TRANSITION THEN TRANSFORMATION
AI in construction disputes: Enthusiasm and uncertainty
Businesses are increasingly using AI to modernise and transform their operations. But what impact is it having in the construction and engineering sector – and in particular in the resolution of construction disputes?
For this year’s CMS International Construction Study, we asked senior legal advisors and other professionals at a variety of construction and engineering companies around the world how their businesses are engaging with AI in legal transactional work and dispute resolution.
The survey reveals a very mixed picture, displaying both enthusiasm and uncertainty around the use of AI. This diversity reflects a broader market reality that we see in the businesses we work with. Larger organisations are able to allocate significant resources to AI-based solutions, whereas smaller businesses – or those without appropriate legal IT support – often remain more constrained or cautious. Conversely, the primary sources of disputes remain constant year-on-year; delays, payment issues and disagreements about the scope of work.
Businesses remain keen to explore ways of offsetting such risks through tighter contract management, timely legal advice and the effective use of technology. And the deployment of AI to streamline process and save money will increasingly transform the way this is done. This change won’t happen overnight – although as the survey shows it is gathering momentum – but it will ultimately reshape the ways in which disputes are resolved. And its benefits will not be equally distributed, with businesses that are unable or unwilling to leverage this new technology likely to find themselves at a material disadvantage.
Between 17 March and 18 May 2025, we conducted an online survey of over 50 senior legal and contract professionals working in the construction, infrastructure and engineering industries in Africa, the Americas, Asia, Europe and the Middle East. Over half of them work for businesses with revenue over $1bn, with nearly a third having revenue over $5bn. We should like to thank all those who participated in the survey, as well as our colleagues from across the CMS network who have contributed opinions and insights. We hope you find this year’s construction study interesting and would be happy to discuss any of the issues it raises with you.
AI is spreading at a phenomenal rate. While only 43% of respondents said they were currently deploying it, a further 27% are set to use it for some aspect of their work within a year.
AI is spreading at a phenomenal rate. While only 43% of our respondents said they were currently deploying it, a further 27% are set to use it for some aspect of their work within a year. At the moment, our respondents are principally using AI for legal tasks such as contract review (30%), contract drafting (24%) and communication analysis (26%). This is a significant acknowledgement of the potential for AI to support transactional legal work.
Most of them also expect to be using AI in areas such as document management, data security and privacy, compliance monitoring and training and education within three years. This is not surprising, as these are ordinarily lower risk, labour-intensive tasks that are well understood and often already partly automated. However, the use of AI to support more complex or strategic tasks – such as negotiation support, dispute management, mediation and arbitration – is significantly less common and is spreading more slowly.
Only two-fifths of respondents expect to be using AI for arbitration and mediation by 2028. This may sometimes reflect a lack of understanding in how AI can be used for such procedures. When we asked how likely it was that AI could help resolve disputes, over one-fifth of respondents said they didn’t know. Discussions with the market tell us that many in-house lawyers remain uncertain about the reliability and explainability of AI outputs, particularly for more sophisticated tasks such as drafting pleadings or mediation statements.
This hesitancy is reflected in the relatively low adoption rates for AI in dispute management, mediation and arbitration. It is certainly true that AI needs to be used with care and not to the exclusion of human expertise. But as AI tools become more transparent and sophisticated, and as users gain greater familiarity with using them, confidence in their use for dispute resolution will inevitably grow.
As construction and engineering disputes lawyers, we are already seeing a role for AI in aspects of our work, such as early case assessment, document disclosure, identifying key trends in communications, detecting design flaws and detecting contradictory instructions that might form the root of a claim.
This year, 62% of respondents said they expect their external counsel to use AI-based tools, with only 22% saying they do not. We often find that businesses with larger inhouse legal teams are more aware of specific AI tools and how they work. In some cases they already use these themselves and so have a good idea of what their external counsel can and should be doing with AI to streamline processes.
Clients now often ask us how we intend to use AI in a particular mandate. Equally, we increasingly see smaller businesses that may not have the budget to invest in their own AI looking to partner with law firms like CMS that offer advanced analytics or AI-driven dispute management tools to help level the playing field.
In the field of dispute resolution, as the technology advances, we are also seeing a growing number of platforms dedicated to simplifying the ADR process and making both mediation and arbitration more efficient and cost-effective.
However, the speed and extent of AI adoption risks leading to inequality of arms, so to speak. Large corporations with large legal functions are already embedding AI within their workflows and have the IT and financial resources to support them, while smaller businesses do not have the time or budget to explore how AI can streamline their practices – the disparity between them is increasing rapidly. For those businesses, the best option is often to look to external legal advisors who can step in with advanced systems and expertise.
Perhaps our most striking finding was that a large proportion of respondents simply did not know whether or when their organisations aim to deploy AI.
Away from legal work, the survey asked about the ways in which AI is making inroads in the wider construction sector. Within the next three years, over 50% of respondents expect to see their companies use AI for modelling, compliance, predictive maintenance, communications, quality control and project management. Other areas, such as bids and estimates, are not far behind. But perhaps the most striking finding was that a large proportion of respondents – in most cases more than a third – simply did not know whether or when their organisations aim to deploy AI for these applications.
It may be that this is a knowledge gap arising because the in-house legal team do not have sight of the organisation’s business plans and strategy, or the plans of the engineering or procurement functions for new AI-driven project management tools. For some, such a gap presents a risk, not least because unrecognised AI usage could lead to data privacy or security concerns, or inadvertently expose the business to misguided reliance on flawed outputs.
