Background

The NSW Government is currently delivering a record infrastructure pipeline. There are many projects already in design or procurement and many others advancing to final business case. The State is planning to deliver numerous large, complex infrastructure projects comprising multiple contract packages. The projects are at a scale previously unseen, ranging from $0.5B to over $20B, with majority over $1B. This is happening at a time when other major projects are being delivered in NSW, including the first airport in many decades and a major hydro-electric project, and other States also have very large projects underway. Achievement of the NSW Government’s infrastructure objectives will demand rigorous cooperation between Government and industry.

Complexity of delivery is compounded by several key features – working in developed and congested locations with latent inground conditions (contamination and existing utilities), heritage considerations and impacts on multiple communities and stakeholders. In addition, multiple contracts present interface and sequencing risks and also the need to continue to provide existing services in a disrupted environment.

A stable and sustainable infrastructure sector is in the public interest as, when projects experience stress, it can undermine public confidence in infrastructure investment and also reduce enthusiasm amongst contractors, subcontractors, and professionals to pursue further work with the NSW Government.

Purpose

In 2018, NSW Government released a 10 Point Commitment to the Construction Industry. This Memorandum takes that commitment further by setting out procurement practices the NSW Government expects to be routinely applied on large, complex infrastructure projects in the ‘Framework for Establishing Effective Project Procurement’. The purpose of these practices is to increase participation, competition and efficiency in NSW infrastructure delivery, providing value for money for NSW citizens. NSW has also released guidelines on ‘Timely Information for Infrastructure Projects’, which includes a requirement that budgets and programs for projects be realistic and expressed as a range that reflects allowances for known and unknown risks.

Those practices are the default approach to large complex infrastructure projects procurement. There may be occasions where specific practices are not suited to the circumstances of a project, but these should be the exception. To get the balance right, this Memorandum prescribes an ‘if not, why not’ approach. Where required practices are not applied on a large, complex infrastructure project, reasons must be set out, approved at senior levels of delivery agencies, and reported to Government through the Infrastructure Investment Assurance Framework.

Default Procurement Practices

De-Risking Pre-Construction

a) Early Contractor Engagement
Use early contractor engagement to identify, mitigate and nominate risks that cannot be readily quantified or priced in lump sums. Early engagement also contributes to identifying the most effective delivery solutions. Engagement should be taken early enough to influence preferred solutions and reference designs as well as proposed delivery approach, but should be undertaken efficiently over a defined period commensurate with the requirements of the project to avoid unwarranted costs or delay.

b) Early Works
Designate packages that can be undertaken prior to the commencement of main works that address common risks, such as removal of existing assets, relocation of utilities and investigation of in-ground conditions. In the case of public private partnerships, these works are often undertaken as “State works” that fall outside the scope of the PPP.

c) Early Works Procurement
To expedite projects, utilise existing pre-qualified panels to appoint early works contractors for early works. Where early works cannot be reliably quantified and priced prior to commencement, this may be done on an open-book reimbursable basis, with selection based mainly on program, margins and preliminaries.

Procurement Approach

d) Project Packaging
Size contract packages across the NSW portfolio to facilitate competitive bids from a wide range of participants. To utilise the full capacity of the construction market, offer tender packages capable of being more readily priced and managed by either tier 2 contractors or joint ventures between Tier 1 and Tier 2 contractors. The dollar value of the package may vary depending on the nature of works and form of procurement and risk allocation in the contract.

e) Contracting for High Risk Project Elements
Utilise open book and/or target cost mechanisms for elements of projects where a firm price for that element cannot realistically be determined or efficiently priced in a tender process (these elements may include contamination, utility relocations/utility authority approvals). Where this method is applied, the approach should include mechanisms to firm up those elements as the project progresses and provide value for money to taxpayers.

f) Risk Allocation with Subcontractors
Ensure that risk allocation between client and head contractor is passed down to subcontractors wherever practicable.

g) Contract Consistency
Where integration is a key risk, and to the extent possible, maintain consistency and simplicity of contracts across the relevant projects.

