Enhancing collaboration with industry
5.1
There is a global move towards more collaborative procurement and delivery models for major infrastructure projects. The message is clear that for governments to achieve better project outcomes through procurement, they must recognise that long-term collaboration is ‘an inseparable component of a sustainable industry’. According to global engineering company the Jacobs Group:
…innovation and collaboration are key to ensuring that Australian taxpayers receive value for money, while sharing the risks and benefits of infrastructure delivery equitably between participants.
5.2
The Australasian BIM Advisory Board (ABAB) outlined that many of the procurement models commonly used in engineering and construction reduce the productivity of projects due to the lack of shared responsibility across the project life cycle. It highlighted the use of collaborative contracts as an important tool to reduce the estimated 30 per cent of effort wasted on construction activity due to non‑collaborative processes.
5.3
ABAB suggested that based on estimated construction activity in Australia of $205 billion in 2020, a ‘conservative’ 5 per cent productivity improvement—representing $3.1 billion savings each year—could be realised through the use of more collaborative approaches such as digital delivery driven by Building Information Modelling (BIM). These technical aspects are explored in Chapter 7.
5.4
The infrastructure industry, according to the Australian Industry Group (Ai Group), has been characterised by a boom-and-bust cycle with stakeholders, including government clients, often operating on an adversarial basis to shift or avoid risk. This results in poor relationships in projects and is a ‘key factor behind those projects that are completed over time and over budget’.
5.5
BuildingSMART suggested that a particular cultural and behavioural barrier to greater collaboration is ‘complacency and partly a culture of litigation and dispute, which creates a low-trust environment’. BuildingSMART outlined that:
This inhibits collaboration and the sharing of knowledge and data, and compromises those least capable of managing risk. One of the greatest impacts technology has had on improving productivity is the ability to share and better collaborate. However, in the current contracting environment, parties are held accountable for everything they share. This fear of accountability directly fuels a reluctance to adopt technologies and workflows that facilitate collaboration, information reuse and transparency.
5.6
Laing O’Rourke maintained that using price competition to demonstrate value for money has been unproductive, and called for a refocus on collaboration, stating that:
I think now is the time to reset and move to more collaborative forms of engagement that address the risk allocation in reasonable terms and provide incentives for excelling. Through the work of the Australian Constructors Association we have started to make progress, and I do acknowledge that a lot of jurisdictions have started to move to more collaborative forms of contracts.
5.7
While emphasising the importance of government procurers selecting the appropriate procurement models for given projects, Infrastructure Australia also encouraged collaboration, stating that these models should have ‘collaboration between industry and government over the long‑term at the heart of the arrangements’.
5.8
The Civil Contractors Federation (CCF) is the peak national body representing Australia’s civil construction industry, with its members responsible for construction and maintenance. The CCF advised that currently there is no formal consultative mechanism allowing industry members direct input to government on key issues affecting the infrastructure industry. To address this gap the CCF proposed that a formal consultative mechanism be established—the Infrastructure Industry Consultative Forum (IICF), which would ‘act as an avenue through which senior government officials and industry leaders can collaborate and progress reform and innovation on key infrastructure matters’.
5.9
The proposed IICF would be chaired by the Secretary of the Department of Infrastructure, Transport, Regional Development and Communications, and the department could channel the IICF’s outputs to the ministerial level and National Cabinet, as required. The CCF sees the forum as an advisory rather than a decision‑making body, although it could make recommendations for government consideration, and is intended to supplement and support other forms of government engagement on these issues.
Early market engagement
5.10
Market engagement is a process prior to, during and after procurement, in which the client can get a sense of market interest and capacity in relation to a specific project. It can range from simple (such as an advertisement or communication about an intended project) to extensive and complex (where there is detailed dialogue and exchanges with suppliers to develop a solution to certain issues). More in-depth market engagement helps all parties get a better practical understanding of the scope, risk and possible solutions, and viable delivery options for a project.
5.11
The Department of Infrastructure, Transport, Regional Development and Communications recognises the importance of undertaking appropriate market engagement. It explained that:
Early engagement with contractors can assist with better design and procurement models, driving a more efficient and cost-effective process. Regardless of the method selected, sufficient upfront planning and preparatory work will assist with improving relationships between proponent and contractor, balance risk allocation, manage and appropriately price risk.
5.12
In particular, Consult Australia stressed the importance of ‘starting the conversation early’ as key to better engagement with industry and one that can be continued into the contract.
5.13
One of Infrastructure Australia’s key messages related to improving industry productivity and innovation is that project outcomes will be enhanced by allowing sufficient time and resources at the front-end of projects, together with improving market engagement processes. Early market engagement can help government clients to determine the most appropriate delivery method, based on project type and industry capacity.
