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Update on Construction Procurement Methods for NSW Government Projects

Construction Procurement Methods for NSW Government Projects 

In December 2018 the Construction Leadership Group (CLG) issued the “Construction Procurement Methods Industry Discussion Paper”1 to inform industry engagement on different types of procurement models that have been used across NSW.

The CLG is a group of the key NSW Government Agencies 2 led by Infrastructure NSW that are reviewing and reforming the development, procurement and delivery of infrastructure and building projects.

In June 2018, the CLG published the Ten Point Commitment to the Construction Sector Action Plan3. The very first point in this plan was to “procure and manage projects in a more collaborative way”.

This Discussion Paper is the first step in executing this commitment to the construction industry. It is also a very helpful analysis of procurement methods for the industry in general.

Proposed Guidelines

The CLG intends to develop and publish, in partnership with industry, simple guidelines which document contemporary and best practice for each of the main procurement methods.

The purpose of this Discussion Paper is to engage with industry for feedback on the main procurement methods in order to issue the guidelines. Submissions closed in February 2019 however at the time of writing this article they were not published and as yet there has been no new announcements in relation to the issue of the guidelines.

Procurement Methods

In the Discussion Paper each of the following main Procurement methods are analysed:-

Traditional Category:

  • Construct Only
  • Design Finalisation & Construct
  • Design & Construct
  • Design, Construct & Maintain
  • Cost Plus

Relationship and Collaborative Contracting Category:

  • Managing Contractor
  • Early Contractor Involvement
  • Framework Agreement
  • Incentivised Target Cost
  • Alliance Agreement
  • Collaborative Client contractor
  • Delivery Partner or Construction Management

Private Public Partnerships Category:

  • Build, Own, Operate and Transfer (BOOT)
  • Design, Build, Finance and Operate (DBFO)
  • Design, Build, Finance and Maintain (DBFM)
  • Design, Build, Operate and Maintain (DBOM)
  • Design, Construct and Maintain (DCM)
  • Market-Led Proposals directly related to PPP contracts

Each procurement method has been analysed on the following terms:-

  • the circumstances in which a particular method may be selected;
  • the benefits and risks of each method;
  • the skills required by each of the Contractors and the Procuring Agency;
  • any existing policy to guide the use of the method.;
  • an example of a project.

The Discussion Paper recognises that engagement with industry and stakeholders in choosing the procurement method is also important as it can bring attention to market conditions or other contextual factors which may be relevant.

Risk

The Discussion Paper specifically recognises that not all risks (such as utilities and latent conditions) are capable of being fully assessed, priced or absorbed by the private sector, and that such risks must be managed collaboratively.  In the case of the Sydney’s light rail construction for example, there were significant undisclosed utilities that arose in the course of the project that significantly increased the cost and time of the project and led to litigation between the Spanish Contractor Acciona and the NSW Government.

The Discussion Paper states that it is:-

“championing the development of standard contractual risk-sharing mechanisms for these items which keep both parties appropriately incentivised. We do not want to unreasonably put the contractor’s overall viability at risk, but will not necessarily bail them out in all circumstances, particularly if their contractor is at fault.”

The CLG intends to develop standardised legal language for its contracts for these risk-sharing mechanisms to reduce the cost of doing business for both Government and contractors.

Good News for the Industry

This Discussion Paper is good news for the construction industry at a time when there is an infrastructure boom in Australia. It recognises the collaborative role that contractors should play in selecting a procurement method based on a project’s individual needs and encourages early contractor involvement.

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

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

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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 (http://www.infrastructure.nsw.gov.au/media/1788/construction-procurement-methods_industry-discussion-paper_final.pdf)

2NSW 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.

3http://www.infrastructure.nsw.gov.au/media/1649/10-point-commitment-to-the-construction-industry-final-002.pdf