Legal Issues

Contractors have plenty of legal issues to ponder in 2026. 

Whether they’re confronting immigration, tariffs, the opportunities — and risks — of the data center construction boom or how artificial intelligence is winding its way into every aspect of business, builders need to make sure their contracts can meet the shifting legal landscape.  

First and foremost among those concerns is immigration and increased enforcement during President Donald Trump’s second term, said attorney Trent Cotney, construction team leader for Adams & Reese in Tampa, Florida.

“ICE raids and I-9 audits have severely impacted crews,” Cotney said. “Nobody wants illegal workers, but as you remove the potential workforce, whether voluntarily because they’re leaving or involuntarily because they’re being detained and deported, it shrinks the total number of workers available.”

Here’s a look at five of the top construction legal issues attorneys say contractors need to track in 2026. 

Labor cost increases

With fewer workers on jobsites due to immigration enforcement, the workers who remain can demand higher pay, Cotney said. Among his clients, he’s seeing labor pay rates increase anywhere from 4% to 10%. He advises builders to push for strong language in their contracts to recoup that increased overhead. 

“I'm always a big advocate of including a price escalation provision in your contract,” Cotney said. “It’s simple and it will work regardless of what the basis is for escalating the price. I’ve used it during hurricanes. I’ve used it during COVID. I’ve used it during fires. I’ve used it and it works.”

Along with price, contractors should write provisions into their contracts to get more time on projects for delays caused by labor constraints, said construction attorney Carol Sigmond. 

“What happens if I can't get enough labor in a particular area?” said Sigmond, a partner and member of the Infrastructure Group in the New York City office of Nossaman. “I need a time extension because I need everybody to recognize I can't control the labor market.”

Tariff impacts

The tariffs Trump has imposed in his second term will also need careful consideration. A pending U.S. Supreme Court ruling will determine whether those tariffs are constitutional. If they’re struck down, billions of dollars in rebates would be owed by the government. Contractors should prepare regardless of the outcome, Sigmond said.  

“People are starting to try to adjust for that both ways,” Sigmond said. “In other words, if there are new tariffs, what do they do? And what do they do if the tariffs go down?”

From a contractual perspective, the key is determining who bears the costs of tariffs that are in place and who would get any refunds via a rebate clause.

“Owners are starting to ask the contractors, if these costs go away, can they get their money back?” Sigmond said. In that case, owners and contractors are putting clauses in contracts to say “this has to be rebated back to us,” Sigmond said.

She cautions that the chain of owed refunds from the government could get complicated fast, however. The process will likely involve importers, contractors and owners, all of whom may try to claw back a piece of the pie.

Data center construction

With $3 trillion in projected global spending for data center development by 2030, builders have an opportunity to profit from the boom around these facilities. 

“Right now, there's money to be made,” Cotney said. “If you’re a contractor, it’s definitely worth pursuing.”

But as with any development cycle, contractors need to look at that opportunity with wary eyes, attorneys say, and be prepared to cope with a downturn should the music suddenly stop. At the end of 2025, fears around an AI bubble forming similar to the dot-com bust of the early 2000s roiled the stock market. 

Although those concerns seem to have subsided in early 2026 — observers say demand for data centers seems healthy through at least 2027 — contractors should make sure they have language in their contracts to protect them should things go sideways. 

One way to do that is to limit the scope of the termination for convenience clause, a contractual catchall that usually lets either party walk for almost any reason. While these clauses are common in construction contracts, contractors should make sure they can recover as much as possible, should a deal go belly up due to funding or lending hurdles, for example. 

Cotney said the termination for convenience clause contained in the American Institute of Architects’ standard contract documents is widely recognized as fair to both parties. Contractors should also strive for language that allows them to recover as much as possible in terms of what they’ve put into a project to a given point. 

But some data center contracts he’s seen have attempted to hold more of those outlays back. 

“Traditional termination for convenience means typically you're entitled to all your costs and reasonable profit and overhead on what you did to date, but not future profit and overhead,” Cotney said. “With these that I've been seeing, it's more you're only entitled to certain costs. They’re very specific and the owner is entitled to back-charge things for incomplete work.”

In addition to those clauses, Sigmond pointed to early warnings that a once-high-flying data center project may be facing new financing hurdles. 