5.14
Infrastructure Australia’s Recommendation 3.2b in its 2021 Australian Infrastructure Plan is to reduce uncertainty for industry and improve value for money by improving engagement with industry and the supply chain. Infrastructure Australia proposed that this be led by state and territory governments. Specifically in relation to market engagement, Infrastructure Australia proposed that the Australasian Procurement and Construction Council take a lead role to:
Increase competition in the industry by developing guidelines and training programs on market engagement best practices that are accessible to all project practitioners. Cover topics such as multi-stage bidding, fair risk appropriation processes, bidding requirements at each gate, receiving industry feedback, using nationally consistent contract forms and the supporting procurement decision-making tool.
5.15
The Business Council of Australia (BCA) sees early market engagement as a significant factor in being able to identify, avoid and mitigate risk as early as possible in the procurement process for projects. It raised the Victorian North East Link primary package as a positive example of government adopting a risk sharing approach, noting that in response to market feedback and the nature of the project, the Victorian Government showed a willingness to ‘engage with the private sector early and work through the particular risks inherent in the project’.
5.16
However, the BCA cautioned that when governments announce project timings and estimated costs ‘too early’—prior to due diligence taking place—this acts as a barrier to allowing time to undertake due diligence and early market engagement.
5.17
Hughes et al, an advisory firm on local content best practice, raised the importance of early engagement to help address potential supply chain issues, such as in the case of the demand for steel for projects. The group indicated that as part of a recent project with a major transmission line requiring 32,000 tonnes of steel, it had worked with the Australian Steel Institute to arrange Australian consortia to get in early to ensure the right design standards were in place. Notwithstanding the outcome that Australia was not found to be competitive on the price of steel, Hughes et al stressed the importance of this kind of early engagement, explaining that:
Without getting too locked into steel as the product, the point is incredibly important about that early engagement around designs and around the standards that are going to be required. In the example that I just gave you, we'd undertaken the testing of the Australian steel market a year before the project had even got the approval to start building. We got in incredibly early—we didn't wait for the main contractor to be approved and then find out later that there's no opportunity for competition. We were early, early, early in with the design companies, working closely in collaboration. You might not always get the result you want in terms of the spend in Australia, but you'll learn an awful lot about what innovation is required to be competitive.
5.18
However, the Georgiou Group, an Australian construction company, shared that in its experience government consultations can sometimes be more ‘lip service’ than true engagement. The Georgiou Group claimed that when consulting the construction industry, the key external advisers may be third party project managers and law firms that ‘consult with industry as a process but are not prepared to listen’ or address contractors’ concerns.
Being a model client
5.19
Infrastructure Australia emphasised that as ‘model clients’, governments can build stronger relationships with the infrastructure industry. Consult Australia noted that in the 2021 Australian Infrastructure Plan, Infrastructure Australia called on governments to champion model client behaviour by embracing collaboration opportunities.
5.20
Being a model client is described as working collaboratively with industry on projects and achieving mutually beneficial outcomes. In its paper Model Client Policy: Proposal for all government jurisdictions, Consult Australia called on all political parties to ensure that governments behave ethically, fairly and honestly in their dealings with the industry. Consult Australia submitted that its proposed Model Client Policy is ‘akin to the long-established model litigant policy, to address the inherent and substantial power imbalance in favour of government clients when it contracts with the private sector’.
5.21
Consult Australia suggested that as part of adopting a model client approach, education campaigns are needed:
…across in-house government legal and procurement resources around the country, to address the knowledge-deficit regarding the impact that risk averse, master-servant contracts have on project outcomes and the damage they do to relationships across the industry and our very sustainability.
5.22
Chapter 4 explores separately the challenges of risk-averse clients who attempt to outsource as many project risks as possible, irrespective of which parties are best placed to take responsibility for a particular risk.
5.23
The Australian Sustainable Built Environment Council also supported adopting a model client policy and recommended that the Australian Government further resource the work of the Australasian Procurement and Construction Council and the Centre for Procurement Excellence.
5.24
In response to committee questioning, Consult Australia noted that it was not aware of a similar model client approach being introduced in overseas jurisdictions. However, it observed that ‘no other jurisdiction, save the US has the legal disputation issues Australia has in terms of the construction and building industry’. Consult Australia outlined that:
Australia with its bespoke contract terms has a reputation for onerous unbalanced terms that are a deterrent to overseas organisations that are used to a different contracting environment and culture.
5.25
Consult Australia observed that in place of this problematic contract approach, suites of contracts such as the International Federation of Consulting Engineers (FIDIC) contracts and the United Kingdom’s (UK) New Engineering Contract (NEC4) suite have been used effectively internationally. These will be explored later in this chapter.
