Artificial intelligence (AI) is reshaping many industries, including the construction industry – from how projects are designed and built to how job sites are managed during the course of work. As contractors embrace AI tools and legal teams draft the contracts that govern them, it’s critical to understand both the opportunities and the risks.
Real-World AI Applications in Construction
AI technologies are increasingly being adopted in construction, offering significant operational advantages while also introducing new legal considerations. Project owners are increasingly pushing contractors to use AI tools for efficiency and cost savings.
In the digital age, data and content are strategic assets. Whether it’s drone footage of a site, 3D models or workforce analytics, these assets are increasingly processed by AI. Contractors and legal professionals must ensure that contracts clearly define how data and content are used, protected and owned.
Emerging AI tools can be used by construction professionals for many purposes, including:
- Information storage
- Retrieval and analysis to search curated lists of approved project documents
- Locating relevant documentation on a particular issue
- Identifying patterns across project data
- Research into generally accepted construction methods and best practices
- Translation of highly technical information
- Data extraction from PDFs, Excel files and images
- Organizing and categorizing project documents
- Summaries of meetings and emails
- Standardizing document formats for RFIs and CORs
- Drafting routine correspondence
When deciding which AI tool to utilize, contractors should look for tools that will allow all usage to be logged and audited, with strict data isolation so that all project information remains secure and separated between projects. Best practices include never inputting confidential, proprietary or other project-sensitive (or contractor-sensitive) information into any public AI tools, such as ChatGPT or Microsoft Copilot.
Examples
On the job, general contractors may deploy AI-powered cameras to monitor worker behavior and detect safety or building code violations. This can lead to fewer accidents, improved OSHA compliance and reduced rework. However, these systems often collect personal data, including biometrics through facial recognition and location tracking – raising privacy concerns, particularly for workers and contractors subject to collective bargaining agreements. Contractor policies must clearly define how this data is stored and used, whether it is shared with third parties such as insurers or regulators, and ensure compliance with privacy laws like the California Consumer Privacy Act (CCPA) or General Data Protection Regulation (GDPR), as well as applicable collective bargaining agreements. Those policies should also be reflected and made a part of owner-contractor agreements, as well as subcontracts.
Subcontractors, especially design-build subs, can leverage generative design tools to create multiple design options for structural components, optimizing for cost, material availability and environmental impact. However, while these tools enhance design efficiency and save time, they can raise intellectual property questions – specifically regarding ownership of the final design. Contracts should clarify whether the subcontractor retains all ownership rights in the generated design output and whether the AI vendor is permitted to reuse the design for model training and improvement, which could benefit another customer that might compete with the subcontractor.
In another application, construction firms may use AI to analyze sensor data from heavy machinery to predict breakdowns before they occur. This predictive maintenance minimizes downtime and repair costs. Since AI vendors will want to use the data collected to improve their algorithms, it is essential for equipment purchase or rental contracts to specify whether the contractor or equipment manufacturer retains ownership of the data, and if the AI vendor can use it for product development or resale.
Additionally, contractors are employing AI to forecast labor needs and scheduling by analyzing historical project data and weather patterns – improving workforce planning and reducing idle time. However, if proprietary project data is used, contracts must address how the data is protected, whether the AI vendor can use it for further training and improving its model, how long the data is retained, and whether it is anonymized or linked to specific projects or clients.
Key Contractual Considerations for Legal Teams
Lawyers supporting their construction clients should ensure that contracts with AI vendors or platforms address all these issues as further detailed below.
Data Usage and Confidentiality
It is important to define the types of data being shared, such as site images, worker data, and project specifications, schedules and budgets. Contractors and their legal counsel will want to ensure that this data is used solely on behalf of the contractor’s customer to deliver services – as is common with a paid enterprise subscription to an AI tool, in contrast to free versions of AI products. An AI vendor may push to allow their customers to use this data for analytics, training or resale. A balanced approach may be negotiated with the AI vendor to allow it to use the data for training purposes, but only to benefit the contractor’s customer and not other clients.
Contractors and counsel will be well served by requiring AI vendors to disclose and obtain customer consent for any secondary uses of the data, including information about storage duration and data transformation practices. While an AI vendor may agree to only use the data for the benefit of the specific contractor, looking at the AI tool company’s security and privacy practices is important in assessing the risk of an unauthorized third party gaining access to the data.
Content Ownership
Ownership of AI-generated content – including designs, reports, schedules and models – should be clearly defined. This includes addressing content created by contractors using AI tools. The contractor should own the resulting content or output generated by the AI tool. Keep in mind that most AI vendors won’t guarantee that the generated content will be unique or dissimilar to other output, so the risk of a competitor receiving similar output remains.
Compliance and Privacy
Vendors must comply with relevant data protection laws, such as GDPR and CCPA. Contractors may also be subject to various privacy laws that require the contractor to pass down or flow down terms to the AI vendor. AI vendors should implement robust security protocols for handling sensitive data and provide audit rights and incident response procedures to ensure accountability and protection.
Transparency
Clear disclosures about how AI data is used must be mandated so that contractors have an understanding of how the AI tool provider processes their data. Vendors should also be required to minimize the data they collect and establish limits on data retention.
Building a Responsible AI Strategy
AI is transforming construction – but without clear contractual guardrails, it can expose businesses to legal, reputational and operational risks. Contractors must understand how AI tools interact with their data and content, and legal teams must ensure contracts reflect these realities.
Contractors are well advised to adopt guiding principles and acceptable use policies within their organization, as well as for their subcontractors and suppliers. First among them is to recognize that AI serves as an assistant, not as a replacement for human understanding and judgment. All AI-generated output must be identified and verified before it is incorporated into critical internal processes or external communications. Internally, all project data, client information and proprietary means and methods must be protected by avoiding inputting such material into public AI tools. Any and all AI-generated content and output must be clearly indicated as such. Staff, both in the field as well as the back office, should be well trained and familiar with company protocols and security requirements.
Safeguards must be adopted and followed so that AI is never used for making final decisions for contract pricing or bid decisions, change-order decisions or payment approvals. All legal decisions – such as generating or interpreting contracts or contract terms, making determinations regarding regulatory compliance, or assessing legal claims – should be made by legal counsel. Personnel decisions – such as hiring or firing, disciplinary actions or performance and compensation decisions – should be made by qualified human resource professionals. As safety is always a top priority, AI tools should not be used to make decisions concerning any structural or engineering specifications, interpreting building codes, compliance with safety plans or regulations, authorizing work on hazardous conditions, or signing off on safety protocols.
Together, contractors, their office staff and their legal counsel can build responsible AI strategies and tools that support innovation, protect assets and foster trust.
If you have questions about how AI usage may impact your construction business, please contact Chiara Portner, Richard McDonald or Jay Ross, or your regular Lathrop GPM attorney.