INFRASTRUCTURE DIVISION
SUITE OF CONTRACTS
AN INTRODUCTION
[LAST AMENDED: 9 MARCH 2007]
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
Table of contents
1.
GENERAL .................................................................................................................................... 1
1.1
1.2
1.3
1.4
1.5
Purpose ...................................................................................................................................................... 1
Types of contract ....................................................................................................................................... 1
Why have a Suite of contracts? .................................................................................................................. 1
History ....................................................................................................................................................... 2
Generally the Suite is "non-negotiable" ..................................................................................................... 3
2.
PRINCIPLES OF CONTRACT LAW ........................................................................................... 3
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
Introduction ................................................................................................................................................ 3
What is a contract? ..................................................................................................................................... 3
Offer ........................................................................................................................................................... 3
Acceptance ................................................................................................................................................. 4
Consideration ............................................................................................................................................. 4
Intention to create legal relations ............................................................................................................... 4
Certainty .................................................................................................................................................... 5
Capacity to contract ................................................................................................................................... 5
Statutory Requirements .............................................................................................................................. 5
3.
TENDER DOCUMENTS .............................................................................................................. 5
3.1
3.2
3.3
3.4
3.5
3.6
General ....................................................................................................................................................... 5
Invitation to Register Interest ("ITR") ....................................................................................................... 6
Tender Documents - Request for Tender ("RFT") ..................................................................................... 6
Tender Documents ..................................................................................................................................... 6
What should be obtained from Tenderers at time of tender? ..................................................................... 6
Tender acceptance .................................................................................................................................... 12
4.
COMMONWEALTH PROCUREMENT GUIDELINES ("CPGS") ............................................. 12
4.1
4.2
4.3
4.4
4.5
4.6
General ..................................................................................................................................................... 12
Minimum time limits ............................................................................................................................... 12
Conforming tender submissions............................................................................................................... 12
Restrictions on terminating a tender process ........................................................................................... 12
Advising outcomes .................................................................................................................................. 12
Managing contractors............................................................................................................................... 12
5.
PROJECT DELIVERY METHODS - WHICH DELIVERY METHOD DO I USE?...................... 13
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10
5.11
5.12
5.13
5.14
5.15
General ..................................................................................................................................................... 13
HC-1 2003 ............................................................................................................................................... 13
When to use the construct only delivery method (HC-1 2003) ................................................................ 13
Risk allocation under the construct only delivery method ....................................................................... 14
Disadvantages of the construct only delivery method ............................................................................. 14
When to use the design and construct delivery method (HC-1 2003) ...................................................... 15
Advantages of the design and construct delivery method ........................................................................ 15
Disadvantages of the design and construct delivery method ................................................................... 16
When to use the document and construct deliver method (HC-1 2003) .................................................. 16
Advantages of the document and construct delivery method ................................................................... 16
Disadvantages of the document and construct delivery method .............................................................. 16
Managing Contractor - MCC-1 2003 ....................................................................................................... 17
Advantages of the Managing Contractor delivery method ...................................................................... 19
Disadvantages of the Managing Contractor delivery method .................................................................. 19
What is the difference between the Managing Contractor and Construction/Project Management? ....... 20
6.
HEAD CONTRACT ("HC-1 2003") ........................................................................................... 20
6.1
6.2
General ..................................................................................................................................................... 20
Specific features of HC-1 2003 ................................................................................................................ 21
7.
MANAGING CONTRACTOR CONTRACT ("MCC-1 2003") .................................................... 27
7.1
7.2
General ..................................................................................................................................................... 27
Planning Phase ......................................................................................................................................... 28
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7.3
7.4
7.5
7.6
7.7
7.8
7.9
Planning Phase Agreement and Planning Phase Approval ...................................................................... 28
Flexibility of MCC-1 2003 ...................................................................................................................... 28
Delivery Phase ......................................................................................................................................... 29
Contractor's Remuneration....................................................................................................................... 29
Incentive .................................................................................................................................................. 29
Whole of Life/Ecologically Sustainable Development ............................................................................ 30
Subcontractors (including consultants and subcontractors) ..................................................................... 30
8.
DESIGN SERVICES CONTRACT ("DSC-1 2003") .................................................................. 31
8.1
8.2
General ..................................................................................................................................................... 31
Key features of DSC-1 2003 .................................................................................................................... 31
9.
NATIONAL CODE ..................................................................................................................... 32
10.
PANEL CONTRACTS ............................................................................................................... 33
10.1
10.2
Defence Infrastructure Panel ("DIP") Subpanel for Contract Administrators.......................................... 33
Other Panels ............................................................................................................................................. 33
11.
DETAILED CONTRACTOR'S OR CONSULTANT'S ACTIVITIES PROPOSAL
("DCAP") ................................................................................................................................... 34
12.
OTHER FORMS OF CONTRACT ............................................................................................. 34
12.1
12.2
MW-2 2004 .............................................................................................................................................. 34
Minor Works Contract ............................................................................................................................. 34
13.
COLLATERAL DOCUMENTS .................................................................................................. 35
13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
General ..................................................................................................................................................... 35
Unconditional Undertaking ...................................................................................................................... 35
Collateral Warranty.................................................................................................................................. 35
Moral Rights Consent .............................................................................................................................. 35
Payment Claim ......................................................................................................................................... 36
Payment Statement .................................................................................................................................. 36
Expert Determination Agreement ............................................................................................................ 36
Subcontractor and Consultant Deeds of Covenant ................................................................................... 36
14.
CONTRACT MANUALS ............................................................................................................ 37
14.1
14.2
14.3
14.4
14.5
14.6
14.7
General ..................................................................................................................................................... 37
Volume 1 - Introduction........................................................................................................................... 37
Volume 2 - Completing the Tender and Contract Documents ................................................................. 37
Volume 3 - Clause-by-clause Guidance ................................................................................................... 38
Volume 4 - Flowcharts............................................................................................................................. 39
Volume 5 - Proforma Notices .................................................................................................................. 39
Volume 6 - Clause-by-Clause Commentary on Special Conditions ........................................................ 39
15.
RISK ALLOCATION .................................................................................................................. 39
ANNEXURE A - RISK MATRIX .................................................................................................................. 40
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
1.
GENERAL
1.1
Purpose
The purpose of this document is to provide a brief introduction to the Department of Defence's Infrastructure
Division ("ID") suite of contracts ("Suite"). It should be read in conjunction with the contracts themselves and the
accompanying manuals.
The following should always be kept in mind in using the Suite:
(a)
personnel should always obtain the most recent version of a contract and manual from the Infrastructure
Management website which can be found at www.defence.gov.au/im/;
(b)
the Director Construction Contracts ("DCC") should always be consulted on any proposed changes to
the Suite or any other contentious issues regarding any of the contracts and manuals within the Suite.
This is critical to ensure the integrity of the Suite and that Defence's required risk allocation is not
gradually eroded over time by project-specific changes;
(c)
the Defence Legal Services Panel ("LSP") (through DCC) should always be used for finalising tender
and contract documents and the drafting of any amendments to these documents; and
(d)
the Department of Employment and Workplace Relations ("DEWR") (through DCC) should be
consulted on any issues concerning compliance with the National Code of Practice for the Construction
Industry ("National Code") and the Office of the Federal Safety Commissioner ("FSC") in respect of
the OHS Accreditation Scheme ("OHS Accreditation Scheme") established under the Building and
Construction Industry Improvement Act 2005 (Cth). These are particularly sensitive policy and
legislative areas and, therefore, personnel must ensure that they raise all compliance issues immediately
with DCC.
1.2
Types of contract
DSG-ID personnel need to be familiar with the types of contracts commonly used by Defence for the construction
and maintenance of Defence facilities. As there is no one contract which suits all projects, Defence has developed
the Suite to give it the flexibility to select the most appropriate contract for a specific project. The Suite comprises
the following contracts:
(a)
Head Contract ("HC-1 2003");
(b)
Managing Contractor Contract ("MCC-1 2003");
(c)
Design Services Contract ("DSC-1 2003");
(d)
Medium Works Contract ("MW-2 2004");
(e)
Short form minor works contract;
(f)
companion documents including subcontracts, collateral documents (eg approved forms of security,
novation deeds, warranties) and consolidated lists of special conditions; and
(g)
a series of panel arrangements under which panels of specialist consultants (including project
management, environment, UXO and various other disciplines) are created on terms of standing offers
(providing the general terms upon which consultants are engaged by Defence), under which they are
then engaged from time to time on specific projects (by means of a project-specific contract).
The Suite also includes a number of maintenance contracts, for both building and fixed plant and equipment
maintenance. Most recently, this includes the Garrison Support Services and Comprehensive Maintenance Services
Contracts ("GSS/CMS").
1.3
Why have a Suite of contracts?
There are several benefits in having a "suite" of contracts.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
(a)
Time and cost efficiencies
Firstly, as opposed to drafting "fresh" contracts for each and every project, the standard form contracts
reflect Defence's agreed contracting position. For example, they set out the risk allocation Defence is
prepared to accept for each contract delivery method. This has at least two implications:
(b)
(i)
tender evaluation is easier, as all tenders are evaluated on the same terms with no
departures; and
(ii)
rather than two parties negotiating the terms of a contract from start to finish, the terms are
known from the outset as Defence selects the most suitable contract for a project and goes to
tender with these terms. The less time spent in negotiating the terms of a contract, the more
cost effective it is for Defence, especially given the size of its annual spend on construction
and related services.
Range of contracting options
Secondly, the "suite" approach means that there is a range of contracts available to Defence, depending
on the size, nature and complexity of the project and the risk allocation required.
(c)
Ease of use
A third benefit in having a suite is ease of use. The Suite comprises a set of standard documents, so that
users (both within ID and industry) eventually develop a certain level of familiarity with the documents.
This makes preparation of tender and contract documents more efficient and facilitates greater
consistency in contract administration.
(d)
Compliance with legislation and policy
The Suite has been drafted (and is continuously updated) to ensure compliance with all legal and policy
requirements for Commonwealth contracting. Other standard form contracts, such as the Standards
Australia contracts, do not address Commonwealth-specific contracting requirements. They are also
updated and amended on a less frequent basis.
1.4
History
The Suite was first introduced in 1992 and represented a significant departure from the widely-accepted practice
amongst public sector agencies of using the National Public Works Council Edition 3 standard form contract
("NPWC3").
Rather than developing a set of modifications to an existing standard form, Defence took the significant step of
creating its own suite of owner-focused standard forms (albeit broadly based on NPWC3). Given its substantial
annual expenditure on construction, Defence wanted to ensure that construction services were managed by it on the
basis of a suite of contracts which provided the appropriate project delivery method and risk allocation.
In 2002, the Suite underwent a comprehensive review. This resulted in the consolidation of the Suite into primarily
four new forms of contract, namely HC-1 2003, MCC-1 2003, DSC-1 2003 and MW-2 2004.
The contracts are unique to Defence and differ from most other common standard form contracts, such as contracts
published by Standards Australia. The aim of developing standard form contracts is to maximise, to the extent
practicable, the structure and terms used by Defence when contracting for construction and related services. This
has the benefit of reducing administrative costs for both Defence and contractors or consultants. The contracts have
also been developed to comply with Commonwealth policy and legal requirements.
Although the contracts are unique to Defence, HC-1 2003 is derived from PC-1 (the standard form project contract
promulgated by the Property Council of Australia), but has been significantly adapted by Defence to address
specific Defence concerns. In particular, it contains specific provisions dealing with compliance with
Commonwealth policy and legislative requirements relating to the National Code, the OHS Accreditation Scheme,
the Commonwealth Procurement Guidelines ("CPGs"), Equal Opportunity for Women in the Workplace,
indigenous employment opportunities, privacy legislation, security of payment legislation, SAFEBASE, classified
information and long service leave obligations.
