Legal Issues of ICT Use in the Construction Industry

Abstract

While in the 21st century the construction industry prefers to conduct business using the information and communication technologies (I&CT), the presence of legal issues pertaining to this mannerism of business cannot be ignored. The aim of this project is to provide a better understanding of these legal issues which are associated with their use. The objectives entailed to achieve this aim are to determine the existing legal issues and to estimate the awareness about them in the industry. The aim and objectives have been addressed by conducting two types of field investigations namely, questionnaires and interviews with lawyers, architects and engineers with different backgrounds. The project concludes with the identification of the legal issues present in the industry and an attempted comparison between the legal scenario in the U.K. and India.

1. INTRODUCTION
1.1 Background and Scope of the Research

Almost a decade ago the information technology invaded our lives like never before. The advancement in information and communication technologies (I&CT) and their utilisation has been tremendous with the recent years witnessing the development of several IT-based technologies such as e-commerce.

Information technology solutions have paved a way to a new world of internet, business networking and e-banking, budding as a solution to reduce costs, change the sophisticated economic affairs to an easier, speedy, efficient, and time-saving method of transactions and exchange of information.

Though the internet has emerged as a boon for the present pace of life yet at the same time it has also resulted in posing various threats to the consumers and other institutions for which it has till now proven to be the most beneficial. Various criminals have been able to pave their way to interfere with the internet accounts through various techniques like hacking the Domain Name Server (DNS), Internet Provider’s (IP) address, spoofing, phishing, internet phishing etc. and have been successful in gaining an unauthorised access to the users’ computer system thereby gaining enormous profits from the stolen data.

These and other problems have forced the business community, the legal community and the law enforcers i.e. the government to look at the current legal scenario.
These problems, therefore, need to be studied in detail by investigating legal issues pertaining to the construction industry. This study is an attempt at understanding the legalities which are related to the mannerism of conducting business while using I&CT. As part of this study an effort will be directed towards comparing the legal stance of the United Kingdom and India.

1.2 Aim and Objectives

The aim of this project is to provide a better understanding of the legal issues involved while using information and communication technologies (I&CT) in the construction industry.

To achieve this aim, the following objectives should be fulfilled during the course of this project:-

• To study the legal issues pertaining to e-commerce (for e.g. electronic contracts, digital signatures, etc.).
• To assess the importance of jurisdiction issues in cyberspace (for e.g. engaging in e-commerce on World Wide Web may expose the company to the risk of being sued in any state or foreign country; law applicable to contractual obligations, etc.)
• To study the various legal problems that can arise out of miscommunication between the client, consultants and contractors (court actions, out-of-court settlements of disputes, etc.)
• To study and compare the legal stance of India and the United Kingdom, in using the information and communication technologies in the construction industry.

1.3 Justification for the Research

Computers and more importantly internet governs our lives to the kind of extent that we do not even realise its significance. Today companies, especially in the concerned area of construction, are conducting business by means of the latest advancements in information & communication technologies.

Bearing in mind the current flourishing e-commerce, it becomes quite easy to get embroiled in lawsuits. The reasons maybe several, for instance either there may be disputes between the client and the company; or there might be an issue with jurisdiction; or there may be concerns related to the security of level of exchange of information electronically. In most of the cases it can be assumed that there is a highlighted ignorance of the legal framework with respect to I&CT, and this ignorance may be a deterrent in the popularity of conducting business in this manner.

In lieu of these issues, I believe it becomes the need of the hour to undertake a study of this kind.

1.4 Methodology Outline

Owing to the nature of the research project and its data, the research approach adopted is mostly quantitative. However, some aspects of qualitative research have also been incorporated. Source of information will be taken from journals and books.

The method of collecting data for this research project has consisted of online questionnaires (surveys) and unstructured interviews. Case studies of previous lawsuits with respect to the topic have been studied.

1.5 Dissertation Contents

The research project includes a detailed study into the methodology to be followed and also provides the justifications for the chosen methodology.

