What the Heck is Blockchain? (feat. Robert Salvador)


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What is Blockchain? The Construction Brothers talk about how to use blockchain in construction with Robert Salvador is the CEO and co-founder of DigiBuild, a construction management software based out of blockchain technology. We get educated on what blockchain is, how it works, and how it empowers its users. Robert grew up in construction, and we really felt that from him! Robert wants to bring trust into the construction industry by building it into the software. With “built-in trust”, the hope is to reduce the amount of time and money spent on getting and verifying information.


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Pete Dumont’s Episode


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TRANSCRIPTION


Introduction


Tyler:

It is. And I almost feel like we need to put Pete and Rob together and say, “Hey guys, go sit in a room and talk and figure this out” because I think there's something here with blockchain and what really kind of excited me. And I know it was kind of small, but, eliminating the need to go get a notary on lien waivers because everything's verifiable. It all has that one single point of truth. All these documents have this one single point of truth. So the ramifications up and down the chain can be massive. And, we're still in the infancy of this technology and it'll be interesting to see what happens over the next couple of years with this, but it's definitely something to keep an eye on. And that's the reason why we wanted to take a minute and really try to understand it better, more fully. So you can understand what's coming down the pipeline towards us. Well, all right guys, this is a great interview. I'm excited to get to this because there's a lot to learn here. Here is our interview with Rob Salvador.


Interview with Robert Salvador, CEO and co-founder of DigiBuild


Tyler:

Well, Robert, thanks for joining us today, man. Can you tell us a little bit about yourself who you are?


Robert:

Absolutely. Well, thanks, Tyler and Eddie. I really appreciate you guys having me on. I’m a big fan of the podcast and the show in general. So yeah, I'm Rob Salvador. I'm the co-founder and CEO of Digi build. So we are a construction management software that is enabled by blockchain technology. And so we build tools for different things like procurement and project visibility, basically things that help improve your construction project. And I come from the industry, I grew up in the industry. So I remember running around job sites at 10 years old. I always joke that in 2021, the safety managers would've killed me or have been like, “Hey, what are you doing here?” But constructions, but in my blood for a really long time. And before Digibuild, I owned a nationwide contracting company specializing in framing drywall, a lot of interior work and then eventually became construction managers. And here we are now building software for the industry. So I've always said that construction is in my blood and I know that it's the same with you guys, so happy to be here and I really appreciate the opportunity.


Tyler:

It's definitely a family business. I can resonate with running around on the job sites when you're little and stuff. That's a lot of fun, man. Well, we brought you on because you're building something that's around blockchain and we've talked about this ourselves, but we also wanted to make sure that we were completely educated on this topic because I know Eddie and I like we kind of understand it, but we hope to understand it a little bit better. So tell us what you're doing and can we just start with what is blockchain and let's just start there and move from there.


Robert:

So blockchain is a technology. It's kind of an underlying computer code that runs in the background similar to what you see nowadays with the cloud, right? The cloud allows you to stream information in real time. And the cloud itself is really just a data structure that's kind of running in the background.


So blockchain is similar to that. Only what it does is it allows you to verify transactions, information, anything that's digital you can verify it and prove the truth behind it. Kind of the who, what, where, when, and how behind any transaction. And so to really understand why that's important, it's important to understand how the internet currently works, right? The way the internet was built was that trust is not inherently inside the internet. And what that means is anytime you're sending something online, whether it's a document, a video, a picture in construction, it can be a contract, a payment, it doesn't matter. You're always sending a copy from your database, your computer, your company's database, whatever that is to someone else's database. And it's always a copy. So think about how on your particular computer, you own all of that data, right? So if I sent you a contract for a hundred dollars, there's nothing that stops you on your computer from receiving that contract or the copy of the contract from me and adding a couple extra zeros in there. And now you have a document that says a hundred thousand dollars, even though I only wrote the document for a hundred dollars. You, because you own that database, have complete control of that document in your database. So what happened to me is once I sent that document, I lost “version control” of that document. So if you think about the way you transact in life, in any business, especially construction, where you're sending important information, if you can't have a way to verify the data from any transaction, it means that you have to protect yourself.


