Overwhelmingly, digital risk, cyber security breaches, and the unknown liabilities associated with constantly evolving artificial intelligence technologies cause the most significant litigation trend concerns for the business owners and in-house lawyer clients responding to the Norton Rose Fulbright Twentieth Anniversary Litigation Trends Survey. https://www.nortonrosefulbright.com/en-us/knowledge/publications/cc043475/2025-annual-litigation-trends-survey. These risks include traditional data privacy and cyber security concerns, but also other litigation risks arising from incorporation of new technologies into the clients’ business platforms.
Digital and Cyber Risk with New Construction Technologies
In this regard, construction industry participants increasing adopt new technologies in the management of projects to increase efficiency and cost savings, especially through improved and alternative project communications between counterparties.
https://www.forbes.com/advisor/business/best-construction-project-management-software/?fbclid=IwY2xjawIRZRFleHRuA2FlbQIxMAABHaXh_12jAym5IQ7ltIlm5lU0MGnPWJneHXqtJO4GeP3jJHb7UBPRqRsNCA_aem_I3cf1bshArbJEqn23-TW2Q. These new technology platforms, not because of a risk associated with a particular flaw in the platform, but due to how they change the form of communication or contractually prescribed communication protocol, increase construction project risk.
Increased Efficiency from New Technologies v. Risk Caused by New Technologies
As most construction project participants agree, successful and dispute avoiding construction counter party communication begins with the contract but requires consistent and active participation by the owner, contractor, design and subcontractor teams and proactive efforts by the parties not to bury the contract in a drawer and ignore the requisite rules, procedures and protocols for communication and management.
The contract sets the rules, procedures and protocols for how the parties communicate and parties cannot ignore the contract, however, the contract rules, procedures and protocols die on the vine without the human element of team member management to follow and enforce the contract.
This breakdown risk between contract rules, procedures and protocols and human management teams enforcing the contract increases in light of heavier reliance on digital, cyber and artificial intelligence. These electronic platforms and software have and will continue to increase project efficiency and ultimately lower construction costs to the benefit of the entire construction industry, however, if not managed properly by the respective project teams, the reliance on electronic project management platforms and software only increases the risk of cost overruns, delays and project failure.
Risk of Communication Breakdowns with Software Platforms for Payment Applications
Many projects currently utilize electronic software platforms for uploading and processing of payment applications. New uses of these platforms typically replace hard copy submissions of payment applications, rendering almost obsolete the prior practice of a “pencil markup” by the owner which traditionally facilitated an in-person meeting to discuss agreement on percentage of completion as well as inquiries regarding necessary backup documentation, invoices and other supporting materials.
However, when the construction contract sets specific requirements for the timing of any response by the owner or architect, the contents and criteria for any specific objections and other information owed by the owner to the contractor in response to the payment application, these new platforms do not necessarily facilitate the communication between the parties to effectuate compliance with these contract requirements.
Of course, the platform can allow for an electronic markup of the payment application and facilitate an electronic message from the owner or architect back to the contractor listing any objections or requests for additional information, however, with insistence of use of the software platform, the in-person or (at least) telephone conversation to discuss the response often creates breakdowns in communication, misunderstandings leading to project friction, and project participants hiding behind the software.
Risk of Waiver by Course of Conduct
In addition, whenever the project participants repeatedly ignore contractual requirements regarding timing of responses (or other requirements), the parties open the door for arguments that one party of the other waived the right to enforce the contractual requirement.
For example, if the contract requires specific written responses by the owner in form and substance and the owner only responds within the software platform in a manner that fails to meet the specific requirements of the construction contract, and the contractor does not object and instead consents to the owner’s routine and contractually noncompliant response to the payment application, the owner may later argue that the contractor waived the right to require the owner to comply with the contractual requirements by course of conduct.
https://casetext.com/case/fisher-v-tiffin.
Make no mistake, if the parties utilize these electronic software platforms to increase the speed of communication and information sharing, but without ignoring the contractual requirements and risking waiver by course of dealing or the breakdown of effective personal communication intended by the contract, the project will benefit.
Use of Electronic Software for Change Orders
The use of electronic software platforms for change order management can also increase the risk of creating communications breakdowns and friction between the parties, unless managed properly by continuing to incorporate the human element. Even some of the electronic software platform companies recognize the risk in ignoring best practices (effective communication) in change order management. https://www.cmfusion.com/blog/how-to-negotiate-change-orders.
For instance, the software platform can allow the contractor to check a box explaining the entitlement for a change order, but often does not allow for full explanation of the context. This increases the likelihood of a deeper disagreement or misunderstanding between the parties regarding entitlement to a change order and therefore increases the likelihood of an actual dispute between the parties.
In addition, unless the software platform allows for use of artificial intelligence to adapt the software to specific contractual requirements such as timing of notice of change order and other claims, overreliance on the software to confirm compliance with timing of notice requirements in the contract can increase the likelihood of a miscommunication between the parties. Again, the project participants should rely on human oversight and actual human to human communications to increase the likelihood that change order requests comply with contractual notice provisions.
Other Communication Risks with Unchecked Use of Software Platforms
In addition to the risks associated with payment applications and change orders otherwise discussed above, project participants also utilize these software platforms in the submittal process, for request for information, issuance of architectural supplemental instructions, other design team communications and lien waiver protocols. All of these project procedures present similar communication breakdown risks to the payment application and change order risks discussed above and all of these risks will cause increased risk of dispute between the parties resulting from a breakdown in communication between the parties or a lack of oversight of the protocols with overreliance on the platforms as opposed to human interpersonal communication.
However, increased use of electronic software platforms and artificial intelligence (either as oversight of compliance with construction contract requirements or otherwise) and the associated electronic storage and management of information, often with multiple parties provided access to sensitive documents and data, increases the cyber security and data breach dispute risk identified by Norton Rose Fulbright’s client respondents in the Twentieth Annual Litigation Trends Survey.
These construction specific risks could include dissemination of sensitive financial information from investors or lenders, improper sharing of trade secrets regarding bidding and estimating calculations, intentional sabotage of projects by manipulation of design documents, infringement of intellectual property rights or release of other confidential information protected by non-disclosure agreements, etc. This should not deter construction project participants from ignoring or resisting new software platforms. Instead, it calls for increased and cooperative communication between the parties to prevent and mitigate these risks.
Author:
Tim Walsh is Head of Construction, United States at Norton Rose Fulbright US LLP. Mr. Walsh specializes in front end construction, project development and dispute resolution. He represents owners, developers, contractors, and design professionals in construction projects, including, energy and power plant facilities, commercial and industrial manufacturing plants, infrastructure support, warehouses, and storage facilities, hotel, condominium and multifamily residential housing developments, health care facilities, entertainment complexes, and shopping centers.
