Articles

Introduction

1. The Fourth Industrial Revolution has arrived in the construction industry. Drones are carrying out surveys, robots are laying bricks. A construction project is simulated in a virtual environment by building information modelling (BIM). Prefabrication and modularisation are resulting in faster and more precise construction. Artificial intelligence is assisting in better project planning and management. Efficiency is increased, productivity enhanced and optimised.
2. In 2016, Klaus Schwab,^[1] wrote about the Fourth Industrial Revolution, which he characterised by “a much more ubiquitous and mobile internet, by smaller and powerful sensors that have become cheaper, and by artificial intelligence and machine learning.”^[2] Schwab speaks of something much wider than smart and connected machines and systems; of the fusion of different technologies and their interaction across the physical, digital and biological domains; and of the speed with which emerging technologies and broad-based innovation are diffusing. Schwab also points out that unlike the first three industrial revolutions which took time to reach the masses and is still continuing to unfold in some parts of the world, the Fourth Industrial Revolution has permeated across the globe and transformed whole industries in less than a decade.
3. The construction industry has not been as quick to adopt this technological change as other industries such as media and entertainment (think Facebook, Netflix, Spotify) and retail (think Amazon, Alibaba). For the most part, it is still continuing to operate as it has been, relying on manual labour, tried and tested technology and established processes. However, despite this relatively slow start, digital technology has permeated the industry and is gradually changing how buildings are designed, constructed, operated and maintained.
4. What does all this disruption mean to parties in a construction project? Is the construction industry adapting fast enough to the advancement of technology? This article aims to explore the impact this new and fast changing technological revolution is having and will have on the relationships of stakeholders, and whether it could increase or reduce the risk of disputes between parties. It will also explore how when properly utilised, technology can also assist in the avoidance, management and resolution of disputes.
5. This article begins by discussing (i) some of the technology that have revolutionised the construction industry; and (ii) the potential impact of specific technologies on parties’ relationships. It will then explore the different issues and possible disputes that may arise as a result of such new technology, and what contractual parties should be aware of in order to mitigate potential disputes. In the final section, this article explores the role of technology in resolving disputes between parties.
6. The views expressed in this article and the conclusions reached herein are the authors’ own and do not represent the view of CMS.

