Contractual terms and conditions (Direction and Instruction 7.2)

Direction 7.2 and Instruction 7.2 explain the principles to be followed when developing contract conditions.

Contractual terms and conditions (Direction 7.2)

Effective date: 1 July 2018

Principles

Value for money, scalability and probity are procurement principles that are specifically relevant to contracting requirements.

Of particular relevance to this Direction are the following construction procurement principles:

  • appropriately planning and managing Public Construction Procurement to deliver procurement objectives;
  • employing the appropriate Procurement Models and processes taking account of the complexity and value of the project and supplier market capability;
  • reducing unnecessary burden of Public Construction Procurement for all parties;
  • encouraging appropriate innovation and responsiveness in the supplier market; and
  • undertaking Public Construction Procurement in accordance with the relevant legislation, policy, guidance and any mandatory requirements in these Directions.

7.2 Contractual terms and conditions

7.2.1 Compliance with legislative and policy requirements

Agencies must ensure that contracts for Works or Construction Services comply with policy and legislative requirements, including the policies set out in the Instructions.

7.2.2 Non-Standard Commercial Arrangements

Agencies must not propose or enter into a Non-Standard Commercial Arrangement, in a tender process or as a contract amendment, except as permitted in the Instructions.

7.2.3 Risk allocation

Agencies must ensure that contracts for Works or Construction Services:

(a) clearly define the roles and responsibilities of the parties to the contract;

(b) identify responsibility for key risks associated with the Works or Construction Services;

(c) as far as practicable, allocate risks to the party best able to manage them, and

(d) address any mandatory requirements set out in the Instructions.

7.2.4 Subcontracting

Contracts must contain appropriate mechanisms to ensure that:

(a) the Principal has appropriate visibility of, and rights to approve, subcontracting arrangements;

(b) terms and conditions of subcontracts are compatible with those of the head contract and consistent with the principles of risk allocation and security of payment set out in this Direction; and

(c) the Contractor demonstrates proof of payment to subcontractors and suppliers.

7.2.5 Dispute resolution

Agencies must ensure that contracts provide for efficient and effective resolution of disputes (including through the use of alternative dispute resolution procedures) that take into account the Procurement Model and the nature and complexity of the Works or Construction Services being performed under the contract and any related contracts.

7.2.6 Performance security

Where a supplier is required to provide performance security, the contract must allow the supplier to provide an unconditional undertaking, in a form and from a financial institution acceptable to the Agency, as an alternative to cash.

7.2.7 Security of payment

Contracts must be consistent with the requirements of the Building and Construction Industry Security of Payment Act 2002 and provide for:

(a) fair entitlement to payment, including identifying appropriate milestone payments; and

(b) prompt payment, with interest payable on late payments.

 

Contractual terms and conditions (Instruction 7.2)

Effective date: 1 July 2018

Objective: To define requirements for contracts and establish greater consistency in contracting arrangements

7.2.1 Compliance with legislative and policy requirements

(a) Agencies must ensure that all contracts for Works or Construction Services comply with relevant legislative requirements.

(b) Agencies must ensure that the following government policy requirements, where they apply, are addressed in all contracts for Works or Construction Services:

(i) Partnerships Victoria Requirements;

(ii) Victorian Alliancing Policy;

(iii) Fair Payments Policy;

(iv) Protective Data Security Standards;

(v) Whole of Victorian Government Intellectual Property Policy Intent and Principles;

(vi) DataVic Access Policy;

(vii) Supplier Code of Conduct;

(viii) Local Jobs First – Victorian Industry Participation Policy;

(ix)  Major Projects Skills Guarantee; and

(x) Victoria’s Social Procurement Framework.

(c) Agencies must ensure that contracts for Works or Construction Services that are required to comply with the shared reporting regime in Supplier performance and shared reporting regime (Instruction 8.2):

(i) obtain supplier consent for performance information for that contract being used to evaluate the supplier in future Victorian Government tenders;

(ii) link to provisions in the Tender Documentation; and

(iii) require the supplier to cooperate with the shared reporting regime.

