The challenges ahead in 2024 aren’t different from those of last year. They continue to be inflation and cyber risk. They all have an impact on legal risks. Already, the industry is dealing with thin margins due to higher costs of materials and equipment and project delays.
Legal trends play a crucial role in guiding stakeholders through the ever-changing landscape of the construction industry. It is essential for industry leaders to be aware of these trends that impact construction, so they can minimize risks and safeguard their profits. Additionally, the legal landscape is constantly evolving due to Supreme Court rulings, federal funding mandates, and indemnity clauses that can affect the recovery of damages from third-party claims.
From the continued impact of inflation and equipment costs to the complex relationship between artificial intelligence (AI) and digital tools, the industry is experiencing change. Here’s a look at six top legal trends influencing the construction sector along with their implications for contractors, project owners, and legal professionals alike.
1. Higher Prices Bring More Lawsuits
Prices of construction materials remain higher than they have in the past. This has become a catalyst for a flood of legal actions. The costs associated with construction projects require construction companies to protect themselves with change order provisions. Estimating the cost of materials and other costs associated with a project has become an exercise in volatility. Costs can be much higher or lower than expected.
Facing the domino effect of unforeseen cost escalations, stakeholders are turning to the legal arena to navigate the complexities of contracts and mitigate financial impacts. Courts are now grappling with interpreting contractual language, assessing the validity of force majeure claims, and determining liability for budget overruns in a climate of unprecedented volatility.
In the wake of these legal battles, the construction industry is witnessing an evolution in contractual practices. Parties are increasingly incorporating more robust clauses addressing cost fluctuations and procurement risks. Legal professionals are at the forefront of crafting contracts that strike a delicate balance between protecting parties from unforeseen circumstances and ensuring project feasibility in the face of unpredictable market conditions.
2. Boom in Manufacturing
The U.S. has seen significant investment in manufacturing infrastructure, driven by factors like technological advancements, reshoring efforts, and government incentives. These elements contribute to a surge in construction projects across the country, aiming to modernize facilities, expand production capacities, and enhance supply chain resilience.
According to an analysis by the Associated Builders and Contractors, manufacturing construction spending saw a significant rise of 36.6% over a 12-month period leading up to January of this year. This surge in spending brought the seasonally adjusted annual rate of expenditure in this sector to an estimated $224.95 billion.
3. Rising Equipment Prices
In July 2023, the cost of equipment rose nearly 2% from the previous month and increased almost 10% over the last year. As the country boosts its infrastructure spending, contractors are voicing their concerns over the prolonged wait times for equipment.
As these costs remain high and procurement timelines lengthen, construction projects face unique challenges. Contractual disputes over responsibility for delays, force majeure clauses, and cost overruns are becoming increasingly prevalent.
In this environment, the intricacies of force majeure clauses are coming under intense scrutiny. While these clauses traditionally provided relief for unforeseeable events, their interpretation is at the forefront of legal battles. Courts are tasked with discerning whether the disruptions caused by equipment challenges fall within the purview of force majeure, adding layers of complexity to construction contracts.
4. Affirmative Action Ruling Confusion
Diversity, equity, and inclusion (DEI) has come under fire lately. Affirmative action took a hit when the Supreme Court struck down college admissions based on race. The connection with the construction industry isn’t obvious, but when you think about the employment funnel, the ramifications become clear.
It affects the construction industry, especially those that identify as minority-owned companies. The impact of college admissions could force some to go into construction jobs and other career fields that don’t always require a college degree.
Diversity and equal opportunity initiatives have long been integral to the construction industry. Nevertheless, recent legal rulings have injected an element of uncertainty. Contractors now grapple with navigating affirmative action regulations, unsure of the compliance requirements and the potential legal ramifications of workforce practices.
The nuanced panorama of affirmative action necessitates a meticulous understanding of evolving legal precedents, placing added importance on proactive measures to ensure compliance and avoid legal entanglements.
The intersection of affirmative action and employment law is becoming increasingly complex. Recent court decisions have left contractors in a state of flux, unsure about the appropriate steps to take to align with legal requirements. Legal professionals specializing in construction law play a crucial role in providing clarity and guidance to ensure adherence to evolving affirmative action regulations.
5. Rise of Arbitration
As legal disputes burgeon, the construction industry is witnessing a significant rise in the adoption of arbitration as the preferred method for conflict resolution. The allure of arbitration lies in its efficiency, flexibility, and the privacy it offers. Contractors and project owners are increasingly incorporating arbitration clauses into contracts, signaling a change in the industry’s approach to dispute resolution.
