Smart Construction and the Future of the Construction Industry

Caroline A. Harcourt, James W. McPhillips and Adam J. Weaver | Gravel2Gavel

Smart Construction” is a loose term but generally refers to the development and use of processes and applications that improve construction planning and the management of projects (thereby potentially streamlining costs of construction).

The increased deployment of collaboration tools (e.g., Zoom, Microsoft Teams, WebEx) and other cloud-based technology solutions during the COVID-19 pandemic will invariably result in more efficient project management in construction going forward. These type of efficiencies are sorely needed, especially as the industry is trying to recover from supply chain issues, lockdown challenges and social distancing requirements resulting from the pandemic.

However, smart construction goes well beyond those basic business efficiency and collaboration tools. For example, drones are regularly used on construction projects to monitor site conditions, detect problems, and assess conditions safely. Meanwhile, newer technologies such as “programmable” cement, “self-healing” concrete, and autonomous and robotic machinery are increasingly being deployed in construction projects. And yet, these current technology solutions are just the tip of the iceberg as researchers continue to look for new ways machines and technology can be used to solve complex engineering challenges.

Improving Safety, Increasing Productivity
Often overlooked, construction remains one of the deadliest occupations, with over 1,000 deaths annually according to the 2019 Census of Fatal Occupational Injuries (CFOI) from the Bureau of Labor Statistics.

Innovative cloud solutions, such as building information models (BIM), offer increased resource and safety visibility enhancements to virtually track and optimize resources and equipment (and potentially improve job site safety). With 3D modeling technology, BIM manages and synthesizes project data and provides visuals for on-ground analysis. BIM allows contractors, workers and project participants to view precise details of a building and the building’s design and construction using drones, visual 3D renderings, and environmental data, which removes the need for individuals to visit potentially dangerous project sites in person. Data integration allows workers to visualize a finished project such as pipe placement, electric wiring, or even potential foundation hazards while in its physical location. The implementation of data analytics can also help project managers detect patterns to determine when and where most accidents occur and which variables play a factor in those accidents. This will enable contractors and project managers to prioritize certain tasks at certain times to avoid unsafe conditions and avoid common issues that lead to accidents, which in turn will increase the safety on their site.

In addition, BIM’s emphasis on collaboration allows for instantaneous views of project logistics. Indeed, using the data from manufacturers, BIM can relay live lead times for the production of construction materials. Smart construction can also take advantage of augmented and virtual reality to increase productivity without incurring significant costs. Architects, engineers, designers, and even tenants can “see” the finished product through augmented or virtual reality, which would provide each of them an opportunity to make structural or architectural changes without having to undo any of their previous work on incur additional costs. Ultimately, the adoption of data sourcing technology such as BIM and other smart construction will improve construction project safety and result in cost savings and increased productivity and efficiency.

According to McKinsey, recent research has shown that a digital transformation can increase productivity by 14 to 15 percent and reduce costs by up to 6 percent. The value “smart construction” can bring to the redevelopment and optimization of the construction industry is a solution that is necessary, and the key to keep up with the fast-moving world of engineering, construction and operations.

Sustainability
Innovations in construction are also allowing for more “sustainable” design and construction. Sustainable design or “green construction” refers to the structure and application of environmentally responsible and resource-efficient processes throughout a construction project. Examples of such innovations include the use of solar power on buildings, the use of biodegradable materials in a building, the use of green insulation (for example, using recycled denim and newspaper instead of non-renewable materials) and the use of tiny electric signals embedded in glass windows or facades (known as electrochromic smart glass) that alter the amount of solar radiation that can be reflected and therefore reduce energy consumption.

By adopting “smart construction or construction tech,” many contractors, owners, property owners, and developers could find innovative ways to decrease the financial burden of construction projects and meet new regulatory standards for building practices. For example, contractors could use data analytics and detecting devices to track releases of certain chemicals to ensure that they are running their site in an environmentally friendly way. With the advances in 3D printing, contractors could also find ways to print commonly used products using recycled materials as a way to lower their overall footprint and increase the sustainability of their project. As the country moves into a new era of digital connectivity after the pandemic, adopting smart construction tech will become a necessity rather than an option. And as legislators look to regulate sustainable building, smart construction provides a simple solution for an industry looking to maintain growth.

