Collaboration between NSW and contractors sets new procurement standards

By Lina Fischer, Danielle Mizrahi
08 Jul 2021
NSW Government agencies and state owned corporations should determine if these procurement principles apply to any current or future infrastructure projects they are delivering.

The NSW Premier's Memorandum issued on 24 June 2021 sets out the default procurement practices that NSW government agencies and state owned corporations are expected to apply to all large, complex infrastructure projects in the "Framework for Establishing Effective Project Procurement" from 1 July 2021.

Developed in close collaboration between Infrastructure NSW, Treasury and multiple NSW government agencies with the Australian Contractors Association, the Memorandum describes best practice for large infrastructure projects such as:

  • Roads and Motorways;
  • Rail and Metro projects;
  • Light Rail projects;
  • Dams, pipelines (new or major augmentations); and
  • Buildings or precincts with highly complex elements (complex design, technical specifications or uses, sensitive sites).

The Memorandum further expands on NSW Government's commitment to the construction industry under the 10 Point Commitment to the Construction Industry plan.

If a specific procurement practice will not be applied to a project, an "if not, why not" approach must be taken. Reasons for the departure must be submitted to the Chief Executive or Secretary of the agency or state owned corporation for approval.

The Memorandum and Framework have been developed to increase participation, competition and efficiency in NSW infrastructure procurement to reflect the booming infrastructure pipeline and to enhance cooperation with industry.

The default procurement practices include:

De-Risking and Pre-Construction

  • Early contractor engagement: engage with contractors early to identify and manage risks which cannot be quantified or priced in lump sums, and optimise and influence delivery solutions and designs.
  • Early works: minimise common risks through undertaking packages prior to the main works (eg. removing existing assets, utility relocation, and investigating site conditions), using contractors from pre-qualified panels where possible.

Procurement Approach

  • Project packaging: size contract packages across the NSW portfolio to facilitate competitive bids from a wide range of participants (eg. packages that can be managed by either tier 2 contractors, or joint ventures between tier 1 and tier 2 contractors).
  • Contracting for high risk project elements: if a project element cannot be realistically determined or priced in the tender process (eg. contamination), use an open book and/or target cost approach. This should include mechanisms to firm up those elements as the project progresses and provide value for money to taxpayers.
  • Risk allocation with subcontractors: risk allocation between client and head contractor should be passed down to subcontractors wherever practicable
  • Contract consistency: maintain contract consistency and simplicity across projects where integration is a key risk.
  • Early engagement on proposed contract terms: include proposed contract terms and risk allocation (including risks that cannot be quantified and priced in lump sums) in early engagement (eg. in term sheets and draft Deeds where available).
  • International experience and personnel: recognise the international experience of international contractors and key personnel subject to certain conditions (eg. the contractor must bring people, systems and skills which support other projects into the market, partner with domestic contractors and provide bonds or guarantees which can be relied on / easily drawn down).
  • Rewarding cost savings and innovation: Incentivise innovation and productivity enhancing measures through rewarding performance which exceeds minimum contract requirements.

Reducing Costs and Improving Timeframes

  • Tender timetables: set realistic tender timetables taking into account relevant factors (eg. due diligence, planning approvals etc.) and communicate these clearly to tenderers, updating them where changes to the timetable are necessary.
  • Timely completion of tenders and contract award: conduct the tender process in stages, moving to a smaller bidding field and preferred contractor as soon as practicable.
  • Responding to unacceptable tender outcomes: defer tender processes where tender results are unlikely to provide a satisfactory result.
  • Tender requirements and costs: review tender requirements to ensure that they serve a genuine purpose in contractor selection and delivery of projects, and are required at tender stage.
  • State role in design: optimise the State's role in advancing project design (eg. through incorporating early contractor participation) to the extent that duplication of design effort and erosion of risk allocation can be avoided.
  • Documentation and plans in procurement: evaluate when contractors should be required to submit certain documents (eg. systems and plans), and require submission at one stage only (eg. EOI, RFT etc.). To reduce requirements from tenderers, the amount of detail required should be limited, and the State's production of draft documentation and draft plans should be increased.
  • State role in stakeholder management and communications: ensure that responsibility for stakeholder management and project communications is allocated to the party who is best able to manage risk and outcomes.

What you need to do now

As these procurement principles came into effect on 1 July 2021, NSW Government agencies and state owned corporations should determine if these procurement principles apply to any current or future infrastructure projects they are delivering.

If they do, agencies and state owned Corporations will need to assess:

  • whether early contractor engagement and early works should be carried out; and
  • whether the project procurement approach and tender process is consistent with the procurement principles, and if not, why not?

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