How is Technology Reshaping the Legal Needs of Development Projects?

Introduction

Construction law has always been complicated, very dependent on Case Law, which is the body of past legal decisions, and very slow to change. A significant number of the legal documents were generated by the American Association of Architects, the Professional Engineering Societies and agencies of the Federal Government. Changes have been driven by the needs of the General Contracting and Subcontracting communities through the Associated General Contractors, AGC, and the Various Subcontractor oriented Societies. The extensive use of precedent in determining legal strategies has resulted in a professional service that changed very slowly and very deliberatively. Today, the speed of technological change within the Development, Design and Construction professions is out of synch with the slowly changing legal professions but that is changing.

Technology is now reshaping the legal profession, and it is especially noticeable in the Commercial Development/Design and Construction industries. In this Posting we will address;

1- The genesis of the basic contractual agreements;
2- The impact of BIM and other visualization software. This includes the changing use of 3 dimensional modeling software and sophisticated photographic software;
3- The costs of eDiscovery to all members involved in a dispute and the absolute requirement to work collaboratively during the discovery period;
4- The Impact of dispute resolution versus litigation;
5- How are prefabricated systems changing the legal agreements?
6- What impacts will your legal support system need to respond to as the pace of change increases?

As an interesting primer, you can read an article published in April of 2014 by Andrew Ness, a partner of the law firm Jones, Day. The title is “What Lies Ahead for Construction Law and Practice”. You can find that article at

http://whoswholegal.com/news/features/article/31354/what-lies-ahead-construction-law-practice

Mr. Ness has captured the sense of how profoundly the legal profession is changing and how that could—perhaps is—changing our legal support needs on projects. Throughout this post I have referenced parts of his article, but I encourage you to read the article itself as it is very well done.

The Genesis of the Basic Contractual Agreements

The legal changes we are discussing in this Post are not simple to make, but the fact that they are well underway indicates how much the industry is changing (and how fast). Consider the various types of contracts that are currently in use for Commercial Development, Design and Construction.
– The American Institute of Architects, AIA, was a pioneer in establishing a complete set of contract documents that have been used for almost every part of the development process, from selection of the design team, to closing out the project and managing the warranty period. The AIA documents have been used for many years as a “how to” legal primer by many professional firms. You can find that document set at http://www.aia.org/contractdocs/single-documents/?gclid=CI3ru-yducICFYQ-aQodf2MAIg-

Recognizing the differences in many projects that are led by the engineering professionals and a primarily engineering design, the National Society of Professional Engineers, NSPE, established their own set of documents which you can find at; http://www.nspe.org/resources/shop-nspe/ejcdc-contract-documents
This is a jointly developed document set using input from a wide range of engineering specialties. They reflect, more closely, an engineering mindset in approaching all phases of the work—typically a progression in technical detail.

– The Federal Government has also developed their own sets of contracts that vary widely across Corp of Engineers, the various branches of the armed services and within the General Services Administration. In fact, the Army has a Regulation that addresses which documents will be used, specifically, for each application. It can be found at;
http://www.publications.usace.army.mil/Portals/76/Publications/EngineerRegulations/ER_415-1-10.pdf
This publication is essentially a “how to” in applying the other documents—and just an example of the complexity of any wide ranging changes.

– In addition, many Corporations have developed their own Development/ Construction documentation standards. The listing of those documents would be too extensive to include here but it essentially varies from company to company reflecting their internal approach to risk, process flow, procurement, safety, cash flow, etc. This is only within the US. If you work Internationally that list of documents and interpretations grows exponentially.

It is sufficient to say that the changes now ocurring in the way that projects are being designed and built will impact all of the above. Because the Development/ Design/ Construction teams are (typically) competitively selected, each technological improvement which provides a cost advantage and helps a team win work will be accompanied by significant pressure to change the current contracts and procedures to allow the improvement to be used. In addition, a great many users/owners/clients are also undergoing significant changes. Those internal changes will also be reflected in changing contracts.

The impact of BIM and other visualization software

The use of Building Information Modeling software is a given for all new commercial and most industrial projects in the US today. The software is relatively inexpensive, it is easy—though tedious- to use, and the results can be quite dramatic. The adoption of advanced models which include 3 Dimensional, 4 Dimensional and even 5 Dimensional models that include schedule and costs as dimensions are resulting in very tightly scripted models for the Delivery of a project. When things go wrong on a job site—and they often do—it is easy to track the assumptions and determine where the “fault” lies. In this light, many teams use the BIM software strictly for general drawing review and clash detection.

The sophistication of photography is another tool that can be used easily to establish a complete, 360 degree photo montage of a space that is stitched together into a complete visual model at a specific time in the construction. Google has developed a particularly robust process that uses a cell phone and viewer to allow you to send the complete 360 data file anywhere in the world—immediately. If your client is in Dubai, they can easily “walk” through a partially completed project and gain a detailed sense of the progress and quality of the work at the end of the work day, and can comment on any concerns. The cost for this technology is in the low 100’s of dollars.

