Under Construction – August 2026

This Summer Issue of Under Construction covers developments ranging from emerging technology risks to legislative reform and notable court decisions across the West.

First, we examine how uploading project documents into third-party AI tools can trigger confidentiality breaches and intellectual property exposure — a growing risk as the construction industry rapidly adopts these platforms.

Next, Colorado’s S.B. 26-074 significantly expands the state’s mechanics’ lien statute, allowing claimants to include delay and disruption costs and providing a good-faith safe harbor against the excessive lien penalty.

In Utah, the Supreme Court trimmed an arbitration award in RV Holdings 4, LLC v. Standard Fiber Investors, LLC, holding that an arbitrator exceeded his authority by awarding damages on a claim never submitted by either party.

In Idaho, the Supreme Court issued its first interpretation of the Community Infrastructure District Act, giving developers greater certainty on bond durability and reimbursable infrastructure.

Finally, the Arizona Supreme Court in Markham Contracting Co. v. Cahava Springs clarified that the improper-conduct requirement for unjust enrichment applies only in the landlord-tenant-contractor context, broadening recovery options for contractors who improve property through a third-party arrangement.

We hope you find these articles informative. As always, we welcome your feedback and topic suggestions for future issues.

Best Regards,

Timothy E. Reilly, Editor

By Laurie Choi and Christian Fernandez

Like many industries, the construction industry is rapidly adopting artificial intelligence. AI-powered tools now help construction teams estimate costs, transcribe meetings, summarize RFIs, model schedules, and manage project documents faster than ever before. But amid this rush toward efficiency, a serious risk hides in plain sight: every time project documents are uploaded into a third-party AI tool, contractual confidentiality obligations may be implicated — or outright breached — exposing companies to potentially substantial and uncapped liability.

General contractors often face strict confidentiality and nondisclosure obligations, whether under the prime construction contract or a separate NDA. This is especially true for complex projects or those involving proprietary technology — such as data centers, medical or scientific facilities, and energy generation and storage facilities. These confidentiality clauses typically define “confidential information” broadly to encompass all non-public information provided for the project, including plans, specifications, pricing, schedules, RFPs, and even the contract terms themselves. These confidentiality obligations almost always flow down to subcontractors.

Compounding the risk, many sophisticated prime construction contracts carve out confidentiality breaches from the owner’s waiver of consequential damages. The potential consequence: when an owner suffers damages from the inadvertent release of proprietary information or trade secrets due to a contractor’s confidentiality breach, the resulting losses can snowball quickly.

Consider this scenario: A subcontractor working on a data center project for one AI model provider uses a competing provider’s platform to summarize meeting minutes, perform takeoffs, and draft supplier agreements. That action may breach confidentiality terms and could create significant trade secret exposure — particularly given the fast-evolving and competitive nature of this technology sector.

In this scenario, the general contractor faces a cascading problem. If the owner discovers the breach, the general contractor may be liable under the prime contract. The general contractor may then seek indemnification from the subcontractor, but if the subcontractor lacks the financial resources to satisfy the claim — or if its insurance policy excludes intentional data disclosures — the general contractor could be left holding the bag. Standard commercial general liability policies may not cover this type of risk, and professional liability policies may not be triggered either.

Recognizing this exposure, general contractors are now inserting express provisions into their subcontracts that prohibit the use of AI tools on project work without prior written consent. These clauses typically require subcontractors to identify which AI tools they intend to use, demonstrate that those tools do not retain or train on project data, and obtain affirmative approval before proceeding.

This creates real tension. AI has become embedded in everyday construction technology. Estimating software uses machine learning. Project management platforms incorporate AI-powered analytics. Meeting tools auto-transcribe and summarize discussions. Even email platforms now offer AI-generated responses that may process confidential content. A blanket prohibition on AI use may be technically difficult — if not impossible — to enforce.

Some contractors are getting ahead of this issue by implementing internal AI use policies. These policies typically prohibit the use of public-facing AI tools for estimating, design work, and project management, while permitting enterprise-grade platforms with contractual data-isolation guarantees. But the vast majority of subcontractors have not yet grappled with this risk. They may be violating their confidentiality obligations daily without realizing it.