And the way that we protect ourselves right now is everyone keeps their own copies in their own databases, right? So previously the internet did not have trust built into it. Then came along blockchain, which essentially adds a new type of data structure to the backend so you never lose that verification of the document of who's changed the document, what the original information and workflows within that contained. Blockchain is basically a system that allows you to verify the truth in a digital forum. So think about that same scenario that I sent you. Let's say there's 10 other companies involved in this transaction, right? I'm giving I'm a general contractor and I'm giving you a contract, Tyler, you a contract Eddie. And because we don't trust one another in business circumstances and because trust is not built into the internet, we have to keep a bunch of different redundant copies and do a bunch of different redundant verification and processing because of the lack of trust on the internet.


Whereas when you have a blockchain, essentially I can create that document and you all have access to it and anyone can get access to it who needs it. And there's no way to ever change the document without all of us knowing about it. There's no way to pass it along without us knowing about it. And that scenario I talked about where the I'm sending you the contract for a hundred dollars, all of the parties involved would know, okay, “here is the original transaction. It was Rob who sent it. It was for a hundred dollars and Tyler received it for a hundred dollars.” So essentially what blockchain allows you to do is introduce trust into the digital world. And previously, without trust, you have a lot of third parties, a lot of extra what can be called rent seekers, who have to get involved to establish that trust.


So that's what blockchain does. And I can go into some more examples because I know that's very complicated, but if you think about how everything in life and business in many ways is a transactional value between counterparties. And when you have counterparties, you have to establish trust. Well, in the old internet, without blockchain, it was very expensive and time consuming to establish trust. In the new internet trust can be established like that. It's inherent in the software. That's what blockchain allows you to do. And that can be prevalent in multiple different [ways] in business and cryptocurrencies like Bitcoin, as many people may have heard of. So it's very useful in many different types of circumstances. And many people think it's the future of the internet with trust built into it.


Eddie: (12:27)

So this is a method of verifying truth.


Robert:

Yeah, exactly. Only it's a digital method. It's almost like the same way your Excel spreadsheet tells you one plus one equals two because there's code running in the background that does that operation. Same thing with the blockchain. The blockchain is in the background verifying that. So yes, it's a method of verifying truth in a digital way.


Eddie:

Yeah. I've been around the construction world a little bit and it would seem like verifying truth can be a little bit of an issue in the construction world. So, this seems very useful for application in construction. Flush that out a little bit. How is this now translating into construction?


Robert: (13:09)

Construction involves generally, any decent sized project, 50 to a hundred different parties from the start of the development to turning it over to whatever, getting your certificate of occupancy or whatever the building use is, right? So you've got 50 to a hundred different parties, all of whom don't really trust one another because they're different entities. So you've got your subcontractors, your GC, your owner, your architects, engineers, lenders, third parties, insurers, right? So that same scenario where you have all these different parties who have to transact and send workflows and data back and forth between one another, it ends up being that we spend a ton of time and money and effort trying to verify all of the information that is necessary to build a construction project. So what blockchain is, is good at doing is introducing trust between those parties.


So, if you look at the first-generation of software, we look at the Procore's of the world, even texture, BIM 360, things like that. Great step up from where we were, what, 10 years ago, where some companies still are using fax machines, spreadsheets, and paper laden processes. So version 1.0 of software was great, but the problem there is each company that's involved in these projects, they have their own risk management principles that they have to put in place. So even though a Procor or a BIM 360 gives you a central place to upload documents and do transacting, that is still a private database. There's no transparency in the database. It is controlled fully by the owner of that database. So when you have trusted workflows and important information that's being sent back and forth like contracts, lien waivers, payment information, you can't fully automate a lot of these processes.