3D photography can also be used to document the exact location of all steel, tendons, conduit, etc. in a slab prior to pouring concrete. Those photographs are so exact that they can be used to establish drilling points for pipe and conduit penetrations in the future on a post tensioned slab—without X-raying the slab. My suggestion would be to consider doing both, especially if the slab is post-tensioned.

Site layout can now been done robotically using GPS coordinates and the BIM model. Typically the column placement layout is done initially then as each slab is poured all of the other elements can be “placed” robotically. The installed product can also be checked against the BIM model providing an extremely precise “as-built” document. (note- perhaps drawing has become an out-of-date term).

In short—given the productivity tools that are being used on the construction site today, there exists a very clear electronic trail of the processes used to design a building and build it—at each stage. Development/Design /Construction have become Big Data players at the project level. So how does that impact the legal side? It certainly makes it easier to track exactly what occurred if a problem surfaces.

So how does this impact the legal team as they consider these new technologies?

1- The digital trail of decisions and associated documentation is precise and compelling. In a courtroom or dispute resolution proceeding that includes that digital trail there is little room for the nuances of project decision making. The legal team must understand that. The attorney or law firm with the best understanding of the strengths and weaknesses of these modeling tools will often be in the strongest position to defend/support their client in either setting.

2- There is little precedent or case law that will provide any support or defense for a claim that flows from a flawed model or a mistake within a digital model— simple or complex. Essentially the courts and arbiters are “winging it”.

3- There are a number of very complicated parametric models available to the design team. With those models one element of the design can be varied and the entire model recalculates energy use, cost, work sequencing, and related project elements. The difficulty is that those models can easily become unstable as the number of variables are increased. The legal team must understand, very precisely, the range of results that are reliable— and that understanding is a complex task itself.

4- Lastly- who do you trust? The level of complexity that these digital models bring to a project makes it imperative for the legal team to identify the “experts” they can rely on to help the arbiter or court arrive at the right answer. When dealing with the high level of data that flows from a development project, it is critical for the legal team to identify the experts that can provide clear answers— regardless of who it benefits.

Oddly— in a world that typically seeks an answer that provides a superior legal position, the best outcome in assessing digital modeling may be to provide the “right” answer.

The costs of eDiscovery to all members involved in a dispute and the absolute requirement to work collaboratively during the discovery period

Given the detailed data that is available for a project, especially the significant volume of digital representation and 3D visualization, it would seem to be simple to complete a detailed “discovery” process in the event of a dispute or litigation. That understates the complexity of today’s eDiscovery. For this portion of the discussion, I am turning to Andrew Ness’ article to let him outline the issues, as his description is one of the best I have seen;

“For those disputes still requiring litigation in a forum, such as the courts of the United States, where substantial discovery is permitted, the challenges and costs associated with discovery of electronically stored information (ESI) are changing the litigation process more extensively and rapidly than would have seemed possible a few years ago. Construction litigation has always been document and paper-intensive, and so with the arrival of electronic storage of most project documentation, construction disputes are near the forefront of the challenges of e-discovery. Two essentially opposing forces are at work in this respect. The first is cost – discovery of ESI can quickly become amazingly expensive, due not just to the need to review vast realms of data, but to the need to retain e-discovery vendors capable of collecting, maintaining, searching and filtering the mass of data that needs to be produced, as well that received in response to discovery requests. This significant addition to already high litigation cost ups the stakes considerably in deciding whether to litigate a major construction dispute, and drives many parties in the direction of settlement due to the large early investment that e-discovery involves.
The second force at work is the irony that e-discovery effectively demands much greater cooperation between the disputing parties. Gone are the days when a party responding to discovery could simply turn the other side loose in a warehouse full of document boxes, leaving them to their own devices to find the documents that are of relevant interest. To be conducted at all efficiently, e-discovery of ESI requires cooperation in the identification of a reasonable number of document custodians, and the formulation of search terms tailored to identify relevant e-mails and documents. To avoid search terms that hit on vast numbers of documents of no relation whatever to the dispute generally requires trial and error testing in an iterative process, necessarily involving a good deal of mutual cooperation. The absence of such cooperation multiplies costs for both sides. As a result, procedural rules that rightly presuppose that two litigating parties are not generally inclined to cooperate are yielding in rapid fashion to judicial demands for cooperation, or the imposition of stiff sanctions when not forthcoming.
These are opposing forces. Dispute reduction and the higher than ever cost of litigation mean that only the highest stakes, most intractable disputes go deep into the litigation process. But the parties, or at least their counsel, are at the same time under greatly increased pressure nevertheless to cooperate in the discovery process to a degree far beyond what has been the norm, in order to get their intractable dispute resolved by a neutral party. How these competing forces will play out and influence the litigation process in the years to come is beyond prediction, but well worth watching.”

The Impact of Dispute Resolution versus litigation

Litigation is costly, time consuming and typically a destructive process. It is an exercise in determining who is right, not necessarily what is right. By definition, litigation occurs in an environment where there are opposing sides and opposing view-points; where a winner and loser are declared; and rarely is a middle ground even explored.