“Usually the first sign that you've got a problem is they start to fight about change orders or they start to slow the payments down,” Sigmond said. “Make sure if you’re seeing those triggers, you’re reacting appropriately.” 

That means making sure payments are tracking to predetermined project completion milestones and ensuring payment bonds are in place to make a contractor whole. It’s also important to file any liens against a project that’s in default within the allotted time specified in the contract, usually 90 days. 

Scope creep

As builds become more complex, contractors are often being asked to do more than they signed up for. That may even include a request to perform or warranty work that’s beyond a contractor’s area of expertise. 

“You've got contractors that are having to become architects, engineers and lawyers all at the same time,” Cotney said. “The reason that has occurred is that the systems we use for construction have become more complicated.” 

Examples where builders may be asked to provide insight beyond their own competencies include building performance specifications, R values for insulation, fire codes and product manufacturer specifications. Though contractors are usually good at defining what they will do within the scope of a given job, it’s becoming increasingly important to put in writing what they won’t do, as well. 

“If you're not engaging in design, why not have a design waiver that says if you're providing suggestions in that area, that's all they are, suggestions,” Cotney said. “You want to put something in there that says a design professional must sign off on these before it becomes the Bible.”

AI in contracts

Any discussion of legal issues for contractors in 2026 would be incomplete without looking at the impacts of AI, both in construction contracts and on jobsites.  

“If you don't think your team members are using AI, they are,” said Nate Simon, former in-house counsel for Gray Construction and founder of Simon Law in Lexington, Kentucky. “The question isn't whether AI will be part of construction, it's whether you're using it intentionally or letting it happen without guardrails.”

Attorneys largely agree that AI still isn’t the right tool for creating construction contracts. Simon also said the tech isn’t right for reviewing entire contracts, though it does better when focused on individual clauses. Where it truly shines, he said, is helping contractors understand what’s in a contract in the first place. 

“Summarizing an existing contract into plain English so your project team can actually use it; Helping draft a notice letter when you already know the deadline and the delivery requirements; Comparing two versions of a subcontract to see what changed in the redline,” Simon wrote via email. “These are tasks where AI saves time and you can catch mistakes because you know what right looks like.”

But the technology doesn’t — and shouldn’t — make contractors into lawyers. 

“Understanding what a clause does is different from deciding whether to accept it, price it or push back on it,” Simon said. 

This last point is especially important as contractors use AI to answer questions from project owners and other stakeholders, according to Cotney. He said he’s started drafting AI disclaimers in contracts to ensure contractors don’t overpromise only to underdeliver. 

“We had to develop a contract provision that basically says, to the extent that artificial intelligence is used for purposes of scheduling or preliminary estimates, the customer cannot rely on those until such time as boots on the ground have determined whether those field measurements are accurate.

On Nov. 17, 2025, the Environmental Protection Agency and U.S. Army Corps of Engineers announced a proposed rule on a common-sense definition of “waters of the United States” under the Clean Water Act.

Generally, the proposed ruling aims to define and clarify the scope of federal jurisdiction over Clean Water Act permitting, which has been unclear. According to an EPA fact sheet, the proposed rule would ensure federal jurisdiction is focused on “relatively permanent, standing or continuously flowing bodies of water.”

That language is in lockstep with the U.S. Supreme Court’s landmark 2023 decision in Sackett v. EPA, which restricted federal jurisdiction under the Clean Water Act by ruling waters of the U.S. are limited to “relatively permanent bodies of water” and wetlands that have a "continuous surface connection” to those waters. 

Doubling down on Sackett

The terms “relatively permanent” and “continuous surface connection” are at the heart of the matter.

The proposed rule would explicitly double down on the original intent of the Sackett decision: Relatively permanent bodies of water are those that exist, at the very least, during the “wet season.” The timing and duration of the “wet season” varies by geographic region due to a multitude of hydrologic, environmental and topographic factors — but the term is meant to describe the extended periods of predictable hydrology occurring within a region.

In short, a body of water that does not exhibit relative permanence during the wet season for a particular geographic region would likely not be considered jurisdictional. This applies to tributaries, pools, lakes and ponds. For example, an ephemeral stream that only shows signs of continuous flow for one month out of the year in a geographic region with an estimated three-month wet season would not likely be considered jurisdictional. Any wetlands, pools, or ponds that may connect to the ephemeral stream would also likely be considered non-jurisdictional.

