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The construction industry’s reliance on digital data and devices has reshaped the construction process. When used properly, digital technology facilitates collaboration and increases productivity. However, growing dependence on digital innovation has also rendered construction companies a prime target for cybercriminals. The stark, inescapable reality is that the construction industry has been experiencing an alarming increase in cyber attacks over the last five years. Construction companies should mitigate the risk of cyber attacks by formulating a comprehensive plan that addresses the reasons why the construction industry is particularly susceptible to cyber attacks, anticipates methods used by cybercriminals, and proactively implements effective risk-mitigation tactics.

Why Is The Construction Industry Uniquely Vulnerable To Cyber Attacks?

In recent years, the construction industry has become one of the most frequently targeted industries by cybercriminals.  One analyst found that cyber attacks on construction companies doubled from 2023 to 2024.[1] Between 2023 and 2024, phishing and ransomware attacks on construction companies increased by 83% and 41%, respectively. [2] Construction companies are attractive targets of cybercriminals for many reasons, such as:

Lack of Proper Training: Construction companies traditionally focus on mitigating their many commercial and legal risks.  This has led many of them to neglect cybersecurity training, rendering the workforce susceptible to phishing and other cyber scams.

Frequent Changes in Personnel: Construction’s high rate of labor turnover compared to other industries exacerbates gaps in cybersecurity training and creates a perception that the benefits of training and awareness are fleeting.

Networks Of Project Participants: The network of diverse project participants (design professionals, contractors, subcontractors, suppliers, sureties, owner representatives) gives cybercriminals an array of access points to project data and can make it difficult to reliably manage data security within the network.

The Nature of the Data: Construction companies possess valuable and confidential data such as financial records, payment details, banking credentials, and payroll information, as well as proprietary design documents and bid data.

Time-Sensitive Decision Making: When “time is of the essence,” as it always is in construction, industry participants may prioritize speed over security, which can render cyber risk a secondary concern or an afterthought.

Outdated Software and Systems: Many contractors use legacy software and IT systems that are not regularly (or cannot be) updated with software and operating systems that prevent exploitation of cyber defenses, i.e., security patches.

Inadequate Cybersecurity Budgets: Smaller construction companies, and even some larger outfits, view investments in cybersecurity as unnecessary deductions from their bottom line.

Focus on Physical Safety: The traditional “security” concerns of contractors include compliance with OSHA, protection of materials and equipment, and securing the job site against workplace injuries, which can sometimes blind contractors to intangible cyber threats. 

Regulatory Compliance Challenges: The construction industry must navigate cybersecurity regulations regarding, for example, confidential employee data, which vary by jurisdiction, change over time, and often impose harsh penalties for noncompliance.

How Do Cybercriminals Attack Construction Companies?

Cyber attacks are often perpetrated by sophisticated criminal organizations whose primary targets are construction companies. These well-funded organizations typically employ a team of cybercriminals that includes researchers, software engineers, and operational planners. Recent high-profile cyber attacks on construction companies include a $9 million ransomware attack on a Canadian contractor and another on a Chicago-based contractor that adversely impacted more than 1,000 people. The good news is the methods employed by these organizations are well known within the cybersecurity community:

Phishing attacks occur when fraudulent emails from accounts posing as known entities mislead employees into revealing sensitive information. For example, mimicking an email from an equipment supplier could induce an employee to share financial information with a cybercriminal.

The term “social engineering” refers to a situation where an individual is psychologically manipulated into divulging confidential company information or unwittingly forfeiting control of an entire operating system. For example, an attacker convinces a contractor to misdirect a payment because the attacker successfully impersonated a vendor’s accountant in a plea to make whole on accounts receivable.

Ransomware attacks are one of the most common and successful forms of cyber attacks on the construction industry. In a ransomware attack, the construction company is forced to make a substantial payment to access data locked down by malicious software that a cybercriminal installed in the contractor’s IT system. For example, a contractor pays a significant ransom because its project managers’ inability to access the project drawings threatens to delay the project and expose the contractor to liquidated damages.

Malware attacks involve the use of malicious software to infiltrate IT systems, steal data, or disrupt operations. Such attacks are similar to ransomware attacks, the primary differences being that the victim often has no knowledge of the attack until being notified by affected third parties such as banks or employees, and the attacker has no intent to return the stolen data to the victim. For example, the cybercriminal sells sensitive financial data that it obtained from a project manager who downloaded malware disguised as legitimate software. 