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As the Defence contracts have been developed for different types of project delivery methods, ID personnel should
not assume that the risk allocations under each contract within the Suite are identical. ID personnel must familiarise
themselves with the relevant contract and corresponding manuals before using any of the contracts.
1.5
Generally the Suite is "non-negotiable"
The contracts within the Suite represent Defence's way of doing business within the construction industry. Those
terms have been developed over a significant period of time and have been carefully tailored to Defence's
procurement processes and objectives.
They are not generally subject to amendment by project teams (except as approved by the DCC) or negotiation with
tenderers and tenders should be submitted on the basis that the terms are accepted without contractual qualification
or departure. An alternative tender should be submitted if departures or qualifications are proposed (see 3.5(j)
below).
On some projects, Defence may hold a tender briefing to better inform tenderers about the requirements of a tender
process. Tender briefings are not a platform to provide potential tenderers with information additional to that
contained in the tender documentation. Therefore, it should be made clear to potential tenderers that they cannot
rely on a statement made at a tender briefing as amending or adding to the tender documentation unless the
amendment or addition is confirmed in writing. The Suite's Tender Documents for MCC-1, HC-1, MW-2 and DSC1 contain a clause to this effect.
2.
PRINCIPLES OF CONTRACT LAW
2.1
Introduction
The construction and maintenance of Defence facilities is achieved through the formation of contracts. Defence ID
personnel should therefore have a basic understanding of the principles of contract law and the necessary
procurement competencies. In this regard, please refer to Section 2, Chapter 2.1 and Section 1, Chapter 1.5 of the
Defence Procurement Policy Manual which is available at http://www.defence.gov.au/dmo.
2.2
What is a contract?
A contract is a legally binding or agreement made between two or more parties. The essential requirements for
contract formation are:
(a)
an agreement consisting of:
(i)
an offer by one party to the other; and
(ii)
an acceptance of the offer by that other party;
(b)
an intention to create legal relations;
(c)
certainty as to the obligations contained in the agreement; and
(d)
"consideration" for the offer (i.e. the offeree must provide something of value in exchange for the offer
received from the offeror; this could be something tangible, like the payment of money, or something
intangible, like a promise).
2.3
Offer
An offer is an expression of willingness to contract on certain terms by a person with the intention that it becomes
binding when accepted by the person to whom the offer is addressed.
An offer is often confused with an invitation to treat. An invitation to treat is merely an invitation to make an offer that is, the preliminary step before an offer is made. Traditionally, a request for tender was regarded as an
"invitation to treat" and a response from a tenderer in the form of a tender was an offer. However, recent cases
suggest the possibility of "process contracts" in government tender processes. That is, the issue of a request for
tender and a response from a tenderer may give rise to legal obligations, which bind the relevant government agency
to conduct its tender process in a particular way. Defence's Tender Documents have been drafted to minimise the
possibility that the request for tender by Defence gives rise to such a "process contract".
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Handy Hint
Ensure that any request for tender avoids a "process contract", by adopting the standard form
documentation. This increases Defence's flexibility during the tender process and reduces the risk
of legal exposure to tenderers.
2.4
Acceptance
A final, clear and unequivocal acceptance of an offer terminates the negotiations. After acceptance, the offer cannot
be revoked and, provided all other pre-conditions are met, the contract will have come into existence.
It is possible to prescribe the method of acceptance in an offer or an invitation to make offers. Indeed, this is
precisely the way in which the Tender Documents (see 3.3 below) are drafted. They state that Defence has not
accepted a tender unless it either signs a contract or issues a "letter of acceptance" in a particular form. The
intention of this is to avoid a contract being created unintentionally, by the exchange of correspondence or a course
of dealings during contract negotiations. "Letters of acceptance" must be distinguished from "letters of intent".
Please refer to item 3.6 for commentary on the distinction between the two types of letters.
Handy Hint
Only issue a letter of acceptance at the conclusion of negotiations, when every negotiation point has
been agreed with certainty. Before this, ensure all correspondence makes it clear that there is no
intention to accept an offer and thereby create a contract at that point in time. In particular, ensure
that no oral or other informal contract is created by discussions or correspondence which were
intended to be no more than a request for information or negotiation. All letters of acceptance and
letters of interest should be the subject of review by DCC or a member of the LSP to ensure that
Defence's legal position is clearly stated.
2.5
Consideration
Each party to the contract must provide "consideration". Consideration is the "value" given by the promisee in
exchange for the promise given by the promisor. "Value" does not necessarily have to be financial value - it can be
anything (tangible or intangible), provided it has some value. For example, mutual promises can (and usually do)
provide the basis of consideration in commercial contracts.
Example
A promises to B to carry out works for $100,000
A's consideration is the promise to carry out the works for B
B's consideration is the promise to pay the amount of $100,000
2.6
Intention to create legal relations
There must be an intention by both parties that their agreement give rise to legal rights and obligations. This
intention may be express (explicitly written or said) or implied (derived from the conduct of the parties or the terms
of the written agreement).
In commercial (as opposed to social) dealings, there is a strong presumption that there is an intention between the
parties to create legal relations, unless the situation or the circumstances can show otherwise. Thus, in a commercial
arrangement, there is a heavy onus of proof on the party alleging a contract does not exist on the grounds that the
parties did not intend to be bound.
Handy hint
If parties have acted in a way which is ambiguous, then there may be a question as to whether the
parties intended to create a contract. To avoid ambiguity, Defence personnel should be clear in all
correspondence between Defence and the Contractor, as to whether or not there is an intention to
be legally bound.
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2.7
Certainty
The essential terms of an agreement should be expressed with certainty or be capable of being calculated on
objective criteria without requiring further agreement between the parties.
The courts will not make a contract for the parties. If the agreement on its face is ambiguous the court may rule that
the agreement, or part of the agreement if it can be severed, is void. In determining whether an uncertain clause can
be severed, or whether the whole agreement is void, the court will consider the importance of the term in question:
(a)
if the clause considered void for uncertainty was so central that the parties would not have entered into
the contract without it, then the entire contract is void;
(b)
if, however, the clause is only of minimal importance, the court may simply strike out the offending
clause leaving the rest of the contract intact.
Handy hint
The failure to fill in, or incorrect filling in of, one of the Contract Particulars in a standard Defence
contract may cause uncertainty and could cause the contract to ultimately fail. Therefore, when
dealing with Defence contracts, it is essential that all of the Contract Particulars are filled out
properly. Avoid inserting "TBA", "to be agreed" or similar expressions.
2.8
Capacity to contract
The parties to a contract must have capacity to contract. "Capacity" can be described as the legal ability or
competence of a person or body to enter into a contract. Lack of capacity may affect the enforceability of a contract.
To avoid any issue of capacity, Defence should not enter into contracts with:
(a)
persons under 18 years of age;
(b)
persons suffering a mental disability (eg brain damage, mental disorder or senility);
(c)
persons under the influence of drugs or alcohol; or
(d)
unincorporated associations or bodies, unless incorporated under State/Territory legislation.
Although undischarged bankrupts do have legal capacity to enter into contracts, Defence should also avoid entering
into contracts with undischarged bankrupts. This is largely due to the fact that there may be limited resources
available to satisfy a judgment obtained against a bankrupt for breach of contract.
The common law presumption is that a party who enters into a contract has capacity and it is up to the person
alleging lack of contractual capacity to prove their incapacity.
2.9
Statutory Requirements
The parties to a contract must also generally (subject to certain constitutional exceptions in favour of Defence)
comply with all statutes applicable in the jurisdiction governing the contract or in which the works or services are
being carried out. It is therefore important to understand the statutory context in which a contract is being
performed. Different terms may be required, depending on the jurisdiction.
To some extent, this has already been addressed in the contracts and the special conditions prepared as part of the
Suite. However, as legislation is subject to change, legal advice should be considered where there is any concern
that there could be statutory provisions which have not been addressed.
3.
TENDER DOCUMENTS
3.1
General
HC-1 2003, MCC-1 2003, DSC-1 2003 and MW-2 2004 have each been structured so that they can be used for a
one or two stage tender process. The one stage tender process involves the issuing of "Tender Documents" to a
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select group of tenderers, whereas, the two stage tender process involves the issuing of an "Invitation to Register
Interest" followed by "Tender Documents".
Two proforma documents are available for use with each contract to deal with a one or two stage tender process,
namely:
(a)
Invitation to Register Interest; and
(b)
Tender Documents.
The one-stage tender process is used when Defence has a preselected group of tenderers and, therefore, does not
need to seek registrations of interest from the market place. This should only be done in the limited circumstances
permitted under the CPGs, (see Division 2 of the CPGs for further information).
3.2
Invitation to Register Interest ("ITR")
The purpose of the ITR stage is to seek an indication from industry for the purposes of:
(a)
identifying potential contractors or consultants who are interested in bidding;
(b)
enabling applicants to pre-qualify for the tender process;
(c)
determining which applicants are not going to be able to provide a conforming and/or a compliant
tender; and
(d)
enabling Defence to compile a shortlist of applicants from whom it wishes to request a tender.
3.3
Tender Documents - Request for Tender ("RFT")
Once Defence has received ITR responses, it evaluates them and then compiles a shortlist of applicants from whom
it will request a tender. Defence will then seek tenders from the shortlisted applicants by issuing an RFT (including
the Tender Documents). The Tender Documents provide details of the contract in Part 5.
Traditionally, a request for tender is not an offer. Rather, it is an "invitation to treat". A response from a tenderer in
the form of a tender is an offer (for example, to provide services for a price) and a contract is not completed until
Defence unequivocally accepts a tender (by issuing a letter of acceptance or entering into a formal contract).
The traditional model has been modified by recent case law which suggests that an RFT can create a binding
collateral contract at the time a tender is submitted (a "process contract"). The terms of the contract are those
provided in the RFT. This has significant implications for Defence procurement practices and ID personnel are
referred to paragraphs 122-132, Section 2, Chapter 2.1 of the Department Procurement Policy Manual for more
detailed information.
Defence's standard form Tender Documents contain a provision which attempts to minimise the possibility that a
"process contract" will arise during the tender process.
3.4
Tender Documents
The Tender Documents are in five parts, comprising:
(a)
Part 1 - Tender Conditions;
(b)
Part 2 - Tender Particulars;
(c)
Part 3 - Tender Form;
(d)
Part 4 - Tender Schedules; and
(e)
Part 5 - Conditions of Contract.
3.5
What should be obtained from Tenderers at time of tender?
A tenderer is responsible for completing the Tender Schedules and returning them as part of its tender submission.
There are a number of Tender Schedules under HC-1 2003, MCC-1 2003 and DSC-1 2003 which are discussed
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
below. Some of the Tender Schedules are common to each of the contracts while others are specific to a particular
contract.
(a)
Detailed Contractor's Activity Proposal ("DCAP") (MCC-1 2003 and DSC-1 2003 only)
The tenderer is requested to complete each item in the DCAP to demonstrate the tenderer's
understanding of what the contract requires and all material aspects of the way in which the tenderer
proposes to perform the Contractor's Activities or the Services which could distinguish its approach
from other tenderers.
Under MCC-1 2003, the tenderer is requested to (as a minimum):
(i)
include an outline approach on how it proposes to prepare Project Plans;
(ii)
demonstrate its compliance with any Commissioning and Handover Guidelines;
(iii)
include a plan that indicates how it proposes to take all steps necessary to ensure the timely,
efficient and comprehensive commissioning of the Works, the smooth handover of the
Works and that all required planned and unplanned maintenance is provided during the
Defects Liability Period for the Works;
(iv)
demonstrate its compliance with the Ecologically Sustainable Development ("ESD")
Principles; and
(v)
prepare a plan to indicate how it proposes to design and construct the Works to achieve the
Whole of Life ("WOL") Objectives.