The Tech Revolution in the Construction Sector

7. This section of this article explores some of the ground-breaking technological advances and innovations in the construction industry, and the impact that specific characteristics of such new technology have on parties’ relationships in the project life cycle.
8. At the inception and design stage, there has been increased usage of BIM for integrated design and construction. There is no universally accepted definition of BIM, but its increased usage and importance in construction projects, and the way it stands to transform and complement current practice to create better levels of performance “reiterates the importance of the information-intensive nature of the sector and highlights the links between technology, people and processes in every aspect.”^[3] One definition of BIM is that it is “a digital representation of physical and functional characteristics of a facility creating a shared knowledge resource for information about it and forming a reliable basis for decisions during its life cycle, from earliest conception to demolition.”^[4]
9. In everyday terms, the model-centric nature of BIM as a unified platform for stakeholders promises greater real-time collaboration throughout the project life cycle, from design conceptualisation to the sharing of up-to-date data during and post- construction. This is especially so given the multi-stakeholder nature of construction, and the typical scenario where all stakeholders have their own records and no one stakeholder has easy sight of all project data. Benefits could include the minimisation of reworks by the identification of clashes by stakeholders (including clients) at the design stage, and easier and more effective project monitoring and governance by regular updates from stakeholders during the construction workflow and progress.
10. Innovation has also extended the use of automated and unmanned vehicles for site survey and construction to the use of drones for more advanced data collation, particularly in site and asset monitoring. Site surveys can be carried out faster, more efficiently and with greater precision. Project progress updates can also benefit from drone technology’s greater aerial access to the construction site. Drones can be used in hazardous or remote areas, thereby increasing safety and improving workers’ health. Additionally, the data captured by drones can also be integrated with BIM technologies, resulting in more accurate and efficient development of BIM models.
11. The construction of a project has also been revolutionised by the use of prefabricated materials and components and modularisation. Building components are manufactured off-site, delivered to and assembled on-site. It is beneficial to all types of construction projects – from the construction of buildings consisting of similar units, such as office or commercial buildings, to complex technical plants with specialised equipment that require precision assembly.
12. Advances in artificial intelligence (AI) and machine learning (ML) tools have also been useful for contract management, project planning and tracking. By using statistical techniques, AI and ML programmes will evaluate data in order to track and evaluate the progress of a project and identify issues such as cost overruns, priorities risk, plan projects as well as identify safety hazards.
13. Technological innovation in construction projects is looking beyond the use of technologies like BIM to the digitalisation and administration of the contract itself. The use of standard form contracts, with amendments and particular terms and conditions of contract used to capture contractual negotiations, risk allocation, and relevant design and technical information, is entrenched in the construction industry. No less common are the complaints about the time-consuming process of current contracting practices and the resultant scope for contractual ambiguities that increase the risk of disputes down the line.
14. A new technology that is being explored as a solution to current contracting practices is the use of smart contracts. Not to be confused with a standard contract that is simply executed electronically, a smart contract is essentially a set of protocols or programmes that are designed to automatically execute when certain criteria are fulfilled or satisfied. For example, a smart contract could execute an automated payment upon receiving a record that a payment progress milestone has been achieved. It has been described as a type of legal agreement written in a language both human and machine readable, incorporating an algorithm which automates some or all performance of the agreement.^[5] Cryptographer Nick Szabo defines it as ‘a computerised transaction protocol that executes the terms of a contract. The general objectives of Smart Contract design are to satisfy common contractual conditions (such as payment terms), minimise expectations and minimise the need for trusted intermediaries”.^[6]
15. Smart contracts promise an unambiguous recording of agreed terms, more objective contract monitoring and administration, and reduced reliance on contract administrators and possible human error. Whether smart contracts could or should become an everyday reality of the construction industry remains to be answered. The full or semi-automation of construction contracts is not an “automatic” panacea to issues of trust between stakeholders, or the near-inevitable contingencies that occur in construction projects that often can only be addressed when these contingencies arise and their actual nature and implications for particular stakeholders are known. Other issues include whether stakeholders are willing to accept the implications of smart contracts, such as a robust timetable for payments with no party having control over cashflow. No less pertinent are the legal questions that come with the use of smart contracts – for instance, should a dispute occur over a smart contract comprising computer code, would such a contract fulfil a statutory ‘in writing’ requirement to be enforceable?
16. The collaborative use of the different technological tools in a construction project has the potential of increasing efficiency and productivity, and minimising friction between stakeholders that can arise with different and contradicting systems of records. For instance, through interrogation and interpretation of the developing BIM model, static sensors on-site or mobile in drones, information as to actual on site-progress could also be analysed by the smart contract and payments automatically made to the relevant party when progress milestones are achieved. Manpower and productivity could also be accurately recorded when those on-site “clock in” and “clock out”, with that information also sent to a smart contract or other centralised project repository.