While confidentiality may be the most immediate concern, AI use in construction raises several other contractual risks that industry participants should monitor. One key issue is intellectual property ownership. Architects and engineers often retain copyright in their design documents under standard form agreements, and licenses are typically limited to use on a specific project. Uploading plans or BIM models into an AI platform — particularly one that generates derivative outputs — may exceed the scope of the permitted license and could constitute copyright infringement.

Whether you are an owner, general contractor, subcontractor, or design professional, the time to address this risk is now — before a breach occurs. Consider having an attorney review your current and contemplated agreements, as well as your internal AI use policies, to ensure consistency and compliance.

By Maria Conversa

Starting August 12, 2026, Colorado’s mechanics’ lien statute underwent its most significant update in years. Colorado’s General Assembly enacted Senate Bill 26-074 on April 6, 2026, and the new law directly addressed a problem that has plagued contractors and subcontractors for decades. For years, a contractor and subcontractor who filed a lien for the full amount it believed was due — particularly when that amount included disputed costs, delay damages, or lost productivity — risked triggering the “excessive lien” penalty. That penalty could force the claimant to forfeit its lien rights entirely and pay the other side’s attorney fees. The new law expands the categories of costs to be claimed by good-faith lien claimants, while still protecting against truly abusive filings. General contractors, subcontractors, suppliers, owners, and lenders all need to understand these changes.

1. Lien Value May Include Disputed Amounts

The bill amends the core lien statute to insert the phrase “whether disputed or undisputed” into the description of lienable value. Prior law referenced only “the value” of labor, services, or materials furnished. The new text confirms that a lien can attach for amounts the parties still dispute. A claimant no longer needs the owner or general contractor to agree on the amount before filing.

2. Delay, Lost Productivity, and Disruption Costs Are Lienable

A new subsection expressly states that “nothing in this article prohibits the inclusion of costs otherwise allowed under a contract in a lien, including costs incurred as a result of delay, lost productivity, or other disruption to the work.” This provision directly expands what “value” means for lien purposes, and it overturns a longstanding judicial limitation, discussed below.

3. Good Faith Safe Harbor Against the Excessive Lien Penalty

Colorado law has long penalized excessive lien claims, and that penalty remains. Under the existing rule, a claimant forfeits all lien rights and must pay the other side’s costs and attorney fees if it files a lien for more than is actually due, without a reasonable possibility that the claimed amount was due, and with knowledge that the amount exceeds what is owed. Colorado courts have read this test to require both that mismatch and an intent to defraud, judging excessiveness based on what the claimant knew at the time of filing. This approach reflects the statute’s original purpose: to punish fraudulent claims, not good-faith disputes. The bill now adds an explicit statutory safe harbor. If a court ultimately awards less than the lien claimed, that fact alone does not make the lien “excessive,” so long as the claimant had a good-faith basis to believe the full amount was due when it filed. The bill also clarifies that an amount is “due” if the claimant reasonably and in good faith believes it represents the value of what it furnished, even if the amount remains unliquidated or disputed. This matters because a court must award all  attorney fees, not just a portion to a party that successfully defends against an excessive lien claim. The safe harbor therefore meaningfully reduces a claimant’s financial exposure when filing an assertive good-faith lien.

4. Parallel Changes for Public Works Claims

The bill makes identical changes to the public works bond claim statutes. A supplier’s verified statement of claim on a public project may now state amounts, “whether disputed or undisputed,” and may include delay and disruption costs that the contract allows. This change responds to a 2026 Colorado decision holding that purely consequential delay and disruption damages — such as lost profits or idle time costs — fell outside what a public works verified statement of claim could include, because the statute required claimed amounts to relate to costs incurred in performing the project’s work. The same good faith safe harbor applies to the excessive claim penalty on public projects. The law now treats private mechanics’ liens and public payment bond claims more consistently.

Colorado courts have long strictly construed the mechanics’ lien statute when deciding whether a lien right exists, but liberally construed the statute once a claimant establishes a valid right, to prevent unjust enrichment of property owners. Within that framework, several judicial decisions created uncertainty about what a lien could include:

Courts historically excluded delay and idleness damages. In an 1886 case,¹ the Colorado Supreme Court held that a subcontractor could lien for extra labor caused by construction mistakes (treating those costs as part of the “cost of construction”), but could not lien for “damages and expenses incurred through enforced idleness” or delay caused by another party’s default. Those amounts were breach of contract damages, not “value” the claimant furnished to the property. S.B. 26-074 overrules this limitation by expressly authorizing lien claims that include delay, lost productivity, and disruption costs — so long as the contract allows recovery of those costs.