The project also includes a literature review about the various legal issues which are related to the use of information & communication technologies for conducting business in the construction industry. It sheds light on the some of the legal terms associated with the legal framework of e-business.

The project report additionally contains with analysis and evaluation from the interviews conducted and the online questionnaire filled in by architects, engineers and lawyers.

It supplies information on the “legal future” of using the various existing and upcoming information & communication technologies in construction, providing an insight into the implications; the solutions available; the problems faced while conducting research; and manner in which I&CT can be utilised for the growth of the construction industry worldwide. It concludes with summarisation of the research and recommendations and scope for further study on this research subject in the construction industry.

2. LITERATURE REVIEW
2.1 Introduction

The intentional use of information technology by cyber-terrorists or cyber-criminals for producing destructive and harmful effects to tangible and intangible property of others is addressed as ‘cyber crime’. Cyber crime is clearly an international problem with absolutely no national boundaries; hacking attacks can be launched from any corner of the world without even an iota of fear of being traced or prosecuted easily. A cyber-terrorist can collapse the economic structure of a country from a place where that country might not even have arrangements such as an extradition treaty to deal with that criminal. The only safeguards can be better technology; to combat such technology which is already well-known to the hackers; and to evolve stricter and tighter laws which can be accepted universally.

2.1.1 An introduction to the construction industry

A maxim in India states, to live a comfortable life all one needs is three basic essentials- food, clothes and a house. This has held true across all civilisations and centuries. Building a house was just a first step. The world has advanced much further constructing palaces, forts, dams, skyscrapers, factories, energy-efficient buildings and lots more.

In a world of today, the 21st century, the construction industry is an important sector of a nation’s economy; providing employment to millions; employed by countries across the world as an economy regulator! In U.K. alone, construction industry had an output of £102.4 billion at current prices (2004); 8% of Gross Domestic Product (G.D.P.). In the European Union the construction sector accounts for 9.9% of G.D.P. and 50% of Gross Fixed Capital Formation (GFCF).

Considering the scope and importance which the construction sector enjoys worldwide, it becomes quite easy to understand that this industry functions at an incredible level and involves working with many organisations.

“The construction industry is frequently described as fragmented by its critics; however, disseminated would be a better description .For each construction project a whole new organization is created involving the client, designers, contractors, sub-contractors, material suppliers, plant hire companies, government, local authorities and agencies such as the environmental agency, Health and Safety Executive and many others. Each ‘new’ and ‘transient’ project organization is, in fact, a virtual organization or enterprise” (McCaffer, 2008).

Communication, thus, becomes an important aspect of conducting a successful business in construction ensuring successful collaboration between the various components of the industry.

2.1.2 An introduction to e-business/e-commerce and e-construction

With age & time the concept and means of communication have also evolved. Earlier communication meant travelling to places near and far, then the concept of letters came and with the advent of telephone postage lost some of its significance. The world was however still is in store for more inventions and the 1940’s took the world by storm as the computers were born.

Computers and internet are a lethal combination, a form of communication which rules over our lives as much as eating food does. Every day, man makes new discoveries regarding these two, trying to find out how our day-to-day activities can be undertaken in an improved & efficient manner.

The term ‘electronic commerce’ (e-commerce) was coined by Lawrence Livermore in 1989. E-commerce is a consolidation of people, technology, materials and “the processes on an electronic network for commercial transactions” (Johnston et al, 1997, p 37).

As specified by the European Commission (1997, cited in Bruin, 2002), electronic commerce is all about doing business electronically involving the electronic processing and transmission of data (which consists of data, text, sound and videos). It encompasses various activities consisting of electronic trading of goods and services, electronic share trading, on-line delivery of digital content, on-line sourcing, electronic fund transfers, direct consumer marketing, electronic bills of lading, commercial auctions, collaborative design and engineering, public procurement, and after-sales service (European Commission, 1997).

To be speaking strictly it’s not really the electronic aspect of e-commerce but the digital part which imparts the revolutionary, efficient and versatile character to e-commerce (Johnston et al, 1997).

