Artificial Intelligence in Construction Part II: Image Recognition and Sensors-on-Site

Joseph A. Cleves, Jr. | Taft Stettinius & Hollister

In this article, we continue our series on artificial intelligence (AI) in construction. Here we address image recognition and sensors-on-site. This technology uses cameras and other sensors to assess vast quantities of video, pictures, and other recorded conditions from worksites. Such technology has the potential to: (1) monitor worksite conditions for safety risks and hazards; (2) enhance equipment and material management, boosting productivity; and (3) improve worker safety by identifying unsafe behavior to inform future training priorities. 

Firms can leverage machine-learning techniques with image recognition programs to keep workplaces accident free and increase work efficiency. For example, Suffolk, a Boston-based general contractor with about $4 billion in annual revenue, is already developing predictive algorithms to monitor safety risks. Suffolk collected over 700,000 images, taken from over 360 job sites in the last 10 years, and uploaded them to startup Smartvid.io’s cloud-based platform. The algorithm analyzed the images to identify safety hazards, like workers not wearing proper protective equipment. Suffolk plans to expand the algorithm also to identify tripping hazards from tools and equipment lying around on sites. The algorithm will then compare the images scanned with Suffolk’s accident records to inform future training opportunities.

Suffolk is also exploring ways to use sensors-on-site and the internet of things to improve work efficiency. The advantage of having real-time data from connected devices is that workers can easily locate equipment on the job site and contractors can track materials from suppliers. Workers will not only find the tools and equipment they need on site faster, but more importantly, they will also know whether the tools are currently in use. Contractors will be able to track the location and arrival of important materials like concrete supply trucks en route to job sites. Knowing where available tools are and exactly when critical materials will arrive can reduce downtime and increase productivity through better planning and resource allocation. 

In the future, image recognition and sensor-on-site technology coupled with machine-learning techniques could also be applied to assess issues with quality control. By analyzing real-time data from sites, engineers can potentially detect defects in design. Catching project design deviations earlier creates a better opportunity to rectify them and limit any associated costs. With frequent monitoring, engineers may be able to detect the potential for critical failures or events with enough warning to limit, or even prevent, the occurrence. This can be applied not only to structures, but also heavy machinery.

A 2017 McKinsey report estimated that construction firms could increase productivity by as much as 50% through real-time analysis of data. The desire to capitalize on this opportunity to boost the industry’s generally low productivity is compelling construction firms to invest in AI. As construction companies incorporate more AI and machine learning into their business and worksites, new legal concerns associated with this implementation will arise. Some unanswered legal questions are the allocation of risk, responsibility for malfunctions and resultant damages, and the confidentiality and privacy of the data.

A primary concern for construction industry stakeholders will be what new duties and responsibilities will accrue to those who implement and use such technology. With the potential to identify safety hazards or unsafe working conditions, an open question arises: Who has the duty to observe or monitor the information? How closely and actively must sensors be monitored? Will there be a duty to act upon identified risks, or merely a duty to disclose? Will using this technology contribute to a party’s constructive knowledge regarding unsafe conditions that result in injuries or potential failures to meet contractual obligations? When something does fail, who will be responsible for repairs or the costs? How will the data be stored, who has access to it, and how will privacy and confidentiality be secured? In summary, contractors may unknowingly be opening themselves up to additional risks, liability, and greater responsibility with the information this technology provides. While most of these questions can be addressed through careful contractual drafting, stakeholders will have to think through these questions and possibilities. To reach acceptable risk allocation as AI usage in construction increases, parties should be prepared to negotiate these terms in any agreement very carefully.

Artificial Intelligence in Construction: Part I

Joseph Cleves, Jr. | Taft Stettinius & Hollister

Introduction

Artificial Intelligence (AI) is a broad term that generally refers to technology that uses algorithms to process data and simulate human intelligence. Examples of AI technology include machine learning, image recognition and sensors-on-site, building information modeling (BIM), and “smart contracts” stored on a blockchain-based platform. This technology can be used in the construction industry by way of design, operations and asset management, and construction itself. Construction leaders interested in staying ahead of the curve should consider its advantages, and the legal implications.

