COST ASSURANCE AND AUDITS ON INFRASTRUCTURE PROJECTS AND CONTRACTS
Part 18: Contract commercial assurance and governance best practice
Effective contract management is fundamental to achieving value for money, maintaining strong governance and minimising disputes on major infrastructure projects. Robust commercial assurance and governance best practices ensure that contractual obligations are clearly understood, consistently applied and transparently administered throughout the project lifecycle. When contracts are poorly managed or inconsistently applied, projects are exposed to increased financial risk, disputes, delays and weakened stakeholder confidence.
Modern standard forms of contract, such as NEC4, are designed to promote collaboration, proactive management and early resolution of issues. However, the benefits of these contracts can only be realised where their provisions are correctly interpreted and rigorously applied in practice. Key mechanisms, including compensation events, early warnings and final account processes (such as NEC4 clause 50.9), are frequently misunderstood or underutilised, leading to uncertainty around cost certainty, entitlement and final account closure.
The role of the project manager (PM) is central to ensuring that best practices in commercial governance are embedded and sustained. The PM is responsible for administering the contract in accordance with its terms, making timely and impartial decisions and ensuring that contractual processes are followed to reduce ambiguity and prevent disputes. Weak contract administration, delayed assessments or inconsistent decision-making can undermine the intent of the and escalation.
This output examines key commercial assurance and governance best practices in contract management, with a particular focus on the correct application of NEC4 provisions, the effectiveness of final account processes, the role of the project manager in dispute avoidance, the principles of sound contract administration and a reflection on the key issues and risks in 2025.
The correct application of clause 50.9 (final assessment) in the NEC4 contract remains a challenge for many projects. As part of a robust commercial assurance best practice framework, PMs must ensure that final accounts are timely conducted, accurately assessed and promptly concluded. Delays in agreeing on the final accounts will lead to prolonged negotiations and disputes, which will significantly escalate risks and final outturn costs. Best practices require timely, proactive assessment and ensuring compliance with clause 50.9 procedures, to ensure that all cost components are accurately captured, timely assessed as intended by NEC4 and that commercial risks are minimised for all parties.
Cecelia Fadipe, CFBL Consulting
The use of this clause remains new to some organisations that use NEC and that have transitioned from NEC3 to NEC4. Correct use of the clause should benefit all parties by providing a more certain position of cost during the project and minimise disputes and issues resolution at the end of the works. From my experience, the implementation of the clause is still mixed with some uncertainty around the 13-week timescale and also the trigger points for the process to begin. From a more detailed and technical audit perspective, it is important to properly map out the contractor’s systems and processes to understand how liabilities are captured and presented, and what the most effective and efficient way is to cut off these costs to a time period. The treatment of ongoing subcontracts and accruals, for example, needs some specific consideration in the interim cost finalisation process to avoid under or over-recovery risks. Ultimately, early collaborative dialogue between all parties should take place to map this out in advance of the clause being enacted to minimise disputes in the process.
Imran Akhtar, Turner & Townsend
Clause 50.9 can be used successfully to try to ensure that the defined cost is agreed periodically and within reasonable timescales. In many instances, this can support the contractor in providing certainty around its actual cost recovery, provide the client with certainty surrounding the costs for a piece of work and drive proactive recognition of areas of disagreement or where certain elements are unclear.
There are, however, provisions within the clause that require both parties to engage and the timely initiation of the clause is not always enacted in practice.
There are, however, provisions within the clause that require both parties to engage and the timely initiation of the clause is not always enacted in practice. There are also some situations where cost data and systems may not be set up to provide documented evidence of defined costs at such intervals or where resource requirements make the practical implementation of the clause on a project-by-project basis inefficient. Where possible, commercial assurance should be efficient and reasonable with a focus on a risk-based approach to checks, transparency and continuous improvement. Planning, communication and ensuring the contract reflects practical application can assist in making the intent of this clause beneficial for all parties.
Kathleen Hannon, Scottish Water
In my experience, particularly in NEC4 subcontracts, the subcontractor rarely notifies the contractor that its records are ready for inspection. This notice kick-starts a chain of time-limited events and places obligations on both parties to audit costs and declare them defined cost (and therefore payable) or not (disallowed cost). Subcontractors tend to incur labour, equipment and material costs, which can result in thousands of line items.