Arbitration offers a streamlined alternative to traditional litigation, bypassing the often-lengthy court processes. However, its growing prevalence raises questions about the standards and consistency of arbitration rulings. As arbitration becomes the go-to mechanism for dispute resolution, stakeholders must critically assess its implications, ensuring a fair and predictable legal landscape.
With the rise in arbitration comes skyrocketing costs to settle these disputes. Per Arcadis, an engineering firm based in Amsterdam, the cost of construction disputes in North America rose by over 40% in 2023. This translated to $42.8 million. This was the highest value seen by Arcadis in the past 13 years.
6. Risks Associated with Artificial Intelligence and Digital Tools
The integration of artificial intelligence and digital tools into construction processes promises greater efficiency and speed. At the same time, it introduces new legal challenges. The interconnected nature of modern construction sites raises concerns about data security, intellectual property, and liability. Contractors must proactively address these issues by implementing robust cybersecurity measures, clarifying ownership rights, and staying abreast of evolving legal frameworks governing emerging technologies.
The legal ramifications of AI and digital tools extend beyond the construction site, shaping contractual agreements and liability considerations for the industry’s digital future. As the use of AI becomes more widespread in design, project management, and even construction itself, legal professionals must stay ahead of the curve to understand the implications of AI on liability, accountability, and intellectual property rights.
Effects of the Trends
Based on these top construction legal trends, stakeholders must navigate the complex terrain defined by legal trends that shape the industry’s present and future.
The impact of inflation and supply chain disruptions, the surge in legal actions due to escalating material prices, the rise of arbitration as a preferred conflict resolution method, the confusion surrounding affirmative action rulings, and the integration of AI and digital tools into construction processes are forces reshaping the legal landscape.
These trends call for robust contractual agreements, acuate awareness of changing legal frameworks, and proactive measures like remote video surveillance.
Remote Video Surveillance Can Help Mitigate Legal Risks in Construction
Traditional security cameras without monitoring remain passive observers, merely capturing events without the ability to take immediate action. Elevating security measures requires incorporating video analytics, revolutionizing the capabilities of video surveillance.
Unlike conventional security technologies, remote video surveillance offers proactive security by combining security cameras, video analytics, and human intelligence. This integrated approach helps ensure the highest level of security for businesses while simultaneously reducing construction legal risks and liabilities.
A well-designed remote video surveillance system provides comprehensive coverage of the entire job site. All camera feeds are recorded for access at any time, enhancing the overall security posture. Video footage can be used in legal investigations and insurance claims.
Contractors seeking effective construction security solutions opt to work with security vendors with experience in the industry. They can properly assess the construction site and tailor recommendations based on specific requirements. Strategic placement of security cameras optimizes the surveillance system.
Leading security vendors, such as ECAM, have remotely located monitoring centers, which minimize the risk to on-site personnel. Trained monitoring operators, working in tandem with video analytics, can make decisions without being affected by humanity’s fight or flight response. The physical distance also reduces the likelihood of internal theft.
The challenges of monitoring multiple cameras for extended periods make video analytics a vital component of proactive security. Pairing video surveillance with analytics and trained security operators helps eliminate the risk of human error.
Video analytics are programmed to scan for various scenarios, capturing information from vehicles and being able to differentiate between humans, animals, and flying debris. This comprehensive approach enables remote video surveillance to proactively identify suspicious activity before any harm occurs.
If trained monitoring operators catch an intruder, they can issue a warning through an onsite speaker. If construction site trespassers persist, they can promptly contact emergency services. Often, the police will arrive before damage occurs or the suspects get away.
Video analytics relies on monitoring operators to distinguish between authorized personnel and potential threats, helping to prevent false alarms that could waste emergency resources. The synergy between human expertise and technology in remote video surveillance creates a robust security solution capable of identifying, assessing, and addressing security threats before they escalate.
The right security vendor can design and implement an integrated security system that meets your security, safety, and budget requirements. Security vendors like ECAM design customized proactive integrated security systems for construction sites that enhance security and safety.
ECAM can evaluate your jobsite to develop the right-sized security solution. In choosing to work with our team, you’ll gain access to security professionals with construction industry experience. To learn more about remote video surveillance, get your construction security guide or contact us.