E-commerce involves both the services; e.g. financial, information and legal services); and the products; e.g. consumer goods, specialised mechanical equipment. It also constitutes the combination of traditional activities such as education and healthcare and new activities such as virtual malls (European Commission, 1997). This is also agreed with by Johnston et al, 1997 who state that e-commerce supports the selling, buying and distribution of services and goods.

Johnston et al (1997) while discussing the definition of electronic commerce noted that it involves the conduction of business electronically across the spectrum of inter-enterprise relationships.

E-commerce has the advantages of being a paperless economy, engaging in outsourcing and entails the convergence of all information in a single form (Johnston et al, 1997).

In this day and age e-business has emerged as a field of immense potential. The use of information and communication technologies to conduct business has gained momentum, and, like just about any other business the construction industry too has embraced the concept of e-business.

“Strong information technology (IT) capabilities have been a competitive necessity in nearly every industry sector. The post-Latham (1994 and Egan (1998) era has seen many construction firms investing in technology tools to improve business performance, which subsequently led to an increase in technology investments in construction firms” (Ruikar et al., 2008, p 23).

The use of information and communication technologies in construction, however, depends upon a number of factors such as the size of the construction firm, its position in the market, the markets that the company operates in etc.

2.1.3 Introduction to the legal problems in e-business

Before jumpstarting onto the e-business wagon, a company should have some reasonably placed apprehensions. The question in front of the management of a company should be: whether conducting business using information and communication technologies is legally safe or not? Other questions should follow as well, such as: what is an e-contract? will the company’s information be secure when shared through I&CT? what are the liability issues? what are the jurisdiction issues? is a scanned document valid and legal? what is a digital signature, an e-signature?

Questions such as above are justified because in actuality the companies are unaware of the legal risks involved while conducting e-business, hampering the chances of fruitful commerce.

Sieber (2001) brings to light the need for new laws when he says that the increased significance of information and information technology is closely linked to increased potential dangers, and these dangers bring an increased necessity to reassess the existing information law regulations and to formulate new ones.

Sieber (2001, p8) further makes this statement to back up the formulation of new information law regulations, “It must encourage- in the interest of communal justice (iustitia commutativa) and as a contribution to distributive justice (iustitia distributia)-the creation of new “information” values (e.g. by means of economic incentives in copyright law), ensure a just distribution of the newly created goods (e.g. through the regulation of rights to particular information), reduce the number of new risks stemming from information technology (in particular, by provisions in the area of liability, administrative law and criminal law)and ensure a just compensation in cases where harm is caused”.

Exchange of information in construction and engineering based businesses is a universal occurrence but it is not accounted for by contractual practice. Insufficiently defined responsibilities, overlapping communication techniques and mistrust all hamper the fuller use of inter-enterprise I&CT (Hassan et al).

A major problem exists with the enforcement of electronic law. Particularly practical difficulties arise from the fact that data containing most of the information is available at the discretion of the recipient. As is the case electronic data is not actually visible and can be altered, deleted or hidden through manipulation of technology (Sieber, 2001). Data can also be encoded or encrypted by offenders to escape imprisonment. Several terrorist, bank robbers, paedophiles, etc have attempted to escape or have been able to escape by encrypting data. Encrypted data is data which has been converted into incomprehensible codes which can only be unlocked by using a key which only a holder of that matching key can reconvert them into plausible data.

All in all there is clearly an urgent need to study and understand the legal issues involved while using information and communication technologies for conducting business.

2.2 Legal Aspects of using I&CT

When the concept of e-commerce as introduced it was greeted with hysteria which has now been replaced by a concern voiced by many over the impact of using I&CT for business. The industry is now closely examining the after-effects of e-business business world (Ismail and Kamat, 2008).

