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From 1 July 2018, Victorian government departments and agencies have a new suite of rules for public construction tenders and contracts.

Whilst this is certainly the biggest shake-up of State government construction procurement rules in over 20 years, most of the familiar fundamentals continue, and some helpful guidance has been revived from the former Code of Practice for the Victorian Building and Construction industry. In addition, there are some significant new requirements including financial management and governance requirements and an enhanced  role for DTF. A great deal of work and thinking has been done to produce this new regime. This blog explores the major features.

Some impacts will hit hardest in agencies that previously exploited ambiguity, for example overlooking requirements of the Australia-USA Free Trade Agreement, not publicly disclosing details of contracts and side-stepping application of the former Ministerial Directions in their entirety!  

The new information is extensive and detailed but it’s well-structured and supported by guidance and explanatory fact sheets – so find yourself a cup of tea and a quiet moment to skim through our summary of the material! This is all you need to know for now – and when you do need to come to terms with the source documents in detail, this overview will make the task easier.

The regime comprises a tiered framework of documents, the primary three being:

• Ministerial Directions
• Instructions and
• Guidance

There are  also explanatory Fact Sheets and practice notes about standard form contracts. This sounds complicated but it’s logical and well-structured – the numbering is consistent across the various documents. If you need to refer to this material frequently, we suggest you print the contents sections from the three primary documents so you can quickly see if there is a corresponding section in one of the other documents. For example:

• 1.2 in the Directions has a corresponding section in the Guidance but not in the instructions
• 4.1 in the Directions has a corresponding section in the Instructions and a series of Guidance in 4.1.1, 4.1.2, 4.1.3, 4.1.4, 4.1.5a, 4.1.5b.

The new mandatory Ministerial Directions and Instructions replace the long-standing former directions: MD1 Tendering provisions for public construction, MD2 Contractual provisions for public construction and MD4 which is unchanged and relates to Construction Requirements for a Community Fire Refuge.

The Guides to the former MDs are replaced by a combination of:

• mandatory Instructions, issued by the Secretary of the Department of Treasury and Finance (DTF), and
• non-mandatory Guidance, issued by DTF.

DTF advise that:

Guidance for Public Construction is a new feature to enhance support for the framework by assisting Agencies to consistently understand and interpret the requirements of the Ministerial Directions and Instructions.

The review of the Ministerial Directions was driven by the implementation of the Government’s endorsed reforms to improve the efficiency of Public Construction Procurement, which are set out in Reforming Public Construction. The review of the Ministerial Directions also presented an opportunity to modernise the Ministerial Directions to ensure better alignment with contemporary procurement practice and governance arrangements in Victoria.

The suite of Contracting Practice Notes is for use with standard contracts AS2124-1992 or AS4300-1995 including respective State-approved special conditions. The practice notes are supported by a “clause bank” of drafting solutions to address commonly faced issues. The practice notes provide clear and well-explained information on topics such as:

• confidentiality and disclosure
• DataVic access policy
• dispute resolution
• early termination
• environment
• indemnities
• insurance
• industrial relations
• key personnel
• legislative requirements and policies
• native title and artefacts
• occupational health and safety
• payment claims
• payment structures
• practical completion and defects liability period
• programming of the works, extensions of time and liquidated damages
• security       
• site conditions and latent conditions
• subcontracting (requiring compliance with the Subcontracting Commercial Principles for all subcontracts)
• performance reporting
• probity and conflict of interest
• variations
• warranties

Features of the new regime include:

• a principles-based approach, consistent with the Financial Management Act (FMA) Standing Directions of the Minister for Finance 2016 and the principles in the Victorian Government Purchasing Board policies #1.2

(a)      appropriate competition and contestability

(b)      appropriate Procurement Models and processes taking account of the complexity and value of the project and supplier market capability

(c)       planning and managing to deliver procurement objectives

(d)      reducing unnecessary burden for all parties

(e)      encouraging appropriate innovation and responsiveness in the supplier market

(f)       fostering continuous improvement and building appropriate skills and capability

(g)      openness and transparency, ensuring defensibility of processes

(h)      treating all tender participants fairly and equally

(i)        efficiency and timeliness

(j)        compliance with relevant legislation, policy, guidance and mandatory requirements

• clarity about the 300+ agencies bound by the regime, now aligned with coverage of the FMA Standing Directions – see #1.3 and some “Excluded Agencies” (school councils, class B cemetery trusts, incorporated committees of management, VicSES registered units and CFA volunteer brigades)
• clarity that the regime applies to contract management and performance reporting as well as tendering and contract terms
• clarity about what constitutes Works and Construction Services (see Application of the Directions and Instructions (Guidance 1.3a)
• guidance on what constitutes “public construction” (Defining public construction (Guidance 1.3b)
• some new definitions e.g.