Construction Industry Trends And Predictions Through 2021 And Beyond: Insurance And Emerging Threats

Krista D. Warren | Brennan Manna & Diamond

A 2021 survey identified three key issues impacting the construction industry in 2021: (1) the financial health of contractors; (2) the continuing risk of the pandemic; and (3) technology driving productivity, but also increasing the risk of cybersecurity threats. With this backdrop, insurance premiums in the construction industry are generally on the rise in 2021.

Overmyer Hall Associates, as a Columbus-based commercial insurance broker, provided the following rate outlook for 2021:

Type of InsuranceRate Increase Outlook
Property+5% to 10%
Contractors EquipmentFlat to +10%
General Liability+5% to 15%
Builders RiskFlat to +5%
Builders Risk – Frame+10% to 20%
Umbrella/Excess+10% to 20%
Executive Risk – EPL, Crime, Fiduciary, Cyber+10% to 25%

Overmyer explained that builders risk insurance rates related to large frame projects (e.g. large hotels, multifamily complexes) have been on the rise because, generally, the number of carriers in the marketplace is shrinking. Moreover, there are an increased number of terms and conditions placed on larger frame projects by underwriters, such as specific and intensive security guidelines. Overmyer does not project the builders risk insurance in large frame projects will change anytime in the near future.

Another area of coverage with rates on the rise is cybersecurity. With the adoption and integration of technology in the construction industry, there has been an uptick in cyberattacks. For example, in early 2020, Bird Construction, a major Canadian Military Contractor, was a victim of a Maze ransomware attack in which hackers demanded approximately $9MM in exchange for a decryption key. Cyberattacks can result in, among other things: downtime on a project, breach of intellectual property, breach of bid data, and potential property damage. As these attacks become more widespread and sophisticated, cybersecurity insurance rates continue to rise at a higher rate.

To prevent cybersecurity threats and/or potential attacks, contractors are encouraged to have a risk assessment conducted by an IT professional, which can sometimes be coordinated through the contractor’s CPA. Other internal measures that contractors can take to defend against cybersecurity threats include: (1) providing training and information about cybersecurity to employees; (2) implementing multifactor authentication (MFA) to mitigate exposure when employees do make mistakes; (3) protecting sensitive data against back-end access in web applications; and (4) having a comprehensive, multifaceted strategy for addressing security needs. Even with the rise in rates, those in the construction industry should obtain and maintain cybersecurity insurance in the event of a potentially crippling cyberattack. 

Disrupt a Broken Industry—The Industrial Construction Sandbox

Brian Sayre | Construction Executive

The existing built environment structure—arguably—is antiquated and must be disrupted to meet the rapidly changing demands of the industry. The built environment struggles with labor shortages, addressing demand, sustainability needs, cost controls, affordability and efficiency gains. Even with the advancement of emerging technology trends, the construction industry still lags behind more technologically advanced verticals.

What’s missing? Something is needed beyond incremental change that will truly disrupt the industry, increase the value of other innovations and tackle industry challenges. 

The answer is industrialized construction technology with offsite manufacturing as the cornerstone. Technology innovation becomes exponentially more valuable when placed in this context. Shadow Ventures, a venture capital firm focused on the built environment, set out to test these theories with verifiable research published this year in a report titled, “Disrupt a Broken Industry—The Industrial Construction Sandbox.” 

HOW WILL CHANGE COME?

Industrialized construction, also known as modular construction and prefabrication, is the future of the built environment. It possesses the capability to transform construction and fabrication, as well as the way contractors use digital technologies to design, manage and operate. It increases transparency and knowledge of how to procure and deliver projects. 

The questions that remain unanswered are: when will industrialized construction happen, who will lead the way and how will change come? This disruption will be felt by every stakeholder in the industry and every company in the value chain. Preparing now and understanding how this new structure will impact your business is key to success in the future.

The built environment keeps trying to innovate within the current and broken construct. Artificial walls and procedures create roadblocks, diminish transparency, destroy efficiency and generate massive waste. When most people discuss innovation in the built environment, only incremental changes are made to a broken system. These are flawed attempts to try and squeeze another percentage point of margin.

EMERGING TECHNOLOGY

The technology and capabilities are there and have been available for some time, as demonstrated by other industries that went through this transformation in the 1820s during the industrial revolution. Is the built environment 200 years behind? Maybe. As other more advanced industries move into Industry 3.0, the construction industry is scrambling to enable 1.0.

