Traditional AI vs. Generative AI

According to the United States Chamber of Commerce, traditional AI is defined as “a subset of artificial intelligence that focuses on performing preset tasks using predetermined algorithms and rules. These AI applications are designed to excel in a single activity or a restricted set of tasks, such as playing chess, diagnosing diseases or translating languages.” Most of us are using traditional AI on an everyday basis when we utilize the Siri function on our iPhones or the Alexa or Google virtual assistants. Indeed, even the filters on your email or phone preventing spam emails or calls from reaching you are forms of conventional AI.

In construction, contractors, suppliers and designers already use traditional AI in troubleshooting technical issues, training, reviewing credit applications or in evaluating a building’s intended use in order to make recommendations for a design or type of material or equipment.

Generative AI differs from traditional in that it emulates human learning and decision-making in order to develop new content. Unlike traditional AI which analyzes existing data, generative AI reuses what it knows to solve new problems. In the construction industry, generative AI is useful in preparing contracts, cost estimates, developing RFPs and scheduling, among other things.

Contract Negotiation and Drafting

Many aspects of a construction contract negotiation can be enhanced by the use of an appropriate AI tool. For example, specialized construction industry AI tools such as Document Crunch and Spellbook can analyze historical negotiation outcomes and provide input as to where the project participant can most benefit from a modification of a contract term. AI can then suggest alternate wording to address the specific issue of concern.

Generative AI tools can likewise be trained on a construction lawyer’s database of contracts and used to efficiently draft new contracts. AI can quickly and efficiently locate and suggest oft-used clauses from previous contracts or other sources. This method can be helpful in promoting consistency across a field of project documents by using standardized wording and by automating repetitive drafting tasks. Using AI in this way serves to reduce human error and reduce hours spent on time-consuming proofreading and cross-checking.

Construction contract drafting is also enhanced when an AI tool is used to identify ambiguous language, conflicts or unfair risk allocation. These methods can assist in avoiding disputes down the road.

Moreover, AI tools can be very effective in drafting individual contract clauses because a user can input prompts for the type of clause they are looking for; the AI tool will then quickly offer intelligent suggestions for contract language that is responsive to and inclusive of the information with which it was provided. For example, a user can request that AI develop a customized payment terms clause that considers that the project is anticipating funding at a particular time or upon a specific event. Using AI to create a first draft to address unique project terms (that is then edited and revised by a human lawyer) is a best practice proven to save costly attorney time.

The better developed the input, the better the result achieved in the output. That is, more detailed and specific parameters provided to the AI tool will result in higher quality output. Instead of asking AI to create a form subcontract, a user should include parameters in the request detailing that they need a form of steel erection subcontract for an a office building project of 50,000 square feet that is being constructed from ground up on an existing slab in a cold weather climate with a six month duration. Utilizing this method will result in an end product that is much more useful.

AI can then be used further to highlight inconsistencies with other contract documents. Because construction projects typically require multiple documents to create the whole of the “contract documents,” AI can provide substantial value in coordinating the contract document set. Caution should be used in relying on AI output, however, because generative AI cannot be trusted to consider unique project features or relationships.

Other contract drafting and negotiating efficiencies come from AI tools that allow real-time drafting collaboration, redlining, digital document execution and identification, and management of edits to conform content.

Contract Administration

AI is also an incredibly useful tool in construction contract administration, and its potential uses are widespread. It can assist in project planning and scheduling using data from past performance, as well as weather analysis and data about the availability of materials to create an efficient and attainable schedule. Coordination of trades using a schedule analysis can be performed by an AI tool. AI can assist in change-order and submittal tracking. It can review potential project risks and plan mitigation strategies in advance. It can analyze project specifications and use them to create realistic cost estimates for use in budgeting and project planning.  It can evaluate images to assess work quality and identify defects or deviations. AI tools can also decipher and summarize key contract terms and answer contract-related questions. Finally, AI can be used to draft and deploy contractually required notices and directives. All of this enhances communication and collaboration among project participants, the recipe for a successful project.

Inherent Dangers of Using Generative AI

Dangers arise when the data provided to the AI tool is incomplete, inconsistent or low-quality, not uncommon in construction projects. Indeed, the typical construction contract relies on data from multiple sources including design documents, site reports, contractor and subcontractor bids and owner requirements; errors and inaccuracies occur regularly. To avoid this risk, robust quality control of the information provided to the AI tool is imperative. Careful review and human judgment remain necessary because AI is not a substitute for human expertise and experience.

Although the output produced by generative AI can be very convincing and accurate, sometimes the information is just wrong. AI should not be used as anything other than as a preliminary resource for information that must be vetted. Its output must be verified using known and established sources. As an example, using generative AI to respond to an RFI is dangerous. AI can invent incorrect details or specifications that facially appear accurate but are technically incorrect. In order to prevent errors like this, human oversight is absolutely essential. In fact, in 2024, the American Society of Civil Engineers issued a policy statement cautioning that AI cannot replace the professional judgment of the human engineer.

While the use of AI in construction contracting may be hampered by obstacles such as lack of cost, lack of data integration, hallucinations and resistance from industry participants, its usefulness has the potential to far outweigh the barriers. Using AI in construction contracting will be driven forward by the anticipated efficiencies, availability of technology and presence of technology-savvy newcomers to the field. The ultimate result—improvement in project performance. As such AI tools are a welcome advancement in construction contracting.

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The post The Use of AI in Construction Contracts: Do the Pros Outweigh the Cons? first appeared on Construction Executive.