Therefore, the employer must ensure that the contractor is properly incurring subcontractor costs, which means it is properly managing the audit process.
Usually, there are a number of different subcontractors to audit, meaning many thousands of line items to be reviewed, so this must be properly managed. It is often the case that the contractor’s costs are made up of a series of subcontract costs in addition to some direct costs and its own preliminary costs. Therefore, the employer must ensure that the contractor is properly incurring subcontractor costs, which means it is properly managing the audit process.
The reality is that subcontractors often miss notifying that their records are ready for inspection and instead include them as part of the payment application. What happens in this instance is the subcontractor expects an assessment within (say) four weeks (i.e. the typical payment assessment period) when in fact the contractor has 14 weeks to audit after the clause 50.9 notice is received. Assessing cost via the payment application route can lead to on-account payments, which drives a divergence from following the audit procedures.
In turn, the contractor’s ‘up the line’ payment application to the employer shows this as defined cost, and it also does not notify that its records are ready for inspection. Lots of contractors enforce the contractual obligations but commercial pressures can lead to bad practices, as highlighted above.
Gary Bone, Blake Newport
As with previous iterations of NEC, the onus is on the project manager (with relevant information from the contractor and employer) to make a final assessment and certify payment within a specified period after the defects certificate or termination. The aim of the clause is therefore to provide a definitive and final determination of the account.
Whilst I have seen far fewer disputes under NEC4 than its predecessor (maybe these are just yet to trickle through), the onus is heavily on the PM twofold; firstly to ensure they understand the complexities and take the required procedural steps (diligently reviewing the information provided) whilst also adhering to the timescales stipulated – to come to the correct determination.
Missteps in the procedure could lead to an incorrect determination, which is binding on both of the contractual parties and might not actually reflect the true costs and/or agreements between those parties. This will inevitably result in a dispute (or a settlement if the commercial relationship between the parties is a good one).
Charlotte Hudges, DLA Piper
While NEC4 promotes proactive commercial management, clause 50.9 is still inconsistently applied. Final accounts are often treated as a retrospective exercise rather than the outcome of timely, continuous assessment and agreement of defined cost and compensation events. Best practice requires ‘agreeing as you go’, supported by comprehensive digital records, timely submissions and independent assurance on behalf of the project manager reduce delays and disputes before completion.
Cecelia Fadipe, CFBL Consulting
The project manager’s role is central to minimising disputes through consistent application of contract mechanisms as intended, timely decision-making and enabling clear audit trails. Strong commercial capability and independent assurance representative of the project manager are increasingly critical to managing risk and maintaining contractual discipline. Project managers play a vital role in mitigating the risk of disputes. Through contract monitoring and early identification and resolution of risks, PMs should ensure best practice use of commercial assurance controls such as the audit clause and digital tools such as cost systems, risk registers, early warning notices and contract management systems to minimise ambiguity. Ensuring that the contract terms and compliance requirements are adhered to from the onset, while fostering transparent, streamlined communication between the parties, will significantly reduce the risk of disputes.
Cecelia Fadipe, CFBL Consulting
The PM role is a critical one, as demonstrated in various contracts (such as the NEC suite of contracts), to make decisions across the course of the project and help ensure that parties are aware of and following their contractual obligations. The project/programme should set up appropriate systems and workflows to facilitate the PM role (as well as other key roles) to avoid non-compliance occurring against key contract requirements. For example, implementing a contract management software/system is key to achieving a consistent approach to contract administration. In relation to audit and assurance, it is key that the PM is well integrated with the commercial function to help refine the overall risk-based approach to audits and understand audit issues raised around cost or commercial compliance, such as cost entitlement. This will result in them being able to make well-informed, timely and effective decisions.
Imran Akhtar, Turner & Townsend
The PM in NEC contracts is supposed to be neutral and even-handed. In my experience, the best PMs tend to be open and honest with the contractor and employer/client, make decisions that are best for the project and explain their decisions.
The norm in my experience is that the PM works for the employer/client because they are paying them to undertake a traditional project management role and safeguard the employer/client’s commercial position, which can lead to some bad short-term decisions.