This article will discuss our first AI-related topic: Machine learning. In three subsequent articles we will discuss (1) image recognition and sensors-on-site; (2) building information modeling; and (3) smart contracts.

Machine Learning

Machine learning is a subset of AI, but it is the basis for the vast majority of AI technology. Machine learning at its core is a simple process: using an algorithm and statistics to “learn” from huge amounts of data. The data doesn’t have to be just numbers; almost anything that can be digitally stored or recorded can be used by a machine learning algorithm. This type of technology can be used to recognize patterns, extract specific data, make data-driven predictions in real time, and optimize many processes.

Machine learning’s ability to process and detect patterns in large amounts of data makes the technology ideal for data-intensive tasks like scheduling and project planning. To aid in project planning, machine learning technology can include the process of “reinforcement learning.” That is when an algorithm applies automatic trial and error. This is different than the usual process of humans collecting, labeling, and categorizing the underlying data that machine learning relies on. The autonomous process of reinforcement learning allows the technology to offer optimized suggestions efficiently and continuously based on previous, similar projects. It also allows the technology to help assess risk in a project, constructability of a project, and various materials and technical solutions for a project.

Firms can use machine learning to identify risks, such as when certain assets will need maintenance, by using data on various machines and equipment. The machine learning technology then analyzes the data to predict when preventive maintenance will be needed. This can increase efficiency by avoiding the need to take assets out of operation due to a breakdown. 

These examples of risk management and project and design optimization just scratch the surface of how machine learning can be applied. This technology can optimize virtually any process that generates data, such as bidding, pricing of fixed-price contracts, recruiting and talent retention, and inventory management. To begin implementing machine learning, firms should identify processes where optimization from this technology would maximize return on investment.

For companies interested in using machine learning, it will be important to address the issue of risk allocation in the contract documents because the state of the applicable law is not clear. The parties should map out precisely who will own the risk associated with the technology and what degree of liability a party is taking on. This issue is especially important depending on who owns the technology – the construction firm, or a third party. If a construction firm owns the majority of the risk associated with the technology, then the adoption of machine learning technology in construction may decline.

Lastly, the parties will need to determine who will own the data that the technology records and uses and whether the data needs to be protected. Parties will need to determine how that data can be used by the company supplying the technology or other third parties, if at all. That issue is particularly relevant if the technology is provided by third parties who want to use the construction firm’s data to refine their technology. And, if the data needs to be protected, the parties will need to negotiate contract terms that dictate the protection protocols. 

This article has just scratched the surface. Look for the next installment on image recognition and sensors-on-site next month.

Court Holds That One-Year SOL Applies to Disgorgement Claims Under B&P Section 7031

Garret Murai | California Constructin Law Blog

We’ve talked before about Business and Professions Code section 7031 which courts have referred to as “harsh[ ],” “unjust[ ]” and even “draconian.” Under Section 7031, a contractor performing work requiring a contractor’s license, but who doesn’t: (1) is prohibited from suing to recover payment for work performed; and (2) is required to disgorge all money paid by the project owner for work performed. This is true even if the project owner knew that the contractor was unlicensed, the contractor was only unlicensed during part of the time it performed work requiring a license, and even if the work performed by the contractor was free of defects. In short, it’s the nuclear bomb of remedies against a contractor.

However, until now, no court has addressed when a project owner is permitted to raise a Business and Professions Code section 7031 claim against a contractor. In the next case, Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc., Case No B297247 (August 26, 2020), the 2nd District Court Appeal finally answers this question.

The Eisenberg Village Case

In 2007, project owner Eisenberg Village of the Los Angeles Jewish Home for the Aging entered into a construction contract for construction of a senior home with contractor Suffolk Construction Company, Inc. Suffolk completed its work in June 2010 and Eisenberg paid Suffolk just over $49 million.

After residents began to move into the senior home problems developed with the hot water supply. The hot water was above the level allowed by law and the California Department of Social Services ultimately issued a citation. Suffolk agreed to work with Eisenberg to try to fix the problem.

In June 2013, Eisenberg filed a complaint against the project architect, DLR, for breach of contract and negligence alleging issues with the HVAC system, hot water delivery system, plumbing, and plumbing fixtures. Eisenberg did not sue Suffolk because Suffolk had agreed to try to fix the problem. While Suffolk tried to fix the problem, Eisenberg and Suffolk entered into a tolling agreement. The tolling agreement expired in 2014.