Fraudulent invoices are deceptive bills that trick organizations into making unauthorized payments. For example, a hacker uses an email address similar to supplier’s email address to deliver a false invoice that mimics the supplier’s invoices.

Which Risk-Mitigation Tactics Enhance Cyber Security?

As cyber attacks on construction companies escalate, it is imperative that construction companies proactively safeguard their operations.  Implementing the following tactics will help mitigate the risk that a cyber attack will be successful:

Cyber Education: Comprehensive cybersecurity training with regular updates is one of the most effective ways to mitigate cyber risk.  Educated staff are far less likely to fall victim to cyber scams.  Many companies offer cybersecurity training that can be tailored to a company’s specific needs, including KnowBe4, SANS Institute, and the Center for Information Security Awareness.

Routine Risk Assessments: Cyber risk assessments and ongoing evaluations of cybersecurity protocols enable companies to continually improve their cybersecurity defenses.

Cybersecurity Technology: Antivirus, anti-malware, intrusion-detection, and data-encryption software protect sensitive data by preventing data breaches. 

Data Backup and Recovery: Reliable, frequent, and secure data backup protocols expedite the recovery of data after a cyber attack.

Multi-Factor Authentication: MFA enhances the security of a username/password with additional verification factors such as a one-time passcode sent via text or email.

Software Updates: Mandating the prompt installation of software updates with the latest security patches eliminates known vulnerabilities that cybercriminals exploit.

Contractual Call-Back Requirements: Requiring verbal verification of wiring instructions prior to any and all payments prevents fraudulent wire transfers.

Incident Response Plan: IRPs document processes and procedures that manage how a company responds to a cyber attack.  The primary goal of an IRP is to reduce the time it takes to identify, contain, and remediate an attack.

Cybersecurity Experts: Cybersecurity professionals tailor cybersecurity measures to a company’s unique digital environment. 

Cyber Insurance: Cyber insurance policies protect against the costs and fees associated with cyber breaches.  The financial impact of a successful attack includes costs to retain forensic investigators and legal counsel, absorb business interruption losses, comply with statutory notification and credit-monitoring requirements, and/or make a ransom payment if the attack involves ransomware. 

Contractual Limitations of Liability: Robust limitations of liability in a contract can, for example, cap or shift liability for cyber attack damages.

Indemnity Agreements: Carefully review indemnity clauses to determine who bears responsibility for securing data and managing cybersecurity losses. 

Conclusion

While cyber risks in the construction industry are substantial, they are not insurmountable.  The key is to be proactive by implementing as many cyber risk-mitigation tactics as possible, as soon as possible. With proper planning, training, technology, and risk management, even a traditionally analog industry like construction can build a strong defense against digital threats. Mitigating those threats will ensure business continuity, protect the valuable data and IT systems that drive modern construction projects, and help ensure projects are completed on time and on budget.

[1] Iacono, Laurie, et al., Q1 2024 Threat Landscape Report: Insider Threat and Phishing Evolve Under AI Auspices, Cyber Threat Intelligence Reports (May 22, 2024), available online at:  https://www.kroll.com/en/insights/publications/cyber/threat-intelligence-reports/q1-2024-threat-landscape-report-insider-threat-phishing-evolve-under-ai

[2] Dilgen, John, Report Shows Ransomware Has Grown 41% for Construction Industry, Reliaquest (Nov. 12, 2024), available online at: https://www.reliaquest.com/blog/report-shows-ransomware-has-grown-41-for-construction-industry/

We are thrilled to share that Seyfarth’s Construction and Government Contracts practices were chosen by Law360 as 2024 Practice Groups of the Year. This special recognition spotlights the attorney teams “behind litigation wins and major deals that resonated throughout the legal industry this past year.”

Law360 will be publishing profiles of the practices in the near future.

On Wednesday, December 11th, Seyfarth attorneys Steve Kmieciak and Sara Beiro Farabow will present the third installment of a series of micro-webinars focused on key legal perspectives and considerations for those operating in the hospitality industry. This session will address key considerations for adapting construction forms for international hospitality renovations, including whether to modify or draft new contracts, navigating local laws and practices, working with local counsel, and crafting effective dispute resolution provisions.