Starting in the mid 1980’s, as large, complex, multi-hundred million dollar wafer manufacturing plants were being designed and delivered in 15 months, and as the design and construction processes were being merged into design-build projects the attitude towards litigation changed dramatically. Even the Federal Government was going through changes in their project approach as they introduced “Bridging” as a form of bringing design-build into the Federal Regulations. The litigating parties were now on the same side of the table and disputes needed to be managed internally and at a minimal cost and not by a complicated, time consuming, expensive legal process. Disputes also had to be resolved fairly and needed to preserve the integrity of the project team members—but they had to be resolved.

http://www.aia.org/aiaucmp/groups/secure/documents/pdf/aiap016387.pdf

“Partnering” was the concept that was gaining great traction and that also fit into a more collaborative work environment—which further added to the pressure to resolve issues-not litigate them.

Dispute Resolution has now become a viable and the preferred tool to manage disputes. The legal profession has encouraged this change and has introduced a consistent manner of reaching a conclusion in a dispute. It is a process that is not so intensively destructive. Interestingly, the Dispute Resolution process has increased demand for the “lawyers with deep experience and expertise who can provide efficient and effective advice on a wide range of other issues, such as structuring, drafting and negotiating contracts and responding to a variety of environmental and regulatory issues”. It has also reduced the need for a significant number of the support legal staff.

There is a downside. The dispute resolution process does not result in legal precedent, historically the lynch pin upon which much of the future legal interpretation rested. That is a change that might have even more impact in the future. A resolved dispute does not result in public documentation that can be used to guide future projects.

How are prefabricated systems changing the legal agreements?

Prefabrication has been addressed at length in the 3 previous posts. It is an important issue as it changes the internal discussion from a traditional construction process, to a hybrid process of construction and manufacturing. Payment schedules, changed conditions, quality control procedures, warranties are all impacted by a stronger manufacturing focus. It is an entirely new overlay on the traditional design and construction process. It is important enough to include in this posting by reference as it changes the traditional design and construction process to something more like a vendor relationship. It also is a quite different from a construction sub-contractor as the finished product may continue to be owned and maintained by the manufacturer through-out its life. I refer you to posts 7 thru 9 for better detail. Note- post 9 is in development.

What impacts will your legal support system need to respond to as the pace of change increases?

It is a given at this point that the legal practice is going through extensive change, and a significant portion is driven by technological shifts that are going thru the design team and the construction team. Computational power is cheaper and more pervasive. Litigation is still prominent but less desirable- certainly in the design and construction processes. Staff size is decreasing while the need is growing for more experienced and knowledgeable legal representation.
So what considerations should be included as you/we consider our legal representation needs in the future?
1- The lead counsel must have extensive, hands-on experience in the areas of design and construction law and documentation. As noted in Mr. Ness’s article, a single specialist or specialized legal team is required.
2- A range of specific contract experience across a number of project types is also preferred-perhaps required.. As the design and construction industries change to multiple delivery formats – using design- build, or multi-trade prefabrication, or traditional design-bid-build approaches or some combination of all of these, the legal team must understand the nuances of each and be able to craft an agreement to includes those nuances.
3- The legal team must have a deep understanding of the use of Building Information Models; paperless documentation of designs, as-built drawing and submittals; the implication of wide spread use of project data bases in real-time during construction; the use of automated billing systems when materials are delivered to the project site and checked in using scanning techniques; and so much more. They must be as highly specialized as the design and construction team is.
4- The legal team must be consensus builders as the project is in development, and they must be able to deal with disputes during construction when and as they occur.
It is likely this team will consist of many specialists and a team deeply steeped in problem resolution early in the life of a project and before there is any need to discuss Dispute Resolution or Litigation.

The great irony of the current contractual process- whether for design-bid-build, design-build, design-assist, turnkey (another type of design build) or similar teaming processes, is the implication that the design team and the building team are being moved to the same side of the negotiation table, with the owner and owner’s representation (either external or internal) on the opposite side of that table. The design team and build team are bound contractually to each other and to the owner by a set of contracts that have not recognized the enormous technological change underway in the industry, and the documents pay only lip service to the concepts of “partnering”, “teamwork” and “alignment of outcomes”. Yet—the project teams spend a significant part of their selling process explaining how they build those partnerships, internally, to the benefit of the owner. Perhaps that deficit will be the catalyst of further legal change.

Epilogue

I am grateful that people are reading these Posts and received a comment from Stephen Gurr, Attorney (construction Specialist), at Bryan Cave regarding this topic. I have been given permission to share the comments:

He is right on the money as to electronic discovery issues and expense, particularly where there is no incentive to collaborate and preserve the integrity of project team members involved in a dispute.

On the discussion of dispute resolution versus litigation, I agree with his point that the process of resolving disputes privately through arbitration/partnering has led to the absence of publicly-available precedent and isolated silos of knowledge only held by experienced senior attorneys. There is an identifiable trend that will accelerate over time where fewer professionals and firms possess the tools and experience to structure and resolve disputes on projects with these partnering arrangements. It would be terrific if AAA or JAMS could address this data gap by producing anonymous ‘digests’ or reports of their neutrals’ holdings, akin to what Wests does in the state and federal courts. I suspect practitioners would subscribe for a premium.

James (Jim) McGibney– Author