Under DSC-1 2003, the tenderer is requested to identify its approach to:
(vi)
designing the works and preparation of the Design Documentation;
(vii)
preparing the Design Documentation and carrying out the Services in a manner which
achieves the WOL Objectives and ESD Principles;
(viii)
ensuring the Design Documentation complies with the Commissioning and Handover
Guidelines;
(ix)
programming;
(x)
quality assurance for the Services; and
(xi)
preliminary design solutions, to the level specified.
Although a tenderer under HC-1 2003 is not requested to submit a DCAP, it is requested to prepare
Project Plans (including the Site Management Plan and an Environmental Management Plan) and to
submit an outline Commissioning and Handover Plan and WOL Plan. Under MW-2 2004, a tenderer is
required to submit a Task Appreciation and Methodology.
(b)
Current capacity and capability
The tenderer is requested to provide detailed information as to its current workload, resources (including
subconsultants (DSC-1 2003 only) and a list of consultants from whom the tenderer recommends that
tenders be obtained to form a design team (the tenderer should also provide reasons for its
recommendation) (MCC-1 2003 only).
(c)
Previous performance
The tenderer is requested to provide details of its past performance in respect of projects of different
values and all projects completed in the last 12 months. The purpose of this tender schedule is to assess
the credibility and capability of the tenderer by reference to its previous performance.
In MCC-1 2003 only, the tenderer is also requested to provide details of any specific collaborative
contracting experience, in response to a detailed questionnaire.
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If the tenderer submitted a Registration of Interest, it is only requested to identify in its tender any
amendments to the matters submitted in the Registration of Interest. This is to minimise tendering costs.
(d)
Tenderer's financial details
The tenderer is requested to provide details of its financial standing to enable Defence to assess the
tenderer's financial viability and capability to undertake the project. Depending on the type and size of
the company (or partnership or other legal entity), the tenderer is requested to provide copies of its
financial reports and such other information as identified in the Tender Particulars.
If the tenderer submitted a Registration of Interest, it is only required to identify any amendments to the
matters submitted in the Registration of Interest. This is to minimise tendering costs.
Defence may direct a tenderer to provide a solvency statement. If such a direction is made before the
relevant tender closing date and time, submission of the solvency statement becomes one of the
"conforming bid" requirements. If the tenderer does not submit the solvency statement as directed, the
tender will be non-conforming and must not be admitted to evaluation. A solvency statement can also be
requested after close of tenders.
(e)
Remuneration
For HC-1 2003, the tender schedule needs to be tailored depending on whether tenders are sought on a
lump sum basis, or on a schedule of rates basis, or a combination of the two. If a lump sum is sought,
then a contract price breakdown will need to be included to enable Defence to assess the lump sum
offered.
If tenders are sought on a schedule of rates (or remeasurement) basis, then the outline schedule of rates
needs to be included to allow the tenderer to identify the rates it needs to submit for the relevant
components of the work.
Defence may also request that the tenderer provide a cost schedule as part of its tender. Such a cost
schedule would ultimately form part of the contract if the tenderer's tender is successful, and is to be
used for the purposes of assisting the valuation of variations. Note that Defence contracts do not
generally incorporate bills of quantities (either guaranteed or not guaranteed). If the project contains
civil works or a bill of quantities is proposed, advice should be sought from DCC.
Under MCC-1 2003, tenderers are requested to provide relevant details for the Planning Phase, Delivery
Phase, Outline Cost Plan (if specified in the Contract Particulars) and Incentive.
In the Planning Phase, the amounts include:
(i)
lump sum Contractor's Work Fee (Planning);
(ii)
the Milestone Fee Payment Schedule (should be significant milestones representing
completion of discrete activity during the Planning Phase and should not be monthly
instalments); and
(iii)
Schedule of Rates (the schedule set out or referred to in the Contract Particulars containing
rates and prices to be used for the purpose of valuing adjustments to the lump sum
Contractor's Work Fee (Planning)).
In the Delivery Phase, the amounts include:
(iv)
lump sum Management Fee;
(v)
lump sum Contractor's Work Fee (Delivery);
(vi)
a detailed break-up of the calculation of the Management Fee and Contractor's Work Fee
(Delivery);
(vii)
the Milestone Fee Payment Schedule;
(viii)
a detailed basis for any adjustment to the Management Fee or Contractor's Work Fee
(Delivery); and
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(ix)
Schedule of Rates (the schedule to be set out or referred to in the Contract Particulars
containing rates and prices to be used for the purpose of agreeing an adjustment to the
Contractor's Work Fee (Delivery) and Management Fee prior to the Delivery Phase and
valuing adjustments to the Contractor's Work Fee (Delivery)).
The tenderer should include in its Outline Cost Plan for the Works an outline target cost for
Reimbursable Costs (i.e. those payable to subconsultants and subcontractors) during the Planning Phase
and Delivery Phase and the Contractor's Work Fee (Planning and Delivery) and Management Fee. The
Outline Cost Plan must not exceed the Initial Target Cost (set by Defence).
Tenderers are given the opportunity to nominate an incentive mechanism which is contingent upon
exceptional performance (measured against agreed key performance indicators). The Incentive is
usually paid after the expiration of the last Defects Liability Period.
Under DSC-1 2003, tenderers are requested to provide details of amounts including a breakdown of the
lump sum Fee, a schedule of rates and an outline of proposed progress payments for the Fee, including
any Milestones. The proposed progress payments should be based on the milestones described on in IM
website (www.defence.gov.au/im).
(f)
Programming
Tenderers are requested to submit a program showing its order of work, periods for carrying out all
design, documentation and construction activities, including off-site activities, key dates including
milestones, and the percentage of time against activities each of the tenderer's proposed key people
would be dedicated to the Contractor's Activities or the Services.
Under MCC-1 2003, the tenderer is requested to submit programs for both the Planning Phase and
Delivery Phase. The program for the Planning Phase must be based on a proposed date for Planning
Phase Agreement to be tendered by the tenderer and is for carrying out design, cost planning,
programming and negotiation. The proposed date for Planning Phase Agreement cannot be later than
the date stated in the Tender Particulars.
The proposed program for the Delivery Phase must be for the completion of design (to the extent not
prepared during the Planning Phase), commencement, construction, completion, commissioning and
handover of the Works.
(g)
Tenderer's insurance details
Tenderers are requested to provide details of the insurances which they have or will put in place for the
purposes of their insurance obligations under the contract. The types of insurances are:
(i)
workers' compensation insurance and employees liability insurance;
(ii)
construction risks insurance (not DSC 1-2003);
(iii)
public liability insurance; and
(iv)
professional indemnity or errors and omissions insurance (except if the HC-1 2003 or MW2 2004 is being used for contract only).
tenderers should also provide details of any additional types of insurance that are required for a
particular project or specified by Defence. Advice regarding appropriate levels should be sought from
DCC.
(h)
Statutory declaration (HC-1 2003, MCC-1 2003 and MW-2 2004 only)
Under HC-1 2003, MCC-1 2003 and MW-2 2004, tenderers are requested to submit a statutory
declaration. The purpose of this statutory declaration is to obtain an acknowledgement by the tenderer
that it:
(i)
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has carried out the tender process in a proper and fair manner, including by acknowledging
that it has not engaged in any collusive tendering or cover bidding;
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
(i)
(ii)
will not provide any benefit or financial advantage to an industry association in respect of
the tender; and
(iii)
has not entered into any arrangement with other tenderers that the successful tenderer would
pay any money or provide any other benefit or financial advantage to unsuccessful tenderers
for the tender.
Miscellaneous Contract Particulars
There are a number of miscellaneous items which tenderers are requested to tender and which will
ultimately form part of the contract (by being included in the Contract Particulars). The purpose of this
schedule is therefore to enable the tenderer to provide details of such miscellaneous matters to be
inserted into the Contract Particulars when the contract is signed by the parties.
Items which are requested to be tendered include details of the Executive Negotiator and address and fax
number for the giving or service of notices. Additional information is requested under HC-1 2003
including agreed damages (if any), percentage of extra costs due to acceleration, percentage of
adjustments for valuing of variations and percentage of wages paid or payable by the contractor (used in
determining the value of daywork).
(j)
Alternative Proposal
If a tenderer wishes to provide an alternative proposal in respect of any aspect of the Contractor's
Activities or Services, it must insert details of that alternative proposal in the relevant tender schedule.
However, in order for that alternative to be considered, the tenderer must also provide a fully
conforming tender.
If a tenderer wishes to propose any departures from or qualifications to the standard form conditions of
contract, the tenderer should do it by way of alternative proposal. If it does not do so, and seeks to
incorporate such departures/qualifications in its original bid, then its tender will be non-conforming and
will not be admitted to evaluation. ID personnel should be aware of and recognise attempts by tenderers
to qualify or depart from the standard form conditions with "limiting" type language used throughout a
bid, for example "This bid excludes XYZ" or "This bid does not include XYZ", particularly in
circumstances where "XYZ" forms part of the standard conditions of contract, the special conditions or
the brief.
The purpose of an "alternative proposal" schedule is to emphasise the fact that the documents in the
Suite are true standard forms which are not to be generally subject to change or negotiation. This is only
to occur if required by Defence at the time it is preparing the Tender Documents for issue to tenderers,
or if Defence considers that any changes offered by a tenderer in the alternative will enhance value for
money. In either case, all standard form changes have to be approved by the DCC. This approval
process ensures that Defence sends consistent terms and risk allocation into industry, thereby reducing
potential bid costs for both Defence and its tenderers.
The "alternative bid process" is a minimum form and content requirement in the Tender Documents for
the purposes of the CPGs. It is a mandatory requirement. If qualifications or departures are not
contained in the relevant Tender Schedule, the tender will be non-conforming and must not be admitted
to evaluation. ID personnel are required to review tenders to identify if tenders contain "hidden"
departures or qualifications, such as in the schedule addressing "price" or "fee".
Handy Hint
If any alternative proposal is accepted, then it needs to be carefully documented. This applies to any
technical alternatives and to any contractual amendments. The latter should only be proposed
through the DCC and the LSP.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
(k)
National Code
Tenderers must submit signed undertakings of compliance under which the tenderers (amongst other
things) warrant to Defence that they have acted consistently with the National Code and the Guidelines
and will continue to do so.
If an Invitation to Register Interest was used for the project, tenderers are also required to clarify their
response to the relevant National Code Schedule in their Registration of Interest. If a tenderer was not
required to submit a Registration of Interest, it is required to complete a questionnaire.
This is a minimum form and content requirement for the purposes of the CPGs. It is a mandatory
requirement. If not completed and attached to the tender, the tender will be non-conforming and must
not be admitted to evaluation.
(l)
Equal Opportunity for Women
Tenderers are requested to submit either a statutory declaration that the Equal Opportunity for Women in
the Workplace Act 1999 (Cth) does not apply or, if it does apply, a letter or other evidence confirming
that the tenderer is compliant with (or has been waived from the reporting requirements of) the Act and
that its equal opportunity for women in the workplace program has been submitted to and approved by
the Equal Opportunity for Women in the Workplace Agency.
(m)
Commercial-in-Confidence
This tender schedule provides an opportunity to identify and justify any "commercial-in-confidence"
information that is required to be kept confidential by the Commonwealth, subject to certain permitted
disclosures. The Tender Documents contain guidance as to the type of information which will be
"commercial-in-confidence". It should be noted that tenderers are required to provide justifications, so
that Defence is in a position to make an assessment. If insufficient justification is provided, clarification
should be sought.
(n)
Adjustment for imported items (HC-1 2003 and MW-2 2004 only)
The tender schedule under HC-1 2003 and MW-2 2004 may provide a contractor with an opportunity to
identify any imported items that it may require to perform its Contractor's Activities in order to be able
to claim an adjustment to the contract price for any exchange rate fluctuation that might impact on the
imported item(s). This only applies if Defence has determined that it applies for the project in question.