The Impact of Technology on Parties’ Contractual Relationships

17. The construction industry is being shaped by technology. As described above, it is changing the way projects are being designed, built, operated and maintained. Equally, it is also changing the amount and type of data that is being gathered, stored and used in a project. As a result, parties must re-evaluate how they treat and manage this data.
18. Technological tools such as BIM, smart contracts, AI and ML programmes will only be as good as the data and information provided to them from the various sources available. With every new generation of technology, no matter how advanced, we inevitably learn that it is not infallible, and mistakes will occur. For example, a party may disagree with the action automated by a smart contract such as making a milestone payment, arguing that that the data available was incorrect due to a failure or error in the sensors providing data to the smart contract, or perhaps that the algorithm itself has been improperly coded. Given the supposed accuracy of the data and the assumed correctness of the algorithm, it may be more difficult for an aggrieved party to obtain a deserved remedy.
19. The use of these technological tools will mean parties will need to ensure that the contract contains clauses dealing with the issues that use of new technologies can manifest, such as issues of ownership of data, confidentiality, and even basic issues as to which law will apply, particularly as distributed ledger technology is borderless. When it comes to new technology, even the most fundamental questions must be considered - such as the execution of contracts (for example whether a statutory signature requirement be met by affixing a private digital key) and to the dispute resolution provisions (for example whether the arbitration agreement contained in a smart contract is valid in the jurisdiction chosen.)
20. Notwithstanding the need of having to coordinate and manage the vast amount of information and data now associated with a project, parties are also able to harness the new technology to assist in the resolution of disputes. Often, in complex construction disputes, it will be the information captured contemporaneously throughout the life of the project that will be most persuasive to the judge or tribunal deciding the case. In this respect, the technology deployed and integrated at commencement of the project to capture, manage, and analyse the vast and disparate sources of information on a construction project will impact the way in which the project progresses, and ultimately the way in which any disputes are avoided or resolved.
21. Accurate and organized data management is often lacking in construction projects. Yet, when it comes to the resolution of disputes, it is this contemporaneous data that is likely to be determinative. Often disputes between parties will boil down to whether certain milestones have been achieved such that payment should have been made, or that the progress of the project is delayed.
22. For an industry oft criticised for a lack of collaboration, poor data recording, opaque and inconsistent contract documentation and administration, the proper use of technology can assist with achieving smooth and transparent contract administration.

Technology – The Sword and The Shield

23. The advantages of using new, innovative and disruptive technology in increasing productivity and efficiency of construction projects are abundant and have been canvassed in the section above. Technology has allowed engineering and construction to proceed concurrently, as well as increased efficiency and productivity. For example, computer-aided design (CAD) and its evolution into BIM have allowed designers, architects, engineers, and contractors to generate information faster. Changes can be implemented mid-stream and captured accurately. Robotic and automated equipment have also allowed building projects to operate faster and more efficiently. Labour intensive jobs such as painting, bricklaying, loading and bulldozing can be carried out by self-directed robots, thereby reducing labour costs, minimising labour shortage issues as well as reduce workplace injuries. Equally, aerial and ground based drones and robots can survey worksites more accurately as well as reach remote and dangerous areas, thus protecting workers’ wellbeing.
24. However, such innovation also brings forward new challenges for parties. The use of new technology inevitably presents a number of opportunities for new errors to occur, or old errors to take on new forms. We can expect new types of disputes - for example issues surrounding data access and ownership. We can also expect to see different facets of the disputes that parties have traditionally encountered, such as issues around project scheduling. Conversely, if technology is used properly and to its full capabilities, disputes can either be avoided, minimised or resolved in a more effective and efficient manner. Technically, relevant data would be recorded in real time, and could be extracted in a more cost effective manner. Parties could address issues and stave off disputes as soon as they arise, and stop them from exacerbating.
25. This section of this article will explore the different ways technology can be both a blessing and a scourge, and what parties should consider in order to ensure that the advantages of technology are harnessed, and the disadvantages minimised. While it is not intended to be a compendium of the various types of issues that may arise as a result of the utilisation of new technology, this section aims to highlight the main types of concerns that parties should be alive to. It will then discuss how technology can be used to manage the disputes that do arise in a construction project and assist in the resolution of conflicts.