(d) To give contractual effect to commitments made by suppliers under Probity requirements - Commitment from tender participants (Instruction 4.1.5), Agencies must ensure that contracts for Works or Construction Services:

(i) include continuing obligations on the supplier, that apply from the date the tender is submitted and survive contract termination or expiry, that mirror the probity commitments made by the Contractor in the tender process; and

(ii) entitle the Agency to remedies if the obligations are breached, including remedies for substantial breach where appropriate.

(e) Agencies must ensure that all contracts for Works or Construction Services grant the Agency sufficient rights to comply with legal or policy requirements to disclose information.

(f) When procuring services for geotechnical investigations, or Works or Services that may require geotechnical investigations, Agencies must ensure that their contracts provide for the ownership and custody of geoscience data collected for the project to be transferred to the State of Victoria, where:

(i) ‘geoscience data’ includes geological, geotechnical and environmental information, reports, maps, images, recordings, survey results and drill core, drill cutting and associated materials embodied in any form; and

(ii) ‘geoscience data collected for the project’ includes geoscience data generated, placed, stored, processed, retrieved, printed, accessed, or produced using data supplied by the Principal, for the purpose of the contract.

(g) When procuring Works or Construction Services, Agencies must ensure that their contracts prohibit the installation or design into any building of Type A or Type B Construction a Prescribed Combustible Product as part of an External Wall (including as an attachment), as per the Minister’s Guideline MG-14: Issue of building permits where building work involves the use of certain cladding products, unless the Contractor or designer has obtained a determination of the Building Appeals Board that the installation of the Prescribed Combustible Product complies with the Building Act 1993 (Vic).

7.2.2 Non-Standard Commercial Arrangements

(a) Non-Standard Commercial Arrangements must only be proposed or agreed to following approval by the Secretary or a person authorised in writing by the Secretary.

(b) A request for approval under paragraph (a) must be made in writing to the Secretary by an Accountable Officer, specifying:

(i) the nature of the proposed arrangement;

(ii) how the proposed arrangement arose; and

(iii) reasons why the proposed arrangement should be approved.

7.2.3 Early termination (termination for convenience)

(a) If a contract gives the Principal the right to terminate early, the contract must meet the requirements in paragraphs (b) and (c).

(b) In the event the Principal exercises the right, the Contractor must be required to:

(i) cease work within the time directed by the Principal;

(ii) demobilise its equipment and personnel from the site;

(iii) secure the site and Works performed to date; and

(iv) in all circumstances mitigate its costs.

(c) Other than for exceptional projects or where appropriate for the delivery model, the Contractor must not be entitled to:

(i) future profit on the Works or Construction Services not performed under the Contract; or

(ii) compensation for economic or consequential loss, including opportunity cost or profit forgone as a result of entering into the contract.

7.2.4 Subcontracting

Agencies must require, at a minimum, statutory declarations from Contractors stating that payments have been made to subcontractors in the form set out in Attachment 1 to this Instruction 7.2.

7.2.5 Liability caps and exclusions

A Contractor’s liability must not be excluded or limited for:

(a) third party claims against the Principal in respect of personal injury, death, loss or damage to any property;

(b) wilful misconduct, wilful default, wilful neglect, gross negligence, fraud or criminal acts or omissions of the Contractor, its employees or agents;

(c) liability which cannot be excluded at law; and

(d) abandonment of work under the Contract by the Contractor.

Proof of payment to subcontractors (Attachment 1 to Instruction 7.2)

Agencies must require, at a minimum, statutory declarations from Contractors stating that payments have been made to subcontractors in the form set out in Proof of payment to subcontractors - Statutory declaration.

Tools resources and assistance

Contractual terms and conditions (Direction and Instruction 7.2) are supported by non-mandatory guidance Contractual terms and conditions (Guidance 7.2).

The Victorian Public Construction Contracts are listed at Practitioners Toolkit - Standard form contracts.

Victorian Public Sector standard form construction contracts have been refreshed and are available at Practitioners Toolkit - Standard form contracts.

The Practitioners Toolkit includes key documents, guidance and information relating to the Ministerial Directions and Instructions.

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

Reviewed 02/07/2018
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