The past 5 years have been incredibly exciting in the construction law space. New technologies are transforming construction and design processes; bringing about efficiencies and practices which at one point were more fantasy than reality. This new design & construction environment has also brought forward novel legal challenges which must be addressed in order to allow for the proper integration of new technologies. This paper highlights how technology can be used to mitigate risk and also highlights considerations for the legal/compliant use of construction technology.
Technology’s Role in Risk Reduction
Considering the role of technology in risk reduction generally begins with an understanding of the use of Building Information Modelling (BIM) in the planning, design and implementation of projects.
A BIM model enables not only the graphical representation of construction drawings that were traditionally paper-based, but also the integration within the model of a variety of data sets from multiple sources. With respect to design risk, use of BIM can aid in the identification of clashes between project components and more efficient construction scheduling. Once prepared, the model can be continuously updated during the execution of works. For example, once project construction commences, project information based on images (such as drone imagery) and other sensor data can be integrated into the model, allowing for the identification of any disparities between the design and the executed works. At project completion, the model can serve as, or otherwise be integrated into, a project’s “digital twin”, allowing for an exact digital replica of the built asset to be made available to project users for the purpose of their managing operation, maintenance and rehabilitation of the asset.
Albert Einstein once said “Any fool can know. The point is to understand.” The use of BIM, digital twins, sensors, etc. leads to the amassing of a rich dataset in respect of the project which, once analyzed, can allow parties to gain a better understanding of potential and actual projects risks. Once these risks are identified, parties can then better mitigate these risks.
Having said this, too often parties fail to consider that the use of BIM presents certain novel implications in relation to the drafting of a number of contractual provisions. It is important for parties to consider the use of BIM in their construction agreements, particularly in relation to issues such as (i) ownership of contributions to the BIM model and data inputted into the model and (ii) liability for errors or omissions in any model contributions.
Current Technologies and Associated Risks
Wearables
We can consider “wearables” as any type of electronic device designed to be worn on a user’s body. A wearable may include items such as watches, wristbands, headbands, clothing, or PPE. Wearables are differentiated from other emerging technologies insofar as wearables directly connect to a user’s body and gather a significant amount of information, including health-related information.
Wearables work as follows: the device captures data about users in real-time as they move through their daily lives. The data captured is generally biometric, physiological, or behavioral in nature. The captured data is sent to an app or other program, where it is stored and/or analyzed remotely and then relayed back and displayed to the user1.
The information generated via wearables can allow employers and site supervisors to monitor for high-risk activities such as workers standing too close to heavy equipment and social distancing or other health concerns like stress and fatigue. Clearly wearables have the potential to prevent injuries and deaths on construction sites. However, these benefits must be weighed against serious privacy concerns. Wearables track and analyze extremely personal information. As such, before rolling out a suite of wearables, it is advisable to ensure that Canada’s privacy laws are properly navigated. Each situation may present unique challenges as rules and labour considerations may depend on jurisdiction and workplace sector.
Drones
Drones are no longer just a cute toy. To many contractors and design professionals, drones are one of the most versatile and agile means of obtaining real-time project information.
In Canada, drones are formally known as “Remotely Piloted Aircraft Systems” under the Aeronautics Act Canadian Aviation Regulations². Depending on the size of a given drone, different licensing is required. Most drones fall between the 250 gram and 25-kilogram range and must be registered with Transport Canada. Drones weighing less than 250 grams (~1/2 a pound) are not required to be registered. Where drones are heavier than 25 kilos (~55 pounds), Transport Canada requires operators to obtain a special flight operations certificate.
Regardless of the size of a drone, operators need to be mindful of several rules. For example, the maximum permitted altitude for drone flight is 400 feet. Practically speaking, this could mean that depending on the height of each floor, a developer constructing a 40-storey building might not be able to use a drone to monitor the project’s roof.
As well, in order to fly a drone in a controlled airspace or within the vicinity of bystanders, the drone must be registered; properly marked with its registration number; an online exam must be passed; and a flight review must be conducted with Transport Canada.
Artificial Intelligence
Anyone working in construction, manufacturing or heavy industry understands the importance of keeping machines operational. Downtime is a productivity (and profitability) killer.
Artificial Intelligence (AI) and machine learning can be used improve to construction techniques and to optimize the use of machinery. For example, Amazon used machine learning technology to determine the best package size for shipments, avoiding the cost of billions of superfluous shipping boxes3. We have seen the benefits of AI with respect to items such as predictive maintenance, which can increase the likelihood of heavy equipment staying operational and minimizing the need for shutdowns.
