Contracting requirements (Public Construction – Guidance 7.1)

Effective date: 30 December 2018

Objective: To establish greater consistency in contracting arrangements

Summary

Agencies must use an approved contract. Approved contracts are presented as ‘Victorian Public Construction Contracts’. These contracts are supported by a clause bank.
There are limited circumstances where use of an alternative contract is permitted.

Even where an Agency is permitted to use an alternative contract, the requirements of Contractual terms and conditions (Direction 7.2) must be complied with.

Procurements that are subject to (and fully comply with) the Partnerships Victoria Requirements or the Victorian Alliancing Policy are not subject to these requirements.

Material departures or amendments to contracts require approval by the Secretary of the Department of Treasury and Finance.

This Guidance sets out the forms of contract to be used when undertaking Public Construction Procurement.

Benefits of using standard contracts

Using standard form contracts in the construction industry is an important way to reduce the burden of tendering.

Industry (and contract managers) prefer standard forms of contract because they are more likely to be familiar with the obligations that apply to both parties. This approach is more efficient reducing the need for unnecessary legal reviews. It is also likely to reduce the number of disputes caused by unfamiliar aspects of the contract.

Introducing unique terms and conditions add to the cost of tendering by requiring tender participants, and the State where accepting departures, to obtain separate commercial and legal advice to understand the implications of any amendments.

Use of approved contracts at tender

When an Agency issues a tender, the proposed contract included in the tender documentation must be a Victorian Public Construction Contract, except where the value of the Works or Construction Services is valued up to $25,000 (inclusive of GST). A Victorian Public Construction Contract issued at tender may be amended as needed to comply with legal or policy requirements.

An Agency is permitted to issue a tender that includes an alternative form of contract (for example, an Agency’s purchase order or works order) for Works or Construction Services valued up to $25,000 (inclusive of GST).

Permission to either use a different contract, or to amend a Victorian Public Construction Contract (beyond what is needed to comply with law or policy), is available where:

• an Agency’s Accountable Officer (or delegate) is satisfied that an unamended Victorian Public Construction Contract is inappropriate for the type of Works or Construction Services being procured
• an Agency’s Accountable Officer (or delegate) is satisfied that an unamended Victorian Public Construction Contract does not sufficiently address interface issues where there are multiple contractors working on a site or where the Works are undertaken on an operational site
• the Works or Construction Services relate to leased premises or third party property where the form of contract is required to be approved by the lessor or such third party.

Contracts approved under the High Value High Risk Framework are permitted under the Directions or Instructions.

Transitional use of Agency precedent contracts

Agencies are permitted to use existing precedent contracts during the transition period, pending review by the Department. To be able to rely on this transitional provision, Agencies must follow the process set out in the Fact sheet - Transition provisions for the introduction of the revised Ministerial Directions for Public Construction.

The Secretary to the Department of Treasury and Finance will remove this transitional provision from the Instructions once the Department of Treasury and Finance’s review of existing Agency precedents is complete.

For the avoidance of doubt, removing permission to use a form of contract under the transition provision has no effect on contracts that have been entered into.

Your lawyers and amendments to contracts

When engaging lawyers to draft amendments to Victorian Public Construction Contracts Agencies should require them to help meet the obligations under the Ministerial Directions and Instructions. Agencies can achieve this by including the following model clause in instructions to the lawyer, contract or purchase order.

This clause has been developed for use with a Legal Services Order under the Victorian Government's Legal Services Panel. Minor changes to the clause may be needed when using the clause under different contracts or arrangements.

‘Service Providers must adhere to the protocols and requirements outlined in Project Development and Construction Management Act 1994 Ministerial Directions for Public Construction Procurement. In particular, the Ministerial Directions for Public Construction Procurement list the forms of contract approved for use by the Victorian Government departments and public bodies, and the considerations and approvals that apply when seeking to use an alternative or amended form of contract. Service Providers must ensure that contract modifications, amendments and special conditions of contract must:

• be kept to a minimum
• not be onerous
• only be used where there is a clearly established justification.

View the Ministerial Directions for Public Construction Procurement.

Tendering with alternative contracts

Where the use of either an alternative or amended contract is permitted, the contract used must be:

• appropriate for the Procurement Model
• consistent with other contracts used by the Agency
• compliant with law and policy.

Where the use of amended Victorian Public Construction Contract is permitted, Agencies must:

• avoid unnecessary amendments
• clearly identify amendments.

To identify amendments to Victorian Public Construction Contracts:

• introduce separate special conditions, where amendments to the form are clearly identified
• use a ‘track changes’ function.

Accepting departures and amendments

Agencies have the discretion to agree to non-material contract departures during tender negotiations or to non-material contract amendments after a contract is signed.
Material contract departures or amendments may only be agreed to following approval of the Secretary to the Department of Treasury and Finance (or the Secretary’s delegate).

Material contract departures or amendments are those that, taking into account the value, complexity and risk of the Works or Construction Services, could substantially impact the manner in which Public Construction Procurement is undertaken by other Agencies. Agencies are encouraged to contact the Construction Policy Unit within the Department of Treasury and Finance for further guidance as to whether a contract departure or amendment is material.

When agreeing to non-material contract departures or amendments, or seeking approval to agree to material contract departures or amendments, Agencies should ensure that agreeing to the departure or amendment is:

• compliant with legal, policy and probity requirements (in particular, that the Agency is complying with the tender process that it set down)
• appropriate for the Procurement Model
• appropriate for the type of Works or Construction Services being procured
• appropriate given the size, nature, functions and procurement capability of the Agency
• appropriate given the risk, value and complexity of the procurement.

Victorian Public Construction Contracts

The suite of Victorian Public Construction Contracts includes the most commonly used standard form construction contracts:

• The Medium Works Contract, Medium Works Contract (Short Form), Minor Works Contract (Short Form)
• AS 2124-1992 (Construct Only) and AS 4300-1995 (Design and Construct) as amended by the Victorian Public Sector Special Conditions
• model contracts for minor works
• consultancies (Construction Services).

These commonly used contracts have been updated and amended to support the Directions. They are supported by contracting practice notes, and provide standard approaches to commonly varied alternate commercial positions that can be included where appropriate and relevant.

In addition to these commonly used contracts, the suite of Victorian Public Construction Contracts includes other contracts developed by industry bodies and Victorian Government Agencies. Over time, the Department of Treasury and Finance will consider which other contracts should be added to the suite (including precedent contracts submitted under the transitional arrangements) and which existing contracts should be retired from use.

When using a Victorian Public Construction Contract Agencies need to check the contracts remain up to date with policy and legislative requirements.

For the avoidance of doubt, retiring a Victorian Public Construction Contract has no effect on contracts that have been entered into.

High Value High Risk Projects

Contracts for High Value High Risk projects are more likely to require specific terms and conditions. However, Agencies are expected to use Victorian Public Construction Contracts for High Value High Risk projects where possible, with amendments limited to necessary changes.

These contracts will be assessed as part of the High Value High Risk framework, but are still required to comply with the legislation and Victorian Government policy requirements listed in Contractual terms and conditions (Instruction 7.2).

Useful resources

Suite of Victorian Public Construction Contracts, available at Practitioners Toolkit - Standard form contracts.

The Partnerships Victoria Requirements provide model contract forms that apply when using this delivery model.

The Victorian Alliancing Policy provides model contract forms that apply when using this delivery model.

Tools and support

The Practitioners Toolkit includes key documents, guidance and information about the Ministerial Directions and Instructions for public construction.

For further information about the Ministerial Directions and Instructions for public construction procurement, please contact the Construction Policy Team.