The Project 13 model
5.26
The UK’s Project 13 model involves a shift from traditional transactional arrangements to an enterprise model for infrastructure delivery. It is described as an industry-led response to ‘broken’ infrastructure delivery models that have failed clients, suppliers, operators and users of infrastructure systems and networks.
5.27
Consult Australia observed that Project 13 principles align with the reform principles identified to address similar issues in the United States, and noted that:
Sadly, our approach in Australia carries the same inefficient and detrimental hallmarks of the problems that have been identified in the USA and the UK…
The UK and the USA may be further down the path of reform than we are, however, all of industry operating in Australia is aligned on what the problems are, and the key solutions needed. The way forward is for government in both its role as policymaker and client to play its role in the reform agenda because no one party in the ecosystem, that is the building and construction industry, can realise the change alone.
5.28
The five pillars of the Project 13 model are: Capable Owner, Governance, Integration, Organisation, and Digital Transformation. The model brings together owners, partners, advisers and suppliers, working in more integrated and collaborative arrangements, underpinned by long-term relationships.
5.29
The Mace Group, an international consultancy and construction company, noted that the World Economic Forum has adopted Project 13 as a partnership initiative, to help underpin collaboration, particularly given the important part infrastructure investment will play in the world’s economic recovery from COVID-19.
5.30
The Ai Group observed that a motivation for developing Project 13 is that infrastructure projects are ‘notorious’ internationally for coming in late and over budget. It submitted that:
Infrastructure developers have historically believed that true value is best derived from an open tender process that transfers as much risk as possible to the contractor whilst locking in a fixed price for delivery.
…
All parties to these numerous commercial relationships are only incentivised to maximise value to their shareholders rather than to the infrastructure developer. Consequently, when project issues arise, focus turns first to protecting commercial positions rather than to finding best for project solutions.
5.31
In contrast, under Project 13 the enterprise is ‘rewarded based on increase in value provided rather than on services provided’, and there is a ‘greater understanding of cost drivers and risk across all organisations in the enterprise with commercial incentives for collaboration to jointly mitigate risk, not transfer it’.
5.32
The Ai Group recommended that the Australian Government support the implementation of the Project 13 model for all Commonwealth funded infrastructure projects. The Ai Group saw it as an opportunity for the Australian Government to ‘implement the step change that the industry requires’. In response to committee questioning on the potential for wider application in Australia, the Ai Group expressed surprise that Project 13:
…has not been embraced more widely across our whole system by way of the opportunity to test its operation...we believe it is a concept worth pursuing because it changes the dynamics of how a project operates in practical terms.
5.33
Engineers Australia also supported exploring the use of Project 13 for Australian projects and emphasised the need to recognise infrastructure as an information-based industry.
5.34
The Jacobs Group noted that ‘greater value is gained’ with Project 13, as it integrates the capabilities of the ecosystem of partners in a way that better aligns with risk allocation and commercial incentives. Similarly, the Mace Group highlighted that in the move from a transactional to an enterprise approach, an important feature of Project 13 is how it rewards partners, and explained that:
In our sector traditionally, we've rewarded partners for volume. We reward consulting engineers for time and hours, and we reward contractors for turnover and spend. So, again, it's not what we're trying to achieve. We reward quite perverse behaviours. Project 13 has moved to a place where we reward value and…performance. So, our partners actually generate a return by getting a share of the value that we create as we deliver.
5.35
Sydney Water, a statutory corporation wholly owned by the New South Wales Government, was the first government entity to partner with Project 13 and introduce partnering for success. Sydney Water stressed the importance of understanding international best practice and advised that it is:
…the only international team that's a member of the integrated Project 13 community, where government organisations, as well as the private sector, are able to share ideas, innovations and challenges that they face in the infrastructure sector.
Sydney Water and partnering for success
5.36
On 1 July 2020, Sydney Water started the partnering for success (P4S) commercial framework—a new infrastructure and delivery model designed to deliver best possible value. Under P4S, Sydney Water now uses a simplified supply chain, procuring services through a 10‑year collaboration with three regional delivery consortia to deliver end-to-end design, construction, maintenance and facilities management services. It uses shared purchasing, drawing on a pool of specialist suppliers through the consortia arrangements. As part of its approach, Sydney Water recognises that small and medium enterprises (SMEs) form a vital link in the supply chain.