Hurtado and O’Connor Jr (2009) deliberate on the contractual issues concerned with the use of construction Building Information Modeling. They explain that the legal community is struggling to help out in developing meaningful contract terms in relation to the use of BIM technology. In their paper for the Society of Construction Law, they have contemplated upon the issues to be considered when preparing contractual provisions, including the proposed use of the model; the mannerism of data transfer from one model into the other models; the deliverance schedule expected from the model; reliability of the modelled information; management of the modelling process; and usage of the model after the completion of construction.

Some of the legal issues and terminology pertaining to the use of I&CT for business purposes shall now be discussed.

2.2.1 Types of legal risks involved in e-business in construction

Every new day is coloured with a new discovery; this holds as much truth for I&CT as for any scientific discovery. The only drawback with I&CT is that a new discovery brings along with it a new set of legal issues. These legal issues are a drawback because they take time for implementation and regulation; sometimes damage has already been done before any sufficient action can be taken.

Ismail and Kamat (2008, p-212) correctly state, “The difference between the rates at which e-business technology develops to the rate at which legal framework and rules develop is substantial. Legal risks have not been studied in relation to construction e-business”.

The legal risks discussed include risks posed by web-based agencies, risks related to jurisdiction; contract formation; authentication; electronic privacy and risks associated with intellectual property. These legal risks inflicting e-construction have been discussed as below:

• Insecurity regarding electronic privacy

In the digital economy privacy claims have been of paramount concern. An issue forever causing concern amongst the construction and business community is the insecurity of their personal and private information which is exchanged and stored electronically.

A popular, efficient and inexpensive means of information exchange and data transfer is the electronic mail systems, popularly known e-mails. While emails now incorporate information in various forms which includes photographs, typed memos, video clips, spreadsheets and bar codes; they are deemed to be as insecure as a postcard if they are not protected by encryption and elaborate password systems (Johnston et al, 1997).

Construction companies involved in e-business will need to manage the risks associated with sharing private information; private information may refer to personal privacy concerns about their own firms (Ismail and Kamat, 2008, p214-215). “Online portals and marketplaces collect more information than is needed for legally authentically an e-contracting party” (Smith and Clarke, 2000).

The information thus collected may be in the form of registration forms, cookies, etc. Though the question remains as to who owns this information, the risk associated is with the privacy being challenged. In case of hacking or a virus, the information may end up being passed onto a third party.

• Risk posed by the web-based agents

Web-based agents are information brokers. A new brokerage model can substantially change the equilibrium and re-adjust the interests of existing stakeholders. Also, software agents pose the biggest and truly exclusive risk to the current legal system as pointed out by Ismail and Kamat (2008).

Agents control decisions and they learn and act upon their perception of the environment to make the maximum goals of its user or programmer (Dzeng and Lin, 2004; Lee, 2004; Ren and Anumba, 2004). Agents act on behalf of their owners to promote the owner’s desires, unlike support software that supports the owner in making a decision but leave the decision for the owner to make (Schoop et al., 2003; Ren and Anumba, 2004).

• Risks related to electronic authentication

When doing business via the electronic networks, it become increasingly difficult to establish the other party’s trustworthiness without having physically met them, in other words doubts about authenticity are raised (Bruin, 2002).

Smith & Clarke (2000 cited in Ismail & Kamat, 2008, p 216) debate authentication by stating, “The drive to authenticate e-business buyers and sellers and attribute contracting actions to the proper buyer and seller is in direct conflict with privacy laws”. Pacini et al (2002, quoted in Ismail and Kamat, 2008, p 216) support this statement when they say, “Attributing an electronic message for an offer or acceptance of an e-contract to the person who purports to send it is yet another risk”.
The Uniform Electronic Transaction Act (UETA) addresses this risk from a legal perspective by making it necessary that certain authentication levels are acquired and thus proper authentication and attribution is ensured and a protection is provided to the e-business participants from the attack of hackers (Belgum, 1999; Moreau, 1999; Thelen Reid & Priest LLP, 1999a; Pacini et al., 2002, cited in Ismail and Kamat, 2008).