Courts excluded consequential delay damages on public projects too. A 2026 Colorado decision² held that a public works supplier’s verified statement of claim could not include purely consequential damages for delay or disruption — such as lost profits or idle-time costs — because the statute limited claims to costs incurred in performing the project’s work. S.B. 26-074 directly supersedes that holding by expressly authorizing delay, lost productivity, and disruption costs in public works statements of claim, so long as the underlying contract allows recovery of those costs.

Courts excluded contractual charges, like late fees, too. In 1990, the Colorado Supreme Court held that contractual late charges are not lienable because they do not represent the “value” of labor, services, or materials furnished.³ A 2011 appellate decision⁴ similarly held that interest “does not represent the value of the work performed.” The new bill does not directly address late charges or interest, but by authorizing liens for “costs otherwise allowed under a contract,” including disruption costs, it significantly broadens the categories of contract-based amounts that a lien can include. This change pushes back against the restrictive trend those earlier decisions established.

Courts had already begun softening the “excessive lien” threat. A 2011 appellate decision⁵ held that including contractual interest in a lien statement– even though interest was not lienable– did not automatically render the lien void as “excessive.” A 2025 decision⁶ likewise upheld a lien that included costs due but not yet paid, reasoning that the statute’s future-tense language contemplated such claims. S.B. 26-074 codifies and extends this trend toward flexibility. It creates an explicit statutory safe harbor rather than leaving claimants to argue  good faith on a case-by-case basis.

The “reasonable value” ceiling remains intact. Courts consistently hold that a lien may reach only the reasonable value of materials, labor, and services actually furnished,⁷ and that work so defective it must be entirely redone has no value to the owner.⁸ Nothing in S.B. 26-074 changes these principles. A claimant still must furnish something of value to the property. The bill expands what costs count toward that value, but does not eliminate the requirement that value exist.

The bill does not change the mechanics of perfecting a lien. Filing deadlines, notice requirements, and the requirement to furnish labor or materials to the property all remain the same. What changes is the amount a claimant can include when perfecting a lien. That amount can now encompass the full scope of what one believes is due, including delay and disruption costs, without the same risk of forfeiture.

The statute still limits lien rights to the same class of persons: laborers, mechanics, materialmen, contractors, subcontractors, builders, architects, engineers, and others. But the scope of what they can claim is broader. Consider a subcontractor that suffered two months of delay because an owner’s design changes disrupted its work. That subcontractor may now include those delay costs in its lien, provided the subcontract allows recovery of such costs. Previously, including anything beyond the direct value of labor and materials furnished, risked an excessive-lien challenge.

The bill does not change statutory deadlines or notice procedures. Lien statements, however, will likely grow more detailed and larger in dollar amount. Owners and lenders reviewing lien filings should expect to see line items for delay, disruption, and disputed amounts that would not have appeared in filings before 2026.

For subcontractors and suppliers: This change is a significant benefit. The good faith safe harbor reduces the chilling effect that the excessive lien penalty has long had on lien claims. A claimant can now file for the amount it genuinely believes is due without the same fear of forfeiture. One still must have a reasonable, good-faith basis for that amount.

For owners and general contractors: Expect larger lien claims and more difficulty challenging them as excessive. Excessiveness remains an affirmative defense; the owner or general contractor bears the burden of proving that the claimant lacked any reasonable possibility that the amount was due and knew the amount was inflated. The days of using the excessive-lien penalty as leverage to force conservative filings may be ending. Owners may see increased lien exposure on projects with disputed change orders or delay claims. Truly abusive filings — those lacking any good-faith basis — still forfeit lien rights and trigger mandatory fee-shifting for all attorney fees incurred in defending against the excessive claim.

For lenders: Mechanics’ lien exposure on construction loans may increase in dollar terms, because lien claims can now capture broader categories of costs. Title companies and construction lenders should update their risk assessments accordingly.

Because liens can now include delay and disruption costs, the total potential lien exposure on a project is higher than before. This increase may affect how lenders size construction-loan reserves and how sureties evaluate payment bond exposure. On the payment practices side, the bill gives owners and general contractors a stronger incentive to resolve disputes earlier. If a dispute festers, the other side can now lien for the full disputed amount with reduced risk of penalty. Prompt payment and proactive dispute resolution have become even more important as risk management tools.