The Oxford Dictionary defines ethics as moral principles that govern a person’s behavior or the conducting of an activity and what is right and wrong. However, what constitutes ethical behavior can vary depending on the role a person plays in the negotiation process. Ethical negotiation ensures that parties do not engage in practices such as dishonesty, misrepresentation or unfair manipulation to secure an advantage.

Attorneys, owners and contractors each have unique perspectives on what is ethical based on their roles and responsibilities. Using ethical concepts to consider the differing perspectives among the different participants fosters more productive negotiations and promotes more successful outcomes.

For attorneys, ethics in negotiation require compliance with legal standards, confidentiality and a commitment to advocate for their client’s best interests. When representing owners, ethical negotiation is centered around protecting their investments, while ensuring they secure favorable terms. They may focus on transparency and clarity in agreements, seeking to avoid hidden costs, ambiguous clauses or unfair conditions that could jeopardize the project’s success or their financial interests. When representing contractors, an attorney seeks to ensure that the contractor’s work is properly compensated and risk is allocated fairly. Ethical considerations here may involve advocating for fair payment procedures, even-handed indemnity provisions and fair dispute-resolution policies.

How to Balance Zealous Advocacy and Ethics

An attorney’s obligation to be a zealous advocate for his or her clients must be balanced against the equally important requirement to act ethically. Finding the right balance can be challenging, particularly when clients are pressuring their attorneys to achieve favorable results.

Strategies for Balancing Zealous Advocacy and Ethical Conduct

• Educate Your Client About Ethical Considerations: One of the most important ways attorneys can balance zealous advocacy with ethical conduct is by setting the ground rules early. Letting clients know what the ethical considerations and legal limitations are helps prevent clients from pressuring attorneys into unethical actions, such as asking them to be dishonest or push for unfair advantages.
• Act With Integrity: Another crucial strategy is to lead by example. Zealous advocacy does not mean that it is acceptable to exploit or manipulate the other side. Unnecessary aggression to attempt to gain an unfair advantage is not ethical. Collaboration is the key.
• Be Transparent: Being transparent does not mean that you give away the store. Rather, ethical negotiation is about providing the right amount of information—without disclosing too much—that allows parties to make informed decisions. When all parties are on a level playing field in terms of having correct information about timelines, budgets and risks, they are more likely to work collaboratively. For example, when a contractor discloses potential delays or cost overruns early in the project, the owner can pivot to try to solve the issue before a small problem becomes a big problem. This enhances cooperation among the players.
• Avoid Disclosing Too Much: While transparency is essential, over-disclosure should also be avoided. Sharing too much information is not a good approach either when doing so adversely impacts that party’s negotiating position or gives the other side information they can use to exploit the situation.

Deception vs. Ethical Negotiation

Withholding essential information can be unethical, but this is a gray area. On the one hand, not showing your full hand is a strategic negotiation tactic. On the other hand, failing to provide full and complete information about materials costs, labor availability or anticipated delays to achieve a more favorable contract may be strategic. But, if the result is to mislead or manipulate the other party into agreeing to unfavorable terms, it can be considered deceptive—and therefore unethical.

Profit vs. Ethics for Contractors: What are the ethical concerns surrounding profit maximization? Is it ethical for a contractor to prioritize profit when it may lead to additional costs for the owner? While contractors, of course, need to make a profit in order to continue to operate, when profit becomes the prime factor over the success of the project it raises questions about the contractor’s ethical treatment of the owner. From the contractor’s point of view, increasing fees, upcharging materials and including contingency fees is necessary to cover risk. From an owner’s perspective, when the contractor’s main focus is maximizing profits, the owner will worry that the contractor is sacrificing quality for cost. Balancing these competing interests ethically—contractors need to be transparent and reasonable, while owners have to agree to fair compensation—can be challenging. Ethical considerations call for both sides to be accountable to each other.

Real-World Ethical Dilemmas: The below scenarios provide suggestions for managing common ethical dilemmas that arise in construction contract negotiations:

• In this example, a party alters the terms of an AIA construction contract form but does not highlight the change to the other party. What obligation does the receiving party have to carefully review the draft to determine changes to boilerplate language? Likewise, what obligation does the sending party have to make it clear what provisions have been changed?
• The answers to these questions seem clear: Both sides have an ethical duty. The receiving side should carefully review the draft as compared to the original version to determine whether the changes have financial or legal ramifications, while the sending party should highlight the changes to make clear what has been revised and why. Because the construction contract governs the relationship between the parties and has important consequences, ethical conduct here requires due diligence, transparency and communication by both sides.

• In another situation, the parties to a contract agree to a change in the draft document, but as a result of a scrivener’s error, the final version does not include the change, and the parties both miss the error and signed the contract containing the mistake. One side acknowledges that they agreed to the change, but that the final version does not include the changed term. Is it unethical for that party to refuse to modify the final contract to capture the agreed upon change? What are the ethics of maintaining that the contract should remain as signed with the error because the failure benefits one of the parties which is trying to capitalize on that advantage?
• Ethical conduct here requires that the error be disclosed and that the final contract be modified to accurately reflect the parties’ agreements. Allowing the error to go unreported and taking advantage of the mistake to gain an unfair advantage is unethical and unfair.

When done successfully, ethical construction contract negotiations result in trust between the parties, ensure fairness and reduce the risk of conflicts. The outcome of an ethical negotiation process is a more collaborative, successful construction project.

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The post Ethical Considerations in Construction Contract Negotiations first appeared on Construction Executive.