Navigating Construction Risk: Insights for Owners, Developers, and Contractors

Colm Nelson
Partner, Real Estate and Construction

Abstract

Colm Nelson discusses some of the most important legal and practical issues affecting construction and development projects today. From the use of AI in construction litigation to payment disputes, mechanics liens, and market volatility, he offers practical guidance for owners, developers, and contractors looking to better manage risk.

The video’s central takeaway is that proactive planning and early legal involvement can make a major difference. By addressing contracts, insurance, payment strategy, and dispute prevention early in the process, project stakeholders can better protect themselves and improve project outcomes.

Transcript

What's AI's role in construction and development?

I think AI is playing more of a role in litigation in general. I think where we use it in litigation is actually on the forensic side, on a construction project. There’s a large amount of documents, a lot of emails, and a lot of people working on this job—and often, you know, it would be cost-prohibitive to try to read all those emails.

So, we actually use AI to search through emails and project records to kind of find the needle in the haystack. And sometimes you see millions of dollars shift from one side of the ledger to the other based on what somebody says in an email. You can demonstrate knowledge—for instance, they knew, it’s in their email, so they can’t claim they didn’t know. Here it is. And it helps in terms of finding those needles.

How can companies protect themselves in payment fights?

Yeah, I think, you know, keeping track of dollars going out the door—making sure that if you’re the owner, for instance, you’re appropriately withholding funds if you’re finding work is defective and/or you’re concerned that the project is going to be delayed. And if you release those dollars, they won’t be coming back to you.

And in terms of your own delay damages, I think monitoring that and making sure subcontractors—so long as they’re not part of the delay—are getting paid. That way you’re preventing your project from getting liened. I think those are the two biggest things that come up when you’re facing delays.

What should contractors know about mechanic's liens?

Understanding mechanic’s liens is important because you could pay twice for the same work. You not only will pay, if you’re the owner, the prime contractor—but then, if the subcontractor files a lien, you’ll have to pay them as well for the same thing you already paid the contractor. So, getting lien releases from your prime contractor each time you pay them, and getting those releases from the subs at each draw, is a good—and frankly, standard—way to avoid paying twice for the same work.

How can contracts guard against market volatility?

Construction companies can be proactive in addressing market changes by making sure they have escalation clauses in their agreements to allow for added compensation in the event of tariffs. We call these either escalation clauses or changes-in-law clauses. Another way contractors can allocate the risk is through the use of allowances, which essentially treats, say, lumber as an allowance—meaning that if the price of lumber goes up, the contractor gets more money.

It’s just treated as an allowance, and it’s a way to exceed a guaranteed maximum price or hard bid.

What's your best advice for navigating today's construction challenges?

The best advice I can give clients is to reach out to us early. If they reach out to us early, we can help make sure that the design agreements are in good shape. The consultant agreements are protecting them. We can help, advise them on appropriate insurance products. If it's too late in the project, those options just simply don't exist.

And then also, we can work with them on the biggest contract, which is the prime contract with the contractor, and help them negotiate that. If we’re brought in to a project 30 days before the client wants shovels in the ground, it makes it very hard for the client to negotiate a good contract because it has no plan B and not much leverage in that negotiation.