5.37
The Jacobs Group supported ‘an enterprise delivery model that provides longer contracts with integrated partners to enable improved collaboration between the procuring authority and contractors, while rewarding innovation’. It noted that Sydney Water used a delivery partner model for its Lower South Creek Treatment Program—a $500 million program for three plant renewable projects to upgrade wastewater assets in Sydney. The ADAPT joint venture between Sydney Water, PB and UGL provided:
…project management services and allowed a OneTeam approach with Sydney Water to drive improvements in design and construction, with Sydney Water retaining full control of design development and fully integrated into the design, construction and commissioning processes. The program wide approach allowed lessons learned early on to be implemented in the proceeding parts of the program.
5.38
Sydney Water described its approach as ‘building a digital spine’ into its entire delivery framework. Further, it told the committee that it is actively seeking to address future workforce demands, outlining that:
…in terms of legacies, we found it really important, looking at the growth of infrastructure and the need for critical resources, that the blue- and white-collar workforce for the future is something that has been built into the P4S framework. We're working with universities, schools and other educational facilities to be able to provide that workforce for the future. There has been some drop in the amount of new resources that have been getting skilled up and trained, so a large number of new employees have been brought in under traineeships and apprenticeships to be able to work with us in building our needs for the future.
5.39
In addition to being a leader in Australia in its successful use of Project 13 and partnering for success, Sydney Water is also an exemplar in its use of the NEC4 contracting suite.
Contracts
5.40
The main approaches to projects are broadly: traditional contracting, alliance contracting and public‑private partnerships. Each will be explored in the below discussion.
5.41
International and Australian experience has increasingly reflected that traditional contract approaches seem to be prone to breeding adversarial cultures, in large part due to a prevalence of risk shifting rather than risk sharing behaviours. More collaborative approaches tend to be found in alliance contract approaches.
5.42
Collaborative contracting essentially involves parties working together, in good faith, to achieve common goals. The Department of Defence Capability Acquisition and Sustainment Group’s definition includes many of the common themes associated with this approach:
Collaborative contracting is where parties work together to achieve common outcomes. Collaborative contracts are underpinned by parties working together in good faith, focussing on fixing problems and not blame, managing risk equitably and jointly where appropriate, promoting transparency, and avoiding disputes.
Adversarial culture and disputes
5.43
How risk is allocated between clients and contractors for government-funded projects is a clear point of contention. A market sounding referenced in Infrastructure Australia’s National Study of Infrastructure Risk report reflected the significant divergence that persists about who should bear integration risk, with 88 per cent of private respondents believing it should be shared, in contrast to only 61 per cent of government respondents.
5.44
The Queensland Major Contractors Association saw potential for collaborative contracting to significantly reduce adversarial positions on projects, with potential benefits of less disputes and a more sustainable and productive workforce.
5.45
Consult Australia expressed the view that if government clients adopt a model client policy and deliver fair and collaborative contracting, this would ‘significantly de-risk the Australian building and construction industry as litigious avenues would no longer be available or needed’.
5.46
Consult Australia contended that discussions early in the process with industry should look at problems and solutions, and can then be continued in a contract:
A contract should not be set up to spark disputation. There should be provisions in a contract that allow early engagement, regular meetings et cetera to work through problems together. Then, of course, it is making sure that there is a culture of collaboration where you are not scared to talk to another party about potential concerns, you do not need to call the lawyers to help manage that conversation, you have meetings established et cetera to explore issues as they arise.
Unfair contract terms
5.47
The tendency for government clients to attempt to contract out risk can manifest in onerous—and potentially unfair—contract terms for government-funded infrastructure projects.
5.48
Section 23 of the Australian Consumer Law provides certain protections from unfair contract terms for consumers and small businesses. A contract term could be considered unfair if:
a.
it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
b.
it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
c.
it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
5.49
However, Consult Australia expressed concern that the Australian Consumer Law protections for consumers and small businesses from unfair contracts do not apply to all government contracts. Further, it claimed that there had been examples of terms in some government contracts with consultants that ‘have been considered unfair in other contexts’, for example enabling the government client (but not the consultant) to avoid or limit their obligations under the contract, to vary the contract, and to require the consultant to contract out their statutory rights.
5.50
To help address these issues in relation to consulting businesses, Consult Australia recommended changing the Australian Consumer Law to enhance protections from unfair contract terms, and to limit the application of misleading or deceptive conduct claims. In advocating to extend the current unfair contract terms protections, Consult Australia explained that:
By applying to all government contracts (including by commonwealth, state and territory, and local government clients), small consultancy businesses would have greater protection from unfair contract terms in government procurement than they do now. The key benefit of the ACL protections is the independent adjudicator of what an unfair contract is, which is missing from the current arrangements between small businesses and government clients.
5.51
The CCF supported collaborative arrangements as a solution to unfair risk allocation, noting that under collaborative arrangements:
…all parties share in the successes and failures of delivery. This set up does not create incentive for any participant to shift risk to another. Rather, it promotes effective risk identification and cooperative approaches to overcoming hurdles.