You can't fully guarantee transparency because these databases are just non-transparent. You have no idea what's going on inside of them. So when you can introduce blockchain to a situation where you have multiple counter parties, like a construction project, what allows you to do is three things that we at Digibuild normally talk about as benefits to the project. So one you can automate the workflows end to end. Not all of them, of course. There's workflows like RFIDs and whatnot that require human intervention. But there are a lot of workflows that can be automated. You can also reduce informational uncertainty. And essentially what you're doing is introducing more transparency there. So that reduces risk reduces fraud. And then you can capture more robust data insights because you know that the data you're getting is valid and where it comes from.


So you can create data insights and forecast for construction projects. The way I think it's important to separate what blockchain can do versus what just a standard database without trust involved in it can do is to give an example. Okay. So let's talk about the lien waiver process. Everyone knows how lien waivers go. In order to get paid, you've got to sign the waivers essentially saying, I won't sue you because I've been paid or I won't file an encumbrance cause I've been paid for this. The current software solutions currently help that a little bit, but you can't fully automate it because of the lack of trust. And here's the example. So you have a supplier and they want to get paid for their material. They have to fill out their lien waiver turning their purchase order or their payment request. Subcontractor gets the waiver, checks it for compliance. Subcontractor has to then create their own lien waiver, submit it with their payment application to the general contractor. General contractor has to do the same thing which is check the lower tier waivers for compliance, put in their own lien waiver, turn it into the owner. Owner has to do the same thing. Lender has to do the same thing. Title company, same thing, right? Why can't the owner just say, “Oh, the subcontractor already checked the supplier's waiver for compliance. Why don't have to check it again?” It's because of the lack of trust between these databases. As the owner of the project, if you have a million dollar lien waiver and you don't verify it yourself, like, “Hey, I'm just going to trust that the subcontractor checked it and it's a good waiver” and you pay that. And then someone tries to sue you again, you can get sued for that million dollars, right?


So as the owner, from a risk management perspective, you’re not protected because of the lack of trust between our databases. With blockchain, what you can do is build software that automates that entire process reads the lien waiver says this is a compliant waiver and it's been checked already. And then if someone ever came back and tried to say, “no, I didn't sign that waiver.” This is where the blockchain is so special. The blockchain is audible, provable. So any party, because the blockchain is not owned by any one party, it's not a centralized database, anyone from a courtroom to an it person for your ownership group or the general contractor can go into the blockchain and say, “look, there is that computer code that was executing that and it checked the lien waiver for compliance. And there is the mathematical verification on the blockchain that this transaction happened in the way that we think it happened. So that's how digital trust allows you to make it so you can automate the entire lien waiver process because it's provable. Whereas central databases, you have to go one step at a time because there's a lack of trust between the suppliers database, the subcontractors database, the owner's database. So that's where, and I'll stop here cause I know I'm going to go down the rabbit hole a little bit. That's how blockchain and its audibility and provability allows you to do things that standard databases or the generation one software that's out there can not do,


Eddie:

The pain of pay apps and lean waivers is very real to me. And trying to go I mean, just getting forms notarized, making sure that you have them scanned sent to somebody else, making sure that they like what you sent them and all the things you say


Tyler:

Taking a pencil over the notary stamp to measure the…


Eddie:

Making sure the emboss seal shows they've done the scan and then going and snail mailing the actual copy of the thing. Yeah. It smells like all of this gets me paid faster.


Robert: (19:48)

Yeah. So that's one of the things and one of the use cases that we're working on and blockchain allows for is at the end of the day, all the paperwork you're talking about, for lack of a better term, it's establishing trust. Its manual processes of establishing trust, right? I need my lean waivers. I need my lower tier solid affidavit, blah, blah, blah. So when you can introduce trust digitally, it removes at least some of all of those things that you're talking about that slowed down payments. As you guys know, slow payments cost the industry, $64 billion a year alone. And again, a lot of that is because everyone's working in their own system and everything like that.


