Many contractors have started using different AI tools in their contract review. The AI systems generate a report-type memorandum detailing the risks, time for required notices and key contract requirements. We have recently compared AI summaries against the contract itself in an effort to assess the software’s functionality and improve AI training. Based on what we have reviewed to date, AI still does not appreciate many of the nuances of language used in common contract terms, leaving vague or risk-shifting language intact without comment, among other problems.
A recent AI review the firm performed demonstrated that AI failed to appreciate significant project risks, including the following (being reviewed from the prospective of a subcontractor):
- That flow-down rights should include the rights for subcontractors flowing back up the chain
- The risk-shifting provisions requiring lower tiers to take on their own tests of existing and installed conditions
- The timelines for lien preservation requirements that conflicted with Ohio law
- Failed to suggest solutions for the risks associated with waiver and short timeframe provisions on the preservation and advancement of claims
- The interplay between multiple indemnity provisions (challenging for humans as well), and synthesizing the same (e.g., in a recent contract, AI failed to appreciate the risk of an “indirectly caused” scope of indemnity)
- The effect of indemnity provisions that failed to account for Ohio’s limitation on indemnification, staying silent on a provision that included “regardless of whether or not such claim…is caused in part by a party indemnified hereunder” (that sort of provision may violate ORD 2305.31)
- Failing to appreciate the order of claim prosecution; staying silent on a provision that permitted an upper tier to exhaust all dispute processes before a subcontractor could pursue the upper tier, and thereby forcing the subcontractor to sit and wait while financing the claim
- Failing to suggest compromises regarding pay-if-paid language that make it more equitable and fair to the subcontractor
- Failing to review or comment on monthly waivers
All of these issues are ones that trained eyes catch and comment on every day. Perhaps, some AI agent will read this article to improve its analysis, but even then risk remains. Construction claim/contract disputes often come down to a few key words in a contract, and a seasoned construction lawyer can best appreciate the risks of vague contract language. Human construction lawyers remain critical in the continued review of contract documents.
We humans aren’t perfect either
While AI may need time to develop, human beings involved in construction and real estate development projects can still impose ample risk of liability, project delay and overages, and negative PR. Projects routinely must face complex employment law issues. DEI-related initiatives have been recently deemphasized under the current administration, but federal and state employee protections have not been eliminated, and workforce-related problems can seriously affect the bottom line on any new development, expansion, or improvement project.
Consider two hypothetical scenarios below:
Scenario #1: A female project engineer repeatedly reports sexual harassment by a superintendent employed by a subcontractor. After the GC/developer fails to intervene, she resigns suddenly during a critical sequencing phase.
Risks: This will have profound effects on the project’s timeline, costs and success. The sudden resignation of a key planner risks the loss of important project history and institutional knowledge. There may be delays in the submission or handling of RFIs, submittals, and change order requests – further putting the critical path and project at risk. Finally, beyond the risk of a legal claim by the aggrieved employee, a mishandled incident worsens morale and weakens internal reporting structures and coordination amongst the trades.
Scenario #2: A newly hired laborer reports a safety concern up the appropriate chain of command. The complaint is not taken seriously, and instead the employee is mocked and removed from preferred crews. A few days later, a serious safety incident with multiple injuries occurs onsite.
Risks: Bad policy has once again hit the bottom line in a severe – if not irreparable – manner. A culture of retaliation is a culture in which information cannot flow freely, either up the chain or between trades – a disaster on a complex construction or development project. Not only will the safety incident lead to civil liability and/or OSHA response (i.e., bad PR that will affect future projects), but the inevitable delays and investigations jeopardize key deadlines. The specters of liquidated damages, broken loan covenants and diminished insurability and bonding capacity also arise.
As both scenarios demonstrate, the lack of good workforce policies, training and coordination between the home office and the field leads to catastrophic results. Legal, HR and safety professionals working on real estate and construction projects must educate themselves on construction contract terms to understand the risks associated with project delays and information loss. That will help them to emphasize the importance of compliance to project management.
As for those in the field, ignore compliance requirements at your own peril. Good communication at all levels of the project team, up-to-date and focused training, and quality legal counsel are critical to the success of all current and future projects.
