The Five Risks That Kill Construction Projects Before They Start

Risk 1: Wrong Procurement Strategy

The choice of delivery model and contract form is the single most consequential decision on any construction project. Get it right and you have a framework that allocates risk fairly, incentivises collaboration, and provides clear mechanisms for resolving issues. Get it wrong and you spend the entire project fighting the contract instead of building.

A private developer building a $40M warehouse selects a NZS 3910 lump sum contract because their lawyer used it last time. But the design is only at 60% when they go to tender. The contractor prices the risk of design development into their tender. The price comes in high. The developer negotiates it down. The contractor strips out contingency. Now both parties are exposed: the developer to variations every time the design changes, and the contractor to losses if the design changes cost more than they allowed.

The right procurement strategy for that project might have been a Design and Build contract under NZS 3916, or a two-stage tender process that allowed the contractor to be involved in design development. The decision was made in a meeting room three months before construction started. The consequences played out over 18 months on site.

The procurement strategy sets the rules of the entire project. Every dispute, every variation, every relationship dynamic flows from the contract form and delivery model chosen at the start. Getting this wrong costs more than any other single decision on the project.

Risk 2: Unread Special Conditions

This is the one that catches experienced professionals. They know NZS 3910. They have administered it on multiple projects. They assume the Special Conditions are standard amendments. They do not read every one.

On a government project, the Special Conditions might number 180 or more. Each one modifies the standard form. Some are minor administrative changes. Some fundamentally alter the risk allocation. A Clause 13.3.1 amendment that introduces an absolute 10 working day time bar on claims is buried at Special Condition 147. The project team does not discover it until month 8 when a legitimate $400K claim is rejected because the notice was issued on day 14.

The Special Conditions are where the real contract lives. The standard form is the starting point. The Special Conditions are the reality. Risk management on a construction project starts with reading every single Special Condition and understanding what each one changes.

Risk 3: Unrealistic Programme

The contractor's programme submitted under Clause 9.2.1 is supposed to represent a realistic plan for delivering the works. Too often, it represents what the contractor thinks the principal wants to see. Completion dates are optimistic. Float is hidden. Resource loading is not tested. Weather allowances are insufficient.

An unrealistic programme creates problems from day one. When the programme slips (and it will), the question becomes: is this a delay caused by the contractor, or was the programme never achievable? If the programme was unrealistic to begin with, every extension of time claim under Clause 13.5 becomes contested. The principal argues the contractor is behind their own programme. The contractor argues the programme was always aspirational. The dispute that follows consumes months of commercial and legal effort.

The principal's team should scrutinise the contractor's programme before accepting it. Does the logic make sense? Are the durations realistic for NZ conditions? Is there adequate weather risk allowance? Are the resource levels achievable given the current labour market? If the programme looks too good, it probably is.

Risk 4: Misaligned Expectations

The principal expects a certain quality of finish. The contractor priced a different one. The principal expects the project manager to be on site full time. The contractor allocated them across two projects. The principal expects proactive communication. The contractor communicates when contractually required to.

Misaligned expectations do not cause contractual disputes directly. They cause relationship breakdown. And relationship breakdown is the accelerant that turns small contractual issues into large formal claims.

When the relationship between principal and contractor is functioning, a $50K variation gets resolved in a meeting. When the relationship has broken down, the same variation becomes a formal claim with legal correspondence and adjudication threats. The root cause of most construction disputes is not the contractual issue. It is the relationship failure that made it impossible to resolve.

Expectations should be aligned during procurement, not discovered during construction. What does "good" look like for this project? What level of reporting and communication does the principal expect? What personnel will the contractor commit? These conversations happen in the tender interview, or they happen on site when it is too late to fix them.

Risk 5: Inadequate Site Investigation

Unforeseen ground conditions are one of the most common sources of variation and delay on NZ construction projects. Contaminated soil. Unexpected rock. Poor bearing capacity. Underground services not shown on existing drawings. Each one triggers a variation, a programme impact, and a cost increase.

The irony is that most site investigation problems are foreseeable. The geotechnical investigation was scoped too narrowly. The contamination assessment was desktop only. The services survey was based on council records that were 15 years out of date. The principal saved $30K on investigation and spent $500K on variations.

Under NZS 3910, the risk allocation for ground conditions depends on what information the principal provided during tender. If the geotechnical report was incomplete or misleading, the contractor has a strong basis for claiming the cost of dealing with conditions that differ from what they were told to expect. The principal's exposure is directly proportional to the quality of the site investigation they commissioned before going to market.

Every dollar saved on site investigation during preconstruction is typically repaid several times over in variations during construction. Adequate investigation is not a cost. It is insurance against the most common source of overruns.

The Cost of Getting It Right vs Getting It Wrong

Proper preconstruction due diligence costs money. A thorough contract review takes days, not hours. A proper geotechnical investigation costs tens of thousands of dollars. Programme scrutiny requires someone who understands both the contractual framework and the construction methodology.

That investment is a fraction of the cost of the disputes, variations, and delays that result from skipping it. A contract review that identifies a high-risk time bar clause before signing costs a few thousand dollars. Missing that clause and losing a $400K claim costs, well, $400K. Plus the legal fees. Plus the relationship damage.

The projects that succeed are not the ones with the best contractors or the lowest prices. They are the ones where the preconstruction work was done properly. Where the contract was understood before it was signed. Where the programme was tested before it was accepted. Where the site was investigated before the price was fixed.

The five risks described in this article are not obscure. They are well known to every experienced construction professional. The problem is not awareness. The problem is that the pressure to start construction often overwhelms the discipline to finish preconstruction properly. And the cost of that impatience shows up six months later when it is too expensive to fix.