Industrialized construction can bring a wrecking ball to the entire structure and construct a new industry, designed from the ground up. If contractors think big, the industry can completely disrupt the whole space. 

The impacts of emerging technologies such as robotics, AR/VR, blockchain, AI, big data, “Internet of Things” and more all become exponentially more valuable when applied to a new built environment structured around industrialized construction and offsite manufacturing.

In the past, offsite manufacturing brought about many challenges around the design, build and operations process. Today, with the rise of new technology and digital tools, those challenges no longer exist. Many of these digital tools will not realize their full value unless deployed in an industrial environment. Digital tools can streamline designs, accelerate construction and create never-before imagined supply chain transparency. 

PROCESSES AND PEOPLE

The alignment of building demand, industry challenges, external forces and technology innovation have created a perfect storm for adoption.
“Modular Construction: From Projects to Products,” a June 2019 report by McKinsey & Company, states that “design firms are looking to develop libraries of modules for the manufacturing process […] One client identified savings of almost 15% in design time through modular libraries.”

The moonshot vision for industrialized construction creates an ideal design-build-operate structure that the built environment has been imagining for decades. The goal of this new vision is to increase demand for offsite manufacturing solutions by creating more transparency (cost and schedule) and increasing knowledge (value, options and customization). Contractors should ensure they have a digital ecosystem that will prioritize both processes and people to ensure all stakeholders have the tools and capabilities to operate successfully.

Is Arbitration on the Briefs Right for your Client?

Megan K. George | Forum on Construction Law

As clients increasingly demand options for timely, efficient dispute resolution, attorneys need to stay apprised of all available alternatives. Private arbitration was developed with efficiency in mind and has become wildly popular in the construction industry, providing parties a means to avoid delays caused by backlog in state and federal court dockets as well as evidentiary and procedural formalities. The American Arbitration Association’s Fast Track Procedures within the Construction Rules further trim the usual arbitration procedures, pushing parties through a streamlined pleading and discovery process. However, even the AAA Fast Track Procedures require significant time and resources, primarily those invested in conducting a hearing before an arbitrator.

Submitting a case for decision on briefs alone, without presenting in-person evidence or argument to the adjudicating body, is common in appellate litigation. It is also frequently used in trial court-level litigation, sometimes without the parties’ consent. Parties agreeing to arbitration on briefs alone, however, is exceedingly rare. Yet, when employed in the appropriate situation, agreeing to submit a dispute to an arbitrator on briefs alone can be a useful tool for quick and efficient dispute resolution and a highly satisfied client. On major construction projects, the commitment to arbitrate certain matters is often made before a dispute arises. So, when is arbitration on the briefs the right choice for your client’s project? And, what can you do to ensure a successful resolution? Let’s explore.

Arbitration on the briefs has two primary benefits. First, it can be highly cost-effective. Eliminating the costs associated with witness and hearing preparation and presentation can significantly reduce the overall price tag of arbitration. Second, arbitration on the briefs provides for speedy dispute resolution without sacrificing equity or expertise. Again, jettisoning a hearing can expedite a final resolution on the merits by weeks, if not months; certain disputes may even be submitted for a decision on the briefs without a traditional discovery process, which all practitioners know can be extremely time-consuming. Furthermore, the arbitration agreement allows the parties to dictate the timeline for decision, eliminating uncertainty and facilitating easy mid-project or mid-term dispute resolution.

Foregoing a hearing is not without its downsides. Without a hearing, an arbitrator may miss or misunderstand certain complex factual issues, and the parties have limited opportunity for clarification. Thus, astute construction attorneys will recognize that arbitration on the briefs is not one-size fits all. Predicting the nature of disputes likely to arise on your project and the evidence necessary to resolving those disputes is critical in 1) deciding whether arbitration on the briefs is appropriate for your client’s project and 2) drafting the terms of such an arrangement. When considering an agreement to arbitration on the briefs, keep in mind the following tips for success.