The rule would also require wetlands to meet a new, two-part test: beyond existing during the wet season, a covered body of water would also need to abut other jurisdictional waters. Before the Sackett decision, wetlands could be considered jurisdictional if they had a “significant nexus” to jurisdictional waters. At that time, a significant nexus analysis would be used to assess the flow characteristics and functions of the “relative reach” of a stream to determine if they had a substantial effect on the chemical, physical or biological integrity of jurisdictional waters.

Considering how broad this pre-Sackett language was, centering jurisdictional scope around relative permanence and surface water connection to jurisdictional waters is an attempt to streamline analyses for consultants, landowners, public agencies and other stakeholders. 

Significant exclusions for ditches

The new rule also offers clarity on what is considered an “excluded ditch” and proposes significant changes to which ditches can be considered jurisdictional. The proposed new rule excludes from jurisdiction ditches that are constructed or excavated in dry land.

According to language published at the Federal Register, ditches that are constructed or excavated in dry land, even if they are connected to other jurisdictional waters, would not be considered jurisdictional under the proposed ruling. 

This is a significant proposed change: ditches that are constructed or excavated within dry lands do not meet jurisdictional requirements even if they exhibit relatively permanent flow. As discussed above, relatively permanent flow of water is a typical benchmark for jurisdictional scope.

Additionally, groundwater has not historically been considered a jurisdictional water, and the new ruling reiterates this exclusion by adding “groundwater drained through subsurface drainage systems” to the groundwater definition. This language intends to exclude from jurisdiction subsurface drainage systems, including tile drains and french drains.

The road ahead

If the proposed ruling is codified — the public comment window closed Jan. 6, 2026, and a final rule is in development — the regulatory road ahead may provide more clarity for developers, consultants, landowners and other stakeholders. The language being released by the EPA and USACE appears to lessen the number of features that would fall under the jurisdiction of the Clean Water Act. 

For the purpose of evaluating jurisdiction, the proposed rule provides little room for deviation from the benchmarks of relative permanence and continuous surface water connection that were originated by the Sackett decision. 

Landowners and other stakeholders will have clarity on what defines a jurisdictional water feature and what parameters their practice needs to meet before areas are subject to jurisdiction under the Clean Water Act. Broadly, developers and consultants are projected to have greater clarity in determining which aquatic features may or may not be considered jurisdictional waters on potential project sites.

In May 2023, Construction Dive asked ChatGPT, OpenAI’s large language model, to generate a construction contract on a design-bid-build job for a 600-unit, mixed-use project in San Jose, California. The document, attorneys said, could be legally enforceable — it addressed scope of work, payment terms, a termination clause and sections on indemnification, insurance and change orders.

But it also came with missing clauses and poor risk management. Those same attorneys cautioned that using artificial intelligence to solely generate a contract was akin to opening Pandora’s Box — the risk was simply not worth it.

Construction attorneys now say the tech is here to stay and that its capabilities have improved as it has worked its way into myriad aspects of daily life. But after two years of improvement, can it now write an ironclad construction contract? More to the point, should construction attorneys turn to it to do so?

“Oh my God, no. I would be terrified if I heard of anybody using it to generate a contract,” said Megan Shapiro, a construction attorney and partner at law firm Radoslovich Shapiro in Sacramento, California.

While AI does present uses for construction attorneys, experts cautioned that using it as a wholesale, one-stop-shop for contracts can only lead to trouble.

“It's not something where you press a couple buttons and you have a contract that's ready to go,” said Michael Vardaro, managing partner of New York City-based law firm Zetlin & De Chiara.

The hallucination issue

Shapiro didn’t mince words when it came to AI tools’ accuracy. She said it was “shocking” how wrong AI-generated content could be and how often that occurred.

Indeed, so-called hallucinations have been a massive problem for large language models. While that’s been the case ever since generative AI made its mainstream debut in 2022, a bug developers pledged would become less prevalent with use and the tech’s evolution, The New York Times reported in May 2025 that for newer AI systems, the hallucination rates reached as high as 79%, depending on the test and tool.

For attorneys, this presents a significant business and ethics problem as they look to balance speed with accuracy. Case in point: the advent of LLMs has given rise to “AI slop” in the legal system, or filings with bogus or misrepresented court cases, the Times reported on Nov. 7, 2025. A database that tracks AI hallucination cases in legal systems across the world has included, as of Nov. 25, 2025, about 600 cases — the majority of them in the U.S.