(o)
OHS Accreditation Scheme
The OHS Accreditation Scheme is part of the Australian Government's response to the Cole Royal
Commission into the building and construction industry, which recommended that the Australian
Government use its purchasing power to help improve occupational health and safety outcomes on
building sites. This is consistent with the National OHS Strategy 2002-2012 to which the AttorneyGeneral is a signatory.
The OHS Accreditation Scheme will only apply if the tender is for a "Commonwealth building contract"
valued in excess of $6 million (GST inclusive). This expression is defined in the Building and
Construction Industry Improvement Act 2005 (Cth) ("BCII Act") and needs to be reviewed for each
project.
To be assessed for accreditation, tenderers need to apply for the Office of the Federal Safety
Commissioner and will need to provide evidence against specific occupational health and safety criteria.
At the relevant award date for the contract, the tenderer must be provisionally or fully accredited in
accordance with the Australian Government Building and Construction OHS Accreditation Scheme, as
provided for in the BCII Act.
Essentially, tenderers are requested to demonstrate that they are provisionally or fully accredited in
accordance with the Australian Government Building and Construction OHS Accreditation Scheme, as
provided for in the BCII Act, or to describe the steps taken to ensure the tenderers will be so accredited
before the award date for the contract.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
More information on the OHS Accreditation Scheme is available at www.fsc.gov.au or by contacting
the Federal Safety Commissioner on 1800 652 500.
3.6
Tender acceptance
A tender will be deemed to be accepted when either a formal agreement is signed by Defence and the selected
tenderer or Defence issues a "letter of acceptance" notifying the selected tenderer that its tender has been accepted.
A "letter of acceptance" must be distinguished from a "letter of intent".
A letter of intent is usually issued where Defence is not in a position to enter into a formal contract but wants the
tenderer to commence all or part of the Works or Services on an "early" basis. For example, Defence may want the
preferred tenderer to commence the design of the Works so it will issue a letter of intent in respect of that design,
but it does not oblige Defence to enter into a contract for the whole of the Works or the Services. The DCC must
approve all letters of intent.
4.
COMMONWEALTH PROCUREMENT GUIDELINES ("CPGs")
4.1
General
The purpose of the CPGs is to:
(a)
establish a core procurement policy framework; and
(b)
articulate the Government's expectations of departments and agencies subject to the Financial
Management and Accountability Act 1997 (Cth) and their officials when performing duties in relation to
procurement.
4.2
Minimum time limits
The minimum time limits are:
(a)
if a request is published electronically, 25 days from the date and time the request is published; and
(b)
if a request is not published electronically, 30 days from the date and time the request is published.
The above time limits can be reduced to a period of not less than 10 days from the date and time of publication but
only in certain, specific circumstances.
4.3
Conforming tender submissions
Defence can only consider tenders which are received before the prescribed closing date and which satisfy the
minimum form and content (or mandatory) requirements. If a tender fails to satisfy these requirements, it must be
excluded from consideration. A tenderer can also be excluded on the grounds of bankruptcy, insolvency, false
declarations, and significant deficiency in performance.
4.4
Restrictions on terminating a tender process
There are some restrictions on Defence terminating the procurement process. Advice from DCC and the LSP should
always be obtained before terminating (or significantly altering) a tender process.
4.5
Advising outcomes
Defence must advise all tenderers of its decision and, if requested, provide reasons as to why a tenderer was not
successful. Comparisons with other tenders should be avoided. Debriefs should be conducted against the evaluation
criteria specified in the request documentation.
4.6
Managing contractors
As the CPGs apply to Commonwealth departments and agencies, they have no direct application to the procurement
processes of managing contractors for reimbursable work. However, such contractors are subject to a contractual
obligation to comply with the CPGs. More specifically, MCC-1 2003 imposes an obligation on contractors to
ensure that all subcontract tender documentation is prepared and all tender processes are conducted in accordance
with the CPGs (refer to clause 8.1(c)(i) of MCC-1 2003).
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
5.
PROJECT DELIVERY METHODS - WHICH DELIVERY METHOD DO I USE?
5.1
General
The choice of delivery system is determined by an assessment of a number of factors, including:
(a)
the nature of the construction activity and size and complexity of the overall project;
(b)
budgetary constraints and the degree of control and hands-on management necessary to contain out-turn
costs;
(c)
anticipated changes in political and/or Defence priorities;
(d)
anticipated degree of overlapping of design and construction phases, either because of a need to fasttrack the project or a requirement for ongoing review and refinement of design necessitated for some
reason such as the project's magnitude, complexity or heritage and/or environmental considerations;
(e)
whether the construction work to be undertaken is civil engineering or building or both within the one
project;
(f)
expertise in Defence personnel that may be committed to the project or, alternatively, the necessity to
engage the private sector (whether contractor or consultant) to plan, manage, administer, supervise and
co-ordinate the project;
(g)
allocation of risk for the major risk areas of design, cost and time; and
(h)
duration, staging of the project and packaging of elements.
5.2
HC-1 2003
As stated above, HC-1 2003 can be used in the following delivery methods:
(a)
construct only delivery;
(b)
document and construct delivery;
(c)
full design and construct delivery;
(d)
lump sum or schedule of rates delivery; and
(e)
major or medium works.
5.3
When to use the construct only delivery method (HC-1 2003)
A construct only contract is predicated on the contractor being provided with a fully documented design at time of
tendering, with no further design documentation necessary except shop drawings by the contractor, the
documentation of variations (if any) and design documentation for Provisional Sum Work.
When using this delivery method, Defence engages consultants to design the project under DSC-1 2003. Once the
design is complete (apart from Provisional Sum Work), Defence calls for tenders from contractors to undertake
construction in accordance with the design as documented.
This traditional contract structure is the suitable delivery system for a project where:
(a)
Defence requires maximum control over design and thus wishes to engage and manage design
consultants directly;
(b)
the detailed design documentation, apart from Provisional Sum Work, is complete well in advance of
calling tenders and quality control mechanisms are in place to ensure that the detailed design
documentation is without deficiencies and that the design is buildable;
(c)
experienced personnel are available to manage and co-ordinate the interface between preparation of
detailed design for Provisional Sum Work and the letting of Provisional Sum Work;
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
(d)
Defence has internal personnel or can engage outside consultants with the expertise to administer the
construction phase and the construction contract;
(e)
there is no requirement to overlap the design and construction phases, other than for Provisional Sum
Work included in the contractor's scope of work;
(f)
no changes in scope of the project work are predicted other than those additions or omissions dictated by
cost management of the project; and
(g)
few variations to the design because of deficiencies in design documentation or changing end-user
requirements are anticipated during construction.
Provisional sums
HC-1 2003 provides for the inclusion of "provisional sums".
Provisional sums are included for work within the scope of the contract but which is not sufficiently defined
in the tender documents. It is subsequently defined by further design prepared by either Defence or the
Contractor.
Provisional sums are typically included in contracts for building work to allow some overlap between the
design and construction phases (ie fast-tracking) or because Defence is uncertain whether it will ultimately
include the work within the project.
Provisional sums are included in the contract price and are subject to certain adjustments.
5.4
Risk allocation under the construct only delivery method
The contractor assumes no risk for design or deficiencies in design documentation.
The risk assumed by the contractor is construction in accordance with the design for the lump sum (or at the
schedule of rates as tendered) and on time.
Defence has to manage the risk of design under this delivery system. Design deficiencies, poor documentation of
design and buildability problems provide the greatest potential for cost blow-out in this traditional contract structure
(because they are Defence's and not the contractor's responsibility). The other significant area of cost increase is
variations, particularly a number of minor variations, arising from changes in end-user requirements.
To avoid or at least minimise the major areas for additional payment, design consultants engaged by Defence must
have buildability knowledge, be fully briefed on end-user needs (and those needs should be firmed up during design
stage and have the support of Defence to freeze those needs to avoid variations during construction), and produce a
fully documented design subject to quality assurance procedures prior to calling tenders for the construction work.
When using HC-1 2003 for construct only, always include the special condition dealing with "buildability
problems". This essentially attempts to reduce the contractor's ability to claim variations for minor or obvious
design errors, omissions and discrepancies, where the contractor should have identified the problem at the time of
tender and allowed for it in its tender. There is a corresponding special tender condition which needs to be inserted.
5.5
Disadvantages of the construct only delivery method
Disadvantages of construct only delivery include:
(a)
no single line of responsibility for design and construction of the project, thus Defence has the task of
sorting out whether a defect is attributable to design or construction;
(b)
the capacity to pass on the risk of design and deficiencies in design documentation is limited to the
design consultant's failure to exercise reasonable care and skill, whereas the risk of design assumed by a
contractor undertaking design in other standard forms is the higher and more onerous warranty of fitness
of the design for its purpose;
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
(c)
commitment of resources by Defence to manage and co-ordinate the interface between design and
construction;
(d)
arm's length relationship of designers and constructors, so that there is no input from constructors into
buildability of the design, which may increase time and cost significantly;
(e)
the chance of dispute between Defence and the contractor is high, with opposing interests in the final
cost. Defence must rely heavily on its contract administrator to prevent the contractor exploiting defects
in design documentation, from overpricing variations and also to administer the extension of time
provision in a manner so as to keep alive Defence's right to liquidated damages for delay in completion;
and
(f)
if the contractor fails to perform, the remedies open to Defence are drastic and may lead to serious
financial repercussions if not exercised strictly in accordance with the contract provisions.
5.6
When to use the design and construct delivery method (HC-1 2003)
The optimum delivery system for projects involving simple building work (ie. barrack blocks, recreational facilities
and the like) is design and construct.
Design and construct is appropriate where:
(a)
the priority is best design for a price;
(b)
Defence has developed the concept design, performance specification and quality requirements for the
design brief to a level of particularity sufficient to ensure the delivery of the required product prior to
calling tenders;
(c)
Defence requires tenderers to develop the design concept to satisfy the performance and quality criteria
in the design brief, prepare the detailed design and documentation in accordance with the design brief
and carry out the construction and commissioning of the project in accordance with the design brief;
(d)
the design brief is expressed in clear objective terms as to performance and quality criteria, to measure
whether the project satisfies those requirements when completed;
(e)
sufficient experienced resources are available in Defence or outside personnel can be engaged to be
committed to documenting negotiation details of the successful contractor's design proposal to avoid
subsequent dispute over the contractor's interpretation of the design brief;
(f)
the control required over design and construction is limited to minimum interference to ensure design
and construction achieve the performance and quality criteria set out in the design brief;
(g)
Defence opts to hand over control of the detailed design to the contractor in exchange for itself
assuming no design risk;
(h)
because of the simplicity of the project, Defence requires only a project of a specified performance and
quality delivered for an agreed cost and on time; and
(i)
limited variations necessitated by user requirements are anticipated during construction.
5.7
Advantages of the design and construct delivery method
The advantages of this delivery system are:
(a)
the contractor is responsible for co-ordinating the interface between design documentation and
construction, so there is no risk to Defence of claims for design documentation deficiencies or late
supply of design clarification or other information (traditionally a major source of claims in lump sum
contracts);
(b)
cost and time may be reduced by the contractor's capacity to achieve significant efficiencies by its
control over design consultants, and by buildability studies and value management carried out by the
contractor to ensure the product can be delivered for the lump sum price within the time for completion;
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(c)
there is a single line of responsibility for the design and construction phases, rendering it unnecessary
for Defence to distinguish between defects in design and construction (in pursuing rectification from the
contractor);
(d)
the contractor assumes a more onerous responsibility than design professionals, by warranting design
and construction are fit for purpose; and
(e)
the contractor has a higher degree of control over the project and is better placed to predict, manage and
absorb the risk of neutral events impacting on time and cost, such as latent conditions, adverse weather
and industrial disputation.
