Refresher: Ministerial Directions for Public Construction Procurement

Overview of the Ministerial Directions

The Ministerial Directions (Directions) for Public Construction Procurement are mandatory principles that Victorian Agencies must follow when undertaking Public Construction Procurement on or after 1 July 2018.

The Directions are provided for under the Project Development and Construction Management Act 1994 (Vic) (PDCM Act). The PDCM is designed to facilitate government development projects in Victoria and provides the framework for the Minister to issue Directions.

The Directions are supplemented by mandatory Instructions for Public Construction Procurement (Instructions) and supported by the non-mandatory Guidance for Public Construction Procurement (Guidance), which sets out good practice and assists in interpreting the mandatory requirements.

Agencies that must comply with the Directions

Agencies that must comply with the Directions are the same as those in scope for the Standing Directions 2018 made under the Financial Management Act 1994 other than ‘Excluded Entities’ as set out in Direction 1.3.3 (Excluded Entities) (Agency). These Agencies are listed in the factsheet: Is your Agency subject to the Standing Directions 2018 under the Financial Management Act 1994.

Defining Public Construction Procurement

The Directions apply when an Agency engages the market to provide works for construction, maintenance, rehabilitation, alteration, extension or demolition of any improvements on land (Works) or services directly related to the delivery of those Works, including architectural and design services (Construction Services) (together, Public Construction Procurement). “Construction Services” does not, however, include services indirectly related to the delivery of Works, including legal advisory services or commercial advisory services.

Certain activities (for example, grants, sponsorship or donations, investments, procurement of goods or services for resale or procurement of goods and services used in the production of goods for resale) fall outside the scope of Public Construction Procurement.

At other times, it may not be clear if the Directions apply to a procurement, for example, maintenance, installation of information communication and technology, interior design and physical fit-out and landscaping. In these cases, Agencies may have to decide on the most appropriate way to categorise what is being procured and whether it meets the definition of Public Construction Procurement. Guidance 1.3b (Defining Public Construction) provides helpful information about the scope of activities that are included and excluded from Public Construction Procurement.

If the Directions for Public Construction Procurement do not apply to a procurement:

1. Agencies that fall within the purview of the Victorian Government Purchasing Board should apply the Victorian Government Purchasing Board Procurement Policies for goods and services procurement; and
2. other Agencies should apply the relevant procurement policies of the Agency.

A determination of whether or not the Directions apply to a procurement is important as it may impact on the procurement requirements and the contracting framework.

Procurement Requirements for Public Construction Procurement

When faced with a need for Public Construction Procurement, Agencies need to determine whether to use an open tender, a selective tender (a competitive tender open only to some or all pre-qualified suppliers in the relevant category on a register) or a limited tender (a tender with limited or no competition).

An Agency may only use a limited tender process for Public Construction Procurement if:

1. the value of the engagement is less than $50,000 (inclusive of GST), in which case the Agency may invite a single potential tender participant;
2. the value of the engagement is:
   1. for Works, more than $50,000 (inclusive of GST) but less than $500,000 (inclusive of GST); or
   2. for Construction Services, more than $50,000 (inclusive of GST) but less than $200,000 (inclusive of GST),in which case the Agency must invite at least three potential tender participants.
3. any of the special circumstances set out in Instruction 3.2.2 (Competition and Contestability) apply; or
4. the Agency is procuring under a supplier panel established in accordance with the Directions, as the rules of that panel allow.

​Contracting Requirements for Public Construction Procurement

When issuing requests for tenders / proposals for Public Construction Procurement, an Agency must include an unamended Victorian Public Construction Contract in the tender documentation, except to the extent that amendments are required to comply with law or policy, including the Directions, or as permitted in the Instructions.

The Instructions permit an Agency to use a different form of contract, or to amend a Victorian Public Construction Contract (beyond what is needed to comply with law or policy), where:

1. the Agency’s Accountable Officer (or delegate) is satisfied that an unamended Victorian Public Construction Contract is inappropriate for the type of Works or Construction Services being procured;
2. the Agency’s Accountable Officer (or delegate) is satisfied that an unamended Victorian Public Construction Contract does not sufficiently address interface issues where there are multiple contractors working on a site or where the Works are undertaken on an operational site; or
3. the Works or Construction Services relate to leased premises or third party property where the form of contract is required to be approved by the lessor or such third party.

Agencies may agree non-material contract departures during tender negotiations at their discretion. A departure is considered “material” if, considering the value, complexity and risk of the Works or Construction Services, it could substantially impact the manner in which Public Construction Procurement is undertaken by other Agencies.

Approval for a “material” contract departure requires written submission to the Secretary, including a mark up of the departure against the contract issued at tender and reasons supporting its acceptance.

Legislative and Policy Requirements

Agencies must ensure that the legislative and policy requirements, including the policies set out in Instruction 7.2.1 (Compliance with legislative and policy requirements) (where applicable), are addressed in all contracts for Works or Construction Services.

Agencies should assess the applicability of policy and legal requirements before incorporating them into their contracts. For instance, the Local Jobs First – Victorian Industry Participation Policy requires Agencies to consider competitive local suppliers, including small and medium sized enterprises, when implementing projects valued at:

1. $1 million (exclusive of GST) or more in regional Victoria; or
2. $3 million (exclusive of GST) or more in metropolitan Melbourne or for state-wide activities.

Various other policies have their own thresholds and other criteria that must be considered to determine if they apply to the relevant procurement.

Key Takeaways for Agencies

1. The Directions and the supporting Instructions impose mandatory requirements that Victorian Agencies must follow when undertaking Public Construction Procurement;
2. The associated non-mandatory Guidance sets out good practice and assists in interpreting the mandatory requirements;
3. Agencies are generally required to include an unamended Victorian Public Construction Contract in tender documentation, with limited exceptions for alternative forms of contract;
4. Agencies have discretion to accept non-material contract departures during a tender process but must seek approval from the Secretary before agreeing to any material departures; and
5. Agencies must ensure that their contracts for covered procurements comply with the requirements of the Directions and the policy framework for Government procurements.

HWL Ebsworth has subject matter expertise that can assist Agencies to navigate the Ministerial Directions, including to ascertain the applicability of the Directions, the selection of contract models (including the use of approved templates for public construction) and the processes required to ensure that contracts comply with the Directions and the broader policy framework for Victorian Government construction procurement.

This article was written by Toby Mittelman, Partner, Kate Fitzgerald, Special Counsel, and Taulant Javori, Associate.