— contractor = supplier of Works.

— consultant = supplier of construction services.

— construction services, narrower than “consultant”, directly related to delivery of Works

— Limited Tender #3.2(c) = single tender (whether or not from a Register) or limited competition inviting two or more tenderers (whether or not from a Register).

— Selective Tender = tender open only to suppliers on a Register

• agencies can be exempted from a requirement, for example, to apply alternative thresholds to all or classes of projects: formats are provided for application to the Minister for exemption from a Direction or to the Secretary DTF for exemption from Instructions #1.4
• agencies no longer need to refer to applicable International Agreements (e.g. the ANZ Government Procurement Agreement and Australia-USA FTA) as the Instructions state which procurements are covered and the additional requirements that must be followed in covered procurements #2.1
• to improve the efficiency of tender processes, Direction #3 outlines scalable, outcomes-focused requirements for preparation and planning (consistent with Investment Lifecycle Guidelines), forward notice of upcoming procurement, and appropriate tender open times and documentation requirements
• tender exemptions remain if “Special Circumstances” justify “Limited Tender” although wording differs slightly from the old waiver grounds (to align with the International Agreements) and reasons justifying “urgency” grounds are clarified #3.2
• market-led proposals are a new exemption ground so consideration of them requires a tender exemption from the Minister, Departmental Secretary or an authorised delegate
• the Accountable Officer can delegate exemption approval apart from the “exceptional circumstances” grounds
• higher tendering thresholds are introduced (seek one tender below this range and three to six from prequalified suppliers or public tender above) – see #3.2.1

— works between $50k and $500k  (was $25k-$200k)

— services between $50k and $200k (was $25k-$150k)

• for complex or design-led tenders, it’s recommended to invite up to four suppliers
• for costly, major tenders (e.g. PPP or alliance), it may be sufficient to invite two suppliers
• a range of requirements to ensure efficiency in tendering #3.3 – to reduce the burden on tenderers and government, recognising that a disorganised process deters competition and that it is the obligation of the tendering agency to strike the right balance between the need for competition and the cost to tenderers and the State by

— not requesting unnecessary information

— establishing cost estimates and

— having a firm intention to proceed before beginning a tender process

• notice about tenders must be published on the Victorian government tenders website to enable suppliers to access a single point for information about all government procurement opportunities #3.4:

— forward notice for all open and Selective Tenders (see also #5.1) – Guidance gives examples of appropriate periods for different types of procurement from simple to complex

— Tender Notice, identifying where tender documents can be found.

• Guidance is provided about tender open periods and evaluation timeframes for different delivery methods and complexity; also periods to avoid for RFT release and closing – #3.5 requirements are outlined about what should and should not be included in the RFT documents: mandatory requirements, type of specification and design resolution, how late or non-conforming offers will be handled, intention about best and final offer process, right to negotiate with one or more tenderers, model tender documentation – #3.6 requirements about criteria are outlined in #3.7: criteria must be outlined but not necessarily the weighting unless the procurement is covered by International Agreements #2.1; mandatory criteria for value for money, occupational health and safety management  (for works over $500k and services over $200k)and industrial relations management (for works over $500k)and appropriate consideration of a supplier’s past performance must be included; probity principles about evaluation criteria and skills of evaluators are outlined; it’s recommended to avoid repeatedly seeking the same information from the same tenderers
• new probity requirements for public construction #4

— principles to establish and maintain probity in procurement, reflecting a common-sense approach to managing probity and current public sector practices and expectations e.g. requiring each tender participant to make a written commitment stating that they will conduct themselves fairly and honestly and will not engage in collusive tendering or any other anti-competitive practices – #4.1

— agencies must have appropriate systems to ensure probity for all public construction procurement and a probity plan for procurements over $10m or high risk  – #4.2

— clarifies the requirement to proactively identify and manage conflicts of interest

— to allow the government to better understand and analyse procurement trends and to allow the market to better prioritise its resources

