Why AI Makes Economic Sense in Construction Claims Management

This article is written by Paul Njonga MBA MCIOB

Managing claims effectively is crucial to maintaining profitability, project timelines, and stakeholder relationships. From contract disputes to unforeseen project delays, construction claims can be complex, time-consuming, and costly. With the advent of Artificial Intelligence (AI), the way firms handle these challenges is undergoing a transformation. But beyond the technology itself, the economic logic behind AI adoption in construction claims management is particularly compelling. Let's explore this through the lenses of transaction costs, opportunity costs, and the resource-based view of the firm.

Reducing Transaction Costs in Claims Management

Transaction costs in construction claims management are substantial. They include the costs of gathering and analysing documentation, negotiating settlements, and enforcing agreements. Traditionally, these processes involve significant human labour, time, and financial resources. The need to sift through mountains of paperwork, cross-reference project timelines, and ensure compliance with contracts can lead to delays and increased costs.

AI addresses these challenges by automating many of the tasks that drive up transaction costs. For instance, AI-powered tools can quickly analyse vast amounts of project data, including contracts, schedules, and communications, to identify discrepancies and potential claims. This automation reduces the need for extensive manual review, saving time and reducing errors. AI can also help in predicting outcomes based on historical data, which aids in more effective and informed negotiations.

An example of this in practice is the use of AI algorithms to analyse project schedules and identify deviations in real-time. By detecting delays early, firms can address issues before they escalate into full-blown claims, thereby reducing the costs associated with dispute resolution.

Minimising Opportunity Costs

Opportunity cost is the cost of forgoing the next best alternative when making a decision. In construction claims management, the opportunity cost can be high. When project managers and legal teams are bogged down in lengthy claims processes, they are not focusing on other critical tasks, such as planning future projects or optimising current ones. This diversion of resources can lead to missed opportunities for growth and innovation.

AI helps to minimise these opportunity costs by streamlining the claims management process. With AI handling the heavy lifting—such as data analysis, risk assessment, and even generating recommendations for action—human resources are freed up to focus on higher-value activities. For example, instead of spending weeks analysing a claim, a project manager can rely on AI-driven insights to make quicker decisions and move on to planning the next project phase. This not only speeds up the claims process but also allows firms to allocate their expertise where it can generate the most value.

Enhancing the Resource-Based View of the Firm

The resource-based view (RBV) of the firm suggests that competitive advantage is achieved by leveraging unique resources and capabilities that are valuable, rare, inimitable, and non-substitutable. In the context of construction claims management, these resources include not only physical assets but also intangible assets like expertise, knowledge, and relationships.

AI enhances the RBV by augmenting these intangible assets. For instance, AI systems can learn from previous claims and continuously improve their analysis and recommendations, effectively becoming a growing repository of the firm's collective knowledge. This knowledge becomes a strategic asset, allowing firms to manage claims more effectively than competitors who rely solely on traditional methods.

Moreover, the insights gained from AI can be used to refine project management practices, reduce the likelihood of future claims, and improve overall project delivery. This capability to learn and adapt gives firms a sustainable competitive advantage, aligning perfectly with the RBV framework.

Key Takeaway

AI in construction claims management is more than just a technological upgrade; it's a strategic economic decision. By reducing transaction costs, minimising opportunity costs, and enhancing the firm's unique resources, AI provides a compelling value proposition for construction firms looking to navigate the complex landscape of claims management. As the industry continues to evolve, those who embrace AI will likely find themselves better positioned to manage risks, optimise operations, and ultimately, drive success in a highly competitive market.