Survival Isn’t About More Work. It’s About Better Contracts.

Construction in New Zealand looks busy. Everywhere you turn, there are new subdivisions, cranes on the skyline, projects on the go. For many small and medium-sized businesses, that should feel like a sign of security. More projects must mean more stability, right? Unfortunately, the real data tell a very different story.

Centrix’s March 2025 Credit Indicator Report shows liquidations have risen by 37% in the past year. In the first three months of this year alone, almost six hundred companies were placed into liquidation. Construction features heavily in those numbers. At the same time, IRD reports that the sector owes close to 1 billion dollars in unpaid PAYE and GST. One in every six dollars of outstanding tax debt across the country sits in construction.

That doesn’t happen because firms are short of work. It happens because they’re short of cashflow. And they’re short of cashflow because of the contracts they’re signing.

Small and medium firms are carrying the squeeze from both sides. On one hand, they’re hit with high upfront costs: wages, suppliers, plant hire, insurance, tax. On the other hand, payment cycles are getting longer and longer. About 70% of firms experience late payments every year. For many, the wait isn’t two weeks. It’s two, three, sometimes even four months before money lands in the bank.

Stats NZ’s data adds another layer. Staff turnover for very small firms, those with just one to five employees, was about 13% in 2023. Firms with ten to nineteen staff sat just under 10%. Compare that with large firms employing over a hundred people, where turnover dropped to under 10%. Bigger companies have more stability. Smaller companies fight harder to keep their people while also waiting longer to get paid. It is no wonder so many collapse.

Cashflow is always described as a financial issue, but in construction it’s usually a contractual one. Poor cashflow doesn’t just appear. It comes from contracts that allow it.

• A variation process that requires notice within forty-eight hours means you can lose the right to claim even if you carried out the work.

• Retentions hold back your money for months or years, and if the payer goes under, those funds vanish.

• Liquidated damages clauses often shift the cost of delay onto you even when it wasn’t your fault.

Each of these looks small when you’re flicking through a contract on a Friday afternoon. Together, they’re the reason otherwise healthy firms run out of cash before a job is halfway complete.

Over the years I’ve seen the same traps play out again and again.

First, there’s signing bespoke contracts without negotiation. Many small and medium businesses don’t want to risk losing the job, so they sign “as is.” But those contracts have been drafted to protect the other side, not you.

Second, payment terms are stretched further than standard. NZS 3910 allows for twenty working days, but I’ve seen bespoke contracts push sixty or ninety. Without penalty interest clauses, you have no leverage when payments stall.

Third, small and medium companies often fail to follow variation and delay provisions to the letter. If you don’t document properly, the work gets done but the bill doesn’t.

Fourth, retentions are treated as if they belong to someone else. Too many small and medium companies don’t chase them, or worse, use subcontractor retentions to cover operating costs. When a client collapses, that money is gone for good.

And finally, tax is the first casualty when cash is tight. PAYE and GST get pushed down the list, but IRD is not a creditor you can negotiate with. Penalties and enforcement come fast.

Every one of these traps ends up in a dispute. Late payment drags you into adjudication. A rejected variation leaves you eating the cost. A project delay ends with you paying damages. Large contractors expect disputes; they budget for them. For a small firm, one dispute can drain everything. Even if you eventually “win,” the time, legal fees and stress leave scars that many never recover from.

The common thread is this: most disputes don’t start on site. They start when the contract is signed.

That’s why the firms that will still be standing at the end of this year won’t be the ones with the most work, but the ones that treated their contracts as survival tools. This isn’t about law firms or thick binders of paperwork. It’s about a shift in mindset. Negotiate where you can, even if it’s just on one or two clauses. Push back on long payment terms. Insert penalty interest. Clarify variation procedures. These small wins matter.

Document everything. If it’s not written, it didn’t happen. A quick photo log or an email trail can save you tens of thousands if a claim heads into dispute. Ring-fence your retentions and your tax obligations. They are not working capital, even if you’re tempted. Train your team so they know what to look out for. A foreman who understands when a variation should be flagged is just as important as an accountant. And most of all, learn from every dispute. If you’ve been burned once, make sure it doesn’t happen again. Adjust your systems, change your approach, and carry that knowledge forward.

Leadership and systems matter more than many want to admit. Research into insolvency points not just to cashflow problems, but to inexperience and poor management as recurring causes of failure. For small and medium companies, good management doesn’t mean building a corporate structure. It means simple, repeatable habits: a weekly cashflow review, a short checklist of red-flag clauses before you sign, a clear plan for how you’ll escalate disputes. None of this is complicated. It just requires discipline.

The outlook for 2025 isn’t kind to small and medium construction companies. Liquidations are rising, tax debt is ballooning, and late payment is so common it has become normalised. But collapse isn’t inevitable. The difference between firms that fold and those that survive is not the size of their pipeline. It’s the strength of their contracts and the systems that back them up.

Being busy isn’t enough anymore. Survival isn’t about more work. It’s about better contracts.

Every week I work with businesses that are excellent at building but dangerously exposed in their paperwork. My role is to help close that gap, not with jargon, but with practical protection.

If you want to take a harder look at the contracts you’re signing, now is the time. A few hours spent on contract awareness today can save months of pain down the track.