Victorian Government infrastructure policy reforms

Victorian Government infrastructure policy reforms

An Nguyen

Executive Director and Head of Partnerships Victoria – Infrastructure Delivery Group, Victorian Department of Treasury and Finance

Infrastructure delivery continues to play an important role in driving Victoria’s economic growth and prosperity. To maximise the benefits of increasing levels of government infrastructure investment, the Victorian Department of Treasury and Finance (DTF) is implementing a suite of significant reforms to optimise the way infrastructure projects are planned, procured and delivered.

In the immediate term, DTF is progressing the update and development of key policies for public infrastructure procurement, including new guidance for collaborative contracting models and a suite of standard infrastructure contracts which will facilitate increased collaboration between project partners and greater resource efficiency across the sector.

DTF continues to work closely with relevant government and industry stakeholders to ensure these reforms are fit for purpose, and welcomes a dialogue with stakeholders interested in DTF’s policy reform program.

Collaborative Contracting Guidelines

In response to an increasing number of projects being procured through collaborative contracting, DTF is developing a whole-ofgovernment framework for projects delivered through the suite of collaborative contracting models. The new framework will ensure there is a consistent approach to procurement phase activities and that value-for-money and project outcomes are optimised.

The new Victorian Collaborative Contracting Guidelines will outline key principles, Government approval points, commercial drivers and success factors for collaborative procurements. The guidance will also provide government practitioners with access to best-practice procedures, including strategies to meaningfully implement collaborative behaviours to reach best-for-project outcomes, ensuring that government remains an informed and active client.

These guidelines will supplement existing Victorian Government infrastructure investment guidance, including the Investment Lifecycle and High Value High Risk Guidelines and Partnerships Victoria Requirements, together with the National Alliancing Policy and Guidelines.

To complement the new Collaborative Contracting Guidelines, DTF is also expanding the Victorian ‘toolkit’ of standard form infrastructure contracts by developing deeds for two emerging collaborative models:

• Incentivised Target Cost (ITC)

• Collaborative Design and Construct (D&C)

These standard deeds will provide a consistent contractual baseline for projects, minimising bespoke legal and commercial drafting to only focus on matters which address unique project risks and characteristics. This will generate efficiencies and time savings by reducing duplicative activities during project transactions and will ensure State contracts are aligned with industry best-practice. These commercially robust contractual deeds will set an appropriate risk allocation baseline and encourage competition to ensure value-for-money outcomes for Victorians.

The ITC deed introduces a Targeted Outturn Cost (TOC), which is the estimated cost of carrying out the project works to completion, with delivery proceeding on an open-book basis. Payment is made on a cost-reimbursement basis and there is a percentage fee for corporate overhead and profit. There is also a painshare / gainshare mechanism to incentivise performance. The ITC model is best suited to projects where there is scope and design uncertainty, or which have unknown or unquantifiable risks and complex interfaces to be managed.

The new Collaborative D&C deed will provide a modern contract form based on a fixed-price D&C approach, but with targeted collaborative or risk-sharing elements which respond to specific delivery issues and market concerns. Central to the deed is the proposed baseline allocation of risk, whereby the risks that contractors can manage and are willing to accept, are allocated to the contractor. In response to industry feedback, specific risks that contractors are typically less willing to accept are treated in a collaborative manner. Contractors can undertake further investigations and then reprice through an updated fixed-price or a TOC with a painshare / gainshare mechanism.

The new contracts will harness the benefits of competition, balancing appropriate risk allocation and performance incentives. They will encourage a more collaborative style of contracting, involving a staged approach to scoping, design, and pricing risk, while providing greater cost transparency. The new contracts will complement existing Victorian standard forms such as the Public Private Partnerships Standard Deeds, which remain applicable and relevant for many major infrastructure projects.

DTF will consult with government and industry stakeholders on the new contracts in the coming months, recognising their key role in the State’s infrastructure agenda and ensuring the contracts deliver optimal project and participant outcomes.

For more information please contact

An Nguyen

Executive Director and Head of Partnerships Victoria – Infrastructure Delivery Group, Victorian Department of Treasury and Finance E: an.nguyen@dtf.vic.gov.au