That said, we caution those who intend on becoming overly reliant on AI for systems management. It is essential to keep a close eye on the AI to ensure that the accuracy of AI outputs can be verified. Without rigorous oversight, AI errors may result in significant and costly mistakes, particularly in automated processes. For example, if AI were to predict that that a hauler requires new tires every 4 months, however conditions on the ground demonstrate 8 months being a more accurate measure, if the AI is not programmed to anticipate this variance, operators may end up unwittingly replacing tires twice as often — for no valid reason.
Adopting Technologies…Comfortably
Embrace the Potential Results
Research has shown that the “tried and true” methods of design and construction do not always yield desired results. Project delays and project overruns are common in our industry. For example, in 2021, Procore commissioned a study which found that budget and schedule overruns were the norm for construction projects4. The study showed that owners experienced projects going over budget 75% percent of the time and projects were delivered late 77 % of the time. Things get even worse for megaprojects where a staggering 92% of them come in over budget, over schedule, or both⁵.
There are serious costs to bloated budgets and missed deadlines. Back in 2017, McKinsey & Company reported that lagging construction productivity costs the global economy 1.6 trillion dollars a year⁶.
With numbers like this, I think it’s very hard for any of us to defend the tried and true.
Set the Desired Pace
Statistics like those above could make contractors and design professionals feel the need to dive headfirst into adopting as many construction technologies as possible. As tempting as this may be, a measured approach is likely appropriate in most circumstances.
Many technologies can be adopted one after the next, and many are designed to be integrated sequentially. For example, a contractor who has never used any type of digital reporting can start by employing simple project scope management software to reduce instances of scope creep. If the contractor is pleased with the results, they can consider — for example — using financial software to assist with accounts receivable and accounts payable.
More seasoned IT users may want to consider adopting new tools at their discretion. Architects or engineers who are comfortable designing with BIM may wish to consider furthering their technology use through the adoption of augmented reality and virtual reality.
Regardless of where an organization is in their technology adoption process, patience is required. In its 2023 Global Construction Survey7, KPMG suggested that a 3–5-year horizon is realistic when assessing the investment case. KPMG also cautions that organizational culture needs to be flexible enough to accept the change and must assume the responsibility of driving innovation from the top down.
Manage the Risk
With respect to technology and construction, risks can be split in two. On one side, we have “typical risks”, which arise irrespective of construction technology being used for a given project.
Typical risks could include items like price. It goes without saying that having an understanding as to how much a given product/service will cost is important. It is equally important to understand (with certainty) what the contract price will cover. In order to ensure that purchasers “get what they paid for”, a best practice is to ensure that all relevant business partners (including the IT department) have a crystal-clear understanding of what is being purchased. Organizations will certainly want to avoid paying thousands of dollars a month for a useless product only to forced to pay thousands more to get that product working as originally desired.
Technological risks are different than typical risks for a few reasons, most salient are that the use of IT solutions in construction is relatively novel and that IT providers typically do not share the same risk tolerance as contractors, suppliers and design professionals. For example:
i. Indemnities and Limits of Liability
IT purchasers are encouraged to confirm the level of indemnification offered by the vendor. A proper indemnity should establish responsibilities for typical concerns like breach of contract and negligence, however when implementing IT solutions for design and construction, one must also be mindful of matters such as intellectual property infringement, a data breach, or a breach of confidentiality.
It is also important to draft a clear indemnity when the IT system in question is made up of multiple integrated components or diverse sub-systems and/or data sets. When it becomes difficult or impossible to establish the root cause of an issue, the ability to attribute liability is compromised. Said plainly, if one does not know who to sue, and if there is no one to accept the blame, there is no one to indemnify.
ii. Service Levels and the Standard of Care
As mentioned previously, purchasers should understand exactly what they are buying, and in the IT world, and especially in the case of Software as a Service (SaaS), it is equally important to confirm that service level accompanying the IT solution can meet the desired need.
Typical considerations may include “How will the vendor deliver the service?”, “What level of service should be expected?”. These questions can be addressed through the negotiation of items such as downtime, maintenance updates, uptime guarantee, and support response times.
Finally, integration risk ought not be overlooked. Software developers and hardware manufacturers commonly design their products to work in typical IT environments and do not provide for the unique nature of a purchaser’s IT capacity or configuration. It then follows that the responsibility to determine whether or not existing IT systems can support new IT tools falls to the purchaser.
iii. Software Updates
It is very important to understand how IT will be maintained over the course of the contract term. For long-term projects, purchasers may want to investigate how often the software will be updated, if updates are free or paid, whether or not they are mandatory, and for how long the provider will support previous versions of the software.
iv. Term and Termination
Purchasers are also cautioned to contemplate the duration for which they plan on using a given piece of technology. For example, if the intention is to use an IT solution over an entire construction project, it is advisable to ensure that that the term of the IT license is at least that long.