The Blessings of Tech - Utilising Technology In Minimising Construction Disputes

26. When used correctly and well, technology can play an important role in avoiding construction disputes before they crystallise. Further, in light of the capacity of human ability to recollect events, as well the risk of witnesses leaving projects and organisations, and the loss of information, the case for using of technology in resolving factual disputes is compelling.
27. Establishing delays and changes - Users of BIM, for example, will be able to collaboratively analyse the design and construction of the structural works (wall, roofs, stairs, windows, etc) and the implementation of the systems (piping, electrical systems, plumbing, etc), identify errors at an early stage and work out solutions.
28. It could also be used to address disputes after construction is complete. If such processes are used properly, there will a complete record of all design changes. Relevant decisions can be identified and if necessary, investigated further. Parties can revisit the work created and information stored during the project and verify whether the final product matched the requirements of the contract. Equally, other parties can look to the data stored to identify any errors and omissions. As-built project data stored in real-time would allow experts, lawyers and tribunals to establish the impact of events on the progress of a particular project. The value of using the stored data in resolving factual questions in a construction dispute is substantial and cannot be underestimated.
29. Site records - The problems associated with inadequate site records is something that the construction industry has been grappling with for decades. Inadequate records not only cause disputes, but also prevent the effective resolution of them. Tribunals and courts are prevented from understanding the cause of the disputes, what had transpired on site, and also what was not done. A great deal of time, resources and cost is spent on trying to address the lacuna in knowledge and facts and allocate liability.
30. Ideally, site records should keep a detailed and contemporaneous register of what occurred on site such as – (i) works that were carried out; (ii) works that were not carried out; (iii) reasons why certain works were not carried out; (iv) delivery and supply of material and equipment; (v) site weather; and (vi) employer’s instructions. In theory, site records serve to ‘set the record straight’ when disputes arise. In practice, different systems of recording used by stakeholders, and sometimes even by different teams within the same stakeholder can result in differences and discrepancies that are difficult to reconcile. Further, partial or incomplete retention of relevant records are also commonly encountered for various reasons, including instances of simple oversight during site demobilisation post- project completion, or when personnel leave the project or organisation without handing over processes having been observed.
31. Utilising new technology in real time will make it easier and more realistic for parties to keep regular, uniform and standardised records. Such site records can potentially minimise disputes, as opposed to being the source of disputes.
32. Identifying Defects – New technology such as thermal scanning, smart systems and laser scanning can be used to identify defects and inefficiencies that would otherwise have been expensive to survey and uncover.

The Bane of Tech - The Disruption of Construction Disputes

33. On the flip side, the inclusion of new technology could also lead to new types of disputes previously not inherent in a construction project.
34. Data Risk – The amount of data now available in the project will throw up a myriad of issues. Firstly, parties will now need to consider issues surrounding the ownership and access to data. To whom does the data belong and who has the right to use drone footage or other progress data? There will new questions such as whether access to data would be impacted by the non-payment of fees; who takes responsibility for the hosting of data platforms - during the lifecycle of the project and after its completion; and the length of time the data platform needs to be operative. There will also be concerns about cyber security risk and who shall be responsible for such risk at different stages of the project.
35. Additionally, licensing issues will take on a different form. Depending on the different types of software that are being utilised by different stakeholders in the project, there may be issues surrounding the usage of the software across different organisations. Unless terms are properly spelt out, parties may be at risk of breaching software licensing terms. Further, the purpose and actual usage of the data could raise concerns surrounding either the wrongful use of data or the use of wrong data.
36. Inevitable, questions of liability in the face of such issues will arise. While the collaborative aspect of technological advancements is something to be encouraged, the sharing of information and models will raise new challenges regarding who becomes responsible for what and whether design obligations are aligned across all contributors.
37. Software Risk - The utilisation of different technology tools will inevitably increase the risk of file corruption and incompatible software applications. Other than the practical problems this will pose, parties will also have to consider the impact such failures would have on the project insurance. If the insurance clauses in contracts only consider the contractor and the employer, then subcontractors, suppliers and others with design and data collation responsibility may not be covered.
38. Additionally, if the data is expected to be used throughout the lifecycle of the project, from inception of design to the operation and maintenance of the project, then the fast pace of technological advancement will have to be accounted for. Contractual relationships would have been entered into before such technological advancement was envisaged, and could result in unforeseen increased software costs.
39. Systemic Risk - As the success of the technology depends so much on parties’ open communication and collaboration, a breakdown in this aspect can lead to substantial systemic failures resulting from human error that are costly to fix. This could be anything from a misunderstanding of the scope of services to be provided, to incongruent definitions of deliverables, approvals and delivery, to ineffective information, data or document management.
40. In order to mitigate such risk, new project roles will have to be created in order to oversee the different data and services to allow the required collaboration across disciplines from project inception to management of a facility. Parties’ roles and responsibilities will have to be clearly defined, and the contractual documents will also have to address the collaboration between supply chain and design development.
41. Despite the inherent uncertainty in adopting a new technology, in our view better and more transparent contract management, an increase in accuracy of contemporaneous records, as well as secure and organised document management will reduce the scope for disagreement between the parties, and ultimately lead to more disputes being avoided. If the dispute cannot be avoided, these same benefits should lead to a faster and more cost effective resolution.