In March 2014, Eisenberg amended its complaint to add Suffolk as a defendant alleging the same breach of contract and negligence claims it had alleged against DLR and in May 2015 added a claim for disgorgement against Suffolk under Business and Professions Code section 7031 on the ground that Suffolk’s qualifier, Gregory Hescock, who had moved from Suffolk’s Irvine office to Suffolk’s Boston office in 2008, did not exercise “direct supervision and control” over the project in violation of Business and Professions Code section 7068. In short, that Hescock was a “sham qualifier.”

After an unsuccessful demurrer filed by Suffolk as to the disgorgement claim and an unsuccessful motion for summary judgment filed by Eisenberg on the same claim, Suffolk filed a motion for summary judgment claiming that Eisenberg’s disgorgement claim was time barred because it was not brought within one year of the time Eisenberg filed its claim against Suffolk under Code of Civil Procedure section 340 which provides for a one-year statute of limitations for actions under a statute providing for penalties or forfeiture.

The trial court agreed and Eisenberg appealed.

The Appeal

On appeal, Eisenberg argued that Code of Civil Procedure section 340 and that a three or four-year statute of limitation should apply because:

  1. There is no statute specifying the limitation period under Business and Professions Code section 7031 and, therefore, Code of Civil Procedure section 343 which provides a “catch-all” four-year statute of limitation applies;
  2. Section 7031 is akin to a restitution claim under the unfair competition law which provides for a four-year statute of limitations;
  3. Other provisions of the Contractors License Law provide for a four or three-year statute of limitation; and
  4. Disgorgement is similar to a refund or restitution for which Code of Civil Procedure section 338 provides for a three-year statute of limitations.

Eisenberg further argued, that even if a one-year statute of limitation applied,  it was not aware that Hesckock had moved from Irvine to Boston until it received this information through discovery in 2014.

The Court of Appeal, finding that Business and Professions Code section 7031 should be construed as a statute providing for a penalty as opposed to restitution (i.e., the return of money improperly taken), and that the one-year statute of limitation under Code of Civil Procedure 340 applied to disgorgement claims under Section 7031, explained:

Eisenberg contends that section 7031(b) disgorgement is not a penalty, but rather is restitution. In making this contention, it points to the Supreme Court’s definition of restitution in Clark v. Superior Court (2010) 50 Cal.4th 605 (Clark): “The word `restitution’ means the return of money or other property obtained through an improper means to the person from whom the property was taken. [Citations.] `The object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.’ The Supreme Court contrasted restitution, which it noted “is not a punitive remedy” (ibid.), with a penalty, which it described as “a recovery `”without reference to the actual damage sustained.”‘”

Eisenberg argues that, since section 7031(b) measures the recovery as “what was taken from the plaintiff,” it constitutes restitution rather than a penalty. However, contrary to Eisenberg’s characterization, recovery under section 7031(b) is not of something that was “taken”; it is recovery of compensation paid under the terms of a contract. Section 7031 does not invalidate that contract. Rather, it precludes an unlicensed contractor (but not the other party to the contract) from enforcing the contract (§ 7031, subd. (a)), and, if the other party to the contract brings a timely action, it requires the unlicensed contractor to return all compensation received from that party, regardless whether that party sustained any actual damage (§ 7031(b)). Moreover, recovery of all compensation paid to the unlicensed contractor does not—and is not intended to—”restore the status quo.” Instead, for reasons of policy (to deter contractors from operating without a valid license), it provides a windfall to the plaintiff, at the expense of the unlicensed contractor, since the plaintiff also retains the work completed by the contractor.

When viewed in this context, it is clear that the disgorgement provided in section 7031(b) is a penalty. It deprives the contractor of any compensation for labor and materials used in the construction while allowing the plaintiff to retain the benefits of that construction. And, because the plaintiff may bring a section 7031(b) disgorgement action regardless of any fault in the construction by the unlicensed contractor, it falls within the Supreme Court’s definition of a penalty: “a recovery `”without reference to the actual damage sustained.”‘” Accordingly, we hold that CCP 340(a), the one-year statute of limitation, applies to disgorgement claims brought under section 7031(b).