• Risks inflicting electronic contracts

Consider this scenario. Two parties engage in a negotiation for the purchase of cement for the construction of an institutional building. The seller offers it at say £5 per kg and the buyer refuses and wants to buy it at say £4 per kg and also wants the seller to bear the shipping cost. The seller agrees, transaction is completed, cement is shipped and the buyer transfers money into the seller’s account. This sounds like a simple business contract; however, the difference here is that this contract has been formulated and fulfilled electronically (Johnston et al, 1997).

In a commercial context, promises are exchanged in the form of an offer and an acceptance of the order. The offer and the acceptance supported with a valid consideration and mutual assent would, subject to certain limitations, constitute a valid contract.

Electronic Data Interchange (EDI) technology is an advanced form of cyber-contracting. EDI is conducted between trading partners who already have a negotiated agreement which rules the relationship. In this form of technology, the computers contact each other as well as negotiate (based on programmed instructions). If a reply which rejects the offer is received then a counter-offer is also made. This continues till an agreement is arrived at or one of the system stops the process (Johnston et al, 1997).

However, in the e-business transactions, it is not an easy job to distinguish between the offer make and the acceptor. This is considered critical because a contract is considered to be invalid until an offer has been made and the acceptor has accepted the offer and communicated the same to the offer maker (Ismail and Kamat, 2008, p 213).

Although the laws governing electronic contracts have improved significantly over the year, yet there is always scope for improvement because of the ever changing evolving nature of the communication technologies. Business risk and uncertainty are always on a high level in the electronic world. Legal difficulties in an e-contract arise when the parties’ expectations are not met with or when a transaction does not progress as planned.

Bruin (2002, p 146) shed some light on TrustUK and explained that, “……in July 1999, the Department of Trade and Industry published its Consumer White Paper Modern markets: Confident consumers……..The White paper among other things contained plans for the approval of on-line codes of conduct by a new body provisionally called TrustUK”.

Section 4 of TrustUK Code of Practice deals with the various aspects of e-contracts and its implications (liabilities included).

• Risks related to varying jurisdictions

Jurisdiction is a legal term describing which law is in effect at a given period of time and which court’s decisions will be legally binding. Jurisdiction issues arise when parties dispute over a contract and want to settle as to which jurisdiction will decide over the issue (Ismail and Kamat, 2008).

The problem becomes more intimidating where the issue of e-commerce comes into picture. The internet simplifies the carrying out of business globally. But then different countries follow different laws, especially those with respect to construction and therefore, the risk of encountering lawsuits in foreign land increases.

In an electronic contract it should be very clear as to what law applies to the contractual obligations, what court of law will be presiding over to judge any dispute arising from the contract (Bruin, 2002).

As pointed out by Rowe (1998, cited in Ismail and Kamat, 2008) a dispute judged under varying set of regulations, laws and rules have as different judgement. “Although the laws regulating e-business vary, the general opinion of the courts implies that companies engaged in activities or online advertising may have to defend lawsuits in different jurisdictions if those activities violate the local laws”, Thelen & Priest (1997 quoted in Ismail and Kamat, 2008, 213).

The problem of jurisdiction exists becomes all the more relevant in the 21st century, now that there are so many countries existing worldwide and when global expansion has occurred in the business scenario with the arrival and explicit use of the information and communication technologies. However, there are quite a lot of countries which are at the moment unable to make any kind amendments in their legal framework on construction, especially where the amendments in law are concerned with e-construction. At the same time, it is good news that some governments are making changes to the construction law executed in their countries to make e-construction and e-business a more feasible and legally secure venture.

However, the point to be noted here is that despite all the positive proceedings in the respective field, the possibility of two countries sharing the same law on e-commerce and that too in the construction sector are negligible. In a scenario where the choice of law is absent, legal uncertainty may arise regarding the application of law to an electronic contract (Bruin, 2002). This information clearly implies that risk attributed to varying jurisdiction remains.

