Managing risk in construction contracts: what the market is telling us right now

Cost and inflation pressures continue to dominate construction risk

When asked to identify the biggest current risk to construction projects, a clear majority of webinar participants pointed to inflation.

• 51.9% – inflation
• 22.2% – unforeseen ground conditions
• 18.5% – procurement risk and challenges
• 7.4% – insolvency

These results mirror what we are seeing across active projects. Sustained inflationary pressure continues to undermine price certainty, placing significant strain on contractor margins and employer budgets alike. While insolvency ranked lowest in the poll, inflation and insolvency are often closely linked. As costs rise and margins narrow, financial fragility remains a latent risk even where it is not yet the most visible one.

The practical implication for clients is clear: inflation is no longer an exceptional risk to be managed occasionally, but a background condition shaping almost every commercial and contractual decision on a project.

NEC in widespread use – but confidence remains mixed

NEC continues to be widely used across the market, yet sentiment around its effectiveness in practice is nuanced.

When asked about attitudes to working with the NEC ECC:

• 10.5% said they love it and see it as a game changer
• 68.4% said they want to love it
• 5.3% said they are using it because they have to, but prefer JCT
• 15.8% said they would not touch it

The headline here is not rejection, but frustrated optimism. Most respondents support the principles that NEC promotes – collaboration, transparency and proactive risk management – but struggle with how consistently those principles are delivered on live projects.

In our experience, this gap often arises where NEC is adopted without sufficient consideration of the resourcing, behaviours and discipline required to make it work as intended. Early warning mechanisms, compensation events and programme management are powerful tools, but only where they are actively and confidently used.

The poll results suggest that contract form alone is no longer seen as the primary risk‑management lever. Instead, there is growing recognition that misalignment between contract model and project capability creates risk in itself.

Proactive contract management is becoming the differentiator

A consistent theme emerging from the webinar discussion is that effective risk management starts well before contract execution.

Key considerations include:

• establishing a realistic project risk profile at the pre‑tender stage;
• deciding which party is genuinely best placed to manage specific risks;
• assessing whether there is adequate in‑house resource to administer the chosen contract; and
• tailoring optional clauses and bespoke amendments to the project, rather than adopting them wholesale.

Under NEC, in particular, insufficiently resourced Project Manager functions and inconsistent use of contractual processes can quickly erode the benefits the contract is designed to deliver.

Looking ahead: managing risk beyond the paperwork

The market insight from the poll data is telling. There is broad acceptance that construction risk cannot be eliminated, but increasing focus on how risk is actively managed during delivery, rather than merely allocated on paper.

As inflationary pressures persist and project complexity continues to grow, the most resilient projects are likely to be those where clients and delivery teams move beyond contract choice alone, and invest in the people, processes and governance needed to manage risk day‑to‑day.

Some of the insights were from our Public Sector Insights (PSI) webinar, which you can rewatch here. To ensure that you do not miss invitations and insights to future sessions, sign up to our PSI mailings here.

You can find out more about our construction expertise here.