Managing risk, cash flow and margin in construction and real estate

Published: 

New Zealand’s construction and real estate sectors remain a critical part of the economy, but in 2026 they are operating in a more complex and uncertain environment. While many businesses continue to report steady pipelines of work, this is not always translating into improved profitability. Instead, cost pressures, funding constraints and market uncertainty are placing increasing pressure on margins, cash flow and decision-making.

The latest insights from BDO’s 2026 Construction Sector Report point to a sector that is stable but under sustained pressure, with leading businesses focused on building resilience through disciplined financial and commercial management.

For developers, contractors and property investors, success is no longer just about securing work — it is about delivering projects profitably, managing risk proactively, and maintaining strong financial visibility across the lifecycle of a project.

Navigating a challenging market environment

The construction landscape has shifted significantly in recent years. While demand remains in parts of the market, businesses are balancing this against a combination of structural and cyclical pressures, including:

  • Rising material, fuel and labour costs
  • Rising interest rates and tighter financing conditions
  • Supply chain disruption and project delays
  • Increased competition and pricing pressure
  • Ongoing economic and political uncertainty

These factors are compounding, creating an environment where even businesses with strong forward work can face margin compression and cash flow strain.

“The year ahead is unlikely to be defined by a simple recovery story. Construction businesses may have work ahead, but profitability, cash flow and risk management will determine how successfully they navigate the next phase. Leaders who maintain pricing discipline, monitor project performance closely and manage counterparty exposure will be best placed to convert pipeline into sustainable performance. It will be important for construction businesses to avoid major gaps in their forward work. ” – Nick Innes-Jones, BDO National Construction Sector Leader


In this environment, maintaining pricing discipline, understanding cost risk and actively managing project performance are becoming critical to protecting profitability.

Cash flow and project financial management

Cash flow remains one of the most critical areas of focus for construction and real estate businesses.

The 2026 report highlights that cash flow pressure is closely linked to cost escalation, delayed projects and tighter financing conditions, making working capital management a key driver of business resilience.

“The businesses faring best are those with strong forward work, the scale to operate efficiently, and the discipline to manage or pass through cost increases. Those under the most pressure are more exposed to cash-flow stress, uncertain demand and cost inflation all hitting at once. This is not a story of collapsing activity, but of pressure compounding across the sector, with businesses working hard to protect margin, manage working capital and keep pipeline moving.” – Bjorn De Nijs, Construction Partner, BDO Southern Lakes & Otago  


Key considerations include:

Forecasting and monitoring cash flow

Accurate, scenario-based forecasting across the life of a project helps identify potential shortfalls early — particularly where cost movements or delays are likely.

Managing working capital

Timing differences between costs and revenue, including payment delays and retentions, can quickly create pressure. Close management of receivables and payables is essential.

Understanding contract payment structures

Payment terms, milestone structures and retention provisions all influence cash flow outcomes and should be actively managed.

Planning for contingencies

Given ongoing uncertainty, stress-testing cash flow under different scenarios can help reduce financial risk and support more confident decision-making.

Cost pressure and margin management

Cost pressure is now one of the most significant challenges facing the construction sector, with inflation impacting materials, wages, fuel and overall project delivery costs.

At the same time, competitive tendering environments mean businesses may be securing work at tighter margins — increasing exposure to risk if costs move further during delivery.

“For some construction business leaders, the market still feels highly competitive and margin constrained. Work is being won on price, which puts pressure on profitability, and even long-standing client relationships are being tested through tender processes as clients look for ways to manage their own costs. It reflects a sector that is working hard to secure pipeline, but often without the pricing power needed to rebuild margins.” – Ruth McGregor, Construction Partner, BDO Wellington


Key actions businesses should consider include:

  • Building cost escalation assumptions into pricing
  • Regularly reviewing project margin performance
  • Monitoring supply chain risk and procurement costs
  • Maintaining discipline in bid selection and contract terms

Without this, businesses risk activity without profitability.

Contract risk and project delivery

Construction contracts continue to play a critical role in shaping project outcomes.

The report reinforces the importance of understanding how risk is allocated, particularly in an environment where cost escalation, delays and funding pressures are more common.

Areas to focus on include:

  • Allocation of risk between parties
  • Treatment of variations and claims
  • Delay clauses and liquidated damages
  • Cost escalation and price adjustment mechanisms
  • Contract compliance and documentation
“Contract terms should never be treated as a formality. They shape how risk, cost escalation, delays and variations are managed — and can have a direct impact on margin and project certainty.” – Nick Innes-Jones, BDO National Construction Sector Leader


A proactive approach to contract management can help reduce disputes, improve project certainty and protect margins.

Funding, feasibility and development risk

For developers and property investors, funding and feasibility remain key decision drivers.

In 2026, project viability is increasingly sensitive to:

  • Changes in financing costs
  • Cost escalation
  • Market demand shifts

“Recent sector commentary points to a subdued residential pipeline, softer commercial conditions and greater competition for work, while civil, infrastructure and industrial projects are providing more resilient pockets of activity. For many construction firms, the challenge is not simply finding opportunities but converting the right work into profitable projects at a time when delays, feasibility pressures and tighter margins are still shaping decision-making.” – Nick Innes-Jones, BDO National Construction Sector Leader


A robust feasibility approach should include:

  • Financial modelling and sensitivity testing
  • Clear visibility on funding structures and covenants
  • Ongoing review of project assumptions
  • Defined and realistic exit strategies

Managing risk across the project lifecycle

One of the strongest themes from the 2026 Construction Sector Report is that risks are interconnected — and must be managed collectively.

