Contractor series 01 (internal contract review & risk governance for contractors)

Governance Maturity: a New Zealand challenge

The New Zealand construction sector operates with less formal governance structures than comparable contractor markets in the United Kingdom and Australia. Many contractors still enter significant contracts without comprehensive legal review, treating governance not as commercial infrastructure but as an administrative burden. This results in siloed tender processes, overstretched commercial teams and no engagement between the bid and delivery teams. Predictably, mispriced risk, subcontract misalignment, missed time bar notices and mid delivery commercial shocks are common outcomes.

International practice shows a different standard: In the UK and Australia, structured contract governance is essential, not optional. Contractors typically cannot proceed to contract award without documented legal review, defined risk acceptance thresholds and clear commercial ownership.¹ Contract management plans are prepared before execution and reinforced by mandatory governance processes.² Live project risks are routinely reviewed at senior leadership level, ensuring design exposure, delay risk and cost escalation are actively managed.³ On major Australian infrastructure projects, governance frameworks, escalation pathways and risk strategies are frequently required at tender stage.⁴ This is not a matter of capability, but of governance maturity.

Establishing governance early

Effective governance begins before a contract is signed. Legal and commercial review at each tender milestone ensures that risk is identified early and appropriately allocated, whether through pricing, mitigation measures or contractual qualification. Leading contractors manage this process through a coordinated contract risk review involving legal, commercial and operational stakeholders. This integrated approach promotes informed decision-making, strengthens negotiation discipline and helps ensure that contractual obligations align with delivery capability and project risk appetite.

Maintaining continuity from bid phase through to delivery

Knowledge transfer between bid and delivery teams is a significant point of commercial vulnerability. If possible, a single commercial lead should carry responsibility for the contract across both phases, ensuring continuity around pricing assumptions, risk allocation, and negotiated concessions. Any material departure from tender assumptions, mitigation strategies and the overarching contract risk profile should be documented, including rationale and implications for delivery strategy. A formal handover between the teams is paramount; without this, delivery teams must reconstruct the commercial logic themselves.

Behavioural governance to support contractual governance

While traditional contracts focus on risk allocation, alliancing emphasises behavioural governance. High performing contractors integrate both. Behavioural governance encourages early escalation of risks without blame, fosters “best for project” thinking and promotes shared ownership of critical risks. It also creates transparency around cost and programme exposure and ensures that even informal agreements are promptly documented. These behaviours strengthen the contractor’s ability to rely on them in a timely and defensible manner.

Embedding governance through systems

During bidding, structured bid/no bid criteria, disciplined cross functional risk assessments and clear delegated authority frameworks ensure consistent commercial positioning. At contract award, alignment between head contract obligations and subcontract terms is essential. During delivery, regular multi disciplinary meetings, documented decision registers and transparent change management processes ensure that commercial decisions remain visible and aligned with the risk strategy.

Common causes of governance failure

Governance failures typically arise from behaviour. Problems occur when contractors commence work under incomplete letters of intent, take on design responsibilities exceeding consultant PI cover, permit principals to intrude into design decisions in D&C contracts, overlook extension of time or variation notices, release subcontracts late or without alignment or allow informal scope growth in the interests of maintaining relationships. These failures reflect gaps in governance discipline, not a lack of capability.

Conclusion

Governance is not administrative overhead; it is a profit strategy. Contractors that treat governance as commercial infrastructure consistently protect their margin. Early legal involvement, structured review gates, continuous commercial ownership, disciplined documentation and contract literate delivery teams are essential to this outcome. Traditional contracts allocate risk; governance determines whether that allocation protects or erodes margin.

For assistance strengthening your organisation’s governance frameworks or developing tailored governance tools, our construction and infrastructure team is ready to help.

References

¹ UK Government – Contract Management Standards & Principles.

² UK National Audit Office – Good Practice Contract Management Framework.

³ Australian Government – Contract Management Guide.

⁴ Australian Government – National Framework for Traditional Contracting of Infrastructure – Governance Guide (TSG 3).

Relevant articles

• Contractor series 02 (alliance behaviour and no sue cultures: what teams should understand)
• Contractor series 03 (retraining delivery teams after alliance projects: avoiding “alliance hangover” on fixed price jobs)
• Contractor series 04 (subcontract alignment)
• Contractor series 05 (claims hygiene and notice discipline)

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Disclaimer: The content of this article is general in nature, does not constitute legal advice and should not be relied upon for that purpose.  Parties should seek specific legal advice tailored to their circumstances before acting on any of the matters discussed.