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1. Procurement options

The procurement strategy chosen for the capital project is dependent on the nature of the project, size and complexity. Below is a description of the typical procurement methods used and all methods available.

Procurement models
Procurement models

Fixed lump sum contract

This form of procurement is the most common for capital works projects.

Lump sum contracts involve letting of tenders by way of seeking competitive offers based on complete documentation of all buildings, services and finishes. Calling for fixed lump sum tenders for such works, makes allowances for clarified monetary sums such as nominated rates, provisional sums and contingency sums. Note, this form of contract does not mean that a lump sum is a guaranteed price. Final cost of works is subject to variations due to unforeseen site/building conditions and/or omissions/errors in tender documents and changes approved by the principal. Contingency sums are included in the project to account for these matters.

Standard forms of contract (AS 2124, 1992) and special conditions for the Victorian public sector are available and to be used in this form of contracting.

Construction management

This form of contract is often used in complex projects where buildings are continually occupied, in staged construction works or longitudinal projects where works are intended to commence prior to completed documentation or for fast track contracts.

Construction management (CM) involves engaging an agent, the construction manager, for the purpose of letting sub-contract packages. The CM role is akin to that of a head contractor who is part of the principal’s team and paid directly to maintain the principal’s interests.

Calling for submissions by construction management contractors to provide trade and sub-contract packages is normally based on full ‘open book’ management of all building, services and finishes works for a fixed fee. Services may be provided directly by the construction manager on the basis of administering construction of completed documentation of all works, overviewing of progressive letting of works to multiple sub-contractors for and on behalf of the proprietor the CM may also provide direct works contracts for areas such as security, hoarding, lifting, cleaning and site sheds.

In most construction management projects the principal is the signatory to all trade contracts.

Design and Construct (DC)

The principal (client) procures both the design and construction goods and services from a single contractor when using a design and construct contract. This form of contract is most suitable for greenfield site developments where the performance requirements are well defined. The letting of such contracts is on the basis of the principal’s performance criteria seeking innovation, builder’s expertise in terms of meeting difficult timelines or construction techniques.

A variation to DC projects can be utilised, for example, a DC contract will allow for sketch plans being provided. In both instances the development of a detailed brief / performance specification is essential.

Another alternative to DC involves extending the contract into the operating phase. In this circumstance, the contractor may undertake the maintenance and operation of plant and equipment in terms of the building and services. This form of contract is termed DC and maintain.

Public private partnerships (PPP)

Examples include Partnership Victoria (PV) such as build own operate transfer (BOOT) and build, own, operate (BOO).

PV arrangements are recent procurement methods being used for government projects. The principal (client) enters into a long-term contract with a company who uses their own funds to develop and construct a public facility in return for the right to operate it and charge a fee for its use. At the end of the agreed contract period the facility may revert to the landholder, which is often the Crown.

This form of procurement is a relationship-based contract and it places strong emphasis on services delivery outcomes and required performance standards. The key issues involved are provision of private sector finance, design and long term operating requirements. The undertakings are generally for large scale, one-off projects that are carefully assessed in terms of risks and they are evaluated against a public sector comparator considered over the life of a project.