Having determined that the one-year statute of limitation under Code of Civil Procedure section 340 applies to disgorgement claims under Business and Professions Code section 7031, the Court of Appeal turned next to when the one-year statute of limitation begins to accrue (i.e., when the clock starts to run).

Addressing first the “discovery rule,” which provides that a statute of limitation period does not begin to accrue “until the plaintiff discovers, or has reason to discovery, the cause of action,” the Court of Appeal held that the “discovery rule” does not apply to disgorgement claims under Business and Professions Code section 7031:

In light of the equitable basis for the discovery rule, it makes little sense to apply the rule to claims for disgorgement under section 7031(b). A section 7031(b) claim does not require that the plaintiff suffer any injury, or at least an injury in the sense used by the courts to justify an equitable exception to the ordinary rules of accrual. The fact that a contractor does not have a valid license does not, by itself, cause the plaintiff harm (other than, perhaps, some sort of psychic harm in knowing that he or she hired someone who was not in compliance with the law). Moreover, the disgorgement mandated by section 7031(b) is not designed to compensate the plaintiff for any harm, but instead is intended to punish the unlicensed contractor. Thus, holding that the discovery rule does not apply to section 7031(b) claims does not produce a harsh result for plaintiffs. To the extent a plaintiff does suffer an injury caused by an unlicensed contractor that is not easily or immediately discoverable, the discovery rule would continue to apply to other claims seeking recovery for any damages the plaintiff suffered.

In contrast, if we were to hold that the discovery rule applied, it would be nearly impossible to formulate rules for its application that could be consistently applied while staying true to the policies underlying statutes of limitation, i.e., “protecting parties from `defending stale claims, where factual obscurity through the loss of time, memory or supporting documentation may present unfair handicaps’ . . . [and] stimulat[ing] plaintiffs to pursue their claims diligently.” Since section 7031(b) does not require any injury to the plaintiff, what kinds of facts would give rise to a reason to suspect a factual basis for the claim? If the plaintiff has no duty to investigate whether the contractor was properly licensed absent some sort of facts that would put him or her on notice, there would be, in effect, no time limitation at all in most cases.

Having determined that the “discovery rule” does not apply, the Court of Appeal held, without much analysis, that a disgorgement claim under Business and Professions Code section 7031 accrues or begins to run “when an unlicensed contractor completes or ceases performance of the act or contract at issue.” And, here, explained the Court, Suffolk completed its work on the project in June 2010, and while it performed additional work to remedy the hot water issue in 2012, and while it is unclear “whether such work would be considered to be work under the original Contract or under a new agreement,” Eisenberg did not allege its disgorgement claim under May 18, 2015.

Conclusion

Eisenberg is a hugely important case for project owners. At present, it is the only case addressing the statute of limitations applicable to disgorgement claims under Business and Professions Code section 7031, and while there is the possibility that another court of appeal could find differently, at least for now Eisenberg is the law of the land in California. A couple of important take-aways for contractors and project owners.

  1. If you think you might be bringing a disgorgement claim under Business and Professions Code section 7031 you should do so quickly and in no event no later than one year from completion of a project; and
  2. Eisenberg applies to disgorgement claims. Arguably, and I would say logically, it would not apply to claim preclusion under Business and Professions Code section 7031 since a project owner would not be able to raise a claim preclusion defense until a contractor files a payment claim against a project owner which could be as long as four years after work is performed.

Guidance on Using Drones for Real Estate and Construction in Dense Cities: How Much Does the Public Value Privacy? (Part II)

Kathryn Rattigan | Construction Law Zone

As our previous post stated, the commercial use of drones, or small unmanned aerial systems (sUAS), for urban real estate and construction has gained some traction with the passage of the New York City Council’s bill requiring the Department of Buildings (DOB) to study the feasibility of using sUAS to inspect building facades. With this new bill, as well as other metropolitan cities surely following suit, one of the biggest issues on the forefront for the public at large is privacy.