Identifying the Issues Subject to Arbitration. Not all disputes lend themselves to resolution on written arguments alone. For the same reasons decisions without a hearing are regularly issued in an appellate court setting, an arbitrator’s decision on the briefs is most successful when the dispute is straightforward and turns on a few narrow questions if not a single, objective issue. Lay witness and/or subjective evidence-heavy fact patterns and other, more complex disputes may be difficult for an arbitrator to grasp on paper alone and key details may be lost without an opportunity for the arbitrator to ask questions. Conveying witness credibility and evidentiary context may also be difficult. Accordingly, disputes involving competing expert testimony are not well-suited to resolution by this method. By contrast, a foreseeable, single-issue quarrel that requires either interpretation or application of a contract clause to a limited factual scenario is easily decided with limited party input. For example, in an agreement based primarily on unit prices, disputes over adjustments to unit prices may be well-suited to arbitration on the briefs. Adjustments to unit pricing are often necessitated by either 1) market fluctuations or 2) significant changes to the quantity of units subject to the agreement. Hence, few subjective factual issues will compound a dispute over the equity of an adjustment to an agreed unit price. Design ambiguity controversies and cost-only change order disputes may also lend themselves to resolution through arbitration on the briefs, particularly when employed mid-project to mitigate damages resulting from postponing a final resolution.

Careful Clause Drafting. Once you have identified the types of disputes amenable to arbitration on the briefs, your arbitration clause should carefully identify and describe those disputes to be subjected to arbitration. In addition, the language should plainly outline the particularities of the arbitration process itself. Each condition applied to the process should promote swift and cost-effective adjudication. Contemplate the following terms when developing an agreement to arbitrate without a hearing:

Arbitrator Selection. Before agreeing to arbitration on the briefs, consider the qualifications an arbitrator needs to provide a speedy and fair resolution. Ideally, an arbitrator should be able to jump into a dispute with minimal education on the intricacies of the particular dispute. In pricing disputes, an arbitrator with an accounting or financial background might be valuable. Alternatively, in a design ambiguity scenario, an arbitrator with architectural or design expertise will require less explanation to understand the parties’ respective positions and reach an equitable decision. To avoid wasting the expediency provided by arbitration on the briefs, the parties should also delineate explicit terms as to how a candidate pool will be developed and how the arbitrator will be selected in the event the parties cannot agree.

Specific Timeframes. As discussed above, a timely resolution of your dispute is a principal benefit of arbitration on briefs alone. Thus, the parties should settle on hard and fast deadlines for brief submission and the arbitrator’s decision. If needed, a limited timeframe for seeking clarification or enforcement of the arbitrator’s decision should also be employed.

Evidentiary Limitations. Your arbitration agreement should place strict limitations on the type and volume of evidence each party is permitted to submit in conjunction with its brief. Disputes that may be decided on objective, empirical, and/or documented evidence will find the most success in arbitration without a hearing. This is not to say that no fact witness testimony should be admitted; a successful arbitration on the briefs provision will permit submission of an affidavit or similar sworn statement to verify documentary evidence and provide necessary project details to put the dispute in context. Still, the primary source of evidence submitted to the arbitrator should be documentary, not testimonial. Taking it a step further, restricting evidence included in the briefs to evidence exchanged prior to submitting the case to arbitration may facilitate the arbitrator’s decision making process, and may even promote interparty resolution without arbitration. Similarly, you might also consider a page limitation on the briefs; a limited writing will force each party to concisely state its position, and it will assist the arbitrator in identifying the key issues she must consider in making her decision.

Decision Implementation and Cost Allocation. Finally, consider how an arbitrator’s decision should be effectuated. Should the decision or award be applied retroactively? If so, at what point should its application begin? Take our example of a unit price disagreement. Should the arbitrator’s decision apply only to future units? Or, if the pricing decision applies retroactively, should it apply to all units from the time the adjustment was requested forward? Or from the time the dispute was submitted to arbitration? The answers to these questions depend on the projected disputes and your client’s anticipated position. Another important term to consider in an arbitration on the briefs agreement is an attorney fee-shifting provision. In keeping with the cost-efficiency goal of opting for arbitration on the briefs, an agreement that the prevailing party will recover its attorney’s fees will aid in ensuring only truly unresolvable disputes reach the arbitration phase and dis-incentivize over-lawyering.

Arbitration on the briefs is an interesting dispute resolution procedure to consider for your clients’ future projects and disputes. While it may not benefit all clients or all projects, under the right circumstances, proposing this procedure can yield dividends for your client and allow you to appear strategically savvy and cost-minded.