In my view, if the PM makes decisions that might result in the employer/client incurring a cost, it could result in the suppression of another party incurring a cost somewhere else. An example of this could be changing access restrictions, which could help a certain subcontractor but hinder another, which would result in a compensation event. However, it could prevent critical delay of the contractor and would save on the cost of time-related prelims. The PM would make this decision by having all the facts of both the cost and programme impact of its decision and then proactively encouraging the ensuing compensation event to be settled by the contractor.
The reality is that the PM does not make this decision in isolation; it gets input from planners and commercial staff from all affected parties and makes a proactive decision. This behaviour minimises disputes. In contrast, traditional adversarial PMs will make decisions without knowing the facts and fight the ensuing compensation events, which in turn leads to disputes.
Gary Bone, Blake Newport
The PM’s role is a vital one. The PM has a duty to accurately review and assess the information without taking sides. This requires proactively keeping on top of the procedural requirements through the contractual process, ensuring both of the contractual parties are complying with their respective obligations. Particular examples, and the ones that are likely to be the most contentious and cause the most issues (all of which require input from and/or assessment by the PM), are:
- Identifying, notifying and assessing compensation events.
- Programme acceptance – including identifying the current accepted programme.
- Early warning notices – these can cause problems, especially where the contract is amended to make these a condition precedent to the contractor obtaining further time and/or money.
- Defined costs – this can include the verification and/or the accuracy of information submitted by the contractor.
Cooperation and communication are at the heart and ethos of the NEC suite of contracts, with a lack of clarity and/or misunderstandings causing a large proportion of disputes. Where the PM takes a proactive approach to contract administration, eliciting a meeting of minds and a clear process from the outset, this could save all parties a lot of time and trouble further down the line. Otherwise, they may find themselves acting as referee between two disagreeing parties, or worse, have both fingers pointed at them!
Charlotte Hudges, DLA Piper
Effective contract administration, including timely and accurate documentation of change orders, compensation events and variations, is essential for maintaining the integrity of the contract. As part of a strong commercial governance framework, contract administration should be integrated with cost and digital systems. A failure to do so will result in a lack of an audit trail, discrepancies in final accounts, leading to increased audit scrutiny, disputes and potentially significant risks and cost overruns. Effective contract administration underpins successful delivery but is frequently under-resourced. Clear accountability, accurate record-keeping and alignment between cost, programme and contractual data are essential. Digital tools, combined with strong governance and assurance, will continue to be key enablers.
Cecelia Fadipe, CFBL Consulting
In 2025, the UK infrastructure sector faced significant challenges impacting delivery, cost efficiency, and compliance. These issues have implications for future infrastructure strategy funding planning, risk management and skills development in the industry.
Key issues include:
- Delays and cost overruns: Major projects experienced significant cost overruns, driven by slow planning, fragmented decision-making, accountability issues and late-stage design changes. These inefficiencies highlight systemic weaknesses in governance and delivery frameworks.
- Skills and labour shortages: The industry required over 500,000 additional workers to meet housing, green energy and infrastructure targets. Rising costs, inflation and wage increases compounded budget pressures, while workforce gaps disrupted timelines and productivity.
- Regulatory and sustainability complexity: Compliance with the Building Safety Act, net-zero mandates and embodied carbon targets introduced new risks and extended approval cycles. Firms were forced to adopt retrofitting strategies, modular construction and low-carbon materials to meet evolving standards.
Cecelia Fadipe, CFBL Consulting
Labour/skill shortages: There continue to be challenges around a broader labour shortage and skills gap in the industry. Whilst AI/technology is being considered to drive efficiency and fill some of these gaps, there remains ongoing pressure, considering the increasing scale and complexity of projects.
The scale of change has been a key issue within the industry in 2025.
The impact of macro issues: Macro issues, such as several international conflicts and economic policies, such as tariffs, have created broader uncertainty affecting inflation and creating supply challenges for materials and goods. This has impacted the industry directly and indirectly.
Imran Akhtar, Turner & Townsend
The scale of change has been a key issue within the industry in 2025. These changes are wide-ranging, from how we work (balancing face-to-face and remote), to embracing technologies (new and existing), changing structures of organisations, new programmes of work with ambitious targets and outcomes, development of more sophisticated tools and more complex projects. The challenge is ensuring that these changes are conducted in a considered way while emphasising health and safety, wellbeing, ethical practices and that people remain at the heart of everything.
