Understanding Construction Contracts and Funding Structures in Property Development

Construction projects are rarely “one size fits all”. Every developer has their own way of managing risk, controlling costs, and delivering projects. Some prefer a fixed price building contract, while others choose to manage trades directly for greater flexibility and control.

At Cressida, we regularly fund projects ranging from standard fixed price builds through to fully self-managed developments. We understand that different projects require different approaches. Rather than forcing developers into a single funding model, we work alongside our clients to understand how their project is being delivered and structure funding that reflects the realities of the development.

The three most common construction structures we fund are:

• NZS 3910 and NZS 3915 construction contracts;
• Standard builder’s contracts such as Master Builders or Certified Builders agreements; and
• Self-managed or project-managed builds without a fixed-price main contractor.

 

NZS 3910 and NZS 3915 Construction Contracts

NZS 3910 and NZS 3915 are standard form construction contracts commonly used on larger commercial and more complex residential developments, such as larger townhouse and apartment projects in New Zealand.

Most projects operate under either:

• A lump sum fixed-price contract; or
• A lump sum contract with provisional sums and variation mechanisms.

These contracts are generally more detailed and administratively robust than standard residential building agreements. They often involve:

• Quantity surveyors (“QS”);
• Engineers and contract administrators;
• Formal monthly progress claims and payment certifications;
• Detailed variation processes; and
• Liquidated damages provisions.

Because of the higher level of structure and reporting involved, these projects can provide strong oversight throughout the construction process.

Progress payments are typically made monthly. The contractor submits a payment claim outlining:

• Work completed to date;
• Percentage complete for each trade or stage;
• Variations;
• Materials stored on site (and sometimes off-site);
• Retentions; and
• GST.

The claim is then reviewed and certified by the Engineer to Contract, project manager, or external QS before payment is made

At Cressida, we are experienced in working alongside developers, builders, QSs, and consultants under these formal construction arrangements to help keep projects progressing smoothly.

Builder’s Contracts

A significant portion of the construction projects Cressida funds operate under standard residential builder’s contracts.

These commonly include:

• Master Builders contracts;
• Certified Builders contracts;
• Fixed-price residential build agreements; and
• Cost-plus building contracts.

This structure is particularly common for:

• Standalone spec homes;
• Infill housing developments;
• Terrace housing projects; and
• Small to medium townhouse developments.

Under these contracts, builders are usually paid based on milestone completions, such as:

• Slab complete;
• Framing complete;
• Lock up stage; and
• Practical completion.

These contracts also often require a deposit before construction begins.

For many developers, this structure provides a practical balance between cost certainty, simpler administration, and flexibility during construction.

Unlike NZS 3910 and NZS 3915 contracts, builder’s contracts are usually based on pre-agreed milestone payments rather than actual verified construction costs. Because of this, traditional lenders can sometimes find these projects more difficult to fund and QS reporting can often be less practical.

As a result, Cressida generally does not require QS reporting for standard builder’s contract arrangements. Instead, we take a practical approach by focusing on the overall strength of the developer, builder, and project. Rather than focusing solely on the contract structure, we take the time to understand the full picture, including:

• The developer’s equity contribution;
• The developer’s experience;
• The builder’s capability and track record;
• Project feasibility;
• Construction programme; and
• Project contingency allowances.

Our approach is practical, flexible, and relationship driven. We recognise that experienced developers often need funding solutions that are commercially realistic and tailored to how their projects are actually delivered.

Self-Managed and Project Managed Builds

Another common scenario we fund is projects delivered without a fixed price main contractor arrangement.

In these projects, the developer may:

• Manage the build themselves; or
• Use a project manager to coordinate individual trades and suppliers.

This approach is becoming increasingly common among both experienced and first-time developers seeking:

• Greater control over delivery;
• Better visibility of build costs;
• Flexibility with staging and procurement; and
• Potential margin savings by managing trades directly.

While this structure requires strong organisation and project management, many developers successfully deliver projects this way.

Traditional lenders are often hesitant to fund these projects because there is no single head contractor responsible for the build and construction costs are not fully fixed upfront.

At Cressida, we take a more practical and collaborative view.

We recognise that every developer works differently, and many developers prefer managing projects this way because it suits their experience, systems, and delivery style.

As self-managed and project managed builds are often delivered through multiple trades and staged supplier payments, formal QS reporting can also be less practical for smaller scale developments.

When assessing these projects, we focus on:

• The developer’s experience in relation to the size of the development;
• The quality of project management;
• Contractor and trade relationships;
• Construction budgets and contingencies; and
• Overall project viability.

We also work closely with developers to structure drawdowns and payment schedules that align with the project’s cashflow requirements. This may include releasing or reimbursing equity contributions to assist with funding materials, securing contractors, or managing construction cashflow during key stages of the project.

Our focus is on understanding the capability behind the project, rather than applying a rigid preference for one construction structure over another.

Supporting Developers with Flexible Funding Solutions

At Cressida, we understand that property development is nuanced. Different projects require different delivery models, and experienced developers often choose structures that best suit the scale, complexity, and commercial objectives of the project.

Whether a project is operating under:

• A formal NZS 3910 or NZS 3915 contract;
• A builder’s contract; or
• A self-managed delivery structure,

our focus remains the same – understanding the project, understanding the delivery strategy, and providing funding solutions that work for the realities of construction.

We work closely with developers and financial advisers to provide practical and responsive funding solutions for projects that may sit outside conventional bank policy, while still maintaining disciplined credit assessment and project oversight.

If you would like to discuss an upcoming construction project, the Cressida team would be happy to assist.