Unfair contract terms and the model client policy
5.52
Consult Australia viewed unfair contract term protections and applying model client behaviours as complementary, and claimed that having both would provide greater protections, particularly for SMEs, from unfair contracting practices by government. Consult Australia told the committee that it hopes the combination of the two would:
…minimise the ‘take it or leave it’ approach many government clients currently display when consultants seek amendments to the contracts presented to them by government clients (typically because they contain…onerous contract terms…). It is also hoped that it will lead to more government clients positively engaging with industry associations such as Consult Australia to find solutions and increase productivity for both industry and government.
Traditional contracting
5.53
Traditional contracting (or lump sum contracting) in infrastructure project delivery typically refer to contracts that, to varying degrees, allocate construction and design risk to suppliers. Historically this has been the most prevalent type of contract used in the delivery of infrastructure projects. The National Framework for Traditional Contracting sets out best practice in traditional contracting for infrastructure projects to promote productivity improvement in planning and contracting.
5.54
The Australian Constructors Association believes that while traditional contracts may be ‘perfectly suited for projects with a clearly defined scope and well understood risks’, they are less suited to more challenging and complex projects. For projects with greater uncertainties, it suggests that an alliance approach is ‘likely to deliver the best outcome’.
5.55
Where there is a prevailing culture of risk shifting in procurement, in which ‘everyone wants an out on who to blame’, in practice the price for a low-cost option may only be seen as a starting point. The Australian Small Business and Family Enterprise Ombudsman commented that:
…savvy well-lawyered, well-resourced businesses will put a price in to win the work and then set their people to get the variations and game the process to get a margin.
5.56
The Jacobs Group argued that traditional contract approaches are creating adversarial behaviours and leading to poor commercial outcomes. Instead, it advocated for collaborative style procurement and delivery models and outlined that:
With fewer adversarial contract settings, we could unlock market and supply chain potential by using programmatic and delivery partner models, allowing Australia to become an exemplar in the region and around the world for government-funded infrastructure, procurement and delivery.
5.57
The Sydney CBD light rail dispute was highlighted as an example of where inadequate project scoping and risk mitigation in relation to utilities relocation had caused significant cost and time impacts:
The project ended up with a cost overrun of $1 billion and a significantly delayed start to services, for which the contractor brought various claims against the NSW Government. Some headway is being made to mitigate risks associated with utilities relocations. For example, early works packages have proven effective in mitigating this risk. In particular, early works packages procured under collaborative contracting models have been a useful mechanism for minimising the risks associated with utilities relocation.
Alliance contracting
5.58
Alliance contracting is an integrated procurement method for infrastructure projects. Under an alliance contract a government client contractually works collaboratively with private suppliers—working as an integrated, collaborative team to deal with key project delivery issues. Risks of project delivery are often jointly managed by the parties, although financial exposure lies mostly with the relevant state or territory government. The National Alliance Contracting Policy and Guidelines set out a consistent national standard and promotes best practice in alliance contracts.
5.59
However, the Georgiou Group, asserted there seems to be some reluctance by several state government departments to adopt ‘truly collaborative contracts’, instead opting for more conservative collaborative hybrids.
5.60
The committee notes that alliance contracting is being used for the Victorian Level Crossing Removal Project, which involves removing 75 level crossings across Melbourne’s metropolitan road and rail network. The Department of Infrastructure, Transport, Regional Development and Communications noted that given the scale of the project, traditional contracting was not appropriate. Consequently, the Level Crossing Removal Authority in Victoria refined its model for the projects, and allowed the project to be broken into smaller, more manageable packages that were allocated and staged across five alliances.
5.61
The Department of Infrastructure, Transport, Regional Development and Communications found that this approach incentivised sharing information and standardisation to improve design and the reliability and timeliness of delivery. This collaboration approach was able to establish a ‘set menu’ of materials and products in support of the project delivery.
5.62
Other groups also recognised the work done in Victoria on the level crossing program. The BCA described the Level Crossing Removal Project as using a ‘programme alliance’ to drive longer-term decision-making to development and delivery. Consult Australia outlined that the collaborative approach taken:
…saw multiple project teams collaborate on solutions, so a solution that was found in one area could be used for other areas of that same big program of works. They had regular meetings to share innovation, ideas, concerns and risks to really address issues early so that they could be resolved, and resolved across the whole spectrum of the removal project, rather than just in one area…
5.63
However, Infrastructure Australia stressed that procurers must select an approach that is fit for purpose for a given project. While recognising the merits of Level Crossing Removal Authority’s approach for those projects, Infrastructure Australia stated that it is ‘also not appropriate to lift and shift that model to the range of other infrastructure assets being delivered’.
