Why the Right Construction Contract Can Make or Break Project Delivery

I have spent more than three decades delivering projects in the Asia Pacific region, starting as a structural engineer and working on major programs  including Marina Bay Sands, a waterfront resort complex in Singapore with hotel towers, convention facilities, shops and entertainment venues. One lesson has held across all of it: a contract does not simply record how a project will be delivered. It shapes how people behave once delivery begins.

A contract cannot determine behavior on its own. Leadership, governance, capability and reliable information matter just as much. But get the commercial model wrong and goodwill will not save the project. Get it right and the whole delivery ecosystem has a much better chance of pulling in the same direction.

Too often, construction contracts are treated primarily as instruments for transferring risk. An owner facing a large, complex project may decide that the safest approach is to push as much risk as possible to a single party. It feels prudent. In practice, risk does not disappear when you transfer it. It comes back through higher prices, reduced competition, defensive contract administration, supplier distress, claims, or owner intervention when the party holding the risk cannot manage it.

The contract sets the conditions for behavior

A poorly matched commercial model can reward the wrong behavior. Lowest-price selection, excessive risk transfer and penalty-heavy provisions can push parties into defensive positions from day one.

Consider strict condition-precedent notice clauses found in some standard and bespoke contracts. If a party fails to notify within the prescribed period, its entitlement may be time-barred. These provisions can provide administrative certainty, but when poorly designed or administered, they can also encourage defensive notices and a focus on preserving contractual position rather than surfacing emerging risks early. Their enforceability and effect vary by jurisdiction and contract wording, but their behavioral impact deserves attention regardless.

Collaborative contracting offers a different starting point: aligning the parties’ incentives so they benefit from identifying risks early and solving problems together. The contract helps make those behaviors commercially worthwhile.

At an industry panel in Seoul, a representative of Changi Airport Group described an example of collaborative contracting in Singapore. The contractor and consultant were asked to remove the risk premium they would normally price in, while the parties committed to transparency and early warning. Instead of waiting until a problem had affected delivery, partners were expected to raise it while there was still time to act together.

The example was simple. If three projects depend on the same steel supply and one partner sees an outage coming three months ahead, a collaborative arrangement creates an incentive to say it now, while the team can still act. The developer and delivery partners can decide which project takes priority and protect the overall program. In a more adversarial environment, the incentive may be to preserve entitlement and argue later about who pays. That is the practical difference between solving a problem and managing a claim after the damage is done.

Shared risk, shared reward

Some collaborative contracting arrangements tie part of each party’s financial return to shared project outcomes. Depending on the model, participants may share savings against an agreed target cost or put some of their profit at risk if agreed targets are missed. Integrated project delivery, which brings owners, designers and builders together around shared project goals, is one expression of this approach.

Standard contract forms have evolved as well. For example, the NEC4 suite emphasizes mutual trust, cooperation, early warning and active project management. Its Alliance Contract goes further by providing a multiparty structure through which participants can work toward common client objectives and share risks and benefits.

I saw this mindset firsthand while observing a healthcare project using a collaborative delivery model. Everyone on site wore the same “one team” branding. When I asked who the client was, who the contractors were and who the suppliers were, they did not lead with their organizational identities. They were one team, collectively responsible for the end result. Things still went wrong, as they do on every major project, but the instinct was to adapt together rather than assign blame.

PMI’s Designed to Deliver research reinforces the point. Senior infrastructure leaders associated commercially aligned relationships with faster, lower-friction decisions, fewer formal disputes, shorter resolution cycles and greater resilience under pressure. When people are not spending their energy defending a position, they can spend more of it delivering the project.

Collaborative is not automatically better

Collaborative contracting is not the answer to every project. Where scope is stable, interfaces are limited and risk can be allocated realistically, a well-designed transactional contract may be entirely appropriate. Collaborative models are most valuable where scope is evolving, uncertainty is material, delivery is highly interdependent and no single party can manage the risks alone.

A collaborative form still requires leaders capable of transparency under pressure, teams able to solve problems jointly, reliable cost and schedule data, and governance that rewards early disclosure. Put a collaborative contract into immature hands and it can create ambiguity rather than alignment.

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