h) Early Engagement on Proposed Contract Terms
Include proposed contract terms and risk allocation in early engagement (e.g. term sheet level at ROI phase and/or draft Deeds where available). Engagement should identify and propose allocation of risks that cannot be quantified and priced in lump sums.

i) International Experience and Personnel
Recognise international experience of international contractors and key personnel, subject to those contractors (1) genuinely bringing people, systems and skills into the market to support projects (2) providing bonding or guarantees that can be relied upon and easily drawn if needed and (3) partnering with domestic tier 1 and tier 2 contractors as another way to grow the market.

j) Rewarding Cost Savings and Innovation
Reward innovation and productivity enhancing measures that save taxpayers money or deliver better outcomes with incentives, including on more traditional forms of contract. Incentives should reward areas where performance exceeds minimum requirements of the contract specification, such as managing interfaces with other works, early completion or supporting strong community and stakeholder outcomes.

Reducing Costs and Improving Timeframes

k) Tender Timetables
Use realistic tender timetables, taking account of required due diligence, land acquisition, planning approvals, budget processes and the effect of other projects in the pipeline. They should be communicated clearly to tenderers and upheld. Where changes to timetable are necessary, contractors should be updated.

l) Timely Completion of Tenders and Contract Award
Move as soon as practicable but in stages to a smaller bidding field and preferred contractor. This facilitates direct engagement where open book processes are required, and also provides an environment for innovation.

m) Responding to unacceptable tender outcomes
Consider deferring projects where tender results do not yield value for money, rather than continue with processes that cost participants money but are unlikely to yield a satisfactory result.

n) Tender Requirements and Costs
Undertake a holistic review of tender requirements and hence costs, including a review of plans and documents required of tenderers, to ensure that each has a genuine purpose in the selection of contractors and delivery of projects, and that they are really required at tender stage.

o) State Role in Design
Optimise the State’s role in advancing design of projects to levels that avoid duplication of design effort (incorporating early contractor participation and promoting design challenge to incorporate innovation), without eroding the intended allocation of risk.

p) Documentation and Plans in Procurement
As far as practicable, use prequalification to reduce the number of times a contractor is required to submit its systems and plans. Where documents and plans are genuinely significant in evaluation, require submission at one stage only (EOI, RFT, negotiations with preferred, post contract award). In some cases, detailed plans need not be provided until a contractor is nominated as preferred or a contract is awarded. Insofar as plans are required at early stages, limit the detail required of bidders (which may include indexes or outlines only) and increase the State’s role in producing draft documentation and draft plans to reduce the requirements sought from tenderers.

q) State Role in Stakeholder Management and Communications
Increase the State’s role in stakeholder management and project communications with a view to reducing costs of bidding and ensuring that responsibilities are allocated to parties most able to manage outcomes. The respective roles should reflect the party best able to manage the risk.

Application

This memorandum applies to all NSW government agencies and State-Owned Corporations delivering large, complex infrastructure projects. This includes projects in the categories below and listed as High Profile High Risk in accordance the Infrastructure Investor Assurance Framework:

• Roads and Motorways

• Rail and Metro projects

• Light Rail projects

• Dams, pipelines (new or major augmentations)

• Buildings or precincts with highly complex elements (complex design, technical specifications or uses, sensitive sites)

Default practices should be applied on each project in a manner commensurate with the needs of the project. Where it is proposed that a practice is not applied, reasons should be submitted for approval in writing to the Chief Executive or Secretary of the responsible agency.

This memorandum will apply as far as practicable to all projects in development or procurement from 1 July 2021, onwards, and elements may be applied to HPHR projects in delivery.

Supporting Implementation

Infrastructure NSW will support agencies to implement this memorandum by:

• holding regular sessions with Ministerial Offices and agencies to raise awareness of the Memorandum and supporting guidance

• Reporting on application of required practices through the Infrastructure Investor Assurance Framework

Gladys Berejiklian MP
Premier