5.64
Due to the focus on risk sharing in collaborative contracting frameworks, Australian Owned Contractors maintained that a collaborative environment provides much better opportunities to introduce mid-tier contractors into a head contract.
Public–private partnerships
5.65
Public–private partnerships (PPPs) are contracts between the public and private sectors, under which the government pays the private sector to deliver infrastructure and related services over the long-term. The National PPP Policy and Guidelines set out an agreed framework for the delivery of PPP projects. The guidelines are endorsed by Infrastructure Australia and all levels of government.
5.66
Australian technology company Ansarada commented that Australia remains one of the most developed PPP markets—and generally attractive for foreign investors—due to the country’s healthy economy, political stability and reliable legal frameworks.
5.67
Plenary Group Holdings—an independent investor, developer and manager of public infrastructure—believes that the Australian Government should be doing more to encourage the use of PPPs, particularly on projects funded jointly by the Australian Government and a state or territory. It sees PPPs as providing distinct benefits for projects, as the private sector partners are ‘incentivised to provide better value for money for taxpayers‘, bring innovation and provide a framework that can accommodate different approaches to risk allocation. The Plenary Group outlined that:
PPPs are contracts for outcomes that incorporate both carrots and sticks to deliver on actual service quality over the long-term performance of the asset, whether that be customer satisfaction or hitting service delivery benchmarks over the term. Importantly, Plenary looks to invest long-term, and we retain some part of the equity in all of our projects. In that way, our interests are truly aligned with government, making sure the project works effectively over its entire life.
5.68
The Plenary Group also emphasised that from a maintenance perspective, PPPs take a whole of life focus, so consequently this arrangement would avoid things like ‘having rolling stock off the track for 18 months’—as is the case with the Sydney CBD light rail project. The Plenary Group suggested that if this were to occur under a PPP, it would likely be a termination event. Further, it observed that local content typically plays a prominent part in PPPs, with local content mandated in delivery, construction and now even for the maintenance and operations phase.
5.69
North Projects did, however, suggest that the PPP model would benefit from ‘an overhaul of role archetypes’, and that government agencies should ‘employ and rely on their own resources to verify the proposed solution meets their identified requirements’. This could be supported by the training and upskilling of government officials, particularly those involved in large scale projects. North Projects advised that it is involved in the following PPP projects:
North East Link Project (Victoria)
West Gate Tunnel (Victoria)
New Footscray Hospital (Victoria)—via the Exemplar Health consortium
New Royal Adelaide Hospital
Western Australian Schools project—delivering eight schools over five years.
5.70
The BCA highlighted the New Footscray Hospital as an example of successfully selecting and implementing a contracting model that best suits the project, noting that a traditional PPP was used, with the risk allocation adjusted to ‘reflect a more balanced allocation of risks between the public and private sectors’.
Standard contracts and leading models
5.71
Standard form contracts are often used for construction and infrastructure projects in Australia. The underlying idea is to use contracts with which the client and industry are familiar. However, the committee heard that these contracts are also highly subject to amendments, which tend to benefit government clients and place potentially onerous demands on contractors and consultants.
5.72
The Australian Competition and Consumer Commission describes short form contracts as prepared by one party to the contract where the other party has limited opportunity to negotiate the terms—referring to them as ‘take it or leave it’ contracts. Factors that can be considered in determining what constitutes a standard form contract include whether:
one of the parties has all or most of the bargaining power related to the transaction
the contract was prepared by one party before any discussion in relation to the transaction occurred between the parties
in effect, required either to accept or reject the terms of the contract in the form in which they were presented, or
given an effective opportunity to negotiate the terms of the contract.
5.73
The Australian Chamber of Commerce and Industry (ACCI) submitted that while government agencies generally rely on the Australian Standard General Conditions of Contract (AS4122), the practice of amending these standards—notably to include clauses that transfer risk to the private sector—can lead to poor project outcomes. Broadly, the ACCI supports the consistent use of standard form contracts, explaining that:
The benefit of using standard form contracts is that it eliminates time spent negotiating novel clauses and drafting. The use of standard form contracts also ensure that clients have full transparency of contracting arrangements down the supply chain. The use of standard form contracts can increase market participation as small businesses are more likely to sign an AS4122 rather than a novel contract. This also drives better behaviours as the focus is on moving to project delivery rather than lengthy and costly disputation of novel clauses and liability frameworks. Greater cooperation of all tiers of government across jurisdictions could help to improve the use of contract clauses in procurement.
