Public-sector project delivery must not only meet time, cost and quality targets but also uphold integrity and accountability. Yet it remains unclear whether ethical compliance simply acts as a direct performance enhancer, or whether it also shapes how effectively project teams convert their skills into outcomes. This study examines the direct effects of team capability and ethical compliance on project performance, and tests whether ethical compliance conditions the capability–performance relationship. A quantitative explanatory survey design was adopted. Structured questionnaires were administered to 320 senior officers involved in project evaluation, procurement, budgeting and technical oversight, and the data were analysed using PLS-SEM to estimate the hypothesized direct and moderating relationships. Team capability and ethical compliance each have a significant positive effect on project performance, and team capability is positively associated with ethical compliance. The moderating effect of ethical compliance is significant and negative, suggesting that higher compliance intensity may dampen the marginal performance gains associated with greater team capability. The findings contribute to public management and organisation studies by conceptualizing ethical compliance as an integrity control architecture that not only shapes performance directly but also acts as a boundary condition on the effectiveness of capabilities. Evidence of a control–flexibility trade-off in public delivery systems refines capability-based explanations of performance by showing that integrity regimes can alter the way capability is converted into outcomes. The results imply that staff capability development programmes should bring together technical capability and ethics or compliance capability rather than treating them as separate tracks. From a policy perspective, the study points to the value of proportionate, risk-based compliance regimes that strengthen accountability while still allowing room for informed discretion in project execution.