Subtle (and Not So Subtle) Effects of COVID-19 on the Construction Industry

Frank T. Cara | Troutman Pepper

When is it going to return to “normal”? We all have been asking that question. Well, for the construction industry, it may never return to “normal.” COVID-19 may have permanently changed the landscape of the construction industry in many ways. Depending on your perspective, many changes could be for the better. We may have to alter how we do business to address some new issues and business concerns. Here are just a few issues that the pandemic has brought to the forefront of our industry.

  1. Virtual Dispute Resolution: Social distancing and closure of the courthouses in many jurisdictions across the country caused numerous meetings, court appearances, depositions, mediations, hearings and arbitrations to be held virtually instead of in person. Once over the initial “discomfort” with using virtual platforms such as Zoom, Skype, BlueJeans, etc., the feedback from many in the industry is that this approach is incredibly efficient. Video conferences eliminate travel time and permit people to participate who would normally not be able to meet in person, due to distance or other commitments. We believe that the use of video conferencing has become entrenched into the daily routine. One additional outcome of this, that everyone needs to understand from the very beginning of a project, is the need to document everything — absolutely everything. Due to the difficulty of meeting in person, we have seen many more disputes initially handled on paper submissions. It is easier to be successful in your claim if it is well-documented. This was true before COVID-19, but now is even more critical.
  2. Work Backlog: Early on in the pandemic, during the initial shutdowns and stay at home orders, private work projects came to a halt, while many public work projects were deemed essential. Not only did these projects proceed, but some public agencies took advantage of the lack of commuters and quiet streets to add work to existing contracts. Now we are seeing a distinct turn. While stay at home orders are being lifted and private construction is returning to pre-pandemic levels, the pandemic has devastated municipal capital budgets. We have seen contracts terminated or suspended, work deleted and future tenders put on hold. For public contractors, as the current backlog of work is burned off, the scarcity of future work can significantly strain cash flow and possibly the viability of the company. It is imperative to remain disciplined in bidding, watch your margins, stay within the geographical footprint and industry sectors. This is not necessarily the best time to expand. Sometimes the best project is the one you did not win.
  3. Employee Safety and Unions: Skilled craft persons working side-by-side on a project has always been the cornerstone of construction. Social distancing is not always possible, and people are worried about contracting COVID-19. This has heightened the health and safety protocols on projects. From additional PPE, social distancing and limiting the workforce on site, these protocols have possible negative effects on productivity and costs. Reduced efficiency and productivity directly translates into increased costs. These additional costs and productivity impacts have to be built into future bids. Additionally, these new necessary worker protections may inject new life into the power of unions. Will this be the rebirth of union strength in certain parts of the country?
  4. Material Procurement: The pandemic has slowed and shut down factories throughout the world. This has caused a scarcity of raw materials and equipment, causing increasingly long lead times and higher costs. It is unclear when the supply chain will recover. These factors need to be accounted for when developing schedules and budgets. You should consider going beyond your regular suppliers, and engage new and multiple distribution chains and suppliers, and even enter into long-term supply contracts to protect yourself from price swings.
  5. Legal Notices/Contractual Issues: The pandemic exposes (no pun intended) contractors to new and different claims and disputes related to COVID-19 You must thoroughly review your contract to assure you provide timely notices of all time and cost impacts, and comply with all claim documentation requirements. Additionally, as noted above, the pandemic has caused a significant increase in contract terminations and force majeure delays. You must understand what you can and cannot recover under your contract, and make sure you document your claims well and make all timely submissions.
  6. Health Insurance and Paid/Unpaid Medical or Family Leave: Local, state and federal responses to the pandemic have impacted the health care and leave benefits provided to workers. A flurry of new initiatives provide paid and unpaid medical leave related to COVID-19 exposures, mandatory quarantines and child and family care requirements. The conflicting requirements among overlapping local, state and federal mandates have created conflicts between employers, unions and benefit providers as to who is the responsible party to cover the additional costs of medical testing and leave. Having an understanding of all insurance policies, coverages, union agreements and your obligations as an employer is vital. It is critical that you take a team approach to assuring compliance with the myriad of benefits.

This is just a partial list of the impacts on our industry.