Click here for more information and to register.

On Thursday, December 19th, Seyfarth Construction partner, Brenda Radmacher, will be a key presenter at NBI’s Mediation Masterclass for Attorneys. This full day program provides an in-depth course on improving your mediation skills. Attendees will learn proven strategies for client preparation, negotiation tactics, and crafting ironclad mediation agreements. Become a stronger advocate for your clients and a champion of successful dispute resolution. Both in house attorneys and outside counsel will benefit from this masterclass.

Brenda’s session will cover the “Mechanics of Mediation” and will provide invaluable insights and practical strategies to help attendees effectively prepare for and execute effective tools in the mediation process including strategies on mediator selection, effective preparation for mediation, the use of technology and other mediation logistics, and getting a handle on and understanding the mediator’s process.

Click here for more information and to register.

Brenda Radmacher, partner in Seyfarth’s Construction group, will present and moderate panels at the 38thAnnual Construction Super Conference 2024 on December 9-11. The conference is recognized as the preeminent construction conference developed for mid to senior-level professionals working in legal and commercial construction markets.

Panel – Looking Around Corners: Emerging Trends and Proactive Solutions
Brenda will co-present a panel on innovative ways to engage experts in construction disputes, focusing on early expert involvement to aid in risk management, issue analysis, mitigation, and documentation for potential litigation.

Panel – Top 10 Issues to Address in Your ADR Process for a Better Solution in Construction Disputes
Brenda will also moderate this insightful panel, exploring how ADR methods can be used creatively for better outcomes in mediation and arbitration. Topics include early resolution possibilities, preparation for mediation, expert involvement, and combining mediation with arbitration for optimal results.

Click here for more information about the conference.

This post has been cross-posted from Seyfarth’s Workplace Class Action Blog.

By: Anthony LaPlaca, Dawn Solowey, Andrew Scroggins & Adrienne Lee

Seyfarth Synopsis:  In June 2024, Seyfarth published a blog article warning construction industry employers of recent anti-harassment guidelines issued by the EEOC.  We predicted that the EEOC has “put the construction industry squarely in its sights.”[1] In this follow-up Alert, we discuss recent cases confirming the renewed regulatory focus on the construction sector, which demonstrate the need to put in place sound practices for non-discriminatory recruitment, hiring, and training of the work force in order to be prepared for this heightened risk of government scrutiny. 

Recent EEOC Settlements

The U.S. Equal Employment Opportunity Commission (EEOC) has indicated, in no uncertain terms, that over the next five years it intends to prioritize the mitigation of systemic workplace problems and the historical underrepresentation of women and workers of color in the construction sector.[2]  Two recent cases confirm that the EEOC is true to its word when it comes to tackling racial and gender disparities in the construction work force.

In August 2024, the EEOC secured two consent decrees with two separate construction firms in Florida, totaling nearly $3 million.

In EEOC v. J.A. Croson LLC, seventeen Black and Hispanic workers alleged they were subjected to racial slurs, derogatory language, and offensive imagery at work, and were given less desirable assignments by their foreman and other leaders in the company. Two Black employees also asserted retaliation claims alleging they had been fired for making work environment complaints. On August 26, a court in the Middle District of Florida approved a $1.6 million settlement, which also mandates three years of significant injunctive relief for the plumbing and HVAC contractor, including requirements to revise its EEO policies and procedures and provide to the EEOC for review; establish a harassment reporting hotline; create an internal complaint procedure subject to strict timelines, with the investigator reporting directly to the CEO and Director of Human Resources; hire a third-party to provide 1.5 hours annually of mandatory training to all employees (in-person for managers and supervisors, online or pre-recorded for non-supervisory employees); conduct work environment surveys and audits to gauge whether race and/or national origin play a role in assignments; take steps to prevent discrimination in the selection process for the company’s apprenticeship tuition reimbursement program; and submit reports to the EEOC twice per year for the duration of the decree.

