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Transforming Construction Contracts with Generative AI: Opportunities and Challenges

By Dan Broderick, CEO of BlackBoiler

In recent years, generative AI technology has made a significant leap forward with the release of OpenAI's GPT-4, which has impressed the world with its ability to generate realistic and creative text, images, audio, and synthetic data. This technology exhibits creativity and even emotions, sparking discussions among AI experts and tech leaders about the necessity of regulating its rapid development. Whether one views generative AI as exciting, intimidating, or somewhere in between, it’s almost certain that the technology is here to stay and has already begun to revolutionize various industries. Especially for the construction industry’s contract review process.

Implementing AI-driven tools opens up new and innovative ways to comprehend contract documents, identify deviations from standard company contracts, and propose revisions consistent with past provisions. As a result, companies are witnessing remarkable efficiencies in contract review and negotiation through these AI-powered solutions.

Exploring the Applications of Generative AI in Construction Contracts

What practical applications can generative AI offer in the context of construction contracts? Here are some primary capabilities:

1. Plain Language Summaries

Generative AI can simplify the complex “legalese” found in contracts, making it more accessible to non-legal professionals who are often tasked with the review process. One could compare generative AI to a sort of “decoder” in the sense that it helps translate legal jargon into more readable language.

2. Contract Drafting

Generative AI possesses the ability to draft entirely new contracts. Instead of relying on pre-designed templates, generative AI will adapt to users’ preferences and requirements, producing contracts that align with their negotiation strategies and business objectives.

3. Data Extraction

With construction enterprises handling numerous contracts at various stages, ranging from proposals to the execution stage (often multiple at the same time), keeping track of deadlines, payments, and expiration dates can be overwhelming even to the most seasoned practitioner. Generative AI excels at extracting critical information from large volumes of text, enabling automatic integration into accounting and billing systems while simultaneously streamlining notice processes and renewals. In an industry where time really is money, cutting down and reducing admin time offers more opportunities to allocate resources.

4. Prompt-Based Editing

The contract negotiation process often involves multiple rounds of edits and revisions. Streamlining the process by implementing requested changes throughout a document ensures both consistency and accuracy. For example, AI can automatically redline contracts to update the governing law clause to New York, and even identify similar changes made previously, prompting the user to confirm their intent. Additionally, advanced AI can also flag to contract reviewers when a clause looks like where they’ve made a change and prompt whether the user would like to make that change again.

Challenges in Advancing and Adopting Generative AI

There’s no question that new technologies, including generative AI, have the potential to transform all industries, including construction.

Generative AI is simplifying processes like contract review by removing the complexity and inefficiency associated with negotiating an agreement. In contract review and negotiation, redlining sentences as opposed to replacing whole paragraphs is much more difficult from a text recognition and technology perspective. Generative AI is potentially enabling significant advances in contract review, not only in terms of suggesting contract revisions, but also in terms of technology that can understand and recognize the meaning of legal language.

However, users face some potential hurdles before they can fully tap into the potential of AI.

1. Information Security Concerns

Enterprises must either hire external vendors or integrate technology to use generative AI, which raises concerns about information security. A recent poll by Gartner found that nearly half of firms are drafting policies on use of ChatGPT, and some companies have banned it altogether, mainly due to information security concerns. Technology providers are expected to update their security protocols, making generative AI integration with existing construction contract tools more seamless.

2. Trust Deficit

Despite the promises of efficiency, accuracy, and risk reduction, skepticism remains when implementing AI. AI-generated work can be very efficient and accurate, but it is important to verify it before using it in any critical application. This is because AI models can sometimes hallucinate, producing confident yet incorrect responses. This is a known challenge that AI researchers are working to address, but it is still a problem today.

To overcome these challenges, the focus should be on providing users with context and control based on a company’s history data or playbook, which is crucial for building trust. Additionally, users should have the ability to override AI recommendations when necessary, especially in rapidly changing construction environments.

Final Thoughts

Generative AI is well on its way to revolutionizing the construction industry’s approach to contracts. While challenges exist and more are sure to arise, they can be overcome through improved information security measures and building trust through contextual explanations and user control. As generative AI continues to evolve, it will undoubtedly play a pivotal role in enhancing efficiency and effectiveness in the negotiation and management of construction contracts.