New Zealand’s construction industry continues to struggle in a difficult economic climate where global instability, persistent inflation and continued supply chain uncertainty mean that risks to construction projects remain high and margins stay tight. Tanya Young and Emma Mahony of law firm Greenwood Roche outline how contractors can protect their bottom line.
In 2025, we saw an unprecedented rise in construction firm insolvencies with 751 liquidations — up 13% on the previous year. In a volatile market, how can contractors protect their bottom line?
Claims hygiene explained
A claim is the means of asserting an entitlement under a construction contract, whether due to delays, scope changes, payment disagreements or breach. Claims tend to arise under three broad categories:
• Variations: A change to the scope or character of work that justifies additional time and/or payment.
• Extensions of time: Deferring the completion date to account for delay events that are the principal’s risk.
• Dispute/breach: Claims for relief due to an alleged breach or where the parties interpret their contractual obligations and entitlements differently.
Submitting a claim should not be considered adversarial, rather it is a commercial reality designed to ensure the contract operates intentionally and transparently.
However, the effective management of claims, or “claims hygiene”, is something New Zealand contractors tend to be reticent about — often more comfortable putting the contract in the bottom drawer and relying on relationships and handshakes.
Given today’s market, and the entry of more sophisticated and savvy offshore competitors, this mindset exposes New Zealand contractors to increased risk. The effective management of contract claims and disputes is central to successful project delivery while preserving the contractor’s bottom line.
In these budget-conscious times, principals are increasingly prepared to resist claims on procedural grounds, late notice, technical insufficiencies and weak evidence, even where the underlying grounds for entitlement are undeniable.
Timely notice, contemporaneous record keeping and robust programming are, therefore, imperative to preserving a contractor’s right to fair compensation for the work performed.
Good claims hygiene is embedded long before claims arise, through the establishment of disciplined behaviours and processes that identify, record, notify and substantiate claims.
Failure to adopt and practice effective claims hygiene may lead to disputes, delays, cost overruns, and damage to stakeholder relations. The benefits of effective claims management include, among other things:
• accurate programming and forecasting,
• preventing an accumulation of issues,
• avoiding escalation of disputes,
• cashflow and margin protection, and
• nurturing trust and professionalism between the contracting parties.
Entitlements depend on process, not just merit
Construction contracts prescribe strict rules for engagement between the parties during the contract period, including the forms and processes for submitting claims.
For example, time bars impose strict time limits on the right to submit a claim, discouraging contractors from stockpiling claims into larger retrospective bundles. These preconditions to entitlement have become increasingly commonplace, onerous and enforceable — and if not adhered to, can wipe out a contractor’s pathway to relief.
The impacts of failing to observe time bars tend to materialise later in the programme once cost pressures become apparent. Consequently, contractors can be left absorbing the cost of delay and disruption, eroding those already tight margins.
Prescribed notice requirements are another contractual hurdle to be wary of. The contract may require a claim to be in a specific form, addressed to a specific recipient, reference relevant contract clauses, and contain a minimum level of substantiating evidence, any of which, if deficient, may be relied on by principals to reject a valid entitlement on technical grounds.
Contractors should also stay abreast of, and utilise, any early warning obligations in the contract. Irrespective of whether a claim eventuates, it is best practice to give notice on the initial identification of potential issue. This preserves the contractor’s entitlement even though substantive details and outcomes may not be known.
For example, New Zealand Standard’s 391X series of contracts require parties to notify each other if they become aware of any matter which might materially impact the time or cost of project delivery, or impair compliance with statutory duties.
While failure to provide early warning will not undermine a contractor’s right to a claim, it will factor into the valuation of any variation arising out of the matter.
A further benefit to the early warning obligation is that it gives parties additional flexibility to reach a commercial agreement beyond the claims process.
Final thought
The strongest claims rely on contemporaneous records. Prevention, through consistent, contemporaneous record-keeping and notification, is far more effective than attempting to protect your position after the fact.
Good contractors build well. Great contractors build well and protect their entitlements.
Key tips for good ‘claims hygiene’
Good claims hygiene preserves contractors’ entitlement to claims. The following tips will assist in embedding claims hygiene practices:
• Understand the contract: Read and fully understand the contract you have entered. Ensure questions are asked at the outset to ensure you are fully informed of the contractual obligations and processes.
• Adopt and maintain robust record-keeping processes: Maintain site diaries, record events, and document issues in real time as they occur, photograph progress, track resource usage, clarify and confirm instructions in writing, and take detailed minutes.
• Exercise programme discipline: Maintain a live programme based on logic-driven updates, with coded reasons for departures and a documented basis for resequencing. Ensure the programme is updated to reflect any agreement between the parties.
• Notice templates: Prepare contractually compliant templates for advance warnings, variations, extensions of time and defaults — each recording the event, dates, contractual triggers, initial effects, mitigation steps, records held, and reservation of rights.
• Claims register: Maintain a claims register recording claim details such as instructions, date of onset, time bars, cause, responsibility, required evidence, mitigatory actions, costs and status updates.