The following day, August 27, another federal judge in Florida approved a $1.25 million settlement between a paving company and 12 Black former employees and a class of other Black employees. In the case of EEOC v. v. Asphalt Paving Systems Inc., the EEOC alleged that the defendant construction company failed to prevent white employees from regularly using racial slurs toward Black colleagues, wearing clothing bearing the Confederate flag, and flaunting white power tattoos. The complaint also alleged that Black employees experienced disparate treatment regarding taking breaks. For example, it claimed they were forced to work and eat at the same time, and forced to work in the rain during a downpour while white workers were free to take breaks at their discretion and were allowed to sit inside until the storm passed. The EEOC also alleged that white employees would often bring guns to work, in violation of company policy, which made Black workers feel intimidated. According to the complaint, in one instance, a white manager fired three Black employees while grabbing his gun from his waist. In addition to the monetary relief, the three-year consent decree also requires Asphalt Paving to: hire a third-party Compliance Monitor who is responsible for conducting any complaints of discrimination, among other duties; review and revise its employment policies to prohibit race discrimination and detail the process for handling bias complaints and submit to the EEOC for comment; hire a third-party to provide 1.5 hours of anti-discrimination training annually to its Florida employees (in-person for human resources and supervisors, online or pre-recorded for non-supervisory employees); establish an anonymous hotline for reporting bias; track and monitor all complaints; and submit reports to the EEOC twice per year for the duration of the decree.

Data on Racial and Gender Disparities in the Construction Industry

Data from the U.S. Bureau of Labor Statistics highlights ongoing race and gender disparities in the construction industry. In 2023, of the nearly 11.9 million people employed in the construction sector, approximately 88% were white and about 90% were men. In May 2023, EEOC Chair Charlotte A. Burrows issued a report entitled “Building for the Future: Advancing Equal Employment Opportunity in the Construction Industry,” finding that race and gender discrimination and harassment remain prevalent issues at construction worksites, which contributes to the underrepresentation of women and workers of color in construction.

Lessons for Construction Sector Employers

New Infrastructure Law Motivating EEOC to Intensify Monitoring of Construction Sector

Employers in the construction sector should anticipate increased scrutiny from the EEOC in the coming years, especially because of the Infrastructure Investment and Jobs Act, a $1.2 trillion initiative signed into law by President Joe Biden at the end of 2021. With substantial federal funding allocated for upgrading highways, roads, bridges, and other transit systems, the EEOC will be monitoring how this infrastructure money is spent and whether employers receiving these funds are operating in full compliance with discrimination laws.[3] According to its May 2023 report, the EEOC committed to collaborating with construction industry stakeholders including employers, unions, and workers to ensure fair hiring and employment practices and prevent discrimination and harassment. In addition, the EEOC will continue to utilize its administrative and litigation powers to resolve charges of discrimination, which includes investigating employee complaints and pursuing litigation to enforce the law.

Proactive Workforce Audits are Key to Mitigate Risk of Liability

To minimize legal risks and safeguard employees, employers in the construction industry are encouraged to proactively assess their workforce and worksites, including auditing for demographic disparities and taking documented steps to address such issues.  For example, employers can conduct anonymous employee surveys or use other means to gather comprehensive data on the demographics of their workforce and develop detailed action plans to address any identified disparities. This might entail creating and implementing targeted recruitment strategies to attract a diverse pool of candidates, as well as providing bias training for hiring managers. Documenting all steps taken and regularly reviewing progress will support ongoing compliance with anti-discrimination laws and foster a more inclusive workplace.

Training, Training, Training

One of the most impactful things that construction employers can do is to provide robust training.  Managers should be trained on avoiding workplace discrimination and harassment and when to escalate to human resources.  HR professionals should be trained on best practices for handling and investigating harassment and discrimination complaints.  And the broader workforce should be trained on the company’s anti-discrimination and anti-harassment policies.  The best trainings are live and interactive, reviewing real-life scenarios.  It is also effective to incorporate brief reminders of the employer’s non-discrimination policies into regular meetings as a way to reinforce the importance of the policy to all worksite employees.

Seyfarth at Work offers customized, interactive workplace training programs designed to ensure compliance with employment laws and mitigate legal risks. Our training services are tailored to meet specific industry needs and include practical skills development for HR professionals, managers, and employees.

Update your Policies and Ensure a Solid Reporting System

Construction employers should also ensure that they have clear, up-to date policies on discrimination and harassment. Workplace policies should define covered individuals, prohibited conduct, and reporting procedures. Policies must also commit to prompt, thorough investigations and confidentiality. Policies should be regularly updated, easy to understand, and posted in visible locations.

