The construction industry continues to face inflation, supply chain issues, cyber threats, and project delays. While these problems can cause conflict, owners and project managers are finding ways to adapt to this environment and mitigate risks in contracts.

The legal world is shifting rapidly for construction, from new federal funding mandates to Supreme Court rulings to state-level indemnity clauses. Here are 5 of the top issues that construction legal experts are watching this year and how you can mitigate risk.

Supply Chain Issues

Material disruptions are here to stay for a while due to climate challenges and longer transit times globally.

According to shipping experts, the Suez Canal has become a less viable route to move goods for the near future. This is not only causing higher costs and slower service, but the use of different ports can have an implication on warehousing and domestic transportation as well.

Builders can protect their bottom line by including a material escalation clause in contracts. This protects against price surges and absorbs a cost increase for materials that could hurt the profit margin of a project. When escalation clauses are in a contract, bidders can accurately bid on the job as a sudden jump in the cost of materials won’t derail them. Escalation clauses can work both ways where a de-escalation provision lowers the price if the cost of materials drops.

Legal Disputes Over Higher Prices

Another trend that the construction landscape is tackling is the cost of materials. After Covid, and an evolving economic landscape, supply chain disruptions have led to a rise in commodity prices and global inflation driving up construction project input costs by 40.5%.

Though material costs are getting back to normal, construction material budget uncertainties are likely to persist. Unforeseen delays could result in higher final costs and longer lead times.

As inflation and supply chain issues continue to drive up project costs, owners are putting more emphasis on contract provisions with contractors to distribute risk. Estimating the cost of materials months ahead of a project is difficult as prices could end up being much higher or lower than planned leading to disputes.

Architects and engineers often look at alternative types of products to sub in for less money. Other tactics include reusing electronic equipment from decommissioned sites and procuring materials ahead of time depending on storage availability and costs.

Mediation and Arbitration

COVID-19 shut down much of the U.S. court system for about a year, which created a backlog in many districts. Owners and contractors are turning to mediation and arbitration to resolve a dispute instead of waiting months for their case to end up in court.

Affirmative Action

Last year’s Supreme Court ruling to strike down affirmative action could make it harder for underrepresented groups to qualify for construction jobs. In recent months, construction companies have been re-examining diversity, equity and inclusion initiatives amid unclear guidance around what is legal or not.

This also affects minority and disadvantaged business designations, which have come under fire via a handful of lawsuits challenging their constitutionality. Before, a contractor could say that they were a disadvantaged business based simply on race, for example, and that’s not the case anymore. This could cause a dispute in bidding where a contractor may be awarded a project and then another contractor claims that the company is not disadvantaged.

AI, Digital Tools Risks

Artificial intelligence (AI) is a leading contributor to cybersecurity exposure. Contracts should include provisions for the safety and security of electronic data that is shared.

Construction software programs have varying contracts and license agreements, for example. These tools can involve sharing data with the third-party owner of that software, as well as with contractors and subcontractors who are accessing that software platform to upload change orders, lien waivers and other project documents.