5.8
Disadvantages of the design and construct delivery method
The disadvantages of this form of delivery system are:
(a)
the potential for contractors to effect savings and increase profit within the lump sum, by underdesigning aspects of the project where there is inadequate definition of performance criteria and quality
requirements in the design brief;
(b)
the advantage of shifting design responsibility and risk of design to the contractor is lost where Defence
or the contract administrator undertakes an active and dominant role in finalising the detailed design,
beyond the limits of monitoring the design and construction phases to ensure the work is being executed
in accordance with the design brief;
(c)
the clarity of the objective performance and quality criteria in the design brief is crucial to control of the
end product, and failure to achieve clarity may lead to disputation as to whether the contractor has in
fact achieved the product described in the design brief;
(d)
variations to the design brief during design and construction phases will generate claims, forfeiting the
benefit of the lump sum and impacting adversely on the final cost and timing of the project; and
(e)
from a practical and legal point of view, Defence has significantly less control than in other delivery
systems during the course of the project or (if seeks to assume control) runs the risk of design
responsibility being transferred back to Defence.
5.9
When to use the document and construct deliver method (HC-1 2003)
Document and construct, as opposed to design and construct, allows greater control over the end product and a
better capacity to comparatively assess tenders, whilst retaining Defence's flexibility to consider alternative value
management proposals from tenderers.
The significant difference is that the design phase is significantly advanced beyond concept stage, and may in fact
have been substantially completed by Defence's design consultants.
To retain the design and construct advantage of a single line of responsibility, the contractor is required to take over
and be responsible for all design completed prior to entry into the contract, and assume responsibility for the design
consultants who have prepared the design upon which the contract has been let. To achieve this, Defence's design
consultants' terms of engagement are novated to the contractor, a legal mechanism by which the contractor steps into
Defence's contracts with the design consultants on the same terms of engagement.
5.10
Advantages of the document and construct delivery method
The advantages of document and construct, additional to those in design and construct, are:
(a)
Defence has a significantly greater control over the design of the end product as design may be
substantially completed prior to contracting; and
(b)
Defence selects and engages design consultants who are subsequently novated to the contractor.
5.11
Disadvantages of the document and construct delivery method
In addition to the disadvantages noted for the design and construct delivery system, disadvantages of document and
construct include:
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(a)
an extended tendering period must be allowed to permit prospective contractors to assess prior design
and Defence's design consultants, to be able to price the risk of design;
(b)
the extended tendering period results in a later commencement of construction and, unlike design and
construct, does not allow an overlap between design and construction;
(c)
the efficiencies possible under design and construct, which can be achieved by the contractor fine-tuning
design by buildability and value management studies to reduce time and cost, are not present to the same
degree and may require redesign to allow the contractor to increase buildability and utilise its preferred
construction methodology;
(d)
contractors with the expertise to undertake design and construct project delivery may be reluctant to
price the risk of accepting responsibility for prior design; and
(e)
increasingly, design consultants are showing resistance to novation, which can result in delays unless the
novation process is carefully managed from the outset (i.e. time of tender for the design consultant).
STEPS IN USE OF DESIGN AND CONSTRUCT
OR DOCUMENT AND CONSTRUCT
Choice of design and construct or document construct delivery system
Design consultants engaged to prepare Design Brief
Design concept only performance
specification and quality criteria
OR
Design and Construct
5.12
Design Brief with details providing
solutions to performance
specification and quality criteria
Document and Construct
Managing Contractor - MCC-1 2003
MCC-1 2003 combines design and construct responsibility and features of a project management concept.
Procurement under MCC-1 2003 has three distinct stages:
(a)
tender stage;
(b)
Planning Phase; and
(c)
Delivery Phase.
It is the optimum contract strategy where the criteria set out for a project management structure are satisfied, but
where Defence opts to share some of the risks associated with a major construction project with a contractor. Large
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contractors have a capacity to carry risks associated with design and construction to an extent not normally assumed
by a project manager.
Tenders for the managing contractor are called not on the basis of fee for service (as in project management) but on
a lump sum bid for preliminaries and management services ("Contractor's Work Fee (Planning)" and "Contractor's
Work Fee (Delivery)" and a lump sum profit ("Management Fee")). The basis for the lump sums bid is a project of
a broadly defined scope and ceiling cost, with adjustments to the lump sum bid for preliminaries if the scope of the
project is varied or delayed by conduct of Defence or its agents or employees, particularly during the Planning
Phase.
This strategy provides Defence with maximum flexibility in determining the elements to be included in a project and
the design of those elements. It does this by utilising the management expertise of a contractor organisation to
develop the design, co-ordinate the interface between design and construction, undertake the construction and
generally plan the project so as to remain within a target cost and target time for delivery of the project.
This contract strategy seeks to do this through a collaborative arrangement, which generally involves less adversarial
tension between the contractor and Defence than would be the case where HC-1 2003 is used.
Defence has, however, retained some elements of competing interest between it and the contractor, as these are
necessary for effective and accountable project delivery.
The essential elements of this contract strategy are:
(a)
the contractor is responsible for design, in that it engages the design consultants, and then warrants
fitness for purpose of the design and the works (when completed);
(b)
the contractor is the head contractor, fully responsible for the quality of the works and responsible for
subcontract claims arising from its own inadequate performance;
(c)
the contractor is paid (in summary):
(i)
actual design costs (less claims for which it is responsible, etc);
(ii)
actual subcontract costs (less claims for which it is responsible, etc);
(iii)
a fixed fee for preliminaries;
(iv)
an agreed fee for profit and off-site overheads; and
(v)
possibly, an incentive (if it achieves against agreed key performance indicators);
(d)
the actual design and subcontract costs that are properly payable to design consultants and other
subcontractors are paid through a trust account. The purpose of this is to promote prompt and secure
payment at the subcontract level (for example, if the contractor is wound up the money in trust will still
be applied to pay design consultants and other subcontractors); and
(e)
the contractor is required to manage the project to achieve timely completion within a defined cost limit,
but does not have fixed price, fixed time obligations (ie. the target cost does not function as a lump sum
cap and the contractor is not exposed to liquidated damages for late completion).
Defence has adopted a compromise between no adversarial element and an arrangement which would provide it
with guaranteed cost and time. The line drawn between these extremes can be identified on a continuum of risk
allocation as follows:
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Fixed time
guaranteed maximum
price share of savings /
overrun
Due care design risk
Fixed Preliminaries
Fixed fee
Head Contract obligations
Consultants reimbursed on
cost plus agreed margin.
Sub-contractors reimbursed
on actual cost with no
recovery for additional cost
caused by Contractor
conduct or default. Due care
time / cost obligations.
Due care design risk
Cost Plus
No design adequacy risk
Direct trade contracts
No time or cost obligations
Max
Competing
Interests
Max
Co-operation
Fixed lump sum
Head Contract
Fitness for purpose
Fixed Time
5.13
Cost plus
Fit for the purpose
design risk
Head Contract
Cost plus
Due care design risk
Head Contract
Advantages of the Managing Contractor delivery method
The major advantages of this form of contracting are:
(a)
Defence gets the benefit of early contractor involvement in the detailed business case and before the
PWC hearing;
(b)
because the design costs payable to design consultants are reimbursable, the contractor has greater
flexibility to consider all options in design development;
(c)
because of the split between the Planning and Delivery Phases, the contractor has a clear incentive to
use the Planning Phase to come up with the best possible project solutions, to maximise its chances of
being awarded the delivery phase;
(d)
if the KPI and incentive regime is carefully negotiated, it could provide incentive for exceptional
performance;
(e)
no fixed time/fixed price tension makes for greater flexibility in ordering variations, particularly in the
design of, and the number of elements to be ultimately included in, a project after the contractor has
been retained;
(f)
the contractor assumes the responsibility for design and design documentation prepared by consultants
as a design and construct contractor (ie. fitness for purpose);
(g)
the contractor undertakes the risk of construction in the same manner as a contractor under HC-1 2003,
with the essential difference that the managing contractor does not itself undertake construction; and
(h)
construction work is generally let to subcontractors on a competitive basis, to maximise value for money
for Defence.
5.14
Disadvantages of the Managing Contractor delivery method
The major disadvantages of this form of contracting are:
(a)
less cost/time certainty than under more traditional fixed time/fixed price delivery;
(b)
risk of reduction in scope where budget cannot be met;
(c)
significant investment in managing the contract;
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(d)
only applicable to larger more complex multi-element projects.
5.15
What is the difference between the Managing Contractor and
Construction/Project Management?
The managing contractor delivery method should be distinguished from "construction management" or "project
management" contracts. The original managing contractor contract deliver method was expressly developed to
overcome the legal and commercial deficiencies inherent in the construction management delivery method.
With construction management contracts, the "manager" merely manages trade contracts as the agent of the owner.
The "manager" does not assume any real responsibility for the time, cost or quality outcomes of the project. In
particular, the "manager" is not responsible for defective works. This is assumed by the various trade contractors.
The problem with this is that there is no single line of responsibility to the principal for the quality or completion of
the project. Further, the "fee" paid to the "manager" may be linked to the out-turn cost of the project. This provides
little incentive for the manager to manage variations and other claims for additional costs.
This is in contrast to the managing contractor method where the contractor is responsible for the quality of design
and construction. This means that if any work is defective, Defence only has to look directly to the managing
contractor.
6.
HEAD CONTRACT ("HC-1 2003")
6.1
General
HC-1 2003 represents a flexible standard form which can be used for:
(a)
construct only delivery;
(b)
document and construct delivery;
(c)
full design and construct delivery;
(d)
lump sum or schedule of rates delivery; and
(e)
major or medium works.
There is nothing that needs to be done to HC-1 2003 to determine which delivery method is being used, other than
the selection of the document and construct clauses. The choice of delivery method will be implicit in the Works
Description, which sets out the requirements of the Works (for example, drawings, specifications).
Additionally, HC-1 2003 has a number of optional clauses which can be employed to alter the risk allocation,
including:
(f)
an optional entitlement to time and cost for latent conditions;
(g)
the ability to widen or narrow the entitlement to extensions of time;
(h)
an option for agreed damages payable to the contractor for Defence caused delay (limited to breach of
contract); and
(i)
an optional provision for bonus for early completion.
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HC-1 2003 Delivery Methods
Traditional/Construct Only
This is where Defence provides the design and the contractor is engaged to construct the project in
accordance with the design.
Design and Construct
This is where Defence engages the contractor to design and construct the project so as to meet the needs
of Defence. Defence's brief may include some basic or incomplete designs which the contractor will be
required to complete.
Document and Construct
This is where Defence has commenced the design of the project, usually by engaging design consultants.
The contractor takes over that preliminary design (and, usually, has Defence's design consultants novated
to it) and so bears single line responsibility to Defence for design in a similar manner to a design and
construct contract.
6.2
Specific features of HC-1 2003
The key features of HC-1 2003 are set out as follows:
(a)
Cooperation
The parties are obliged to co-operate in carrying out their respective obligations under the contract.
(b)
Contract Administrator
HC-1 2003 is administered by a contract administrator which is expressed to be the agent of Defence.
The contract administrator may be an internal employee or an external consultant. For further details on
the functions of the contract administrator, refer to 10 below.
(c)
Key People
The contractor has to ensure that it employs certain key people, as represented in its tender, on the
project. It can only replace them in certain circumstances.
(d)
Security
Under HC-1 2003, the contractor must provide security by way of an unconditional bank undertaking
(often loosely called a "bank guarantee"). Generally, there are considered to be as good as cash because
they can readily be converted to cash upon presentation to the issuing bank. Upon presentation of a
bank guarantee, a bank must make payment even if the contractor considers the call is unjustified.
