Skip to content

Articles

NSW Government: 10 Point Construction Action Plan

In June 2018 the NSW Government’s Construction Leadership Group1 (CLG) issued a ten point commitment to the construction sector. 2

Background and Purpose

The CLG plan is in recognition that the NSW Government can only achieve its infrastructure objectives in partnership with the private sector.  The NSW Government has committed to achieving value for money in construction procurement by adopting a broader, longer term view about the need to drive quality, innovation and cost effectiveness.

The NSW Government has an “infrastructure pipeline” with about $80 billion of projects over the next four years 3

Historically government contracts were fixed price with large penalties to contractors if they failed to complete on time. However, it is increasingly difficult to establish fair fixed-price contracts because the cost for materials like steel are rising.

Sydney’s light-rail line project ended up in a legal dispute between the Government and the lead contractor, Spanish company Acciona, over responsibility for unforeseen costs associated with moving utilities.

Acciona had to invest significant amounts to keep the project going, and was forced to use the Security of Payments Act to try to resolve financial claims.

The NSW Government settled the dispute by contributing additional funds for the project’s completion and the project will cost an additional $1 billion over budget and be one year late. Acciona will also take a small loss on the project4.

It was this background that led the NSW Government to roll out this 10 point plan and to encourage more collaborative relationships with contractors for the greater benefit of all parties.

The action plan includes helpful case studies of successful projects such as the Sydney International Convention Centre and Broken Hill Pipeline with constructive examples of the elements in the 10 point plan.

10 Point Plan

Under the CLG action plan member agencies commit to work together to:

1.   Procure and manage projects in a more collaborative way

  • Use early market engagement to get industry views on best procurement pathway
  • Move away from reliance on fixed price, lump sum to more collaborative contracts
  • Where appropriate use expedited engagement processes
  • Develop (with industry) best practice guidelines for the main procurement methods
  • Use interactive tendering processes to test procurement decisions with bidders
  • Ensure contracts are managed in professional and respectful way
  • Use inception workshops after awarding contract to achieve shared objectives

2.   Adopt partnership-based approaches to risk allocation

  • Recognise that not all risks can be fully assessed and priced so they need to be managed by best party able to do so and shared where necessary
  • Obtain market views about geotechnical and other data to manage in ground risks that are hard to forecast
  • Seek industry views on risk sharing balancing value for public money and industry sustainability
  • Develop contractual risk sharing mechanisms
  • Identify with industry collaborative approaches to reducing utility related risks
  • Establish dispute avoidance forums as a standard feature of major contracts

3.  Standardise contracts and procurement methods

  • Identify (with industry input) where greater standardisation of contract terms can improve resource efficiency
  • Review best practice internationally to harmonise standard contracts to attract overseas contractors
  • Adopt and publish standard guidance on key procurement and contract delivery approaches
  • Adopt minimal set of sector specific variations to standard contract forms
  • Provide background briefing for smaller contractors re standard contract terms

4.  Develop and promote a transparent pipeline of projects

  • Publish a NSW Government major project pipeline document every 6 months
  • Map a network of contractors and developers for communication re pipeline
  • Develop through CLG a “whole of government” approach to market engagement including interactive forums with industry
  • Use the feedback from these interactive forums to best package and phase projects
  • Offer work in packages so small and medium sized contractors can compete on contracts
  • Engage with Commonwealth and other States and Territories regularly re national pipeline projects also

5.  Reduce the cost of bidding

Reduce industry down time

  • Shortlists of 3 parties (sometimes 2) for each main contract that can demonstrate capability of delivering project
  • Minimise time unsuccessful bidders remain on standby whilst finalising contract with preferred bidder
  • Review government approval process to minimise delays
  • Publish data re average approval time frames by agency and contract type

Reduce administrative bureaucracy

  • Minimise design requirements by bidders before selecting preferred bidder
  • Reduce documentary requirements by mandating electronic lodgement of bids
  • Reduce credentials requirements for known contractors and use prequalification schemes tiered according to size and review existing prequalification schemes

Provide clarity and consistency

  • Establish Government’s main priorities
  • Avoid changes to evaluation criteria
  • Standardise security
  • Commit to realistic timeframes
  • Obtain industry feedback

6.  Establish a consistent NSW Government policy on bid cost contributions

  • Agree to partially reimburse unsuccessful bidders’ costs in order to secure competition in market with a policy to be developed with industry input.

7.  Monitor and reward high performance

  • Publish practice notes on key behaviours of good contractors and reward consistently high performing contractors.

8.  Improve the security and timeliness of contract payments

  • Measure and publish agency performance data for time of payments including variations
  • Complete the review of the Building and Construction Industry Security of Payment Act 1999 and implement its recommendations (see our further articles re SOPA amendments and the changes imminent at https://kreisson.com.au/c/publications/security-payment-act/ ).
  • Amend standard contracts to address payments ahead of project and transparent proof of payment for subcontractors.

9.  Improve skills and training

  • Identify and report with industry on emerging skill gaps in construction and trades
  • Mandate minimum levels of training in all major contracts
  • Allocate a portion of regional capital projects budgets to fund skills programs
  • Increase recognition of overseas qualifications
  • Promote offsite prefabrications using domestic manufacturing
  • Avoid requirements in tenders for employee experience and length of service which may discourage “training on the job”
  • Promote on site training

10. Increase industry diversity

  • Identify (with industry) the diversity of the workforce in construction and related trades
  • Include in all major construction contracts recruitment and training initiatives to assist in targets for:-
  • *Doubling women in trade related work
  • *Meeting requirement for Aboriginal participation in construction
  • *Ensuring at least 8% of the total project workforce is aged less than 25 years
  • *Employing and training from local region

NEXT STEPS

The 10 point action plan outlines the main elements for the NSW Government to achieve it’s commitment to the construction sector.   The CLG will now need to implement these plans and has indicated it will be rolling out a variety of information.  Some steps have already been undertaken and you can read about those in our upcoming articles.

David Glinatsis (Director, Kreisson) and Catherine Lucas (Solicitor).

For more information, contact us at excellence@kreisson.com.au or on 02 8239 6500.

Download this Article

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.

1 NSW Government Agencies included in CLG are Infrastructure NSW, Transport for NSW, Roads & Maritime Services, Health Infrastructure, Schools Infrastructure NSW, Justice Infrastructure, Public Works Advisory , NSW Treasury, Department of Industry and Department of Premier and Cabinet.

 2 http://www.infrastructure.nsw.gov.au/media/1649/10-point-commitment-to-the-construction-industry-final-002.pdf

3 http://www.infrastructure.nsw.gov.au/expert-advice/nsw-infrastructure-pipeline-2017/

4 https://www.afr.com/business/transport/concrete-action-needed-to-resolve-infrastructure-disputes-acciona-20190604-p51u99

5 https://kreisson.com.au/c/publications/security-payment-act/