Think about it: how would you feel if a drone flew over your house while you were in your private backyard, enclosed by a fence, sunbathing? Watering your garden? Playing soccer with your kids? Or sitting at your desk and a drone hovered by your window? Your answer probably rests on who was flying the drone and the reason why they were flying the drone. However, generally, if you are like others across the U.S., you would probably have some privacy concerns. As bills like the New York City Council’s bill above pass, the public wants to know how these proliferous drones will affect their privacy and what the legal limits are for these drones.

The Federal Aviation Administration’s (FAA) sUAS regulations (Part 107) do not address privacy issues. Essentially, as long as the drone operator is compliant with operational restrictions and obtained appropriate waivers and permissions as needed, there are no other federal restrictions regarding flights when it comes to preserving public privacy -even over your backyard or in front of your office window in the skyscraper where you work.

If you look at the public perception of drones and privacy, generally (of 1,047 participants in a recent study from last year by the College of Aviation at Embry-Riddle Aeronautical University) most people said that they were not concerned about hobbyists, construction and real estate companies, but more concerned with drones operated by the government, military or law enforcement, with unmarked drones generating the most privacy concerns.

So where do we stand on privacy and drones in the United States? Well, it’s a gray area. As noted above, the FAA’s Part 107 rule does not specifically deal with privacy issues, and the FAA does not (and has not agreed to) regulate how sUAS gather data on people or property. The FAA says that it “strongly encourages all [s]UAS pilots to check local and state laws before gathering information through remote sensing technology or photography.” Where does that leave us? Where should companies look for guidance?

Back in 2016, privacy groups and industry stakeholders that were participating in the National Telecommunications & Information Administration (NTIA) Multi-Stakeholder process released a set of best practices for commercial and private drone use. Participants included Amazon, AUVSI, Center for Democracy and Technology, Consumer Technology Association, CTIA, FPF, Intel, X (formerly Google X), New America’s Open Technology Institute, PrecisionHawk, SIIA, Small UAV Coalition, and many media organizations. Those ‘best practices’ included:

  • Informing others of your use of drones (i.e., where reasonable, providing prior notice to individuals of the general timeframe and area where you may anticipate using a drone to collect identifiable data);
  • Showing care when operating drones or collecting and storing personally identifiable data (i.e., retaining only information that you must retain and de-identify information when possible);
  • Limiting the use and sharing of identifiable data;
  • Securing identifiable data; and,
  • Monitoring and complying with evolving federal, state and local drone laws and regulations.

This is a great place to start. This list brings us back to the basics of privacy. Whether its collection of information from consumers or employees or data gathered through a drone, it all comes down to transparency. However, these are only best practices -not laws or regulations. So is there any accountability? We’re working on it; the industry, the FAA, local and state lawmakers. Right now, we have to look to a smorgasbord of privacy and aviation laws and apply them to drone flights and data collection.

From a federal perspective, the FAA Part 107 rules do not allow for flights over people unless the pilot obtains a special waiver. In New York City for example, you’ll be hard pressed to find a street that isn’t densely swarmed with people. Further, most of New York City is controlled Class B airspace because of the airports. Again, to fly in these areas, the pilot would need FAA authorization. This is not to say that the FAA won’t issue a waiver or provide the authorization.

But, the FAA has now proposed a rule for flights over people. The rule will allow drone flights over people if the drone falls within one of three new categories, which are based on injury-risk factors. Drones in the highest-risk category will be prohibited from hovering over open-air assemblies of people unless they are in a closed or restricted-access area, like a stadium, and have been notified of the drone operation. Further, any drone that will fly over people must bear a label identifying its category, except those in the lowest-risk category (i.e., drones weighing .55 pounds or less). Manufacturers of drones weighing more than .55 pounds who want them to qualify for flights over people must certify that the drones meet specified impact-force thresholds and will not contain exposed propellers or rotating parts that will cut human skin. They also must provide pilot instructions, allow FAA inspections, have procedures to notify the FAA and the public of safety defects, and keep records related to the drones. NOTE: nowhere in this proposed rule is privacy addressed. Again, the industry and stakeholders must weigh in and create a standard if the law lags behind.