Due diligence

These issues present reputational and business risks, said Trent Cotney, a partner at law firm Adams & Reese and the head of its construction team. Should an attorney file a brief with AI-fabricated documents or claims, the presiding judge could consider sanctions.

“Not to mention the fact that there's a reputational hit, and your client obviously is not going to be happy with that either,” Cotney said.

Shapiro said that what keeps her up at night is the thought that her clients could be using AI on their own without discussing it with her. She fears that if someone at a construction firm doesn’t want to pay to call an attorney on that legal issue, then that person may attempt to figure the problem out on their own.

“I think the risk to them is getting substantially worse, because I think consumer confidence in the output is increasing, despite the fact that I think the quality of the output is decreasing,” Shapiro said.

Finding an edge

With diligence and a careful eye, however, attorneys said there are ways AI can help legal professionals with their daily tasks.

Vardaro, for example, said one of the benefits of AI was its ability to corral documents and seek out sections contained within them, a job that was left to associates years ago.

“Now, AI can kind of do that and give you kind of the hits in that project file within minutes, where that might have taken weeks, if not months, to do,” Vardaro said.

Experts also called out its ability to review contracts for specific provisions. Cotney, who refers to himself as an early adopter of the tech, will use it as a gut check, particularly when it comes to verifying references and citations.

“I do use AI for purposes of cross checking what I've done, identifying if there's something else to think of that I haven't thought of, or helping me fine tune certain things or compile certain things,” Cotney said.

Shapiro will sometimes use AI in her work as a research tool, but that’s where it stops for her. It will help her find and identify resources and paths to explore that she wouldn’t get in other ways.

“Thinking of it as a law clerk or a low level associate, a young attorney and reviewing it that way, I certainly think that there's value there,” Shapiro said. 

At the same time, attorneys said AI tools need to be prompted by people who already know the law, in order to flag if something that it produces is suspect.

“It's not a completely useless tool,” Shapiro said. “It's just a tool that needs to be utilized by a user who has the knowledge and experience to leverage it in a safe, effective, efficient way.”

The Department of Transportation’s Oct. 3, 2025, interim final rule for its Disadvantaged Business Enterprise program has spurred state DOTs to pause workforce contracting goals as they review certification status of approximately 41,000 firms nationally, lawyers say. 

While all participating firms must be recertified under the rule, the process impacts women- and minority-owned businesses the most, according to attorneys, since they previously qualified automatically on the basis of sex or race, but no longer do.

DBE goals in existing contracts executed prior to Oct. 3 still apply and DBE firms who won work under prior rules can’t be removed from a contract just because the recertification process is taking place. Firms may also appeal a decision of decertification.  

On Oct. 3, DOT’s interim final rule, which barred the use of sex or race as a basis for certification, became effective immediately and caused confusion for existing DBE firms that questioned whether they would suddenly be terminated from the program. Follow up guidance from DOT issued Oct. 24, 2025, made clear that wasn’t the case. 

However, it also emphasized that all participating firms, including those owned by women and minorities, would need to seek recertification and provide a personal narrative explaining what disadvantage owners had experienced in their businesses. That narrative cannot cite sex or race as a qualifying reason. Along with the personal narrative, owners must also submit a personal net worth statement, which was previously capped at $2.047 million.

In blog posts and interviews, attorneys spelled out how those changes are taking shape approximately six weeks into the process after the Oct. 3 ruling. The heaviest burden during recertification will fall on women- and minority-owned firms, according to attorneys Robyn St. Hilaire and Natalie Nicole Mark of law firm Offit Kurman. 

“Female- and minority-owned businesses will feel the most immediate impact,” St. Hilaire and Mark wrote in a Nov. 11, 2025, blog post. “Owners must now prepare a detailed personal narrative and financial disclosure demonstrating disadvantages based on lived experience not related to race or gender.”

While the DBE program runs nationally, state-level DOTs handle certification via unified certification programs for agencies across their jurisdiction. DOT’s interim final rule directed all UCPs to reevaluate the eligibility of all existing DBEs. As that process takes place, which DOT didn’t put a deadline on but directed to happen “as quickly as practicable,” DBE goals going forward are effectively negated, at least temporarily. 