Using Technology to Resolve Disputes

42. The COVID-19 pandemic and the related travel restrictions imposed by many countries have accelerated the use of technological solutions to facilitate dispute resolution proceedings. This has ranged from increased use of existing practices – such as electronic discovery platforms or protocols, or the use of videoconferencing for the odd remote witness – to different modalities of dispute resolution such as hybrid hearings – where some participants are physically located in a main hearing venue and participants in other locations join via video/teleconferencing – to fully remote or ‘virtual’ hearings – where all participants are in different locations with no main hearing venue.
43. The changed and still-changing landscape of dispute resolution tools and practices presents distinct challenges and opportunities for participants in litigation and alternate dispute resolution, some of which are briefly explored below.

Electronic discovery and inspection

44. It is more common than not that large-scale or complex energy and construction projects generate many categories and significant volumes of documentation in the life of the project (e.g. contractual documents, drawings and programmes, contractors’ or subcontractors’ progress reports, minutes of meeting, etc).
45. Nowadays it is also common to see a significant amount of project documentation in the form of electronic documents – not just electronically stored copies of paper documents (e.g. scanned documents) or emails, but other electronic documents in various native formats as well (e.g. digital drawings, BIM project models, online or electronic scheduling progress reports, etc). Electronic documents also include metadata information, being the non-visible and not readily apparent information embedded internally in electronically stored documents, or associated with electronically stored documents but stored externally in a separate file or database (e.g. hidden columns or text, prior edits and editorial comments, data related to creation, modification, and access of the electronic document, or author of the electronic document).
46. The resulting increase in scope and scale of project documentation presents challenges when disputes arise in relation to these projects. The potential or actual litigant then has to identify and review a large volume of evidence in his possession that may exist in different mediums and formats (e.g. paper records, computer storage systems in employees’ desktops and laptops, corporate email systems, file shares, backup systems, smartphones, accounting systems, etc), and also consider what types of evidence they might want the other party to disclose or provide as relevant to the issues in dispute.
47. The use of electronic discovery and inspection protocols and software can be useful frameworks for parties to agree and achieve proportionate and economical discovery, inspection and supply of electronic evidence in ongoing disputes. However, the relevance and materiality of documents to the disputed issues, as well as the costs of such electronic discovery and inspection may also become highly contested, and subject to applications before the relevant court or tribunal.
48. It is therefore useful to be aware of the possible scope of electronic discovery and/or inspection that can be agreed or otherwise applicable in dispute resolution proceedings:
    1. Whether electronically stored documents which are not reasonably accessible (e.g. deleted files which can only be recovered through computer forensic tools or techniques) are excluded from discovery, unless specifically requested and/or the relevance and materiality of these documents justify the cost and burden of retrieving and producing them.
    2. The use of agreed search terms or phrases to set a reasonable scope for searching electronically stored documents, e.g. with stated limits such as specifying or describing custodians and repositories (physical or logical storage locations, media or devices), the period during which the electronically stored documents were created, received or modified, etc.
    3. Whether and when forensic inspection of any electronic medium or recording device should be available, and what inspection protocols are desirable to limit access to necessary documents.
    4. Whether copies of discoverable electronically stored documents are to be supplied in native format, and/or without intentional deletion, removal, or alternation of metadata information.
    5. Whether supply of electronic copies of electronically stored documents to be given in lieu of inspection.
49. The proliferation of legal technology platforms specific to dispute resolution proceedings also promise to lower costs, improve productivity and accelerate review of evidence associated with traditional discovery and inspection, such as by:
    1. Identifying, collecting, reviewing and indexing electronically stored information from different custodians and repositories in a centralised location.
    2. Use of machine learning algorithms to iteratively search electronic documents by relevant terms or by datasets curated by users for relevance.
    3. Identifying relationships between electronic documents or categorisation of electronic documents by use of metadata.
    4. Forensic review of electronic documents.
50. However, the appropriate usage and costs of such platforms will vary with the particular nature of dispute and the types of evidence in question. There are also general considerations as to what extent a party can rely on machine learning models with a high confidence level, the level of user expertise and confidence, and whether a litigant’s reliance on legal technology will be sufficient to discharge any applicable discovery or inspection obligations.