Bruin (2002, p42) clearly points out that in a specific case of “cross-border electronic consumer contracts, a court procedure may involve such difficulties that a contract term defining a foreign jurisdiction may de facto exclude or hinder the consumer to take legal action……”. As a result the service provider also ends up providing an unfair contractual term.

From the literature on jurisdiction which has been studied and mentioned here, it has been found that although there are quite a lot of provisions in legal frameworks of countries which address the jurisdiction issues, yet it would be beneficial to make changes and improvisations to these existing laws.

2 Brief description of some of the legal terms associated with the legal framework of e-business

To understand the legalities involved in using information and communication technologies for business, one needs to be aware of some terms associated with the legal framework of e-business. In this section these common yet important terms shall be discussed briefly.

Identification of the potential legal gaps and problems within the cluster projects – issue 2, a report on the findings of Hassan et al, forms the main basis for defining these terms.
The discussed terms are as follows:-

• Electronic / digital signatures

Electronic and digital signatures allow the recipient of a piece of information to know when the information has arrived, who has sent it, and to check whether the information has been changed or tampered with since it was sent.

Digital signatures are electronic codes specific to individual users, which can be used to identify the originator of a message or file, and to indicate approval of the transmitted information. There are different types of digital signatures available (i.e. public key infrastructure, asymmetric cryptography, account numbers and passwords), and the level of security that is required dictates the choice of method to be used. Digital signatures are easily to transport and all the more difficult to imitate by anyone else, and more importantly they can be automatically time-stamped. A digital signature is basically a unique ‘key’ that provides, if anything, stronger authentication than any written signature (Wacks, 2001).

Asymmetric cryptosystem involves two keys, one public, the other private. Its main advantage is that if you are able to decrypt the message, you know that it could only have been created by the sender (Wacks, 2001)

The Electronic Transaction Act 1999 (in Australia) gives legal recognition to the use of electronic signatures and one may find them useful in executing electronic contracts on your website. The risk of e-businesses dealing with parties which might misuse digital signatures is similar to the commercial risk of fraud that arises through forgery of signature on a paper contract.

• Here is an example which depicts the working of a digital signature. Assume that man named A has to the draft of a contract to his lawyer who at present is in another town. A wants to assure his lawyer that the information sent across has not been tampered with and it really is what he had sent. To ensure that, here’s what A has do:
• Copy-and-paste the contract into an e-mail.
• Using specialised software, A obtains a message hash (mathematical summary) of the contract.
• A then uses a private key that he had previously obtained from a public-private key authority to encrypt the hash.
• This encrypted hash becomes A’s digital signature of the message. It is to be noted that the digital signature will be different each time a message has been sent.

Now, how will A’s lawyer detect that this document is the same unchanged one that A had sent across to him? Here’s what he will do:

• A’s lawyer makes a hash of the received email to ensure that the document is intact and has been sent by A only.
• A’s lawyer then makes use of A’s public key to decrypt the message hash or summary.
• The received email (document in this case) is considered authentic and valid if the hashes match.

Thus we understand that using a digital signature is an easy and safe method to protect privacy of information.

A digital signature consists of the concerned person’s public key, his/her name and e-mail address, the expiry date of the public key, name of the company, serial number of the digital ID, and digital signature of the certification authority (Magalhaes, 2003).

The fact that digital signature increase the security and ensure privacy is confirmed by Wacks (2001, p 80) when he states, “Blinding or blind and digital signature will significantly enhance the protection of privacy”.

• Digital notaries

Digital notaries provide a time stamping service, thereby proving the existence of a piece of information at a particular time. These are often used in conjunction with an electronic / digital signature. Timestamping can ensure non-repudiation. Indeed, a digital signature is only legally binding if it was made when the user’s certificate was still valid, and a timestamp on a signature can prove this. Timestamping involves the following parties -client, timestamping authority (TSA) & a verifier.

Feather in 1999 expressed his opinion on digital notaries. He articulated that the purpose of a digital notary is to certify that a document as produced by a person is a true copy of that