Purchasers may also want to be mindful of auto-renewals. SaaS agreements typically contain renewal clauses where terms perpetually renew for periods of one year or longer — automatically. These auto-renewal clauses can be harsh and are often combined with long notice periods (e.g. 180 days).
v. Data Ownership, Intellectual Property & Cybersecurity
Purchasers may want to turn their minds to data ownership and IP rights and, verify if their an IT solution contains copyrighted information where a separate license is required. It may also be necessary to confirm whether or not your IT solution provider obtains a license or ownership to the intellectual property generated by the IT solution.
Finally, a quick word on cybersecurity. Data used in IT solutions may be sensitive and may also include personal data. Personal data should only be processed in accordance with applicable privacy laws.
Conclusion
Construction projects can be complex, challenging and require high levels of coordination, planning and communication to complete successfully. As the use of technology increases, there will be significant transformations in how the industry operates. Drones are being used to assist with reviewing work or to gather information. Projects are being conceptualized and designed using digital tools like BIM. Modular construction is reducing on-site construction timeframes.
Technology is changing the way projects are being designed, built, operated and maintained. However, technology also brings fresh risks for the industry. The use of technology can lead to different and new errors, complacency and over-reliance, or misuse of information. Accordingly, design and construction contracts must contain provisions to reasonably address the issues that come with the use of technology and innovation, such as liability for malfunctions, ownership of intellectual property, privacy and data storage and protection. As with any good agreement prior to the advent of modern technology, fundamentally, parties’ respective roles and responsibilities — and importantly, their limits — must be clearly defined and understood.
Who is responsible when drone accidents cause serious damage to property? If BIM is being employed, which party is managing the model and how is the model to be used? How are modular components being brought to the project and what happens if they do not align on site? Parties should use contract drafting and negotiation as opportunities to discuss risks with using technology and work out these issues before starting the work. Contracts should allocate responsibility for risk to the party who is best positioned to bear or to mitigate the risks.
In addition, it is no secret that disagreements can arise over the course of a project due to the competing interests of parties, overly optimistic schedules, uncertainty of costs and, in Canada, a shortage of labour. Technology can be of assistance even in resolving construction disputes.
Poor retention of records and disorganized document management often plague construction projects. With advancements in the use of document management tools such as Procore, records are now more easily stored in an organized manner, accurately reflecting the history of decision-making or events occurring during a project.
Contractual dispute resolution provisions can delineate how technology can be used in a claims process. In their contracts, parties may choose to set parameters for the storage and access of information generated over the life cycle of a project for use in dispute resolution. The contemporaneous records should trace the development of issues that most often lead to disputes, such as additional work, variations, unforeseen site conditions and schedule disruptions. As the Society of Construction Law notes, the use of electronic discovery tools and even artificial intelligence can be useful in reviewing massive quantities of documents that accrue over the multiple years of a project⁸.
In 2019, prior to the global COVID-19 pandemic, the International Chamber of Commerce released its update titled “Construction Industry Arbitrations: Recommended Tools and Techniques for Effective Management”⁹. The report offered practitioners and arbitrators practical advice for the cost-effective management of construction arbitrations, including a recommendation that tribunals direct parties to organize documents electronically using a common numbering system to make the documents easily identifiable and accessible and that parties electronically bundle a group of documents intended to prove a particular issue and hyperlink documents in submissions.
What seemed somewhat revolutionary only four short years ago has quickly become standard practice in construction arbitration practice today. Canadian courts have also adapted since the pandemic to hold remote proceedings concerning construction disputes via Zoom and to permit filing of motion and trial materials electronically.
A high level of accessible information in a dispute resolution process should enhance the ability of parties, their counsel, experts, and triers of fact to discern key facts germane to any dispute, and early access may even assist parties to resolve claims through negotiations and mediations in advance of formal discoveries.
In sum, technology has had and will continue to have a significant impact on the construction industry. Innovation is changing how complex projects are designed and executed and how interfaces between a large number of parties are managed. As the industry’s reliance on technology increases, parties should also ensure they are carefully considering how this should be addressed in contracts and used in the resolution of construction disputes to appropriately allocate risk and to enhance the benefits and efficiencies that come with technology’s adoption.