“The DBE goals are being removed only until all existing DBEs are recertified without using the rebuttable presumption of social disadvantage,” Chris Slottee, an attorney at Schwabe in Anchorage, Alaska, told Construction Dive. 

Although that’s the case, firms should still seek recertification, since participation goals for disadvantaged businesses in federal contracts should eventually go back into effect. 

“The goals will come back into play on future contracts once this reevaluation process is complete,” attorney Jacqueline Unger, a partner at PilieroMazza in Washington, D.C., told Construction Dive. “Firms should get recertified so that they’ll be eligible to bid on that DBE work down the line.”

Several states have already taken steps to roll out the recertification process for their UCPs, according to St. Hilaire’s and Mark’s blog post. Attorneys recommended DBE reach out to their state’s UCP as soon as possible for guidance and to start the process. 

For many current DBE firms, the program represents the lifeblood of their business, and recertification could become an existential must, Danielle Dietrich, a partner at Potomac Law Group in D.C., told Construction Dive. 

“The DBE certification is the only way for many of them to compete against the larger, private-equity backed firms,” Dietrich said. “It’s absolutely worth the time and effort for them to put together the personal narrative and new personal net worth statement if it means more of a chance of keeping their business alive.”

Construction disputes continue to rise in 2025. Yet the complications that trigger those disputes usually boil down to payment, changes, timelines or schedules and quality of work. 

This is why how a contract is written matters. 

On construction projects, the unexpected usually occurs. A properly written contract can eliminate many of the potential areas of dispute by providing a roadmap to resolution.  Although most construction contracts are professionally written, a number still contain gaps that open the door to disputes. 

By more effectively addressing these gaps, stakeholders can reduce the number of conflicts that emerge as a project progresses. While this isn’t legal advice, our experience and research has identified eight of the most common contract mistakes that lead to disputes and litigation.  

1) A detailed process for communicating and handling changes is lacking.

Virtually all projects experience changes during their construction.  Contracts should stipulate a formal process for communicating, approving and making changes that is followed by all and approved by all.  When that process is properly followed, it is easier to track where and how things got side-tracked.

2) The Force Majeure clause needs to be updated.

Force Majeure clauses have been crafted to cover catastrophic events, such as floods and earthquakes, most of which have a relatively low probability of occurring. The concept of Force Majeure has evolved to include modern day catastrophes, such as the pandemic, global supply chain interruptions, wars and other calamities. In modern construction contracts, it is important that Force Majeure clauses are revised to provide for present realities.

3) Project scope is not well-defined, or the wording is too general.

For example, instead of writing “install lighting,” the scope should include a detailed description of the complete scope and steps for the lighting project. Different people understand things differently. The best contracts enable all parties to understand the same things the same way.

4) Timelines and deadlines are missing or poorly defined.

What defines completion, as well as expectations for the time span needed to complete the tasks?  How does the contract identify who is responsible for slowdowns and delays? What are the consequences for missing deadlines? Without properly defining these aspects, it becomes difficult to determine the instigator, action, degree of disruption and penalty.

5) Definitions for payment are missing or incomplete.

Specifics regarding what constitutes payment, completion, timeline for payment and even a process for withholding payment should be detailed and agreed upon. 

6) Stakeholders use a one-size-fits-all contract.

Every project is unique. Each features distinctive details, descriptions and timelines. That means the contract needs to be unique too. One-size-fits-all contracts tend to be overly general in order to accommodate a wider range of projects. But that’s also why they are more likely to open the door to misunderstandings and disputes.

7) There’s no process for handling and settling disputes.

When disputes arise, it can save a lot of time and money to have an already agreed-upon process for settling disputes that details negotiation, withholding payment, mediation, arbitration, litigation and other paths to resolution.

8) The contract doesn’t assign risk and risk distribution.

Care should be taken to define risk and identify who’s responsible for delays, defects, interruptions, price increases and other factors.

Finally, although it may seem obvious, it’s important that all parties sign the contract as well as approve all changes and revisions. Without agreement signatures, contracts and changes may not be binding.

To reduce the number of disputes, project stakeholders need to be proactive. That means anticipating the issues that will arise, in order to more easily prevent them beforehand or mitigate them after the fact.  

Instead of waiting until disputes happen, applying a lens to each of these eight areas during the contract development process can be quite valuable. Anticipating disputes and agreeing to methods for resolving them will go a long way towards preventing them, potentially saving significant time and money.