However, a contractor may be able to obtain an injunction preventing Defence from making a demand
under a bank guarantee based on a negative covenant in a contract that a bank guarantee will not be
called on unless and until the principal has an entitlement to do so. If a contractor obtains an injunction
preventing Defence from calling on the bank guarantee, then the obligation of the bank to make
payment pursuant to the bank guarantee never arises because Defence does not have an entitlement.
HC-1 2003 does not contain any negative covenants in relation to Defence's right to call on the security
which means that Defence's right to make a call on the security is unconditional. The effect of this is
that the contractor is less likely to obtain an injunction to prevent the release of the security.
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Handy Hint
Although a bank undertaking may be unconditional, you should still do all your homework and have
fully prepared the case in support of your encashment of it, before doing so. Encashment is likely to
provoke a hostile reaction from the contractor, and will ultimately need to be defensible (sometimes
immediately, in response to proceedings for an interim injunction). Further, the practical problem with
encashment is the requirement to return the money into Consolidated Revenue. Encashment should
not be considered without first seeking advice from DCC and the LSP.
(e)
Design
As stated above, HC-1 2003 may be used for full design and construct delivery - from partial design to
full design and construct. For design and construct delivery, the contract will need to specify the design
obligations of the contractor, which is typically done in a design brief, which forms part of the Works
Description.
The contractor must warrant that its design will be fit for its intended purpose and the Works or a Stage
of the Works which have been completed in accordance with the contractor's design are fit for their
intended purpose.
The contract does not impose any obligation on the contract administrator to review and approve any
design documentation. Rather, the contract provides that the contract administrator "may review" the
design, but there is no obligation to review. This seeks to avoid any implication that the contract
administrator participated in the design process which could affect the contractor's warranty that the
design is fit for its intended purpose.
The contract administrator does have the right to reject all or any part of the contractor's design, but the
contract administrator should endeavour not to unduly interfere with the contractor's design, and should
only do so where there is a failure to comply with the design brief or the other requirements of the
contract.
Defence is granted a perpetual licence over any design documentation of the contractor.
Summary of Design Provisions
The design provisions under HC-1 2003 include:
(f)

fitness for purpose obligations on the part of the contractor;

review of design and documentation by the contract administrator (but preserving the
responsibility of the contractor); and

a licence to Defence of all intellectual property.
Non-reliance upon information
HC-1 2003 provides a warranty from the contractor that it has relied upon its own enquiries and not
upon information (such as site information) provided by Defence.
Handy Hint
If this information is being provided to tenderers, it should be reviewed by the LSP, to minimise the risk
associated with the provision of the information. Although the Tender Documents contain a disclaimer
of liability which is intended to address this issue (and which is to be provided to and signed by
Tenderers before they receive the tender documentation), a review of the information can also assist to
identify any information of particular concern and suggest ways to mitigate that concern.
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(g)
Latent Site Conditions
There is an option for the risk of site conditions to be placed upon the contractor or, alternatively, for the
contractor to be entitled to relief under certain circumstances where unforeseen latent site conditions are
encountered. Generally, it is more appropriate to include the clauses entitling relief from latent
conditions under a construct only or document and construct delivery, where the contractor may have
less control over design and, therefore, less ability to manage this risk.
Under HC-1 2003, latent conditions are defined as any ground conditions at the Site which differ
materially from those which should have been anticipated by a prudent, competent and experienced
contractor if it has assessed the risks which it is assuming under the contract and ensured that the
contract price contains sufficient allowances to protect it against the eventuation of the risks it is
assuming under the contract.
Summary of Latent Conditions
(h)
(a)
HC-1 2003 includes the option of transferring the risk of latent conditions to the
contractor.
(b)
If Defence bears the risk, and a latent condition is encountered or found, the contractor is
entitled to an extension of time and to be paid any extra costs reasonably incurred by the
contractor (after the date of the contractor notifying Defence of the latent condition)
arising from the latent condition.
Site Access
The contractor is not given exclusive possessory rights over the site. Instead, the contractor is given
sufficient access to enable construction to be carried out.
Defence may engage other contractors to carry out work on the site concurrently with the contractor's
activities. The contractor is obliged to provide access to the site to Defence, the contract administrator
and other authorised persons.
(i)
Other Contractors
Defence may need to engage other contractors on certain projects. The contractor is obliged to cooperate, and not to interfere, with other contractors engaged by Defence and to co-ordinate and integrate
its work with the work of other contractors.
Handy Hint
Although it may be necessary to engage numerous contractors on a site, this may increase the risk of
delay and disruption to each of the contractors and, therefore, creates exposure for Defence. To
minimise this risk, Defence could make other contractors of Defence subcontractors to a single head
contractor.
(j)
Subcontractors
The outdated concept of nominated subcontractors has been avoided. For defined work only, the
contractor is obliged to select from a list of subcontractors that are approved to carry out specific work
or otherwise gain approval for alternative subcontractors to those listed.
(k)
Provisional Sums
Defence may carry out Provisional Sum Work either using the contractor, itself or by engaging other
contractors. There are optional provisions for design of Provisional Sum Work to be carried out either
by Defence or the contractor. For Provisional Sum Work to be carried out by the contractor, the
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contractor must select the subcontractor from a pre-approved list or use a subcontractor approved by the
contract administrator.
What is Provisional Sum Work?
Provisional Sum Work is typically an element of work for which it is not possible to obtain a firm
price at the time of tender or in respect of which Defence is uncertain whether it will be required.
This could be because Defence has not finalised its requirements for the work.
(l)
Professional Indemnity Insurance
There is provision for the contractor to effect professional indemnity insurance or errors and omissions
insurance. This is only required where the contractor is responsible for design to any extent.
(m)
Environment
The contractor is obliged to comply with environmental laws and contractual conditions for the
protection of the environment. It must not pollute, contaminate or otherwise damage the environment
and must rectify any pollution, contamination or other damage it does cause.
(n)
Industrial Relations
The contractor is responsible for industrial relations. There are also specific provisions dealing with the
National Code.
(o)
Project Plans
Rather than simply dealing with quality assurance, HC-1 2003 contains provisions requiring the
contractor to develop and implement a series of project plans. The matters for which project plans will
be required may vary on a project-by-project basis. Typically, they will address quality, occupational
health and safety, environmental management and other similar issues. The implementation of project
plans will not limit the contractor's responsibility for work and materials. There are additional
requirements if the works are near an airfield.
(p)
Defects
There is provision for flexible solutions to deal with defective work or materials, including power to
order rectification, acceptance of the defect subject to adjustment of the contract price and variation
subject to adjustment of the contract price. There is also no final certificate which would adversely
affect Defence's capacity to recover for defects during the statutory limitation periods (which continue
after the expiry of the contractual defects liability period).
(q)
Construction Program
There is a clear provision for construction programs as management tools to assist the parties and
contract administrators. Because of their importance in monitoring progress and assessing extension of
time claims, the contract administrator must ensure that the contractor complies with its ongoing
programming obligations, including to provide updates of the program.
Handy Hint
The initial program should never be attached to the contract or stated to form part of the contract
The risk with this is that it could be argued to have precedence over the other time provisions of the
contract or give the contractor a right to extensions of time where it would otherwise not be so
entitled.
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(r)
Staging
HC-1 2003 makes provision for the Works to be completed in stages. The concept of "stages" in
Defence contracts is akin in some ways to "separable portions" under Australian Standards contracts.
Each stage has a separate date for completion, separate liquidated damages for late completion and a
separate defects liability period.
(s)
Extensions of Time
The contractor may claim an extension of the relevant Date for Completion of the Works or a Stage.
The contractor's entitlement to an extension will be subject to the satisfaction of certain requirements.
The most significant of these are:
(i)
complying with the notice provisions;
(ii)
the delay being covered by an "Act of Prevention" (as defined in the contract) or an event of
delay (if any) inserted in the Contract Particulars; and
(iii)
demonstrating the required delay effect (ie a delay in achieving completion by the date for
completion);
The contractor's claim can be reduced to the extent that it contributed to the delay or failed to preclude,
avoid or minimise the delay.
HC-1 2003 also contains flexible provisions enabling partial or complete acceleration as an alternative
to extensions of time. In that event, if the contractor would otherwise have been entitled to an
extension, it will be entitled to its direct costs plus an agreed margin.
Handy Hint
There is provision for additional events of delay to be inserted in the Contract Particulars. This
should only be done if, in the context of the specific project, this will offer value for money. The
form of words should be settled by DCC or the LSP.
(t)
Delay Damages
There is an optional provision for pre-agreed damages in the event of delay due to a breach of the
contract by Defence. This provision functions in the same way as liquidated damages (except in
reverse), by liquidating the liability of Defence in the event of delay to the contractor. However, there is
no relationship or correlation between the amount of pre-agreed damages for "agreed damages" (payable
by Defence) and the pre-agreed damages as "liquidated damages" (payable by the contractor). They
need to be separately calculated so that they constitute a genuine pre-estimate.
Handy Hint
If agreed damages are to be provided, the rate(s) must be agreed before signing the contract and
inserted in the contract particulars. Never insert "to be agreed" or "to be negotiated", as this will not
be enforceable, and will leave Defence exposed to the contractor's entitlement to general law
damages, which is uncapped. If the agreed damages clause is not to be used, then any alternative
should be settled by DCC or the LSP.
(u)
Liquidated Damages
The contractor must pay Defence liquidated damages at a set rate (as specified in the contract
particulars) if the date of completion of the Works or a Stage has not occurred by the date for
completion.
Liquidated damages, to be enforceable, must be a genuine pre-estimate of the loss which Defence will
suffer if the contractor fails to achieve completion by the date for completion. Although this does not
require a precise mathematical calculation, every effort should be made to ensure that the rate stated in
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the contract particulars reflects Defence's best assessment of the loss it will suffer if completion is late.
Conversely, Defence should avoid inserting an arbitrarily low figure, as this will cap the contractor's
liability and prevent Defence from recovering more if its actual loss is greater.
Handy Hint
Agreed or delay damages: if the contractor is delayed due to a breach by Defence, and receives an
extension of time, Defence pays the contractor delay damages (Defence contracts call these "Agreed
Damages").
Liquidated damages: if the contractor does not complete the Works or a Stage by the date for
completion, the contractor pays Defence liquidated damages. Typically, this should be stated as a
daily rate.
Increasingly, contractors are seeking an aggregate cap on liquidated damages (often in the order of
10%). This should not be agreed without approval of DCC.
Also, always ensure a positive rate is inserted in the contract particulars. Never insert "nil" or "not
applicable", as this could leave Defence without any entitlement to delay damages for late
completion.
Where there is more than one Stage, ensure that an appropriate rate is inserted for each Stage.
(v)
Variations
Defence can require the contractor to submit a price for a proposed variation and give notice of the
effect of the proposed variation on the construction program. Defence can unilaterally direct variations,
subject to the contractor's entitlement to payment for them, in accordance with an agreed valuation
mechanism.
The contractor may propose variations for the convenience of the contractor or for project efficiency.
Such proposals can be rejected, or accepted unconditionally or on conditions (such as provision for a
share of savings).
The contract contains the capacity to delete work by variation, and for Defence to have this work
subsequently carried out by another contractor. However, this power is suspiciously regarded by
contractors, and should only generally be used where it is not feasible to have this current contractor
carry out the work.
Handy Hint
All variation requests and other directions under the contract should be instructed through the
contract administrator, and not given directly by Defence personnel. The risk with the latter is
that, although a Defence person may not be intending its direction/request for information to have
any time or cost consequences, if it varies work scope or delays progress, it may do so.
(w)
Payment
The contract contains provision for payment on the basis of either a lump sum or schedule of rates.
