community and valuers that non- traditional systems of construction can be used in new house building with total confidence and traceability. The assurance scheme is currently only available in the UK and Scotland.

Certification is now available to manufacturers and constructors which provides confirmation that new properties, built using non-traditional forms of construction, will be sufficiently durable to support loans over a period of not less than 60 years. The availability of this certification is a recognised means to manage financial and construction risk and is proving to be of interest to private purchasers requiring a mortgage, institutional investors in new public and private sector housing developments, and client groups.

...

The assurance scheme comprises:

a durability and maintenance assessment process

a process accreditation

an online database comprising details of assessed building methodologies, registered sites and registered/warranted properties.

This means in effect that every new building can have its own digital compliance certificate. With global construction turnover soon to exceed US$15 trillion per annum, one can see the urgency to lock in big slices of this pie. The potential for a line of sight to construction impairment risk mitigation in a globally sourced industry and the as-built resilience of new buildings in the face of changing extremes in global climate impact seems very compelling. These underwrites will be hard for lenders to ignore. They will affect insurance premiums.

Is What's Wrong with Construction Assurance Sorting Itself Out?