Readiness and Potential Application of Smart Contracts in the Indonesian Construction Industry

Abstract

A construction project requires a contract to run safely by minimizing costs, schedules and maintaining project quality. In traditional contracts, contractual transactions between trustless parties are generally conducted in a centralized form, requiring a trusted third party to act as witnesses and make them legally binding, enforceable, and trustworthy. However, involving third parties is associated with high costs and delays. In this case, Smart Contracts can be a solution. A smart contract is a code that contains rules that will execute a transaction itself according to the agreement of two parties. Smart Contracts contained in Blockchain Technology have received much attention globally, including in the construction industry. Smart Contracts can enable automatic payments without delays, hassles and without third parties (mediators) carried out in a decentralized network to ensure integrity and transparency by preventing the potential of record manipulation existed in traditional contracts. This paper presents an overview of the potential application of Smart Contracts in Indonesian construction industry. This paper was prepared based on a literature review of several existing studies to obtain data related to the current state of Blockchain Technology, technological readiness, and the potential areas that Smart Contracts can be applied. It is hoped that the findings from the literature review will explain various aspects of the potential for adopting Smart Contracts in the construction industry and can assist in the development of further research that will focus on the application of Smart Contracts in the Indonesian construction industry.