S.B. 26-074 took effect August 12, 2026. Construction industry participants should consider consulting counsel about any pending disputes or projects where parties may have filed liens since the effective date. The new law meaningfully shifts the balance of lien rights in Colorado.

This article is for informational purposes only and does not constitute legal advice.

By Tyson J. Prisbrey and Mark O. Morris

Construction industry participants have long favored arbitration to resolve disputes, prizing its speed, confidentiality, and finality over traditional litigation. That finality, however, depends on arbitrators staying within the bounds of what the parties actually put before them. In RV Holdings 4, LLC, et al. v. Standard Fiber Investors, LLC, the Utah Supreme Court issued a rare rebuke of an arbitration award, holding that the arbitrator exceeded their authority by awarding damages on a claim the prevailing party never submitted for decision.

The dispute arose from a management-fee relationship between Standard Fiber, a bedding manufacturer, and several affiliated “Ridgeview” entities that provided financial and accounting oversight services. After Standard Fiber stopped paying management fees in 2020, the parties pursued their claims in arbitration. Ridgeview’s arbitration demand sought recovery under two specific theories: that a 2006 management services agreement remained in effect, and alternatively, that an oral “50/50 Agreement” entitled it to a share of fees paid to an affiliated entity. Notably, Ridgeview never asserted a claim for breach of a separate 2014 fee arrangement, and affirmatively disavowed reliance on it. The arbitrator rejected both of Ridgeview’s submitted theories and instead awarded Ridgeview $725,000 based on that unpled 2014 agreement. The district court confirmed the award, concluding that the arbitrator’s decision was rationally related to the parties’ arguments, including evidence Standard Fiber itself introduced about the 2014 arrangement.

The Utah Supreme Court reversed, and in doing so clarified how much deference reviewing courts owe to arbitrators. The Court explained that the oft-cited principle that courts must “resolve all doubts in favor of arbitration” has been overextended in Utah jurisprudence and applies only to threshold questions of arbitrability, not to whether an arbitrator remained within the scope of the parties’ submissions. Applying that clarified standard, the Court held that an arbitrator’s authority to award relief is defined by the written arbitration demands, not by whatever evidence happens to be introduced at the hearing. Because Ridgeview’s own demand disclaimed the 2014 agreement, Standard Fiber never received adequate notice under the governing arbitration rules to defend against a claim based on that agreement, even though Standard Fiber itself had referenced the 2014 arrangement in its defense. The Court further held that because the arbitrator’s rejection of Ridgeview’s submitted claims did not depend on the improperly awarded amount, the correct remedy was modification — striking the unauthorized portion — rather than vacatur of the entire award.

RV Holdings offers a pointed reminder that arbitration is not immune from judicial oversight, even though courts vacate or modify awards only in narrow circumstances. Parties entering arbitration should ensure their demands clearly and completely identify every agreement and theory of recovery they intend to pursue — and promptly amend the demand if a new theory emerges during the proceedings — since an arbitrator risks reversal for granting relief on a claim that was never put at issue, regardless of what evidence surfaces at the hearing.

By Sara M. Ajeti and Tara Martens Miller

On February 12, 2026, the Idaho Supreme Court issued its first authoritative decision construing the Community Infrastructure District Act (CID Act), Idaho Code §§ 50-3101 to 50-3121, in Doyle v. Harris Ranch Community Infrastructure District No. 1. The opinion resolves several issues of first impression — what qualifies as reimbursable “community infrastructure,” how strictly the 60-day statute of limitations bars challenges to a CID’s formation and bond authority, and whether a CID is legally distinct from its creating municipality. For developers forming or using a CID, the decision provides welcome certainty on the durability of CID bonds, reimbursement structures, and the scope of qualifying community infrastructure.