As for reporting, given the often complex overlap of multiple employers and entities involved in construction projects, onsite employers and leaders should collaborate to create a “no wrong door” environment for workers. That is, they should create multiple accessible channels, both formal and informal, for employees to report discrimination or harassment and policies to prevent any retaliation for such complaints. An effective harassment complaint system encourages early reporting, operates promptly and impartially, and imposes appropriate consequences for harassment or related misconduct.

To start, employers can consult the EEOC’s guide recently published in June, designed to assist construction industry leaders in reducing harassment. The guide offers recommendations on establishing clear policies, creating an accessible complaint system, and enhancing the effectiveness of anti-harassment training.

[1] Christopher Kelleher and Andrew Scroggins, EEOC Issues Anti-Harassment Guidance to Construction-Industry Employers, The Construction Seyt (June 24, 2024), available at: https://www.constructionseyt.com/2024/06/eeoc-issues-anti-harassment-guidance-to-construction-industry-employers/.

[2] Meghan A. Douris and Andrew Scroggins, The EEOC Targets Construction Industry For Heightened Enforcement, The Construction Seyt (Feb. 24, 2024), available at: https://www.seyfarth.com/news-insights/the-eeoc-targets-construction-industry-for-heightened-enforcement.html.

[3] EEOC regulations only apply to federal contractors and federally-assisted construction contractors and subcontractors who do over $10,000 in government business in one year. Exec. Order No. 11246, 30 Fed. Reg. 12319 (Sept. 24, 1965).

workers

This post has been cross-posted from Seyfarth’s Workplace Class Action Blog.

Authors: Christopher Kelleher and Andrew Scroggins

Seyfarth Synopsis: The Equal Employment Opportunity Commission (“EEOC”) has issued guidance tailored to the construction industry regarding compliance with anti-harassment laws. This lines up with our prediction in early 2024 that the EEOC had put the construction industry squarely in its sights. The guidance is important for construction-industry leaders and employers to understand to prevent and remedy workplace harassment, and to avoid potential harassment liability.

On June 18, 2024, the EEOC issued its Promising Practices for Preventing Harassment in the Construction Industry. This guidance provides key recommendations that construction-industry leaders and employers should consider implementing to prevent and address harassment in the workplace, and avoid being the target of the EEOC’s enforcement efforts. The guidance is intended to supplement the EEOC’s Strategic Enforcement Plan (“SEP”) for fiscal years 2024-2028, which provides direction on the EEOC’s current objectives, principles, and enforcement efforts – among them, increasing diversity in the construction industry and remedying harassment. (We’ve written previously about the proposed and final SEP.)

The guidance emphasizes several core principles to prevent and address harassment in the construction industry, including a committed and engaged leadership, consistent and demonstrated accountability, strong and comprehensive anti-harassment policies, trusted and accessible complaint procedures, and regular, interactive training tailored to the appropriate audience. In support of these principles, the guidance makes several overarching recommendations to help construction-industry employers remain in compliance with federal laws, and off the EEOC’s enforcement radar.

1. Leadership and Accountability

The EEOC is looking for leaders who are vocal about non-harassment. To that end, the Agency recommends that worksite leaders—project owners, general contractors, crew leaders, and union stewards—clearly, frequently, and unequivocally message and demonstrate that harassment is prohibited. Since there are often multiple entities and types of workers on a jobsite, the EEOC advises that project leaders and general contractors focus on preventing harassment against all workers on the site, regardless of whether or not those workers are covered by anti-discrimination laws. The EEOC also recommends that general contractors assist smaller subcontractors and staffing agencies with their legal obligations under federal anti-discrimination laws by referring them to the EEOC’s Small Business Resource Center.  

The EEOC also recommends that project owners provide or coordinate anti-harassment training, monitor the workforce for anti-harassment compliance, require that contract bids include a plan to prevent and address workplace harassment, and seek feedback from workers about anti-harassment efforts and whether harassment may be occurring.

