Victorian public construction–building towards reform

by John Kilgour, CEO, CCF Victoria Branch

In lockstep with an ongoing commitment to advocacy and representation, in 2016 CCF made recommendations to the State Government on areas for improvement in the procurement and tendering of major infrastructure projects in Victoria. Given the recent commission by CCF of the 2018 Victoria Infrastructure Outlook Report, there’s no better time to have an open and transparent discussion on the long-term economic strategy for Victoria.

Improving procurement and tendering

In 2016, a formal review of public construction procurement processes in the state was commissioned. Led by the Department of Treasury and Finance (DTF), the review sought to identify opportunities to streamline and improve public infrastructure procurement processes. As an important stakeholder within the building and construction sector, CCF Victoria made representation to DTF as part of this engagement and consultation process.

CCF provided valuable insights to the review by providing practical ways to streamline processes and reduce government procurement costs for both private sector and government works.

This included the need to address:

  • Standardisation of terms and conditions in contracts between projects
  • Lack of forward planning and scheduling of projects
    that leads to an inconsistent pipeline of projects
  • Disparity of contractor pre-qualification between state, local governments and their agencies
  • Impact delays in receiving formal government approvals, or ministerial sign off, for projects on costs
  • Push by government to “de-risk” projects with contractors now having to assume greater levels of risk and liabilities for projects
  • Complexities created through the EOI, or D&C tendering process with increasing incidents of either lack of detail, or over specification of requirements needed to make a determination in the awarding of contracts
  • Level of security, i.e. bank guarantees, sought by multiple governments and agencies and the costs associated with its provision, retention and administration for both the government and contractors

Upon completion of the review, the findings and recommendations were announced by the Treasurer, the Hon Tim Pallas, and published by the Department of Treasury and Finance. The published report identified areas for strengthening good practice including: better planning of projects, improving industry feedback mechanisms and participation in government tenders, and lifting government procurement capability.

Many of the recommendations made by CCF were included in the published findings including reform opportunities identified in three key areas:

  1. Greater standardisation of procurement processes across government
  2. Reducing unnecessary time and costs to industry in tender processes
  3. Improving government capability and planning in construction procurement

In seeking greater standardisation in procurement, we commend the government in exploring ways to make the construction procurement processes more consistent across government, but it is important that this now translates into action.

This includes exploring ways that encourage greater participation, reduce transaction costs and target the standardisation of:

  • Legal and commercial contracts, with consistent commercial terms and conditions to increase “speed to market” and reduce contract review administration costs
  • Risk allocation in contracts to better reflect standard risk management principles by assigning the risk to the party most efficiently placed to manage it
  • Probity requirements to improve consistency in application, and to give the market greater confidence that bid evaluations are fair and equal

Feedback from the review also indicated that the function and application of the Construction Supplier Register (CSR) by government was not always consistent and could be more transparent to the market.

In simplifying requirements to reduce unnecessary time and costs spent on tendering processes, the review identified the following areas for improvement:

  • Reducing unnecessary information requirements in EOI and RFP’s which will see the government explore options to consolidate and simplify information requirements
  • Speeding up the selection of a preferred bidder by promoting stricter adherence to timelines
  • Avoiding late addenda and pricing of multiple options by ensuring tender documents are appropriately finalised and the promotion of better project planning/objectives prior to going to market
  • Increasing the use of bill of quantities to provide more accurate information to the market
  • Reimbursement of bid costs for complex public constructions which recognises the significant administrative costs associated with tendering
  • Appropriate tender field sizes to maintain effective competition, but not overuse the market
  • Publishing price order bids following tender close to improve transparency, and allow lower ranked bidders to redirect resources to alternative opportunities earlier and quicker
  • Ensuring the design is consistent with the contract where the outlining of appropriate design stands in tender documents will provide greater certainty for industry

The full published report and more information is available via contacting the Department of Treasury and Finance, Procurement Team.

Looking forward

With a strong pipeline of infrastructure projects planned in the State Government’s forward estimates over the next five years, improving government capability and planning is key to developing and maintaining efficient procurement processes and successful project delivery.

With the significant level of investment being made in major infrastructure projects and in the lead up to the Victorian state election later this year, there is no better time to have an open and transparent discussion on the long-term economic strategy for Victoria.

The 2018 Victoria Infrastructure Outlook Report commissioned by CCF and recently released by BiS Oxford Economics, provides a sound platform for this discussion.

Providing a comprehensive review of the past performance, current status and forecasted growth, the report delivers insight into some the most critical elements of the civil industry, whilst highlighting challenges and identifying areas for improvement. Coupled with this in-depth analysis of the different drivers affecting the state’s economy, the report also provides recommendations on addressing areas of required policy reform.

Over the next four years, Victorian engineering construction activity — encompassing transport, utilities and mining and heavy industry construction — is forecast to average $12.8 billion per year, higher than the $10.9 billion of the previous five-year period. Both public and private sector investment is driving higher levels of civil construction work. Publicly funded engineering construction work done is expected to account for around 45 per cent of total engineering construction activity, at around $5.7 billion on average each year over the four-year period.

In appreciation of the scope of this expected future activity (and more), it is critical that the policies affecting procurement and tendering undergo stringent review and consequent reform where required. Timely reform would be of great benefit to Victoria’s civil construction industry and the welfare of its economic future.

To view all findings and recommendations, the full 2018 Victoria Infrastructure Outlook Report is now available for download, via the CCF Victoria website: www.ccfvic.com.au

2018 Victoria Infrastructure Outlook Report (extract from ‘Policy Challenges and Recommendations’).

Recommendation 10: To maximise efficiencies in public infrastructure provision and reduce costs, both the Commonwealth and Victorian Government should follow through with reforms to the public infrastructure procurement process, as outlined by the Productivity Commission’s Review.

Recommendation 11: Procurement policies and approaches should be harmonised across all levels of government within jurisdictions – and, where possible, across jurisdictions – including the use of open (rather than closed) tenders, local content rules, and de-bundling large infrastructure projects to boost competition and the sustainability of the civil construction Industry.

About Civil Contractors Federation (CCF)

Civil Contractors Federation (CCF) is the peak industry body representing Australia’s civil construction industry with more than 2,000 contractor and associate members nationally and over 520 of these based in Victoria.

CCF members are responsible for the construction and maintenance of Australia’s infrastructure, including roads, bridges, pipelines, drainage, ports and utilities. Its members also play a vital role in the residential and commercial building industry by providing earthmoving and land development services including the provision of power, water, communications and gas.

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