4 How to develop a procurement strategy
6.3 Contracting principles
As noted in the previous section, there is a reasonable degree of commonality in the forms of contract selected for frequently used delivery models, which include:
Australian Standard forms (e.g. AS 2124-1992 and AS4300-1995) NPWC forms
GC21.
However, the standard forms are often significantly amended to reflect the project owner’s chosen risk profile, or to accommodate a contractual arrangement or delivery model not naturally aligned with the standard form.
These supplementary or ‘special’ conditions and amendments have their place. However, their use can result in higher tender prices due to legal costs incurred by tenderers in reviewing the documentation, and more disputes in contract on the grounds of uncertainty. Industry consultation undertaken in 2011 by the Council of Australian Governments’ Infrastructure Working Group suggested this situation may be improved if such provisions were to be structured in line with certain established principles accepted by project owners and the broader industry.
In response to this, Austroads and the APCC have developed the following common principles, which are aimed at improving consistency of approach by member agencies and providing greater certainty to tenderers and contractors.
These principles, which are intended to apply to project owners (principals), tenderers and contractors, will be adopted by state and territory member agencies and incorporated into their contract
Procurement methods
documentation. However, there may be exceptional circumstances that would preclude the adoption of particular principles at jurisdictional level or for specific contracts.18
By agreement of APCC and Austroads members, the following contracting principles will be adopted. Table 6.1: Contracting principles for construction and professional services
Subject Principle
Procurement method
Use standard or government-owned forms of contract where possible.
Select the form of contract and tendering process to suit the delivery model for the project.
Innovation Include provision in contracts to encourage innovation.
Collaboration Where collaborative principles are used, include obligations for all project parties in the contract.
Risk allocation Allocate risk to the party best able to manage the risk.
Clearly define roles and responsibilities of the parties and identify the responsibility for management of each key risk.
Limitation of
liability
Where liability capping is considered:
– it is to be on the basis of rigorous risk assessment in accordance with jurisdictional policies
– regard is to be had to the level of insurances to be provided under the contract by the principal and/or contractor.
Consider limiting indirect or consequential losses of both parties where these can be appropriately defined.
Warranties Limit warranties to the work and services to be provided by the contractor,
including subcontractors, consultants and suppliers.
Fitness-for-purpose warranties are ascertainable from the contract.
Indemnities Do not require the contractor to indemnify the principal for the principal’s (including
its employees and agents) negligent actions.
Insurances Apply a risk-based approach to determining insurance types and levels that are
appropriate to the contract.
Reference full details of insurance which benefits other parties in the contract and/ or make this information available to the contractor.
Intellectual
property The contractor retains ownership of pre-existing intellectual property, and an irrevocable licence to use this property is provided to the principal for the purposes of the project.
In circumstances where ownership of intellectual property created during the term of a contract is owned by the principal, contractors are able to use it under licence. Confidentiality Confidentiality provisions are to be defined in the contract and appropriate to the
needs of the project.
Key personnel Key personnel nominated for the project at tender time are to be supplied.
Contract personnel are to have skills and experience appropriate to their roles.
Subcontracting Subcontracting of the whole-of-the-works is not permitted.
Cost adjustment The inclusion of cost adjustment provisions, where relevant to the contract and its duration, is to be considered.
Dispute resolution Adopt a collaborative approach.
Include alternative dispute resolution procedures in the contract.
18 Additionally, for PPP delivery models, users of the Guide should also refer to the high level commercial principles described in the National public private partnership policy and guidelines (Infrastructure Australia 2008).
Procurement methods
Subject Principle
Electronic notices Use electronic documentation and notices, where practicable. Additional principles applicable to construction
Security Subject to jurisdictional requirements, security in the form of unconditional
undertakings from various security providers (acceptable to the principal) is to be permitted.
Unless specifically required to manage identified risks, principals should consider including a provision in contracts for the release of part of the security after practical completion (or equivalent).
Overheads and profit
Define in the contract what is covered by payments for overheads and profit, where such payments apply.
Site conditions Detail in the contract which party is responsible for which site conditions.
Time management Include provisions for the management of extensions of time in the contract.
Unless otherwise specified in the contract, the contractor owns the float.
Defects liability Set the defects liability appropriate to the delivery model and the scope, complexity and value of the contracted works.
Subcontractor conditions
Subcontract conditions are to align with the contracting principles included in the head contract.
Additional principles applicable to professional services
Novation Where novation is included in the tender documents, the successful tenderer will
comply with the required novation.