However, recently, the FAA also proposed a rule on remote identification of sUAS.  The rule would facilitate the collection and storage of certain data such as identity, location, and altitude regarding an unmanned aircraft and its control station. The comment period for FAA’s published the notice of proposed rulemaking on remote identification closed on March 2, 2020. The FAA is now targeting 2021 as the launch of its remote ID program. It would permit police officers, aviation authorities and other public officials to search for a drone by a broadcast unique identifier and find out who the operator is. Will this make the public more at ease? If a drone is hovering, with no markings, and you call your local police department, presumably they’d be able to identity the individual operator and take action. We’ll see what the future holds.

While the future of drones and privacy is unclear and still evolving, one thing is certain, to ensure that drone technology benefits society as a whole, any frameworks proposed should include an eye towards privacy.

Landmark Contractor Licensing Case Limits Disgorgement Remedy in California

Candace Matson | Construction & Infrastructure Law Blog

Contractors performing work in California are required to be licensed by the California State License Board (“CSLB”).  Cal. Bus. & Prof. Code §7065.  Except for sole proprietors, contractors are typically licensed through “qualifiers,” i.e., officers or employees who take a licensing exam and meet other requirements to become licensed on behalf of the contractor’s company.  Contractors who perform work in California without being properly licensed are subject to a world of hurt, including civil and criminal penalties (see, e.g., Cal. Bus. & Prof. Code §§ 7028, 7028.6, 7028.7, 7117, and Cal. Labor Code §§ 1020-1022), and the inability to maintain a lawsuit to recover compensation for their work.  Cal. Bus & Prof. Code § 7031(a); Hydra Tech Systems Ltd. v. Oasis Water Park, 52 Cal.3rd 988 (1991).

But arguably the worst ramification of not being property licensed is that established in Business & Professions Code Section 7031(b), which provides that any person who uses the services of an unlicensed contractor may bring an action for the return of all compensation paid for the performance of the work, commonly known as “disgorgement.”  This remedy is particularly harsh (often described as “draconian”) because it makes no allowance for the fact that an unlicensed contractor will likely have already paid out the bulk of its compensation to its subcontractors, suppliers and vendors, but nevertheless can be ordered to disgorge all compensation.

Given the complexity of California’s contractor license law, the disgorgement penalty threatens not just contractors who willfully evade licensing, but also those who inadvertently fail to keep their license current, those who are improperly licensed for the specific work they are performing, and those who do not meet particular underlying licensing requirements, e.g., failure to maintain workers compensation insurance unless truly exempt, and (arguably) failure of the qualifying agent to have sufficient supervision and control of his or her employer’s or principal’s construction operations.  Project owners, in particular, have used disgorgement actions as both a sword and a shield in disputes with their general contractors.

In a new opinion addressing issues of “first impression” (i.e., never ruled on previously), Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, Inc. (2d App. Dist, B297247), filed August 26, 2020, the Court makes two significant holdings.  The first is that the time in which a disgorgement action can be brought (known as the statute of limitations) is only one year.  The second is that this one-year statute of limitation starts to run (accrue) on the date contractor’s work ceases — not from the date when the license violation is discovered.  The basis for the first holding is that disgorgement is both a liability created by statute and a penalty, and therefore falls under Code of Civil Procedure Section 340(a), a one year statute of limitations.  The basis for the second holding is that the discovery rule of accrual is based in equity, whereas a disgorgement claim is not intended to compensate claimant for any injury, but to punish the unlicensed contractor, and therefore is not subject to equitable considerations.

This ruling is a huge win for contractors because it significantly limits the time during which they are exposed to possible disgorgement for non-licensure or for license violations that equate to non-licensure.  In contrast, it deprives unwary owners of the ability to assert a disgorgement claim unless they become aware of the licensing violation within one year of the project’s completion (though owners retain the ability to assert other causes of action for longer periods, e.g., two years for negligence, four years for breach of contract, etc.).

In light of Eisenberg, at the outset of a project, a prudent owner will ascertain who the license qualifier is for its general contractor and document his or her involvement in the project from beginning to end (since certain supervisorial requirements must be met by an employee qualifier in order for the license to be valid).  At the end of a project, a prudent owner will also review its contractor’s  license status from the date of the bid through final completion.  Not all owners will bring a disgorgement action against an unlicensed contractor who performed a project well.  But few will want to forfeit their right to bring such an action by waiting more than a year following final completion to ascertain whether they have the grounds to do so.