Smart Contracts in Construction Contracs

Abstract

Smart contracts are a transaction protocol designed to automatically execute and enforce the terms of an agreement. They eliminate the need for intermediaries, increase transparency, and create efficiency for both contractors and developers. Smart contracts are still relatively new to the construction industry and remain in a pilot phase. Since this is an emerging field, many legal and economic aspects remain uncertain. This paper therefore investigates the potential benefits of smart contracts to the construction rather then a traditional contract. The legal research questions if the smart contract aligns with AB 18, the Danish contracts act and the fundamental principles of the law of obligations. The smart contract supports actively to the parties’ duty to cooperate. However, it is not possible to remedies for breach of contract because of the smart contracts inflexible rules. Because of that need of flexibility it is difficult to imagine it would align with the fundamental principles of the law of obligations and Section 36 of the Danish Contracts Act, which concerns about the general clause of unreasonable terms. The economic research questions if the is incentive for collaboration between the contractors and developers through game theory. Smart contracts contributes to collaboration in comparison with traditional contractual relationship in construction contracts. However the theory of transparency shows non efficiency because of the need of flexibility in a pure smart contract. Which is why the integrated analysis investigates possibilities of alternatives mechanisms to make changes in smart contracts. By applying sequential game theory it concludes that flexibility has a positive impact on both the contractors and developers. Which is why the legal policy encourages a mandatory rule to have flexibility incorporated in the smart contracts for construction contracts.