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Digitalisation in construction integrates information technology into every project phase, from conception to completion, and across both construction sites and organisations. This includes transformative technologies like building information modelling (BIM), 3D printing, construction management software, aerial drones, and automation.
Many in the industry advocate digitalisation for its potential to tackle common construction issues such as defects, delays, budget overruns, miscommunication, and safety risks.1
Despite the evident transformative benefits of digitalisation across various sectors, construction lags in adopting modern technology.2 However, the demand for digitalisation in construction is growing given its potential to significantly impact an industry currently contributing approximately 14% to global GDP.3 This article explores the benefits, risks and challenges of digitalisation, focussing specifically on its application in construction disputes.
While the benefits of digitalisation in areas such as project management, cost efficiency, and environmental impact are increasingly recognised, a lesser-known advantage lies in its potential to streamline dispute resolution.
Many common causes of construction disputes (such as project delays, defects, and safety issues) are capable of being mitigated by adopting new and emerging technologies. A recent Deloitte report has noted various benefits for Australian construction companies who currently use well-established digital technology in day-to-day operations.4 These include increased productivity (34%), improved customer experience (33%) and increased staff safety (33%).5
Digital tools introduce innovative solutions to challenges arising from construction projects, either by enhancing existing systems or by presenting new, more efficient methods of operation. For example:
AI holds significant potential for assisting parties in the resolution of construction disputes. As projects and contracts become increasingly complex, AI can help to identify relevant contractual provisions and potential areas of dispute. It can also analyse extensive legal submissions, identifying weaknesses and inconsistencies in the parties' respective arguments. While AI does not (currently) replace human review, it provides a valuable starting point, potentially revealing overlooked points as a result of being able to analyse large volumes of project correspondence and contract documents.
The use of AI, such as large language models, can be particularly useful on time-consuming tasks like document review, freeing up legal resources for more substantive tasks such as legal analysis. Document management in arbitrations (particularly on memorial-style arbitration proceedings) can be especially challenging, and AI's ability to distil large amounts of pleadings and supporting material into core points can be invaluable.8 Other ways in which AI can assist include research, database search, document review, contract data extraction, contract policy compliance, summarisation, correspondence drafting, timeline generation, and witness interview preparation. Looking forward, advancements in AI technology may even enable outcomes of ongoing disputes to be assessed and forecast.
In navigating the digital transformation, the construction industry also faces a variety of legal challenges, including the following:
Construction projects generate and process vast amounts of personal data that parties often seek to protect using digital tools and cloud-based platforms. However, technologies like smart contracts which rely on blockchain can be vulnerable to data breaches; and drones and wearable devices, while innovative, could potentially infringe individuals' privacy rights. While jurisdictions, like the EU, enforce strict laws such as GDPR and substantial penalties for non-compliance, the absence of robust data protection and privacy regulations in some jurisdictions makes adequate protection challenging.
Confidentiality also remains a perennial concern on many construction projects. Parties typically exchange commercially sensitive data such as design plans, contracts, and financial information. Breaches of confidentiality obligations can have serious repercussions, including legal disputes, reputational damage, and financial losses. Stakeholders are therefore increasingly wary of the potential risks posed by openly available AI solutions to confidential or commercially sensitive information. This concern was exemplified in April 2023, for instance, when Samsung engineers inadvertently leaked confidential material by uploading it to the widely used ChatGPT platform.9 Recently, however, parties are becoming more attuned to the risk of using open source AI models (and their data becoming potentially accessible to other users due to being stored on third party servers) and some are opting to use closed models for certain business purposes.
While technology in construction brings numerous benefits, it also introduces certain safety concerns. Over-reliance on automated systems can cause complacency among workers, potentially resulting in accidents if systems fail or malfunction; proper training is therefore crucial to prevent misuse of new technologies. The use of drones and robots can pose physical risks if they malfunction or are used improperly, and it is possible that prolonged use of wearable technology and VR/AR devices can lead to health issues. These risks inevitably raise legal issues, particularly when determining liability for incidents which involve elements of both human/operational error (including due to poor/lack of training) and manufacturing/design defects, as well as fitting new technologies within existing health and safety regulations.