5.74
The Australian Constructors Association recommended mandating standard forms of contracts be used for all Australian Government funded infrastructure projects. To support this, it also recommended establishing a national whole of government agency to develop and mandate the use of a standard suite of contracts covering different procurement models, ‘instead of leaving contract development to individual agencies under a decentralised procurement system’. The Australian Constructors Association suggested that mechanisms like the National Partnership Agreement on Land Transport Infrastructure Projects could be used to mandate standard forms of contract for these projects.
5.75
Consult Australia also supported adopting standard contracts, stating that:
The adoption of standard contracts and the Model Client Policy together with guidance and training for procurement officers on risk, contracting, and insurance would result in greater productivity and reduced costs for governments because it would reduce requests for standard contract amendments and renegotiation of the terms on almost every project.
5.76
Consult Australia submitted that certain government owned corporations are ahead of other government agencies in exploring standardised contracts as a mechanism to underpin collaboration on delivering projects, with Sydney Water adopting the NEC4 suite of contracts, and Snowy Hydro 2.0 basing its approach on the Federation of Consulting Engineers suite of contracts.
5.77
The FIDIC and NEC suites of contracts are two of the most common standard form contracts used internationally for construction. Both are set up ideally for use without amendment, however, it is recognised that it is possible that on occasion, amendments may be needed to address specific project conditions. FIDIC and NEC contracts both emphasise collaboration between parties on a project.
NEC4 suite of contracts
5.78
The UK’s New Engineering Contract (NEC4) suite combines responsibility for usually disparate functions (design, construction, operation or maintenance) to support operational requirements procured from a single supplier. Notably, the suite can be used for the entire project life cycle and is designed for global application. NEC4 contracts are used in the UK for most projects procured by national and local government bodies and agencies.
5.79
Since the original NEC contracts were published in 1993, there have been revisions to ensure that the contract suite remained not only relevant but leading in best practice contracting for engineering and construction. In 2017, an updated and streamlined version was published, with revisions that drew on unprecedented levels of user feedback together with consultation responses, industry development and emerging best practice.
5.80
According to the Australian Constructors Association, the NEC4 suite of contracts is widely recognised as the most collaborative standard form of contracts available. The intended outcomes from using these contracts include improving performance and increasing standards by encouraging collaborative work to achieve shared project objectives.
5.81
The NEC4 Engineering and Construction Contract is the most commonly used contract in the NEC suite. However, to address the complexity inherent in alliancing, the NEC4 Alliance Contract is a multiparty contract with an integrated risk and reward model, features not typical in other NEC4 contracts. The alliance contract allows for deeper collaboration between project parties and, with the focus on shared goals, seeks to reduce the potential for disputes.
5.82
Sydney Water has been recognised as an exemplar in being the first major infrastructure company in Australia to use the NEC contract approach to deliver new works. The group extolled the merits of NEC contracts, particularly as ‘set-and-forget’ contracts that are very proactive and engaging from a program management perspective, and that ‘really encourage everybody to work in that spirit of mutual trust and cooperation upfront’.
5.83
As covered earlier in this chapter, Sydney Water is also notable for its use of the Project 13 enterprise model and partnering for success (P4S). The NEC’s comprehensive range of agreements and payment options for procuring works, services and supplies across major regional infrastructure systems, means that the contracting suite is highly compatible with the Project 13 and P4S approaches.
5.84
Sydney Water has a collaborative framework contract in place for each of the regional consortia. When sharing its experience of the arrangement with the committee, Sydney Water explained that:
When you work under the NEC suite of contracts it's a very simple form of contract to understand, in plain English and present tense, so you don't have to be a legal expert to be able to understand how to use these contracts. It is something that is built into your project delivery systems and processes. As opposed to some other contracts that could be standalone, and then you work and deliver, we've integrated the contracts into our entire way of operating and working as a business.
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Further, Sydney Water outlined that, in practical terms, the collaborative framework contracts are the head contracts and that ‘every piece of work…[awarded] underneath those frameworks is basically a work order’.
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Sydney Water also commented that it had built an integrated suite of performance indicators and maturity measures into the framework, so that as well as looking at business as usual key performance indicators (on productivity, health, safety and environmental quality and customer advocacy), it is ‘looking into the future’ and fostering an environment for continued collaboration with its suppliers.
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To help support the wider adoption of NEC contracts in Australia, Sydney Water’s Head of Program Delivery advised that he is a member of the NEC4 steering committee for Australia, which has been engaging widely:
…across the country to try and support others that are interested in understanding how [Sydney Water has]…put P4S together, how the NEC4 contract suite has applied and how that can be potentially utilised by those other groups and agencies.