So one of the things that we believe blockchain is going to allow in the future is not only definitely faster payments with less burden and collecting all that information but…I mean you guys are in companies like how many hours are spent on redundant documents, whether it's your project, accountant, your project manager, it's just, they're overwhelmed enough. So not only can blockchain reduce that workload, but yes, it can also speed up the payment process. And eventually we believe once you pair it with different types of building information modeling, mixed reality, and reality capture, then you can get to the point of even streaming payments, like on the goal. I mean, obviously that's a ways down the road, but starting with right now we're net 30 net 60,. you're waiting realistically 40 to 70 days for payments. you can move that to a weekly biweekly, and as this technology gets more mature even daily. So absolutely blockchain is definitely something that will allow payments to speed up in the future.


Eddie:

Oh man, is it? Yeah, the pain is real. This reminds me so much of our episode with Pete Dumont about OS2.0. And, and he kind of hearkened over to blockchain, but it wasn't what the episode was about. It's like, this is the piece that he was speaking about with reality capture and coming up with kind of what will eventually be a digital twin of the building. that being a mechanism by which the blockchain says, “yes, it is okay to pay this person.


Robert: (22:00)

Exactly. It sounds like you were alluding to kind of a more collaborative structure. I was going to point towards if you look at like integrated project delivery and design build, and many of the ways that companies are attempting to collaborate, as we all know the future is collaboration. So the way we're looking at it and why blockchain is to me again, a perfect fit for construction is because to talk about collaboration is one thing, but you need a technology that reinforces it and also shares the benefits of collaboration. So the cool thing about blockchain is as we're talking about automation and introducing more transparency and getting better data, current solutions really just benefit their client. Right? So let's talk about the construction management software. It benefits the general contractor. I own a subcontract and company for many years, we have to learn five different softwares.


None of them really are made to benefit us. Like, sure, they're not, they're not hurting us, but they're surely not benefiting us. Right. Well with blockchain, the automation that we talking about, let's go back to the lien waiver example. If we're automating the lien waiver for the general contractor and making it easier for them to collect and verify their lien waivers, we're also automating that process for the subcontractor. So we're taking work off their hands. We're automating it for the owner. So we're taking work off their hands. So the point I'm making is blockchain as a technology, the benefits hit all of the stakeholders. So that's why we believe it's the ultimate collaborative technology as well because the lower tier parties like the subcontractors and the suppliers, they know their invoices are hitting the blockchain and the lenders and owners of the project know that they have invoices that have to get paid. So it helps the lower tiers feel a little bit more comfortable about their data being guaranteed and whatnot.


Tyler:

All right. So procurement, just want to dive into this one full on. All right. Let's get into the deep end on this one because I've got so many questions. So for us as BIM guys, right? How are you reading this information back so that you can then do the procurement? Like what do you need to feed the system in order to actually get the materials ordered?


Robert:

Where we're at right now obviously there's still a lot more steps to fully, fully, fully automate it. So right now all we need is the ability to read the schedule, which obviously we've taken data points and keywords from the schedule so our backend technology can like associate the framing milestone with a set of materials that go along with framing, right? So like, a six inch metal stud and different things like that. So you've got your schedule, then you've got your specifications so that we can order the right material based on the specs and whatnot, and obviously pull the specs and get the submittals from the suppliers, all that stuff. All that's automated on the backend so we basically built out scripts that reach out to the suppliers that we need a material from all that good stuff.


