A contract can allocate risk thoroughly and still be difficult to operate. The question is whether its protections also allow the project team to make timely decisions and manage problems while delivery is under way.
Legal protection and project delivery
Construction contracts receive considerable attention before work starts. Legal, commercial, procurement and insurance teams review the risks, negotiate qualifications and add protections. Much of that work concerns what happens if a party fails to perform or the project goes wrong.
The same attention needs to be given to how the contract will help the team deliver the project. A provision may improve one party’s legal position while making decisions slower, change harder to resolve or routine administration more demanding.
Legal protection matters. So does the practical effect of the provisions intended to provide it.
Examine the delivery consequences of the bargain
A construction contract allocates financial consequences, but the project still needs the means to prevent or limit the events that cause them. The client’s procurement decision should examine both: the protection obtained if something goes wrong and the arrangements available to keep the work on course.
This is a question for project leadership. The detailed checking of documents and tender qualifications is covered in Reviewing Construction Contracts Before You Sign. Here the concern is whether the chosen allocation of risk supports a credible delivery arrangement.
Allocating risk does not manage it
A contract needs to identify who carries the financial consequences of a risk. That does not necessarily identify who can prevent the event or reduce its effects.
A contractor may carry a particular risk while the client controls information, access, approvals or an interface needed to manage it. The client’s involvement remains necessary. Pointing to the risk allocation does not provide the missing information or resolve the interface.
The distinction should be made during procurement and maintained during delivery. For each significant risk, identify who bears the consequences and who can take action. Where those are different people or organisations, the arrangements for working together need to be clear.
A signed contract does not establish a realistic price
Substantial risk transfer is sometimes justified on the basis that the market will accept it. A contractor’s willingness to sign does not establish that the risk has been understood, priced or allocated to the party best able to manage it.
Consider two tenderers. One makes a considered allowance for the additional risks in an amended contract. The other accepts the same provisions but makes little allowance. On price alone, the second may appear more competitive.
The risk remains whichever tenderer is appointed. If it occurs and the allowance is inadequate, the consequences may include margin pressure, disputes over entitlement or financial difficulty. The client’s contractual position may be sound while delivery is affected.
Tender evaluation should therefore examine the assumptions and allowances behind the price, rather than treat acceptance of the conditions as evidence that the risks have been dealt with.
Keep requirements proportionate
An organisation-wide contract can bring consistency, but it can also impose requirements designed for projects very different from the one being procured.
A straightforward $1 million project may be required to follow reporting, approval and programme procedures developed for a major infrastructure programme. Each requirement may have had a purpose when it was introduced. That does not establish its value on the smaller project.
This is particularly relevant when organisations amend NEC4 and then apply the amended form across their portfolio. If the result is difficult to administer, the cause may lie in those amendments and the associated procedures rather than the standard contract.
Disproportionate requirements also encourage selective compliance. Once teams routinely disregard procedures they consider unnecessary, important notices, records and decisions can be neglected as well.
Before tender, check what each requirement achieves, who will use the information and whether the project has the people and authority needed to comply. Remove unnecessary administration through an agreed change to the requirements, not by leaving the delivery team to ignore them.
Check who can actually influence the risk
Suppose a contractor carries the consequences of late delivery of equipment, but the client controls the approval needed to release manufacture. The allocation does not remove the need for a timely approval. The project still needs a decision date, the information supporting it and a way to resolve competing requirements.
Ask which party can influence each significant risk and what help it needs from others. Where control and financial exposure sit in different places, record the working arrangements. A risk-transfer clause does not provide that coordination on its own.
Review the controls during delivery
At project reviews, ask whether decisions affecting delivery are being made in time and whether the people carrying responsibility have the means to act. A risk register should report the controls and actions, not just name the party said to bear the loss.
Where an approval arrangement repeatedly prevents action, management needs to resolve it. The specific problem of internal delegations under NEC4 is examined in When the Project Manager Lacks Authority.
The choice of form does not settle the issue
The distinction applies whatever form is used. NEC4 makes it particularly visible because the contract relies on decisions during delivery. Replacing the form without changing ineffective approval and coordination arrangements will leave the underlying problem in place.
Judge the arrangement by the project outcome
Before committing to the procurement approach, ask whether the proposed parties have the information, capability and resources to manage the risks allocated to them. During delivery, review whether the agreed controls are working.
Legal remedies remain important. They should sit alongside arrangements for preventing delay, resolving interfaces and keeping the project financially viable. A strong position in a later dispute is not the same outcome as a successfully delivered project.