The same may be said when determining liability for performance-related issues that are caused by a combination of factors, some of which are attributable to human/operational error and others due to failings in the new technology being used.
As with other industries, implementing tools such as smart contracts in the context of the construction industry will require a supportive legal framework.
In relation to smart contracts, for example, a key concern is enforceability as not all jurisdictions recognise the validity of smart contracts, which can complicate their enforcement through the courts. While some jurisdictions treat smart contracts as electronic contracts under e-commerce laws, others do not address them within the existing legal framework. However, there are means of avoiding such challenges, for example, through choice of law applicable to the contract as well as the dispute resolution procedure (eg, arbitration, where parties can choose the seat of the arbitration and the governing law through arbitration clauses).
The evolving nature of blockchain technology further impacts the enforceability of smart contracts, as legal systems struggle to keep pace with rapid technological advancements.10 In relation to AI, a recent report by RIBA highlights that "there are no real regulations in place, and the ethical risks are significant, from intellectual property, design creativity, employment, and potential risks on the built environment too". Nevertheless, the use of AI continues to receive strong support from governments and public bodies, including the UK government which has recently introduced a new framework for the use of AI on public projects to improve efficiency and tackle overspending and delays.11
Certain features of arbitration make it a dispute resolution choice that is uniquely suited to responding to the challenges emerging from the increasing prevalence of digital tools and AI. As previously mentioned, parties can select the seat of arbitration and governing law, which enables them to opt for a more 'tech-savvy' jurisdiction with established laws or precedents on the subject. This provides clarity and certainty for the disputing parties.
Specialised expertise is often considered the most significant benefit of technology-related arbitration. The ability for parties to select arbitrators with specific expertise in both construction and technology, and to engage third-party independent experts to provide opinions on technical issues, are among the key advantages of arbitration.12
Moreover, the use of innovative solutions often involves a range of sensitive information, whether related to personal data, the technology and its intellectual property, or other commercially sensitive material. As noted above, this is just as prominent in construction projects, where trade secrets and design plans are shared through collaborative platforms. These factors make construction disputes involving new technology ideally suited to the private nature of arbitration.
Digitalising the construction industry offers many potential benefits, some of which are already taking shape. However, the sector needs the right legal knowledge and framework to effectively implement these changes. Technological advancements in the industry are already years ahead of current legislation, regulations, and governance. As key stakeholders and policymakers consider how to adapt existing laws for the impending digital transformation, parties willing to embrace these advances must carefully weigh the risks and adapt existing structures accordingly. These considerations should be addressed during contract drafting by ensuring that adequate safeguards and necessary interpretations are in place, as well as providing for effective means of resolving disputes through arbitration (or other means of dispute resolution) where disagreements arise.
Turner et al., 2020, Asadi et al., 2015, Dallasega et al., 2018, Zhang et al., 2015, Aghimien et al., 2018
World Economic Forum "Shaping the Future of Construction: A Breakthrough in Mindset and Technology" (2016).
The Business Research Company (published by PR Newswire, 12 July 2023)
The State of Digital Adoption in Construction, March 23 2023, Deloitte
The State of Digital Adoption in Construction, March 23 2023, Deloitte
The State of Digital Adoption in Construction, March 23 2023, Deloitte
Overcoming the Legal Barriers to the Implementation of Smart Contracts in the Construction Industry: The Emergence of a Practice and Research Agenda
AI in Construction Disputes, LexisPSL News Analysis
Overcoming the Legal Barriers to the Implementation of Smart Contracts in the Construction Industry: The Emergence of a Practice and Research Agenda
Lexis+ UK - Government launches framework on AI in public project delivery.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2024
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