Kathleen Hannon, Scottish Water
In 2025, there has been a significant increase in contract negotiations. Previously, contractors and the supply chain generally accepted the client’s contract terms and priced the works accordingly. However, there is now a clear trend toward negotiating risks and clauses, sometimes even duplicating them. Industry professionals are becoming more knowledgeable about contractual implications, which is positive in principle, but it has led to issues such as paying for risks twice and double-counting fee items. This makes agreements increasingly difficult and necessitates a more cautious approach to accepting changes.
Negotiations often feel less about balancing risk and agreeing on the intent of clauses, and more about gaining an advantage. The original ethos of openness and fairness seems to be fading, and as a result, managing these processes within tight targets has become extremely challenging for the parties involved.
Charlotte Edwards, AtkinsRealis
Role of AI-digital twins and advanced data modelling: Digital twins and advanced data modelling techniques are beginning to significantly impact project delivery outcomes and performance, but their success depends on strategic implementation and integration with AI. Historically, terms like big data, data lakes and digital twins often felt like buzzwords rather than operational tools. Today, the industry is shifting from experimentation to execution.
When integrated with BIM and supported by robust data governance, digital twins provide a dynamic, real-time representation of physical assets that support commercial assurance by:
- Simulating scenarios.
- Optimising operations.
- Predicting risks and issues before they arise.
This is possible only when there is a two-way data stream that includes; continuous live telemetry from physical assets into the digital twin, AI-driven analysis and decision-making in the digital environment and actuation of decisions back into the physical world. This closed loop leads to measurable improvements in commercial assurance, cost control, schedule adherence, optimised asset lifecycle cost and performance.
Advanced data modelling, especially when powered by AI and machine learning, enables predictive analytics, risk forecasting and automated decision support. These capabilities transform traditional project management controls into proactive, insight-driven functions. However, the real value is unlocked only when these technologies are:
- Embedded into workflows.
- Supported by skilled, trained teams.
- Aligned with clear business objectives.
Dr Noha Saleeb, Middlesex University
Addressing these challenges and effectively leveraging opportunities presented by digital technologies and AI remains a top risk that will require stronger commercial governance best practices, workforce development and proactive assurance strategies on future projects.
Cecelia Fadipe, CFBL Consulting
Over-reliance on technology: Whilst there is an absolute need to continue to develop AI and technology input in the industry, there is a risk that organisations prioritise this and do not continue to develop a future workforce through apprenticeships, graduate schemes and ongoing training for existing staff to properly utilise this technology.
Worsening economic conditions are dampening project investment and funding: Linked to the above, the threat of market crashes is being widely predicted and betted on by high-profile individuals, in part linked to the concept of the ‘AI bubble’ bursting and the natural scarcity of supply of computing power to match demand. This will put pressure on the industry due to the lack of available funding for projects.
Labour shortfall: There is a continuing demand for individuals to join the industry, compounded by an ageing workforce. Investment in the sector will support the ability of projects and supporting organisations to attract people; however, the risks above are all linked to a lack of investment and over-reliance on technology, which threatens this ability.
Imran Akhtar, Turner & Townsend
Effectively communicating change: Wherever there is a change from the norm, a lack of communication can become a significant risk, as it may result in a lack of clarity as to what and how the change is to be implemented and why the change is necessary or desirable. This lack of clarity indicates that the change has not been fully thought through, does not have the buy-in of all stakeholders or that some stakeholders do not feel a sense of ownership over the outcomes. A full understanding by stakeholders of what is intended to be achieved, how it is intended to be achieved, and their roles/responsibilities is vital to ensure change is implemented successfully.
Data and effective contract record keeping: Good quality data is important for any decision-making process, but it is also vital for checking progress and whether desired outcomes are heading in the right direction. Record keeping is important to ensure that robust data is available and to avoid disagreement or conflict. Policies should be in place to ensure that required records are maintained; however, due to the scale of some types of work and resource pressures, some requirements can become overly onerous, which can lead to poor data. Ensuring processes are proportionate and, where appropriate, utilising technology to assist in the actual recording can assist with streamlining this process which can be challenging.