The CID Act allows a developer to petition Idaho cities and counties to form special-purpose taxing districts that finance community infrastructure ahead of development and allow growth to “pay for itself.” I.C. § 50-3101(1)(a)–(c). “Community infrastructure” is broadly defined to include roads, sidewalks, parks, sewers, stormwater facilities, and other public facilities that have a “substantial nexus” to, and directly or indirectly benefit, the district. I.C. § 50-3102(2). A CID is formed upon petition by two-thirds of residents or all landowners within a proposed district to the governing city or county. Once formed, CIDs are political subdivisions with only the power the Act expressly grants, including the powers to contract, finance infrastructure, levy property taxes, and incur debt through general obligation bonds. I.C. § 50-3105(1). Qualified electors within the district must approve a ceiling bond amount by a two-thirds vote; once approved, the district board may issue additional bond series without a further elector vote, notice, or hearing. I.C. § 50-3108(1)–(3).

The Harris Ranch Community Infrastructure District (District) was formed in 2010 to provide community infrastructure to the mixed-use Boise, Idaho development. Residents approved bonds of up to $50 million over 30 years to repay infrastructure costs the developer would advance. In 2021, the District Board adopted two resolutions: (1) a “Payments Resolution” authorizing reimbursement to the developer for sidewalk and roadway construction serving two subdivisions and a stormwater pond and facility subject to a permanent exclusive easement held by the Ada County Highway District, and (2) a “Bond Resolution” authorizing a $5.2 million general obligation bond to finance the reimbursement obligations under the Payments Resolution. Despite hundreds of resident comments opposing the resolutions, the Board adopted them, prompting a petition for judicial review under I.C. § 50-3119.

The Court’s decision addressed several issues that directly affect developers considering the CID financing structure, including procedural requirements for challenging CID actions, the scope of reimbursable infrastructure, and the legal relationship between a CID and its creating municipality. These holdings provide important guidance for structuring CID projects going forward.

First, the preservation rule is relaxed for CID proceedings. The preservation rule ensures that “appellate review is limited to the evidence, theories and arguments that were presented below.” Because the CID Act does not require a district board to hold a contested hearing, accept evidence, or issue written findings before approving a general obligation bond, strict application of ordinary preservation rules would be inequitable to residents and would render judicial review “a meaningless formality.” The Court found the district court’s error harmless, however, because the additional arguments and evidence would not have changed the outcome.

Second, the 60-day statute of limitations is a hard cutoff. The Court held that I.C. § 50-3119’s 60-day window for challenging CID actions is strictly enforced and barred residents’ decades-old due process attacks on the District’s 2010 formation and bond authorization. Homeowners who purchase within a CID after its formation cannot later challenge those earlier decisions.

Third, roads and similar improvements serving multiple lots are reimbursable community infrastructure. The Act excludes improvements that benefit only a single lot. Because the challenged roadways served multiple lots and connected to future commercial and multi-family areas, they satisfied the Act’s “substantial nexus” test. The Court further confirmed that the Impact Fee Act — which allows cities and counties to charge developers one-time fees for public infrastructure growth — does not narrow reimbursable infrastructure under the CID Act through the “system improvement” concept. Although the Impact Fee Act defines “system improvements” and “project improvements” for purposes of assessing fees, the CID Act does not incorporate those terms to limit reimbursable infrastructure. Instead, the CID Act is unambiguous and expressly defines “community infrastructure” to include “public facilities” as defined in the Impact Fee Act, which expressly includes roadways, sidewalks, and stormwater facilities, that benefit the District.

Fourth, a public easement satisfies the Act’s public ownership requirement, and fee title ownership is not required. Infrastructure sitting on land subject to a permanent, exclusive easement held by a political subdivision qualifies as “publicly owned,” even if the developer retains fee title to the underlying land.

Fifth, a CID is legally independent from its creating city or county. Even though city council members may sit on a CID board, the Act requires the District to act “separate and apart from” the municipality, which defeats alter-ego and veil-piercing theories. The Court also confirmed that bonds issued within a previously approved ceiling require no new election and rejected constitutional challenges to the District’s uniform tax levy.

Sixth, developer reimbursement through CID bonds does not constitute an unconstitutional lending of credit. Reimbursing a developer for infrastructure it built does not violate constitutional prohibitions on lending public credit to private parties because any benefit to the developer is incidental to the primary public purpose of funding infrastructure that benefits the district and the broader community.

With this landmark decision providing the first judicial interpretation of the CID Act, developers now have greater clarity on how the statute operates in practice. As infrastructure costs continue to rise, the CID Act offers a valuable financing mechanism that allows developers to fund necessary community improvements while spreading costs over time. By making large-scale projects more financially feasible, the CID Act can help drive development activity and support growth in the construction industry. Developers considering such projects should evaluate whether establishing a CID may provide a practical solution for financing roads, utilities, and other essential infrastructure.