Virtual hearings

51. The COVID-19 pandemic has seen an increase in the exploration of virtual or hybrid hearings as an alternative to in-person hearings whether in the courtroom, arbitral proceedings, or at mediation, and have been embraced with varying levels of enthusiasm by users such as the courts, tribunals, litigants, and counsel.
52. Going forward, the possibility of virtual or hybrid hearings as an alternative to in-person hearings and the attendant considerations are likely to remain relevant. These include:
    1. Whether the virtual, hybrid, or traditional in-person format works better for the particular needs of the hearing e.g. the in-person presence of some or all participants could be more significant for face-to-face mediations, or where there is substantial taking of oral evidence from witnesses or experts.
    2. The cost effectiveness and efficiency of virtual or hybrid hearings, e.g. in multi-jurisdictional proceedings that would otherwise require travel by counsel, parties, experts, or witnesses.
    3. Whether specialised software would be required in virtual or hybrid hearings to ensure that documents can be easily stored, accessed and reviewed by all participants.
    4. Whether the use of remote hearing platforms and other associated technologies would give all parties a fair hearing, or would be inaccessible or otherwise impose an unfair burden on any particular party.
    5. In the context of arbitrations, whether decisions made at a virtual or hybrid hearing will be enforceable in the relevant jurisdictions under applicable law, arbitral rules, and parties’ arbitration agreements, and other considerations in relation to the conduct of hearings and the presentation of evidence.
    6. Whether the electronic storage, hosting and exchange of documents, information and data between participants are secure, and any necessary data management and cyber-security agreements.
    7. Whether procedural documents, evidence and submissions exist in a form suitable for use in a virtual or hybrid hearing; e.g. outsized documents such as construction drawings; physical exhibits.

The Future

53. The construction industry is no stranger to technology or innovation. The latest iteration of new technologies and the possibilities these offer can be challenging for stakeholders to contemplate. However, the promises of a more efficient project life cycle, greater collaboration and reduced friction amongst stakeholders, and the minimisation and better resolution of disputes, should encourage stakeholders to engage with the forefront of technological innovation today.

Contributed By:

Kelvin Aw, Partner, CMS Holborn Asia 
Lynette Chew, Partner, CMS Holborn Asia 
Asya Jamaludin, Counsel, CMS Holborn Asia
David Wright, Senior Associate, CMS Holborn Asia
Grace Lu, Senior Associate, CMS Holborn Asia

 ^[1] Founder and executive chairman of the World Economic Forum

^[2] Schwab, Klaus, The Fourth Industrial Revolution, Chapter 1.1.

^[3] The Royal Institution of Chartered Surveyors International BIM implementation guide, 1^st Edition.

^[4] The Royal Institution of Chartered Surveyors International BIM implementation guide, 1^st Edition, referring to the US National BIM Standards Committee (NBIMS)),National BIM standard: version 2 – FAQs, 2014, www.nationalbimstandard.org/faq.php

^[5] J.G.Allen, ‘Wrapped and Stacked: “Smart Contracts” and the Interaction of Natural  and Formal Language’ (2018) 14(4) European Review of Contract Law 307 at 313.

^[6] Nick Szabo, ‘Smart Contracts: Building Blocks for Digital Markets’ (1996) 16 Extropy