Payment is made on completion of certain defined stages or on a monthly basis (depending on the
option chosen).
There is provision for the contractor to provide additional security as a condition precedent to payment
of unfixed goods and materials. Defence should never pay for unfixed goods and materials unless it first
receives additional security to the same or similar value. Otherwise, it could make a payment (which it
forfeits in whole or in part on the Financial default of the contractor) without ever receiving title to or
possession of the goods.
The contractor releases Defence from further claims which have not been made in accordance with the
contract after both the completion and final payment claims.
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HC-1 2003 contains payment provisions drafted specifically to remain consistent with the various
security of payment legislative regimes around Australia.
Handy Hint
Ensure the contract administrator meticulously administers payment in accordance with the
contract. If not, Defence could be exposed to a security of payment claim by the contractor.
Defence has already been exposed to such claims. They can be difficult, costly and timeconsuming to defend.
(x)
Bonus
There is an optional bonus provision for early completion. This should not be used unless there is a
clear commercial benefit to Defence in early completion.
(y)
Termination
The termination provisions for default or insolvency only apply in favour of Defence and not the
contractor.
In addition, there is provision for termination for convenience. This is subject to payment of certain
costs.
Handy Hint
These provisions must not be executed or used without full involvement of DCC and the LSP. If
used incorrectly, they could expose Defence to liability in damages (including for lost profit) to the
contractor.
(z)
Notices
To ensure timely and efficient contract administration, HC-1 2003 contains notification of claim
requirements, and time bars for non-compliance.
(aa)
Dispute Resolution
The dispute resolution provisions include expert determination (of certain matters directed by the
contract administrator), executive negotiation and commercial arbitration. There is also potential for the
parties to agree on other alternative dispute resolution methods, such as mediation.
7.
MANAGING CONTRACTOR CONTRACT ("MCC-1 2003")
7.1
General
Defence Procurement involves a two phase process for determining the viability of projects:
(a)
the strategic business case ("SBC"); and
(b)
the detailed business case ("DBC").
It is against this backdrop that MCC-1 2003 has been developed. MCC-1 2003 involves a two phase delivery
method comprising an initial preliminary contract in the Planning Phase and a subsequent consolidated contract in
the Delivery Phase. More specifically, under this contract, Defence engages a contractor to:
(c)
plan and design the works in the Planning Phase; and
(d)
complete the design of, commence, construct, commission, complete and handover the works in the
Delivery Phase.
Tenders are sought well before PWC approval. The intention is to capitalise on the contractor's expertise by
obtaining "early contractor involvement". This includes having the contractor provide input into the detailed
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business case (at the second pass stage above). The earlier strategic business case is usually prepared by Defence's
consultants (for example, the contract administrator).
At the time of tender, Defence provides tenderers with an outline scope and target cost. Tenderers are required to
tender their remuneration proposal for both the Planning Phase and Delivery Phase upon the basis that they may not
proceed to the Delivery Phase. The remuneration proposed for the Delivery Phase will also require tenderers to
propose the basis on which that remuneration would be subject to adjustment to take into account the outcomes of
the Planning Phase.
7.2
Planning Phase
The Planning Phase is an initial preliminary contract and involves two sub-phases, namely:
(a)
Planning Phase Agreement; and
(b)
Planning Phase Approval.
7.3
Planning Phase Agreement and Planning Phase Approval
From the date the parties enter into a formal agreement, the contractor must achieve Planning Phase Agreement and
Planning Phase Approval by specified dates. If the contractor fails to satisfy the Planning Phase requirements,
Defence may:
(a)
re-tender for the Delivery Phase in respect of the delivery of the works; or
(b)
waive satisfaction of the Planning Phase requirements in relation to certain parts of the Planning Phase
works (provided they are below the relevant PWC threshold) and enter into a new contract. Under the
new contract, the contractor will complete the design of the works (to the extent not completed in the
Planning Phase), and commence, commission, complete and handover the works.
If Defence elects to re-tender for the works, the contractor has no entitlement to complete the works but is entitled to
payment for fees due and payable for the works completed up to the date of issue of the relevant notice by Defence.
In achieving Planning Phase Agreement, the contractor must finalise "Planning Phase Design Documentation" and
prepare a cost plan, program and project plans. The contractor must also assist Defence in achieving specified
"Planning Phase Milestones" and agree on the contractor's remuneration for the Delivery Phase.
In achieving Planning Phase Approval, the contractor must do all things or tasks as may be required to provide
Defence with assistance to obtain approvals including Government and Parliamentary approvals and approvals in
accordance with the Financial Management and Accountability Act 1997 (Cth).
7.4
Flexibility of MCC-1 2003
MCC-1 2003 gives Defence benefits of early contractor involvement and flexibility, with the right to elect not to
proceed with the contractor to the Delivery Phase, but only if:
(a)
Defence is not satisfied (in its absolute discretion) with the design development, programming, cost
planning or project plans prepared by the contractor;
(b)
Planning Phase Milestones have not been achieved by the specified dates;
(c)
the parties are unable to agree on the remuneration structure for the Delivery Phase;
(d)
the requisite approvals have not been obtained;
(e)
the contract particulars for the Delivery Phase have not been agreed and executed; or
(f)
the contractor fails to perform all the planning work in accordance with the contract.
If Planning Phase Agreement is achieved, Defence must issue a written notice to the contractor stating the date upon
which it was achieved. The primary aspect of this will be the fee negotiation referred to in (c) above, and discussed
in 7.6 below.
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When Planning Phase Approval is also achieved, a second written notice must be issued to the contractor stating the
date upon which Planning Phase Approval was achieved. Defence must then proceed with the contractor to the
Delivery Phase on the terms of a subsequent consolidated contract under which the contractor will complete the
design of the works (to the extent not completed in the Planning Phase) and commence, construct, commission,
complete and handover the works.
7.5
Delivery Phase
The Delivery Phase has the following features:
(a)
the contractor completes design (through its design consultants) based on the design prepared in the
Planning Phase;
(b)
underlying construction work will generally be let to subcontractors on a competitive basis (to ensure
value for money), subject to any innovative proposal in the contractor's DCAP which provides Defence
with greater value for money; and
(c)
if Defence elects not to proceed with the contractor (per paragraph 7.4 above), it can proceed with
another tenderer and use all project documents prepared by the contractor and obtain a novation of its
subcontractors.
7.6
Contractor's Remuneration
Under MCC-1 2003, Defence pays the contractor in progressive payments as follows:
(a)
the Contractor's Work Fee (Planning Phase and Delivery Phase) for the work that the contractor does (as
opposed to the underlying design and construction work delivered by design consultants and
subcontractors);
(b)
the Management Fee, for overhead and profit (in the Delivery Phase only); and
(c)
"Reimbursable Costs" (Planning Phase and Delivery Phase), for actual design and construction costs
properly incurred and payable to subcontractors (including consultants and subcontractors).
Payment of (a) and (b) will usually be in agreed instalments based on the achievement of agreed milestones (to
avoid overpayment of fees as against project progress).
The Management Fee and Contractor's Work Fee (Delivery), as tendered, are both negotiated prior to the
completion of the Planning Phase, based on the tendered adjustment mechanisms, in light of changes to the scope of
the project during the Planning Phase. This is likely to be a robust commercial negotiation and therefore needs to be
undertaken on behalf of Defence by an experienced negotiation team, which both understands MCC-1 2003 in detail
and has carefully prepared its position in response to the contractor's fee proposal. Defence needs to remember that
there is no compulsion on it to accept any fee proposal put to it by the contractor, and it can continue to negotiate
until it achieves fees that it is satisfied with.
The Reimbursable Costs payable to subcontractors are paid into a trust account. This promotes prompt payment and
security of payment. The contractor sets up the trust account on the terms of the trust deed in the schedule of
collateral documents which accompanies MCC-1 2003.
7.7
Incentive
As part of the "remuneration deal" negotiated before the conclusion of the Planning Phase, an incentive may be
made available to the contractor. The purpose of the incentive is to align the interests of Defence with those of the
contractor in delivering the work. Again, the negotiation of the incentive should be undertaken by an experienced
negotiation team.
Generally, the intention of providing the incentive is to:
(a)
provide the contractor with an opportunity to earn an incentive contingent upon exceptional
performance (measured against agreed key performance indicators), following completion; but
(b)
allow tenderers to nominate (within general guidelines) the incentive mechanism which would most
closely provide an alignment of interest for them.
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As a guide, the incentive mechanism should have regard to the following principles:
(c)
Defence will, at the end of the preliminary planning stage, make available an incentive pool to the
contractor;
(d)
the extent of the incentive pool, to be made available, will be determined having regard to the
performance of the contractor during the Planning Phase;
(e)
whether or not (and the extent to which) the contractor is entitled to any payment out of the incentive
pool will depend on the contractor:
(i)
either achieving completion of the initially agreed workscope for a total cost less than the
target cost, or achieving completion of the initially agreed workscope, together with
additional scope, for no more than the target cost;
(ii)
achieving completion by the target date; and
(iii)
achieving the key performance indicators agreed by the parties.
Quite apart from incentives, proposals will also be sought from tenderers as to the extent to which they are prepared
to put at risk any part of their fees, depending upon their performance.
7.8
Whole of Life/Ecologically Sustainable Development
Defence has developed general "Whole of Life Objectives" and "ESD Principles". They are able to be added to on a
project by project basis.
Tenderers are requested to submit a "WOL Plan" at the time of tender indicating how they propose to further the
objectives and principles set by Defence. There will be scope for the tendered plan to be negotiated with the
preferred tenderer. Once a contract is entered into, the contractor will be required to comply with its tendered plan
(as negotiated and as later amended with the consent of the contract administrator) and to use best endeavours to
achieve the stated Defence objectives and principles.
The contractor will have an obligation to identify proposals for maximising the stated Defence objectives and
principles during the course of design and construction. There will also be a regime of periodic reviews of, and
reports on, progress against the tendered plan and the stated objectives and principles.
At present, there will be no express incentives or penalties for the achievement (or otherwise) of WOL Objectives
and ESD Principles. However, the results of any post occupancy evaluation carried out may be used in the
evaluation of any future tenders submitted by the contractor to Defence.
7.9
Subcontractors (including consultants and subcontractors)
The subcontract tender documentation must be approved by the contract administrator before the contractor invites
tenders from subcontractors. The contractor must examine and analyse tenders and recommend to the contract
administrator which tender it considers should be accepted.
The contract administrator has the right to reject the contractor's recommendation and direct the contractor to accept
the tender of another tenderer. The contractor must enter into a subcontract agreement with the approved tenderer in
the form of agreement contained in the subcontract tender documentation.
The contractor is responsible for administering, supervising, inspecting, coordinating and controlling the work of all
subcontractors which it has engaged. The contractor is also responsible for all subcontractors and their work as if
the contractor was itself executing the work.
When making a payment claim, the contractor must provide the contract administrator with a statutory declaration
declaring that all subcontractors have been paid all moneys due and payable to them. All moneys payable to
subcontractors are paid through a trust account to facilitate security of payment to subcontractors. That is, the
money held in trust must be used to pay subcontractors and cannot be used for any other purpose (eg the payment of
the contractor's creditors).
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Standard form subcontracts for use with MCC-1 2003 have been prepared and are in the Schedule of Collateral
Documents. Their purpose is to ensure that, given Defence is paying the amounts payable to subcontractors as part
of the Reimbursable Costs, the risk allocation reflects one which provides value for money.
Accordingly, Defence should always ensure that, if a contractor suggests different forms of subcontract, they are not
either passing through risks to the subcontractor which the contractor should be bearing (and adding to the
Reimbursable Costs payable by Defence) or providing a risk allocation which reduces cost certainty for Defence by
providing undue opportunities for further remuneration.
8.
