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Electronic Signatures are Beneficial, but Come with Security and Legal Risks

Kellie M. Ros
Kellie M. Ros
While the concept of signing a document electronically is nothing new, its prevalence in the construction industry is picking up speed. Industry leaders (and those who wish to become leaders one day) must educate themselves on the concept of e-signatures and the implications they may have on the construction industry. Contractors who fail to adopt the e-signing phenomenon risk falling behind, while those who barrel forward without grasping how such signatures work jeopardize the security and enforceability of their everyday agreements.
Electronic Signature vs Digital Signature
First off, there lies a difference in what is generally referred to as an electronic signature and what is called a digital signature. An electronic signature, or “e-signature,” is any signature created or captured through a computer or other electronic device. An e-signature can be as simple as a name typed into an electronic document or using your finger or stylus on a touch-screen device to sign your name. E-signatures can also include forms where you simply type in your name, then check a box stating that you intend to sign the document or “I agree” to some stated terms.

A digital signature is a type of electronic signature that uses encryption to link a signer with a particular document and to protect the signed document. Once a document is signed, it is locked. If the document is changed (via mark-up, annotation, or otherwise) at any time after signing, the signature is considered invalid.

For those skeptical of the concept, you may question whether an e-signature is legally valid and enforceable. Most of the time, the answer is yes – an electronically signed document is just as enforceable in court as one signed with ink. In fact, virtually every state has laws that allow for legally enforceable electronic signing. The federal government’s statute is the Electronic Signatures in Global and National Commerce Act, or “ESIGN”. Generally, all that is required for an e-signature to be enforceable is: evidence of clear intent to sign the document, expressed consent to conduct business electronically, an option to opt out of doing business electronically, and distribution and retention of the electronic documents.

Multiple Benefits
When it comes to saving time and preventing delays, and everyone knows that time is money, transitioning to electronic signatures is a must. With the click of a mouse or swipe of a stylus, e-signatures allow two parties, whose decision makers may be thousands of miles apart, to sign a document at practically the same time. Likewise, on project sites, e-signatures eliminate the need to go back to the job trailer when decisions are made in the field in regard to change orders, purchase orders, and unanticipated project hiccups. No need to wait for physical documents, a printer, or the return of hard copies. For subcontractors and suppliers, this can mean the difference in a contractor doing business with you, or with a quicker and more efficient competitor.

Aside from speed, electronically signing documents can save a contractor printing and storage costs. All documents can be stored electronically without the need to scan or keep track of a high volume of paper documents. Storing documents electronically can also increase confidentiality of certain documents. Only those with access to the company’s database will have access to proprietary documents, as opposed to files being exposed on someone’s desk or in a lost filing cabinet. Moreover, documents signed and maintained in an electronic format are more easily organized and can be more easily searchable than paper documents. Electronically stored documents can travel and be pulled up on a project manager’s iPad or a superintendent’s iPhone for easy access.

Security Concerns
However, implementing electronic signing in the real world and on job sites in real time calls for certain security considerations. Some contractors may engage a third-party to install electronic signature software, such as DocuSign, which requires a signer to enter a unique code provided through secure communication channels in order to sign a document. After signing, e-signed documents can be locked – preventing any tampering that paper documents can be susceptible to. The tradeoff for this security is the software subscription, so consider what level of security is warranted for the transaction.

If a company does not implement a system of electronic signatures carefully there can be other real risks, such as forgery or fraud. Forgery entails a person signing a document while purporting to be someone else whereas fraud involves a person signing a document then later claiming that they did not in fact sign the document. Both paper signatures and electronic signatures are susceptible to those threats, however, there are ways that contractors can protect themselves against them.

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One method of protection is the use of the third-party software (mentioned above) that implements its own automatic safeguards for the process. Another way is implementing a business process that provides for extrinsic evidence of the transaction. This could be contemporaneous phone calls with the one signing the document or emails showing receipt of the e-signed document from the signer’s email address.

Another consideration is authority. Does your superintendent have authority to change a contract term? The ease of electronic signatures can create misunderstandings about whether the company agreed to a change. Be clear in your contract documents and in your day-to-day administration about who does – and doesn’t – have authority.

Finally, remember that the ease of electronic signatures may allow some to drop their guard. We have seen several cases where electronic documents from suppliers include a personal guarantee. You don’t want to be paying lawyers to argue over whether you intended to sign that guarantee, or whether your employee was authorized to “sign” on your behalf. Technological advances don’t change the old rule: read it and understand it before you sign it.

Determining whether and how to use electronic signatures in a particular transaction must consider the parties’ specific needs and the circumstances of the transaction. But one thing is certain, the use of e-signatures is rising and construction companies must be prepared to deal with all that they entail.

Kellie M. Ros is an Associate at Peckar & Abramson, P.C. She can be reached at KRos@pecklaw.com and 713-568-3365.

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