Jane (or John) Hancock 2.0: Utilizing E-Signatures in the Construction Industry

When was the last time you took pen to paper to sign a document such as a contract, invoice or change order? On the other hand, when was the last time you clicked on an “I agree” checkbox or you inserted your digital signature, or e-signature, into a document? The odds are that you no longer physically sign many documents, but are you aware of the laws behind e-signatures and the common pitfalls that come along with utilizing e-signatures?

An e-signature is just data in electronic format used by a person to indicate assent on an electronic document. E-signatures can be as simple as typing your name or as complex as involving sophisticated cryptographic security protocols. The Federal Electronic Records and Signatures Act (“ESIGN”) Act establishes the validity of e-signatures on most types of documents. Under the ESIGN Act, the law recognizes that your “electronic signature” might not actually be your “signature” but instead might be a “sound, symbol, or process” that otherwise indicates your agreement or assent. Similarly, an “electronic record” is defined as “a record created, generated, sent, communicated, received, or stored by electronic means.” So, just as with an e-signature, the federal law recognizes that an electronic or digital version of a document is the legal equivalent of a paper record.

Most states follow the ESIGN Act and recognize that a record or signature may not be denied legal effect or enforceability solely because it is in electronic form. For example, Oregon law states that (a) a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation; (b) if a law requires a record to be in writing, an electronic record satisfies the law; and (c) if a law requires a signature, an e-signature satisfies the law.

Today, many construction companies are regularly using e-signatures in their day-to-day business dealings, but others are hesitant to make the digital move. DocuSign reports that in a recent poll 42% of construction companies stated that they already use an e-signature, 38% stated that they are considering using e-signatures and 20% were not interested in utilizing one. Although those numbers show that e-signatures have not taken the construction industry by storm, it is important for those who use them and those who are contemplating them to recognize certain pitfalls that come along with e-signatures:

1. All parties to a transaction need to agree that they will use electronic means to conduct the transaction. This agreement can be done by including a specific provision in the agreement itself or by using a designated e-signature platform.
2. The parties to the transaction need to make sure they have the appropriate policies in place for data security and electronic records retention. These include, for example, systems to maintain security of employee passwords, to prevent other people from accessing employee accounts, or to determine whether the signature is genuine (the e-signature must be shown to be the “act of the person” who signed the document).
3. The electronic document with the e-signature must be in a format that can be retained and accurately reproduced for later reference by the parties to the agreement. The most common format used to exchange documents is PDF.
4. Although e-signatures are valid in most states and under federal law, it is important to note that not all construction documents can be signed with an e-signature alone. For example, in Texas, Wyoming and Mississippi, lien waivers must be notarized (either because it is a statutory requirement or because the required lien forms have a place for notarization). Lien waivers in these three states can still be signed electronically but that requires an additional step. This means that, in order to create a valid lien waiver in one of these states, the e-signature must also be notarized. This can be accomplished through electronic notarization or notarization through webcam (if allowed by state law).

Utilizing e-signatures and digital documents is a great way to cut down on costs and improve efficiency with little risk if the correct processes and strategies are used to safeguard information. E-signatures and electronic documents are the future, and with the right help and the right systems, any company already utilizing e-signatures or thinking about making the switch can be on track to meet that digital future with success.

Originally published as “OP-ED: Jane (or John) Hancock 2.0: e-signatures in the building industry” by the Daily Journal of Commerce, Dec. 19, 2019.