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Similarly, the Georgiou Group saw scope for the wider application of NEC contracts in Australia, observing that these contracts have already demonstrated their value internationally. The Georgiou Group commented that beneficial features of the NEC form contracts include that they are written in clear, plain English, and encourage early engagement and best practice management.
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NEC contracts have also been trialled by other groups for projects in Australia. The Georgiou Group noted its use by Main Roads Western Australia for the Mitchell Widening project in Perth, and by Santos for upstream gas infrastructure.
FIDIC contracts
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The International Federation of Consulting Engineers (FIDIC) suite of contracts are a comprehensive set of standard form contracts designed to be used between employers and contractors in international construction and engineering projects. The 2017 revised version of the FIDIC suite increased its emphasis on dispute avoidance.
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The Snowy Hydro 2.0 project is using the FIDIC contract approach. This is a renewable energy project to deliver on the next chapter of the Snowy scheme to provide on-demand energy and large-scale storage.
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Consult Australia noted positively that, consistent with its advocacy, the FIDIC Consultant Model Services Agreement:
does not include fitness for purpose, warranties or indemnities provisions
clause 3.9.4 includes a standard of care that matches the common law standard, rather than an elevated standard that may be included in other contracts and is ‘likely to trigger an exclusion in a consultant’s professional indemnity insurance’
clauses 8.1‑8.4 retain proportional liability for consultants, rather than requiring consultants to contract it out
clause 8.3 reflects a more prudent approach to liability commensurate with the consultant’s role, rather than uncapped liability and significant carve‑outs, which ‘does not encourage collaboration because neither party to the contract can be certain of what liabilities might arise during the project’
clause 8.3 also reflects Consult Australia’s preference for liability frameworks focused on liability for loss rather than insurance coverage.
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The point of interest for Consult Australia in relation to fit for purpose provisions is that as part of its advocacy it seeks to ensure that contract terms are not unduly onerous for consultants, particularly in areas where roles and responsibilities differ from the construction business. Fit for purpose obligations in contracts essentially promise an outcome and that failure to achieve the desired result will result in breach of the term, regardless of whether due skill and care was exercised by the supplier. On this point, Consult Australia argued that while fit for purpose terms are appropriate for contractors or constructors who build the final product, these terms are not appropriate for consultants who provide professional design or advisory services but do not build the final project. Instead, Consult Australia proposes that an appropriate standard of care is included in the relevant contract that better reflects the nature of services provided by consultants.
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Consult Australia also advised that some of its preferred positions on these issues are also provided for in the Australian Standard General Conditions of Contract for Consultants (AS4122-2010). Specifically, on the issues of standard of care, capping liability amounts, retaining proportionate liability, restricting carve-outs, liability frameworks focused on loss not insurance, and not including warranties in consultant contracts.
Defence contracts
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The Department of Defence has standard contracts that make its expectations of the supply chain clear, even for suppliers at arms-length from the department. This suite of contracts, published through the Defence Estate Quality Management System (DEQMS), includes the following contract types: Head Contract, Managing Contractor Contract, Design Services Contract, and Project Management or Contract Administration contract. Defence’s targeted work on improving its sovereign industry capability is covered in Chapter 6.
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In evidence to the committee there was some support for the wider application of Defence’s contract approach. It was noted that the defence contracts can be used by other agencies, and North Projects suggested that in cases where this has occurred it has ‘produced a better outcome than if the project was performed under other standard contract’.
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The ACCI also acknowledged Defence’s efforts in collaborating with industry and taking on industry concerns about constraints and barriers. The ACCI noted that the Defence Infrastructure Division participates in quarterly collaborative forums with consultants and contractors, which has led to ‘changes that seek to balance the needs of industry but still protect the interests of the Commonwealth’.
Committee comments
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It is recognised globally that collaboration between governments, and with industry, is key to effective infrastructure planning and project delivery. Embracing more collaborative approaches will help address adversarial behaviours that too often can lead to delays, cost blowouts and poor project outcomes. The committee believes that better collaboration on infrastructure projects is an important step towards ensuring that taxpayer dollars are well spent, and that Australians are getting quality and sustainable infrastructure.
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The committee notes that many contributors to the inquiry saw potential for the greater use of standard contracts for government-funded projects. It agrees with Infrastructure Australia’s assessment that the consistent use of standard form contracts, that support more collaborative behaviours and balanced risk allocation and management, is an opportunity for immediate reform.
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The committee encourages governments at all levels to explore opportunities to apply best practice standard contracting approaches to projects in the Australian infrastructure pipeline. There are leading examples that governments can draw on, such as the work of the Department of Defence on collaboration and contracts, and Sydney Water—as an adopter of Project 13, the New Engineering Contract (NEC4) suite and partnering for success.