Any knowledge gap also complicates forward planning, creating a risk that current practices around contracting and risk management may not adequately reflect the likely adoption of this rapidly developing technology. The findings underscore the need for ongoing training and cross-functional collaboration. In-house legal teams should work closely with IT, project management and compliance colleagues to understand how AI will be used across the business, and to develop robust policies that address data privacy, security and the risks of unauthorised AI use. Sector-specific challenges – such as managing supply chain risks, ensuring health and safety compliance or meeting ESG requirements – can all benefit from targeted AI applications, but only if legal teams are actively engaged in their deployment and oversight.
Some in-house legal teams may need to deepen their understanding of the risks that need to be managed as their businesses seek to harness the enormous commercial potential of AI. Unsurprisingly, over 70% of respondents in the survey felt that the use of incorrect or flawed AI output would be a risk for their business, with 68% concerned about data or privacy breaches.
There is also a clear need for ongoing training and education to ensure that all staff understand both the benefits and the risks of AI adoption, as well as how to use AI effectively.
These are well-publicised and well-understood risks associated with AI. However, rather fewer felt that serious risks might result from issues such as inadequate governance (46%), a lack of transparency in AI processing (44%) or inadequate data (42%). And only 34% identified the unauthorised use of AI as a significant risk – even though such ‘shadow AI’ can be problematic if employees feed proprietary or confidential information into public AI systems, or otherwise use AI without understanding the risks involved.
On a more positive note, though, we do see a growing awareness of these issues – an awareness that is prompting legal teams to put guardrails in place, such as robust AI policies, data usage codes and contractual obligations that clarify how AI is to be used (or not used) in collaborative environments. There is also a clear need for ongoing training and education to ensure that all staff understand both the benefits and the risks of AI adoption, as well as how to use AI effectively. The use of AI is increasing across the construction sector and companies should train their people in all roles on how to use new AI technologies within their business. It’s important that any educational programme covers how to use AI effectively as well as outlining the potential risks. Skilled and informed employees will provide those businesses with a clear competitive advantage.
Each year in the CMS International Construction Study, we ask about the main causes of disputes in the sector. Year-on-year, the same top three drivers of claims and disputes on construction and engineering projects appear; delays, payment issues and scope of work. In 2025, 88% of respondents identified delays as a main source of disputes, 58% cited payment issues and 52% pointed to scope of work.
They were also seen as the most likely main sources of disputes over the next three years. These figures are consistent with data from our previous surveys. In some respects, it may seem surprising to see these critical issues continuing to feature on the leaderboard.
However, the reality is that construction and engineering projects remain highly complex, increasingly utilising new technology and built-in challenging environments. Projects are being executed in often uncertain and unstable economic conditions.
While modular construction and automation of processes are increasing, construction projects are still labour-intensive and therefore necessarily susceptible to human error. Whatever the source of claims, our advice remains the same: ensure that you comply with the notice provisions in your contract and make every effort to document the issue and its impact contemporaneously.
The survey data reaffirms the importance of early risk identification in construction, infrastructure and engineering projects. When asked how their organisations could improve risk management during projects, 71% of respondents cited earlier identification of risks during the tender phase, 67% pointed to managing change better and 51% highlighted managing design issues.
Keeping better records (49%), improving understanding of local market or region-specific factors (43%), submitting notices within prescribed time limits (41%) and the better management of the supply chain and subcontractors (41%) were also frequently mentioned.
A notable number of in-house legal teams are not being brought into project planning soon enough. Only a minority of respondents said that in-house lawyers are always consulted at the outset of a project; most said this happens sometimes or often. Similarly, only a minority indicated a consistent approach to seeking external legal advice at the outset, with others either being selective or never doing so at all.
Nonetheless, most respondents acknowledged that effective legal input early in a project is far cheaper than dealing with a dispute at the end. In fact, 92% strongly agreed or tended to agree that spending time and money on legal advice during the course of a project can avoid the need to spend large amounts at the end of the project, with 84% strongly agreeing or tending to agree that this can help achieve the early resolution of conflict points. These findings reflect a growing recognition of the value of proactive risk management, even if practical constraints sometimes limit its implementation.
When faced with a dispute, most respondents confirmed that some form of alternative dispute resolution (ADR) remains preferable. Interestingly, in our survey this year, mediation and arbitration were almost equally popular, with 68% favouring mediation and 66% arbitration.
About one-third (32%) expressed a preference for both. International arbitration has always been popular for construction and engineering project disputes both because of the ability to convene a tribunal and procedure that suits the technical nature of the disputes, and ease of enforcement of awards. However, mediation is becoming more popular as parties realise the benefits of the process beyond a simple ‘horse-trade’ to get to a figure that both parties can grudgingly accept.
However, in some jurisdictions mediation is still less common. For example, our experience suggests that it is relatively unpopular in the Middle East – although this may evolve with the increased participation by international construction companies in countries such as Saudi Arabia.
In the EU, the EU Mediation Directive was designed to encourage the use of mediation, even enabling member states to make it mandatory (as long as rights to access justice were not infringed). In practice, most European countries – including France, Netherlands, Portugal and Germany – have been somewhat sceptical about mandatory mediation. But in Belgium and Italy, where mediation is demanded only for certain types of proceedings, there has been greater uptake.
CMS Poland partner Rafal Morek said: “In some countries, lawmakers are keen to promote mediation and there are ongoing discussions about making it mandatory in certain categories of cases. This would have a major impact for construction businesses entering long-term contracts and other stakeholders.
“Mediators in construction disputes need to understand industry-specific practices, as the issues at stake frequently involve complex engineering and other matters that require specialised expertise to resolve effectively. If mediation is mandatory, the quality of mediation services becomes an even bigger concern.”