Key risk areas include:

  • Margin erosion and cost overruns
  • Cash flow and working capital pressure
  • Counterparty risk and subcontractor stability
  • Demand uncertainty and pipeline gaps
  • Regulatory, tax and compliance risks

Businesses that take a structured, proactive approach to risk management are better positioned to respond early and avoid issues escalating.

Improving visibility through reporting and systems

In a market where margins are tighter and risks are higher, access to timely and accurate information is critical.

Construction businesses are increasingly focusing on internal, controllable factors such as systems, reporting and risk management capability.

Areas to focus on include:

  • Project-based financial reporting
  • Real-time cost tracking and variance analysis
  • Integration between financial and project management systems
  • Clear dashboards to support decision-making

“Better use of systems and technology can support productivity, reduce administration and improve decision-making.” – Nick Innes-Jones, BDO National Construction Sector Leader


Better visibility allows businesses to respond more quickly to issues and make more informed operational and strategic decisions.

Common issues impacting performance

Across the sector, several recurring challenges continue to affect business performance:

  • Cost pressure and margin compression
  • Cash flow and working capital strain
  • Competitive tendering reducing pricing power
  • Pipeline not translating into profitability
  • Economic and demand uncertainty

Recognising these challenges early, and responding proactively, is critical to maintaining resilience.

Where specialist advice can add value

Given the complexity of the current environment, many construction and real estate businesses benefit from integrated advice across financial, tax and commercial areas. This may include support with:

Final thoughts: From pipeline to performance

The 2026 construction market is not defined by a lack of opportunity — but by the challenge of converting that opportunity into sustainable, profitable outcomes.

“The sector may not be out of the woods, but businesses that protect margin, manage risk and make clear, disciplined decisions will be best placed to move from resilience to recovery.” – Nick Innes-Jones, BDO National Construction Sector Leader


Those that take a disciplined, proactive approach — focused on margin, cash flow, risk and visibility — will be best positioned to succeed in the next phase of the cycle.

Whether you are managing cash flow, assessing feasibility or dealing with complex tax and contract issues, our team can help you make more confident decisions. Connect with BDO’s Construction and Real Estate team or contact your local adviser.

For information and insights on what’s happening in New Zealand’s construction sector read BDO’s Construction Sector Report.

Planning your next construction project?

Talk to our Construction and Real Estate teamContact your local BDO office

Key considerations for construction and real estate businesses

  • Pipeline quality matters as much as pipeline volume: Securing work is important, but ensuring that work can be delivered at sustainable margins is critical to long-term performance.
  • Cash flow discipline remains essential: Strong pipelines do not remove the risk of working capital pressure. Businesses need clear visibility over cash flow and funding requirements.
  • Cost pressure and pricing risk must be actively managed: Inflation, supply chain disruption and competitive tendering environments can erode margins if not factored into pricing and contracts.
  • Margin protection should be built into contracts and delivery:  Contract terms, escalation clauses and variation management play a direct role in determining project profitability.
  • Feasibility and funding assumptions need to be stress-tested: Changes in cost, demand or financing conditions can significantly affect project viability.
  • Risk is interconnected and should be managed holistically: Cash flow, cost, funding and counterparty risks often occur together and should be managed as part of an integrated approach.
  • Visibility and reporting support better decision-making: Real-time insights into project performance enable earlier intervention and more informed decisions.

Authors

Nick Innes-Jones
Nick Innes-Jones
National Construction & Real Estate Sector Leader, Advisory Partner
Bjorn
Bjorn de Nijs
Advisory Partner, Managing Partner BDO Southern Lakes & Central Otago

FAQ

Construction businesses often face a combination of challenges rather than a single issue. The most common include cost escalation, margin pressure, cash flow constraints, contract risk and delays. Even where pipelines are strong, these factors can impact whether projects are ultimately profitable.

A forward pipeline does not always guarantee profitability. Competitive pricing, rising costs, contract risk and project delays can all reduce margins during delivery. Businesses need to actively manage pricing, cost risk and project performance to convert pipeline into sustainable outcomes.

Improving cash flow requires a disciplined and proactive approach, including:

  • Accurate forecasting across projects
  • Strong management of receivables, payables and retentions
  • Clear visibility over contract payment terms
  • Scenario planning for delays and cost increases

Managing cash flow effectively is critical, particularly in environments where cost and timing pressures are changing.

A robust feasibility study should go beyond initial assumptions and include:

  • Detailed cost and revenue modelling
  • Sensitivity analysis for changes in pricing, timing and demand
  • Funding structure and financing considerations
  • Risk assessment across delivery and market conditions

This helps ensure projects remain viable if conditions change.

Margins can be quickly eroded by cost increases, delays or unfavourable contract terms. Active margin management — including pricing discipline, contract review and ongoing monitoring — is essential to ensure projects are commercially viable, not just active.

Risk should be managed across the entire project lifecycle, not just at the start. This includes:

  • Identifying and allocating contract risk upfront
  • Monitoring performance and costs in real time
  • Stress-testing financial assumptions
  • Managing counterparty and subcontractor exposure

A proactive approach helps prevent issues from escalating.

Related insights

Gray banner