—— agencies must publish a notice of forthcoming procurements #5.1 to give the market an indication of the upcoming opportunities – invited as well as open tenders #3.4 – supporting better market awareness and improve the ability to present a forward pipeline of upcoming opportunities

——  tenders are to be notified on the tenders.Vic website and can be notified elsewhere in addition

—— agencies must disclose works and services contracts on the contracts publishing system at tenders.Vic #5.2  

——— summary details of contracts with a value greater than $100,000

——— full disclosure of contracts over $10m

• there are minor changes to prequalification arrangements including operational changes to the Construction Supplier Register (CSR) e.g. the introduction of additional subcategories #6
• an important requirement is for those using the CSR to provide performance reporting for works over $500k and services over $200k #6

— at six monthly intervals

— within 30 days of practical completion, and

— within 30 days of the end of the defects liability period

• DTF still approves construction contracts; requirements for amending contracts to include in the RFT are outlined, as are requirements for negotiating  non-material contract departures and approval for material departures during negotiation or after contract execution; separate requirements are outlined for PPP/alliancing and High Value High Risk contracts #7
• some VPS approved contract forms have been refreshed

— special conditions for AS2124-1994 (version June 2018) and AS4300-1995 (version June 2018)

— minor works contract (version June 2018)

—  new VPS consultancy agreements (long and short forms) (version June 2018)

— tendering conditions

• requirements continue relating to subcontractor payment arrangements and proof of payment, risk allocation to party best able to manage the risk, dispute resolution, and performance security #7
• agencies must inform tenderers of the outcome and offer a timely debriefing #8.1
• shared reporting obligations #8.2: when performance reporting should be obtained, the template to use, how to seek supplier feedback, how the information is stored and used, reporting on the agency by suppliers
• agencies need to have complaints handling processes #8.3 and objectively investigate complaints from tenderers
• the Secretary DTF may issue standards relating to public construction #9
• more explicit Accountable Officer obligations, governance frameworks for Public Construction Procurement, Accountable Officer obligations relating to portfolio agencies, and compliance attestation requirements #10 e.g.

— ensuring the agency is appropriately resourced with staff qualified and skilled to undertake Construction Procurement

— establishing appropriate and effective governance frameworks to ensure compliance with the Directions including appropriate record management systems

— ensuring responsibility, authority and accountability for Public Construction Procurement is defined and allocated within the Accountable Officer's operating frameworks, including documenting

—— who is responsible for monitoring compliance with the Directions and ensuring systems and processes to support the Directions are in place

—— who is responsible and accountable for decision making and any approvals required under the Directions

— ensuring that exemptions from the Directions and Instructions are sought and dealt with appropriately

• a Portfolio Department is required to

— establish appropriate requirements for the conduct of public construction Procurement by its “Excluded Entities” (e.g. school councils)  #.3.4

— play a support role to Portfolio Agencies that are not Excluded Entities, with the Accountable Officer retaining overarching accountability for ensuring Portfolio Agencies implement the Directions (agencies that must comply with these Directions are outlined in #1.3.2)

• subject to some transition rules, a public attestation endorsed by the audit committee is required from the Accountable Officer (or board of a public sector agency) published in the Agency’s annual report – there is a checklist and helpful guidance for this and it must include demonstration of compliance with the Directions and any material compliance deficiencies must be reported as part of the attestation the Accountable Officer can delegate authority under the Directions (apart from the power of delegation and the power to grant tender exemptions on exceptional circumstances grounds) to an executive employed by the Agency who is appropriately qualified or experienced to perform the delegated function #10

The new requirements are effective from 1 July 2018 subject to some transition provisions:

• Agency-specific prequalification registers need to be approved by DTF. Any now operating (apart from the VicRoads Prequalification and Registration Scheme and the Places Victoria Register of Prequalified Contractors) need to be notified to DTF by 30 September 2018 and approved by June 2019.
• Agencies using non-approved contracts need to advise DTF and seek approval by 30 September 2018, making a copy of the contract available for review together with a description of the commercial positions typically used to complete variable items and schedules. Agencies also need to undertake an analysis of how the contract complies with applicable policy requirements.
• Direction 10.1 requires the Accountable Officer to establish appropriate and effective governance frameworks including attestation of compliance with the Directions. Some transition provisions are included to provide an extended period for the agency to be able to include the required attestation endorsed by the audit committee in its annual report.

Note:

• Monetary amounts referred to in this blog are inclusive of GST
• References marked # are to provisions in the Directions, Instructions or Guidance. 

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