By Creighton P. Dixon and Matthew Racioppo⁹

In June 2026, the Arizona Supreme Court in Markham Contracting Co., Inc. v. Cahava Springs Phase I, Inc., et al. addressed whether improper conduct is required to maintain an unjust enrichment claim outside the landlord-tenant-contractor context. The Court held that the improper-conduct requirement does not extend beyond the landlord-tenant-contractor scenario. As a result, in the construction industry, this clarified that for certain projects, a contractor or subcontractor must meet only the “standard” elements to prove unjust enrichment, not the improper-conduct requirement.

In Markham Contracting Co., certain landowners, (the Landowners) and a District formed a development agreement to implement a financing structure to acquire and construct public infrastructure within Cahava Springs, a master-planned community. To fulfill its obligations to the Landowners, the District entered into a contract with Markham Contracting Co., Inc., to build out the public infrastructure. However, the Landowners were not a party to the contract. After significant improvements were made, a dispute arose between the District and Markham. The District halted payments to Markham and both parties filed claims. The claims went to arbitration, which resulted in a $6.5 million award for Markham. Markham then sued the Landowners for unjust enrichment, seeking to recover the $6.5 million award from the arbitration.

To state a claim for unjust enrichment, Markham had to allege five elements: (1) the Landowners’ enrichment, (2) Markham’s corresponding impoverishment, (3) a causal link between them, (4) no justification for either, and (5) no available legal remedy. The only element in dispute was whether Markham sufficiently alleged that the Landowners’ enrichment, at its expense, was unjustified. The Landowners argued that the contractor could not establish that the Landowners conducted themselves improperly. Specifically, the Landowners contended that the improper-conduct requirement in Wang Electric, Inc. v. Smoke Tree Resort, LLC¹⁰ applied whenever an owner does not directly contract for improvements.

In Wang Electric, the court addressed an unjust enrichment claim against an owner for improvements ordered not by the owner itself, but by its tenant. The court concluded that an owner is not liable for tenant improvements simply because it owns the improved property and the tenant treated the contractor unjustly. The court reasoned that to hold otherwise, the owner would effectively become an insurer of risk for a tenant who contracts for improvements. Specifically, a property owner who merely leased a space to a tenant should not become an “unwitting guarantor” of contracts a tenant may choose to enter. Therefore, the court held that a property owner is not unjustly enriched by retaining unpaid-for improvements made at its tenant’s direction unless the owner acted improperly.

The Markham court determined, however, that the reasoning in Wang Electric did not apply to the project before it. Instead, the court held that the Wang Electric improper-conduct requirement is limited to the landlord-tenant-contractor scenario because tenants regularly contract for improvements and “landlords and contractors need more stability and predictability than what an ad hoc equity review provides.”

As the Markham court explained, the “broader law of unjust enrichment” continues to govern where an owner arranges for improvements to its own property through a third party but refuses to pay for them. Stated differently, if an owner seeks, authorizes, or acquiesces in receiving improvements that someone performed without gratuitous intent and no one pays for them, the owner’s retention of such improvements without rendering compensation can be considered unjust (at least for purposes of a motion to dismiss).

Returning to the Markham facts, the Landowners petitioned to establish the District to finance and develop the infrastructure in Cahava Springs for their benefit. The agreement between the Landowners and the District demonstrates the Landowners’ intent to obtain infrastructure and fund the improvements. Further, Markham’s agreement with the District illustrates that it was not intended to offer its services gratuitously. The Landowners here sought improvements, arranged for a third party — the District — to pay for them, knew that someone would perform the work, and allegedly reaped the benefit of the improvements without rendering compensation. Therefore, according to the Court, Markham has sufficiently alleged a claim for unjust enrichment.

Looking forward, narrowing the scope of the improper conduct requirement in Wang Electric to the landlord-tenant-contractor scenario may allow otherwise insufficient claims against owners to survive an early motion to dismiss on the pleadings. Conversely, this ruling will likely provide more protection for contractors by allowing them to seek repayment not only from the party in direct contractual privity, but from owners who retain the benefit of the work as well.