By Jordan Pavlus; Byrne, Costello & Pickard, P.C.
Contract review is one of the most tedious, yet important, aspects of subcontracting. Contractual terms determine project schedule, payment rights, claims processes, dispute resolution, and so on. Virtually all of a subcontractor’s legal and equitable rights are determined and affected by the contract.
Like other aspects of subcontracting, the contract review process continues to evolve. Although AIA, ConsensusDocs and other form contracts are available for use in the construction industry, many general contractors utilize proprietary subcontracts. This requires subcontractors to devote a significant amount of time and resources to reviewing each proprietary contract (or paying an attorney to do so), and then marking it up, attaching an addendum, or some other negotiating mechanism. The process can be cumbersome, but it remains a critical component of risk assessment on any construction project.
Most subcontractors are familiar with master subcontracts. These were created by general contractors with the intent of streamlining future contract negotiations with subcontractors with whom they work on a regular basis. The master subcontract governs the primary terms between the general contractor and subcontractor and is generally in effect for 3-5 years. When specific projects arise, the general contractor and subcontractor then enter into a “work order” or similarly couched document which is specific to that project. This arrangement can be effective, and serve to streamline the contracting process, but it also makes the negotiation of the master subcontract more important because it governs the contractual relationship for multiple years and projects.
The most recent evolution of contract review is Artificial Intelligence (“AI”) based software which can serve as a mechanism by which subcontractors input the proposed subcontract and the AI software suggests changes and redlines.
Generally speaking, the AI review process requires that the subcontractor upload a contract into the AI review software. The AI software then compares the subcontract to contractual terms you have pre-identified as priorities for your firm. The subcontractor then accepts, modifies, edits or denies the AI suggestions.
AI software can also identify if a previously known proprietary contract has minor modifications to language which may not be readily noticeable. This would avoid a person reading the subcontract with a fine-tooth comb looking for any inconsistency with the previously known proprietary contract.
At this point in time, AI software is unlikely to take the place of a human review of a subcontract, but it can serve an important purpose in identifying initial objectionable clauses or inconsistent clauses from a previous contract. This AI assistance saves employee time and company resources.
As AI technology advances and the AI software reviews additional contracts and clauses, the better the AI review software becomes at identifying potential problem clauses and making suggested modifications and edits.
While the thought of turning over such an important task to AI software may be alarming to some subcontractors, subcontract review is evolving in that direction. With employees and employee time at a premium, offloading some time intensive tasks to AI software has the potential to save subcontractor’s dollars and also level the playing field when it comes to negotiating fair and equitable contract terms.
However, as AI software gets smarter, humans find ways to circumvent catch words or phrases which they know the AI will flag as objectionable.
For example, the contractor likely knows that the AI software will flag pay-if-paid language, so the contractor includes alternate exhaustion of remedies language or GC as “agent of the owner” language, etc.
At this point, it is not clear that AI software is capable of identifying what a human would see as an objectionable term by another name. An experienced construction attorney knows all of the objectionable clauses to look for and what is typically worth fighting over – AI software does not possess this ability for nuance. Humans can see nuance.
Another note is that attorneys have a professional ethical obligation to meet an objective level of competence in the work they perform for clients. This includes contract review. Thus, a construction attorney may utilize AI software as a component of contract review, but at the end of the day, the attorney is responsible for doing a competent job of reviewing the contract. As a result, an attorney may use AI software for a first pass at a contract, but will likely then review the contract in its entirety before making a recommendation.
Subcontractors should have a standard contract review process in place which is efficient and protects the subcontractor’s rights. Whether subcontractors use a standard form of contract, AI software, or rely on master subcontracts, negotiating fair contractual terms at the front end of a project can save many headaches at the back end. As they say, an ounce of prevention is worth a pound of cure.
About the Author
Jordan R. Pavlus is a construction attorney representing subcontractors throughout New York State. Jordan advises clients on all aspects of construction law, including bond claims, lien law, prompt payment law, and a broad variety of issues faced in the commercial construction field. Jordan has served as lead trial counsel in numerous matters and has also been lead attorney on multi-week arbitrations with damages in eight figures. He is a frequent speaker on construction related issues. For more information on Jordan R. Pavlus and Byrne, Costello, & Pickard, P.C., visit www.bcplegal.com.
