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DAO in construction: managing projects innovatively

Explore how the use of DAO in the construction industry improves project management and stakeholder engagement through the implementation of blockchain technology

A DAO (Decentralized Autonomous Organization) is a new and intriguing form of project collaboration based on Blockchain technology, which potentially can change the world.

Its introduction into the construction industry represents a significant innovation in project management and stakeholder engagement.

Let’s see in this article what DAO is and how it can bring improvements in this sector.

What is a DAO?

A DAO, or Decentralized Autonomous Organization, is an innovative form of business organization distinguished by the absence of centralized leadership. It operates through a bottom-up governance system, where decisions are collectively made by community members. These members interact and vote on specific proposals within a specified period, ensuring a democratic and participatory decision-making process.
At the core of a DAO lies what is called an “Autonomous Agent,” a software that manages the organization independently of the participants. This software operates based on encoded rules, known as smart contracts, which are computer programs that automatically execute agreements and transactions. These rules and transactions are stored and protected within a blockchain, a distributed and secure database that utilizes the concept of “timestamp” to ensure immunity from falsification.

Here are some key features of DAOs:

  1. Decentralization: Unlike traditional organizations that have a hierarchy and a well-defined center of control, DAOs are completely decentralized. There is no central authority; instead, decisions are collectively made by the organization’s members;
  2. Automation: DAOs rely on smart contracts executed on the blockchain. These contracts automate decision-making processes and organizational operations, reducing the need for human intervention and increasing efficiency (click here to discover the advantages of Blockchain applied to BIM);
  3. Transparency and security: Thanks to the blockchain, all transactions and decisions within a DAO are transparent and publicly verifiable. This ensures a high level of security and trust, as data cannot be easily altered or corrupted;
  4. Democratic participation: In DAOs, decision-making power is distributed among its members, who typically hold tokens or other forms of participation that confer voting rights. This ensures that decisions are made democratically and representatively of members’ interests;
  5. Flexibility and scalability: DAOs can be structured to adapt to a wide range of purposes and can be easily scaled due to their digital and decentralized nature.

DAOs are finding applications in various sectors such as crowdfunding, resource management, community governance, and other areas where a transparent, democratic, and flexible organizational structure is advantageous. However, it is a relatively new concept that poses, as we will see below, a series of challenges.

DAOs in the Construction Industry

DAOs offer a wide range of opportunities for innovation in the construction sector. AEC professionals, companies, suppliers, and real estate operators can interact with automated systems, simplifying processes such as building design, facility management, and financial transactions. This digital transformation paves the way for new business models, allowing companies to offer differentiated services and maximize operational efficiency.
But to fully grasp the opportunities offered by DAOs, companies must adopt a proactive approach and invest in emerging technologies.

Here are some key points on how DAOs could be applied in the construction sector.

Improving Project Management

  1. Automation and efficiency: DAOs use smart contracts on the blockchain to automate many decision-making and operational processes. This can reduce wait times and bureaucracy, making project management more efficient;
  2. Transparency and accountability: The immutable and transparent nature of the blockchain ensures that all transactions and decisions are securely and openly recorded. This increases accountability and can reduce corruption and errors;
  3. Better resource management: With DAOs, the distribution and utilization of resources can be managed more efficiently and transparently, optimizing the use of materials, personnel, and equipment;
  4. Dynamic response to changes: DAOs can facilitate quicker adaptability to changes during a project, allowing for immediate decisions based on updated data and stakeholder feedback.

Increased Stakeholder Engagement

  1. Democratic participation: Stakeholders may have tokens or other forms granting voting rights in DAO decisions. This ensures their voices are heard and decisions are made more democratically;
  2. Investor involvement: Investors can be more directly involved in the decision-making process, increasing their engagement and interest in the project’s success;
  3. Collaboration among diverse parties: DAOs can facilitate collaboration among various groups, such as suppliers, contractors, workers, and clients, encouraging open communication and shared planning;
  4. Real-time feedback: Thanks to the technological structure of DAOs, systems can be implemented to collect real-time feedback from stakeholders, allowing for rapid adjustments and updated information.

Examples of DAOs in the Construction Sector

The DAO concept could be applied to construction firms and projects to enhance collaboration, owner involvement, citizen engagement, and resource sharing.

Stakeholders’ Governance DAO

A concrete example can be illustrated by considering large-scale construction projects, where various involved parties have significant interests. For example, a new airport project. Such a project involves many stakeholders with different interests:

  • Airlines: concerned about runways, terminals, and infrastructure;
  • Municipal council: concerned about environmental and social impact;
  • Environmental Assessment Committee: focused on sustainability and ecological impact;
  • Local citizens: concerned about noise, traffic, and employment;
  • Entrepreneurs and suppliers: interested in bidding and contracts.

Operation of the DAO:

  • Token distribution: Each stakeholder group receives a share of tokens representing their voting rights within the DAO;
  • Voting and decisions: Key decisions, such as supplier selection, environmental policies, or design changes, are voted on by DAO members;
  • Fungible and Non-Fungible Tokens (NFTs): Both fungible tokens for general voting and NFTs for special voting rights on specific issues (e.g., the environmental committee could have NFTs for ecological decisions) could be used;
  • Blockchain registry: All transactions, decisions, and changes are recorded immutably on the blockchain, ensuring transparency and traceability.

The advantages associated with this Governance DAO are balance, transparency, and accountability, efficiency in decision-making.
Indeed, DAO governance ensures fair treatment and counteracts opportunistic behaviors among shareholders; furthermore, recording decisions on the blockchain provides a clear and transparent history, and token-based voting can accelerate decision-making processes and reduce delays.

On the downside, ensuring that all stakeholders are adequately informed and involved can be complex, as well as developing and maintaining the required technological platform requires specific expertise and significant security measures. Finally, integrating this form of governance with existing regulations and legal requirements can be challenging.

Collaborative Construction through DAO (Construction Collaborative DAO)

A tangible example of DAO is represented by collaborative construction, as in the case of the DAO for resource pooling.
This platform allows construction companies to share equipment and tools in exchange for money or through reciprocal exchange and collaboration agreements. Thanks to this DAO, it is possible to keep detailed track of each piece of equipment, including mechanical inspection reports, maintenance plans, and availability information.

This system simplifies the equipment lending process for contractors, avoiding the need for repetitive and manual bureaucratic procedures.

Furthermore, by providing an accurate record of equipment, both parties involved are protected. For example, contractors can avoid equipment with past issues or requiring imminent maintenance. Additionally, thanks to the DAO, contractors can identify competitive options nearby, thus avoiding equipment transportation over long distances.

On the downside, for this type of DAO to function correctly, it requires a reliable source of information, which can be obtained through off-chain sources as well (so-called Blockchain oracle), ensuring the proper execution of smart contracts. Each piece of equipment is identified through a Decentralized Identifier (DID), which associates information such as owner, location, and availability. External executors, such as mechanics, also have a DID to track their work. Contractors and equipment suppliers participate in the DAO using their Blockchain digital wallets, connected to smart contracts. Equipment is represented as non-fungible tokens (NFTs), ensuring their uniqueness and authenticity.

Challenges and Considerations

Although DAOs are still in their infancy in the construction sector, their potential to revolutionize project management and stakeholder engagement is significant. Their implementation could lead to increased efficiency, transparency, and collaboration, overcoming some of the sector’s historical challenges related to technology, security, and reliability.