AI: A NEW TOOL IN THE CONSTRUCTION TOOLBELT
The construction industry is built on a uniquely adversarial relationship between developers (owners) and general contractors (GCs). Developers work with architects to create designs and schematics for building projects, then solicit bids from GCs who will execute on the work. The GC with the winning bid uses the funds correspondent with its bid to hire subcontractors, purchase materials and more.
This flow is complicated when project work differs from architectural schematics or deviates from planned schedules. This can inflate project costs and consequently impact the GC’s profits. Therefore, GCs have a burden of proof that any changes or delays are justified due to structural constraints, inadequate architectural specifications, weather and site conditions, among others. These ‘change orders’ alter the scope, cost or timeline of a given project.
In the event of changes, developers and GCs are highly incentivised to shift accountability to one another, as doing so successfully protects the victor’s profit margin. Often, this results in dispute; 30 percent of construction projects end in litigation, with an average payout of $37.9m in 2020. Payouts in cases of mediation or arbitration are generally lower, at $1.3m, on average.
Theoretically, disputes could be avoided altogether by preventing cost overruns or delays. However, in practice, this is nearly impossible, as 98 percent of construction projects see cost overruns or delays. Moreover, the average project with value greater than $50m sees 11.9 change orders, on average.
Therefore, GCs must be vigilant about minimising their litigatory risk when their costs are inevitably called into question, compiling as much data as possible about site conditions, work in progress and project completion. Exhaustive documentation is critical, and can make the difference between a profitable and unprofitable project.
Apr-Jun 2025 issue
Fresco