2. Comprehensive and Clear Harassment Policies

The EEOC also expects construction industry employers to maintain and provide to employees a clear and comprehensive anti-harassment policy. (This expectation is true no matter the industry of the employer.) The policy should provide a description of who is covered under the policy, what conduct is prohibited, and complaint and reporting procedures. The policy should also indicate the employer’s commitment to conduct a prompt and thorough investigation of any reported harassment, and to keep any reports of workplace harassment confidential. Anti-harassment policies should be regularly updated, understandable to all employees, and posted in easy-to-find places, such as in the breakroom, or near the timeclock.

3. Effective and Accessible Harassment Complaint System

The EEOC reiterated the importance of an effective harassment complaint system, with points specific to the construction industry. in particular, in light of the often  complex overlap of multiple employers and entities engaged in construction projects, the EEOC recommends that onsite employers and leaders work together to provide a “no wrong door” environment to workers. The harassment complaint system should be easy to understand, including in languages commonly used by workers, and should include both formal and informal methods of reporting harassment, among other measures.

4. Effective Harassment Training

Finally, the EEOC emphasized the importance of regular, interactive, and comprehensive training of all workers on a construction site. According to the EEOC, harassment prevention training should be clear, easy to understand, and offered in languages commonly used by onsite workers.  It should also be tailored to the specific workforce and work environment. The EEOC recommends interactive trainings, but given the dynamic nature of construction workforces, alternative options include providing training through an interactive module accessible via mobile phone, or watching a series of short video clips, followed by a guided discussion about the clips.

Anti-harassment training should include a description of prohibited harassment, with examples specific to the construction industry, and workers should be provided with the complaint procedure, and encouraged to report any harassment they observe.

Implications for Employers

Employers in the construction industry must remain on high alert when it comes to the EEOC. The EEOC announced in the SEP that it intended to focus its enforcement efforts on the industry, and less than a year into the SEP it has backed up its words with complaints filed in federal court and guidance pointed straight at the industry.

No anti-harassment program can prevent all claims. However, adopting the EEOC’s recommendations for the construction industry may help to reduce that number while also bolstering an employer’s defense if a charge is filed. Because construction worksites often include groups of workers employed by multiple entities, the EEOC stresses the importance of a committed leadership onsite to prevent, address, and remedy harassment. Construction-industry employers should be aware of the EEOC’s guidance, and should take steps to come into compliance with the key recommendations, including by establishing clear and widely disseminated anti-harassment policies, developing channels for worker complaints, promptly investigating those complaints, and taking steps to prevent future harassment. If you have questions about your anti-harassment practices, would like guidance on how to communicate anti-harassment messages to your workers, or are in need of support to respond to any threatened or pending harassment litigation, contact your Seyfarth attorney or the authors of this post.

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Jason Smith and Teddie Arnold, partners in Seyfarth’s Washington, DC office, have co-authored an updated “United States – Construction” chapter in the 2024 edition of The Legal 500: Country Comparative Guides. Seyfarth continues to participate as an exclusive contributor for this comprehensive overview of construction-specific laws and regulations in the United States. Topics covered include, but are not limited to, requirements and obligations, permits and licencing, procurement, financing and security, and disputes, as well as insight and opinion on current challenges and opportunities. To access and download a copy of the chapter, click here.

Seyfarth’s Construction team is pleased to announce the release of our 2023-2024 edition of the 50 State Lien Law Notice Requirements Guide. The Guide provides the general time requirements for filing lien notices in each state, plus Washington, DC.

Seyfarth’s Construction team prepared the survey for use by owners, commercial contractors, and real estate developers on non-public projects. Requirements may differ for residential and public projects. Click on this link to access a copy of the reference guide. For optimal viewing, please download the document locally to your computer or device and then open.

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Summary

On December 5, 2023, Seyfarth’s Amy Hoang will be a panelist on a Strafford Webinar detailing Build America, Buy America (BABA) requirements. This 90-minute CLE presentation (1:00 PM – 2:30 PM ET), will guide construction counsel through the BABA final guidance with notable revisions from the interim guidance. The panel will discuss how the final rule impacts construction contractors, including sourcing compliant materials, dealing with supply chain issues and increased costs, ensuring subcontractor compliance, and recordkeeping requirements. The panel will also discuss when and how to request a waiver and best practices for compliance. Those interested in attending may contact Ms. Hoang directly at ahoang@seyfarth.com or register here.

Continue Reading Seyfarth’s Amy Hoang to Speak on Build America, Buy America Webinar