And the third thing you need is a takeoff from the subcontractor. In the future as we fully digitize, we won't need that because we'll be able to use things like records of different BIM models and different data points like that. Right now, we still need the sub to say, “Hey, here's the list of materials for my scope.” And then we can essentially classify those materials along with schedule milestones and certain specifications for the material. Really, it's putting together a couple of different data points and putting together construction logic in a technology, as opposed to it happening in your head. Right. As a construction manager, I'm going to say, “okay, schedule milestone coming up in two weeks, I have to start framing on the first floor. I have a takeoff with my materials I'm going to need for the framing for the first floor. I'm going to take four of those line items for my takeoff, because that's what I need for the first floor all my metal studs, all that good stuff. And I'm going to place an order manually to my supplier and say, Hey, I need this by this date.” All of that it's construction logic that happens in our heads, but that can all be like mechanized. That's nothing that really crazy. It's just taking a couple of data points from each of these documents and writing code around it. And then we can do it based off of that.


Tyler:

Just curious how it all plugged back into models. Because I mean, what we've seen from a procurement standpoint, and we've talked about this in the past is we're able to draw the information out of a model and then go out to different fabricators or different entities to order things, right? So we're using that I and BIM to really extract as much value out of those models as we can for structural elements. I guess what I'm kind of pushing towards is like, are you expecting the fabricator or the supplier of metal studs to take the drawings, do their takeoff, and then feed that back into the blockchain? Or are you basically pulling out data from a model or from your specs or from other information that you already have scheduled deadlines, all those sorts of things. How, I guess I'm trying to wrap my head around how you're getting at currently, because I can see the vision down the road of it pulling from the model and then creating everything. But I'm just trying to understand how we're getting there right now.

Robert: (27:29)

Yeah. So basically that first step, where is it in the future? It's you just pull it from a model, right? Like, Hey, we have all this information. We already know what the procurement is going to take. We already know what goes into that. And then it's fully automated. That's the future though. And it also involves getting enough data points to be able to write that. Cause there's a lot of different data points you're talking about, to your point. There's a lot of custom fabrication that happens in certain circumstances. So right now it, the subcontractor handles that on their own. Then they pass their documentation and their information through our software where it hits the blockchain. And then once our software has it, our software automatically sends out what they need to their suppliers, the purchase order or the request for a RFQ.


And then the supplier responds in the same way that they normally would to a sub. They send an email, they send their documents, we just capture that as well. And then we aggregate that data and put it on the blockchain. So essentially, as of right now, we're kind of just an aggregator, right? So in the old way, it's all manual, right? We're removing some of the manual processing from both sides. Taking that data, putting it on the blockchain, applying some logic to it and then once we have some of that data that's needed at the start, like I said, to take off, the schedule, the submittals, the specs, all that, then the future orders as the project goes on, we can say, “Hey, we know what you need now. We're going to queue up that order for you” as a subcontractor or if you're self performing as a general contractor.


And again, in the spirit of collaboration, we give permission to visibility, to some of the other stakeholders who might need it, like the general contractor, so they can see, “Hey, is that material on the way, et cetera.” In the future, to your point. So I'm sure you guys know DPR construction. They've been beta testing with us. They participated in our summit that we had and that was actually one of the ideas that they called out that they like to see, which is like using BIM to fully automate that process, pulling the data/information that's already there. And that allows you to not only automate procurement, like more fully, but that's where I was talking about like kind of streaming payments. Like when you can put a cost code in your building information model that says, “okay, the framing and drywall for this wall accounts for $25,000 in that schedule of values line item,” then you can introduce reality capture and essentially put a drone in a building that's just scanning at all times. So by the minute you can know your percent complete. And technically then to your point, Eddie, about payments, you could then stream payments much, much, much faster, like by the day, even, right? Because really the delay is in the processes. And of course, some companies like to slow pay that's a different conversation entirely, but technically the delay in payments is in the processes. So I don't mean to take this off track, but point is building information modeling, we want to take that data in the future and throw it in there. It's just, as you know there's a lot of data to capture. That's a pretty big and robust build out so that's more of like what we're doing in the future, but yes, with blockchain, all of that is possible.


Eddie:

There's a lot of front end logic that we talked through with Renee a couple of weeks back with Alice, where we were doing scheduling.


