The Legal Risks of Using AI to Manage Construction Disputes
AI has become a useful tool for contractors, subcontractors and project owners. It can help draft correspondence, summarize contracts, organize project records and identify potential issues. The problem arises when AI becomes the first — and sometimes only — source of advice when a construction dispute is in its early stages.
We have seen a significant increase in new litigation files where the parties have spent considerable time trying to manage a dispute themselves, often with the assistance of AI. By the time the matter reaches us, positions have been taken, lengthy correspondence has been exchanged, allegations have been made, and sometimes contractual steps have been missed. The vast majority of correspondence our team of construction lawyers is forced to review on these files can only be described as “AI slop”.
Relying on AI to take positions in writing, often over a period of several months, can make an already difficult dispute much more difficult to resolve. Construction disputes are rarely as straightforward as they may initially appear. The answer usually does not depend on one contract provision or one email. It can depend on the entire project history, the contract documents, changes in scope, notices, site conditions, schedules, payment records, meeting minutes, daily reports and the conduct of the parties. It is also of key importance to consider what was said, when it was said, and why it was said.
AI can review a contract and tell you what a particular clause appears to say. It may even identify arguments that could be made. What it cannot reliably do is exercise legal judgment about the broader consequences of taking a particular position in the context of the entire project. For example, an owner dealing with delay may ask AI to draft a strong letter putting the contractor on notice of default. The resulting letter may sound reasonable. But before sending it, someone needs to consider whether the owner has actually satisfied the contractual requirements for default, whether the owner has contributed to the delay, whether the required notices have been given, and what consequences may flow from taking that position. Sending such letter may in fact expose the owner to a wrongful termination claim on account of an argument surrounding repudiatory breach of the contract.
The same concern applies to contractors and subcontractors. A contractor responding to an alleged deficiency may use AI to prepare a detailed denial of responsibility. The contractor may believe it is protecting itself by sending such responding letter. But the response could inadvertently make an admission, take an overly broad position on the scope of work, reject responsibility for something it may ultimately be responsible for, or create a written record that will later be relied upon in litigation.
Another issues is that once parties have taken a position, they tend to become entrenched. We see this scenario play out often. A relatively manageable disagreement develops into a series of increasingly aggressive AI-generated letters. Each side responds to the most recent letter, resulting in the parties becoming more and more entrenched in their respective positions. One party may threaten termination. The other may threaten a lien or lawsuit. The parties continue down the same path because they have already invested significant time and money in defending their position.
By the time we are retained, we must now turn our minds to how to deal with the positions that have already been taken, and whether those positions can be unwound or stepped back without compromising the client’s credibility. This is where we are seeing a significant amount of "stickhandling" on new litigation files. Unfortunately, in several cases to date, the parties have gone so far down a particular disputed path that there is little we can do to put them back in the position they would have been in had our firm been retained earlier.
We recognize that contractors, subcontractors and project owners do not need to call their lawyer every time there is a disagreement on a project. But when a dispute starts involving significant money and potential damages claims, delay, responsibility for defective work, payment, termination, changes, back-charges or the possibility of litigation, it is in our view very much worthwhile getting legal advice before taking a definitive position in writing. We often tell clients that litigation does not start when a claim is advanced in Court. It starts well before that, when the dispute is first taking shape. At that stage, we can work in the background to help manage the communications, documentation and evidentiary record in a way that protects the client’s position and puts them in the best possible position if litigation is ultimately commenced.
Early legal advice is not just about winning a lawsuit later. It is about avoiding the lawsuit in the first place, reducing ultimate legal spend on the dispute, preserving options, reducing liability and making sure that the decisions being made today do not create problems six months from now.