Experienced resources: Experiences vary across the industry; however, attaining and retaining good-quality resources across the spectrum of specialisations and with the desired breadth of project experience. This is not necessarily a new challenge in the industry, but it can have a significant impact on quality and productivity within teams in the short term and impact legacy planning in the longer term. Ensuring access to the industry from entry level is supported, as well as providing education and experience-based development at various stages, is required in order for the workforce to have the desirable traits and experience for successfully delivering projects.
Kathleen Hannon, Scottish Water
The question remains; how can we learn from these issues to ensure that key commercial assurance and governance risks are minimised and that best practices are implemented early, on future major infrastructure projects?
Charlotte Edwards, AtkinsRealis
Without this alignment, even the most sophisticated models risk becoming underutilised dashboards. For example, in two institutional links case study projects funded by the British Council and the Egyptian Ministry of Antiquities, we created an AI-coupled digital twin ecosystem for enhancing heritage assets. Success depended on aligning workflows and objectives with the UN Sustainable Development Goals.
The role of AI in contract management: AI is revolutionising contract management by moving beyond static document control to dynamic, intelligent contract ecosystems. Key applications include:
- Automated contract review and compliance: AI-powered natural language processing (NLP) can scan contracts for risk clauses, compliance gaps and inconsistencies, reducing legal exposure and accelerating approvals.
- Predictive risk analysis: Machine learning models can forecast potential disputes or delays based on historical data, enabling proactive mitigation strategies.
- Smart contract execution: Blockchain-integrated AI systems can automate payment triggers, performance guarantees and penalty enforcement, ensuring transparency and trust.
- Continuous monitoring and alerts: AI-driven dashboards provide real-time alerts on contractual KPIs, linking cost, schedule and performance metrics to contractual obligations.
By embedding AI into contract management, organisations can reduce disputes, improve compliance and align contractual performance with project objectives – turning contracts into strategic enablers that drive commercial assurance, contract best practices rather than administrative burdens.
Balancing AI-driven efficiency with human-centric industry growth: The rise of AI and automation in construction is not about replacing people – it is about amplifying human potential. AI can streamline delivery, reduce errors and optimise decision-making, but it cannot replicate creativity, leadership and contextual judgment. To sustain workforce growth, we must:
- Invest in upskilling, embedding digital literacy, data science and systems thinking into curricula.
- Evolve mentorship programmes to include digital mentorship.
- Highlight new career pathways such as: Digital construction strategist; AI-integrated project manager; Digital twin analyst; Prompt manager; Data training specialist; Ethics officer
These roles emerged in our heritage project and represent the future of construction careers.
Vision for AI-enabled infrastructure projects by 2030: By 2030, success will be defined not just by what is built, but by how intelligently it is conceived, delivered, and operated. Key features include:
- AI-driven generative design optimising sustainability and cost.
- Living digital twins simulating sequences, predicting risks, and optimising logistics.
- Autonomous equipment handling repetitive tasks while humans focus on innovation.
- Continuous AI-powered monitoring of cost, schedule and carbon performance.
- Immersive stakeholder engagement for transparent decision-making.
- Data-rich legacy supporting long-term asset resilience.
In this future, AI does not replace people – it augments their capabilities, enabling a new generation of digitally fluent leaders to shape the built environment with intelligence, empathy and impact.
Dr Noha Saleeb, Middlesex University
The Steering Group on Cost Assurance and Audits on Infrastructure Projects and Contracts: Cecelia Fadipe (chair), CFBL Consulting; Imran Akhtar, (co-chair ) Turner & Townsend; Claire Randall-Smith, Eversheds Sutherland; Gary Bone, Blake Newport; Tom Leach, Southern Water; Kathleen Hannon, Scottish Water; Charlotte Edwards, AtkinsRealis; Jim McCluskey (CICES representative), Kier Group; Chris Leach, Balfour B Beatty; Martin Perks, BlackPear Advisory (Ex National Highways); Dr Anywhere Muriro, BAM Nuttall; Dr Noha Saleeb, Middlesex University; Valeriya Cherasova, Think Projects.