Robert:

Oh yes I know Renee Morkos and Alice, great software.


Eddie:

The schedule modeling, you're seeing a logic applied to how a building goes up and that's how we discover what the schedule can be. Now locking that in, on another front, the verification of that logic and the validating of that logic is all sitting there within blockchain's grasp to be able to say, “Hey, I'm able to verify it's there. I'm able to help with ordering.” Because if I can throughput from an automated modeling process, a modeled scheduling process into a blockchain from qids or whatever, there is an a model, I can capture that and relate that information. There's some incredible things that can begin to happen where yeah. I mean, we can verify exactly what's sitting out there and pay based on it being present.


Robert: (32:05)

Yeah, absolutely. And it's the macro of what you can do. Like not just making processes like that, more efficient like payments and whatnot, but you've got project teams. One of the reasons projects are failing, what is it? 70% of projects are still finishing late and over budget. Like you've got 5, maybe 7, maybe 10 person project teams trying to run these massive, massive projects. An average construction project of any size creates 750,000 documents. Right. So trying to manage all that it's overwhelming. That's how you miss procurement dates. It's how, “Oh, you didn't even call in the inspection like, Oh, here we go. We're just miss these days.” That's how things like that happen. So when you can start to do things like what we're talking about here. Automating the redundant parts of procurement, automating the redundant and painstaking parts of payments, you're giving time and attention back to your people where they can spend time doing things to keep their projects on schedule and on budget.


So it's a combination of doing things that haven't been done before, but also doing things that kind of are being done, but can just be done better. Right? Like Procore is awesome, I’ve loved using Procore it's such a great…I don't know if you guys saw, they just refiled their IPO so they'll be going public soon as a unicorn. They're great. But it's just, the margins in construction are so thin that we need to find anything we can to make them better. And that's where on the technology side, blockchain just allows you to do so many of these things. One of the innovation leaders that we're working with for one of the biggest construction managers and consultants out there, alpha corporation, they're called said it best and I think this is the best way to fully just generalize blockchain and construction. Is informational uncertainty adds cost and adds risk. Blockchain removes, informational uncertainty. And again, if you take that back to the example I gave about like trust built in like the provability of transactions built in, that's how you can kind of generalize what blockchain can do for construction companies and projects.


Tyler:

Man, I think we could probably sit here and again, talk for probably eight hours about this idea because there's so many different angles you can look at it. And so many things that this can solve if used. I'm excited to see this kind of blossoming and becoming its own engine and thing that we use in the industry. Yeah, really, really excited to see what you guys are going to do. But right now, I think it's a great time to ask you our megaphone question. So if we gave you a megaphone that the whole industry could hear and we gave you around 60 seconds, what would you,


Robert: (34:53)

I would want to say that I personally believe the future of construction projects, all construction projects, is being delivered on a blockchain. And the reason for that is because of all of the counter parties and distrusting parties that you have that have to get involved in a project. So by introducing a single source of truth, you can benefit the project immensely. And if you look at all of the, I would say, a majority of the different software solutions out there, what do they all have their catchphrase? Single source of truth, right? Or bringing truth to your construction projects. But blockchain is the only provable audible source of truth. And when you can give that to all of the parties on a construction project, not just the client of the software, but all of the parties who have to use it, you provide real benefits in the way of cost savings, in the way of risk management, in the way of data, to all of those parties on the project. And the future of construction is in collaboration and technology. Like those are the two things, in my opinion, that can be done the soonest and the easiest to improve our construction projects. And blockchain as a technology allows companies and projects to do both of them. So that's why I believe the future of blockchain, in combination with many other technologies, I’m not saying blockchain is the be all end all. But I do believe that blockchain allows you to do what all the cloud solutions can currently do, but the cloud solutions can't allow you to do what blockchain can do. So that's why we're big proponents of blockchain.




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