DESIGN SERVICES CONTRACT ("DSC-1 2003")
8.1
General
DSC-1 2003 is used by Defence for the procurement of design services. There is no Defence "panel" for the
provision of design services. The DIP and DEHP Panel arrangements should generally not be used except to the
extent described in the relevant Statements of Work, as they may not specifically address the relevant "design
issues" or Defence's required risk allocation for designs.
8.2
Key features of DSC-1 2003
The key features of DSC-1 2003 are set out as follows:
(a)
Standard of care
Although the consultant's basic obligation is to carry out the services in accordance with the contract,
the contract imposes a standard of care which it must exercise. In particular, the consultant must
exercise the standard of skill, care and diligence of an expert professional provider of the services. This
is a high standard which Defence expects of all its design consultants (ie that they be "experts" in
designing the relevant facilities), and it should therefore not be subject to change at the request of a
consultant. The consultant must also warrant that each of its subconsultants will exercise the same
standard of skill, care and diligence.
The consultant must also:
(b)
(i)
use its "best endeavours" to ensure that its design documentation is fit for its intended
purpose;
(ii)
ensure that the services are provided economically and in accordance with any budgetary
requirements; and
(iii)
exercise the utmost good faith in the best interests of Defence and keep Defence fully and
regularly informed of all matters affecting or relating to the services.
Payment
Payment under the contract is on the basis of a lump sum and is made on the completion of certain
milestones or on a monthly basis (depending on the option chosen).
Apart from the lump sum fee, the contract makes provision for additional costs in respect of:
(c)
(i)
a change in statutory requirements after the award date resulting in extra costs being
incurred by the consultant;
(ii)
variations at the direction of the contract administrator;
(iii)
suspension of the contract by the contract administrator; and
(iv)
acceleration.
Time
The consultant must regularly and diligently progress the services and achieve completion of each
milestone by the date specified for completion in the contract particulars. Although there is no liability
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on the consultant for liquidated damages for delayed completion, the consultant could be liable for
general damages if it fails to meet a milestone and Defence suffers loss.
(d)
Programming
The consultant is required to prepare a program of the services, within 14 days of the award date, which
must be approved by the contract administrator. The consultant must update the program periodically at
specific intervals to take account of any changes to the program or delays which may have occurred or
extensions of time which may have been granted.
(e)
Extension of time
The consultant may only claim an extension of time if it has been delayed in completion of a milestone
by a breach by Defence, any act or omission of Defence, the contract administrator or other contractor
engaged by Defence or a variation at the direction of the contract administrator.
(f)
Acceleration
The contract administrator has the power to require the acceleration of the consultant's performance of
its services. However, the power to require acceleration under DSC-1 2003 differs from the power
under HC-1 2003 in the following key aspects:
(i)
it is not predicated on the consultant first having submitted a claim for an extension of time;
(ii)
the contract administrator can unilaterally seek to bring the original date for completion
forward; and
(iii)
the consultant only has a "best endeavours" obligation to achieve the accelerated date for
completion.
The intention of the acceleration provision is that Defence be able to require the consultant to deliver
design earlier than originally agreed due to changes in the project program. In exchange, the consultant
is entitled to extra costs properly and reasonably incurred in complying with the direction to accelerate.
(g)
Review of design documentation
The consultant must submit the design documentation it prepares to the contract administrator, but there
is no obligation on the contract administrator to review the design documentation. The contract
administrator is absolved from liability for errors in design and omissions if it does exercise its right to
review the consultant's design documentation. Specifically, the contract provides that the contract
administrator does not assume or owe any duty of care to the consultant for errors, omissions or
compliance with the contract.
If the contract administrator does review the consultant's design documentation, it has the right to reject
it and the consultant must then resubmit amended design documentation. Despite the contract
administrator's ability to reject design documentation, it should endeavour not to unduly interfere with
the consultant's design, as this may lead to the consultant being relieved of sole responsibility for design
problems.
(h)
Licence over design documentation
The consultant grants Defence a perpetual, royalty-free, irrevocable, non-exclusive, worldwide licence
to exercise all rights of the owner of the intellectual property rights in the design documentation. This
clause does not give Defence ownership of the intellectual property. Rather, the clause is designed to
ensure that Defence is able to exercise any of the rights held by the actual owner of the intellectual
property in the design documentation which includes any other material brought or required to be
brought into existence by the consultant as part of carrying out the services.
9.
NATIONAL CODE
Defence's contractors and consultants must comply with the National Code, and the relevant Implementation
Guidelines for the National Code of Practice for the Construction Industry ("Guidelines"). The Guidelines and
National Code are available at www.workplace.gov.au.
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This is an absolute requirement, which cannot be avoided. If there are any concerns, (either during a tender process
or during project delivery) the matter must be immediately referred to DCC.
The National Code requires that contractors and consultants performing construction activities for or on behalf of
Defence:
(a)
comply with awards and/or certified agreements;
(b)
comply with laws relating to freedom of association, right of entry and strike pay;
(c)
act responsibly and fairly in the resolution of any disputes which may occur;
(d)
take a positive approach toward improving productivity through flexible workplace practices and
working arrangements; and
(e)
take a responsible approach to industrial relations, leading to economically-sustainable arrangements.
The Guidelines identify how the National Code should be applied on Australian Government projects.
Defence's contractors and consultants must ensure that all subcontracts impose equivalent obligations in respect of
the Guidelines and National Code on subcontractors and subconsultants.
10.
PANEL CONTRACTS
10.1
Defence Infrastructure Panel ("DIP") Subpanel for Contract Administrators
HC-1 2003, MCC-1 2003, DSC-1 2003 and MW-2 2004 require Defence to appoint a contract administrator to
administer the contracts. The contract administrator acts as Defence's agent and is primarily responsible for giving
all directions to the contractor or consultant. The contract administrator may be an internal employee of Defence or
a private sector consultant (but is usually the latter).
The requirement that the contract administrator act as the agent of Defence and not as a certifier when exercising the
contract administrator's functions under a contract ensures that the contract administrator can act on Defence's
instructions and does not have to exercise its functions independently of these instructions. This is appropriate given
that the contract administrator will usually be a consultant engaged and paid for by Defence.
Defence has established the DIP for the purposes of providing Defence with access to a variety of expert
consultants, including contract administrators. The terms of appointment of the consultants to the DIP are governed
by the Panel Agreement. Specific projects are governed by Terms of Engagement. Defence will normally select a
consultant from the DIP (as opposed to an internal employee) to act as the contract administrator for a project.
Regardless of the terms of the agreement between Defence and the contract administrator, the relevant contractor or
consultant will be entitled to rely on the actions of the contract administrator under the contract. Defence will be
bound by those actions of the contract administrator, as against the contractor or consultant, because the contract
administrator is the agent of Defence. The contract administrator has obligations to consult with and inform
Defence with respect to matters impacting on the project, and should not make any material determinations or give
any material directions without such prior consultation.
The contract administrator has broad functions under each of the contracts, some of which are compulsory (eg
granting an extension of time, certifying payment or issuing a completion certificate) whilst others are discretionary
(eg ordering a variation). As the contract administrator's functions are broad, it will often be necessary for the
contract administrator to delegate certain functions to others. A comprehensive list of the contract administrator's
functions can be found in Volume 3 of the manuals for HC-1 2003, MCC-1 2003, DSC-1 2003 and MW-2 2004.
Because the contract administrator has the primary responsibility for giving directions to the contractor, Defence
personnel should ensure they provide all of their instructions through the contract administrator, who can then direct
the contractor in a co-ordinated way. If Defence personnel instruct the contractor directly and individually, then it is
likely that this will expose Defence to claims for times and cost. This should therefore be avoided.
10.2
Other Panels
The other Defence panels relate to:
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(a)
environment and heritage services;
(b)
UXO;
(c)
legal services; and
(d)
other sub-panels of the DIP, such as planning.
The purpose of those panels is to provide Defence with access to "pre-qualified" groups of specialists, through
stream-lined processes which reduce the time and cost involved in procurement. Also, over time, it is anticipated
that the panellists increase their understanding of Defence business and their expertise in providing services to
Defence. Details of these panel arrangements are located on the Defence Infrastructure Management website.
11.
DETAILED CONTRACTOR'S OR CONSULTANT'S ACTIVITIES PROPOSAL
("DCAP")
The tender documents for MCC-1 2003 and DSC-1 2003 request the submission of a DCAP, which focuses on the
tenderer's approach to key processes such as design development, cost planning, relationship contracting, team
building and subcontractor procurement processes. The DCAP serves at least 3 distinct functions:
(a)
it provides tenderers with a basis for distinguishing the innovations which they can provide to the
management aspects of the form of delivery. At the same time, the DCAP will provide Defence with
the ability to evaluate a tenderer's approach;
(b)
it will be subject to negotiation with the preferred tenderer after which it will become a contract
document. This means that the contractor or consultant will then be bound by the representations made
by it at the time of tender and Defence will be able to enforce those representations; and
(c)
it provides tenderers with an opportunity for obtaining a full understanding of Defence's expectations
(i.e. through the process of preparing the DCAP).
Essentially, the DCAP is a "reverse brief" explaining how the contractor or consultant will approach the delivery of
its activities or services, is used in tender evaluation and subsequently becomes a contractually binding document.
Before being attached to the contract, it should be the subject of a collaborative workshop, in which it is negotiated
and finalised to the satisfaction of Defence. Amongst other matters, this process should ensure that the DCAP does
not contain assumptions, words of limitation or exclusion, any legal or commercial terms or any provision which is
inconsistent with the other provisions of the contract.
Under the conditions of contract, the contractor or consultant warrants that the DCAP and design documentation
comply with the requirements of the contract and, in the case of MCC-1 2003, that construction in accordance with
the DCAP will ensure that the works achieve completion in accordance with contract.
The DCAP is intended to be dynamic and therefore subject to change, as and when required, to ensure it reflects
what is required to deliver the relevant works or services. It does not represent a limitation on the scope of the
obligations of the contractor or consultant.
12.
OTHER FORMS OF CONTRACT
12.1
MW-2 2004
This contract has been developed by Defence for the procurement of construct only or design and construct lump
sum delivery for medium works. MW-2 2004 generally allocates risk in a way which is more weighted towards the
contractor. It is not merely a "short" version of HC-1 2003.
Although generally following the format of HC-1 2003 (albeit with less detail), the "softer" risk allocation is
because the sorts of works which are likely to be the subject of this contract (being smaller, simpler and lower risk)
will involve contractors less likely to accept the risk allocation under HC-1 2003. See the comparative risk matrix in
Annexure A.
12.2
Minor Works Contract
This can also be used for construct only or design and construct lump sum delivery. It is to be used for simple
works (eg involving a single trade) that are not especially risky.
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The risk allocation is generally like MW-2 2004. However, there are some differences.
This form is now primarily used under the CMC. It would generally be more appropriate to use MW-2 2004 for
Defence infrastructure projects, given their value.
13.
COLLATERAL DOCUMENTS
13.1
General
Each contract in the Suite refers to a "Schedule of Collateral Documents" which the contractor or consultant must
either produce, enter into with Defence or agree to comply with. Some of the collateral documents include:
(a)
Unconditional Undertaking;
(b)
Collateral Warranty;
(c)
Deeds of Novation:
(d)
Moral Rights Consent;
(e)
Subcontractor Deed of Covenant;
(f)
Consultant Deed of Covenant;
(g)
Payment Claim;
(h)
Payment Statement; and
(i)
Expert Determination Agreement.
There are also collateral documents dealing with the National Code and certain certifications.
13.2
Unconditional Undertaking
Under HC-1 2003, MCC-1 2003 and MW-2 2004, the contractor is required to provide security to Defence in the
form of "Approved Security" in the amount set out in the contract particulars. The approved security is an
unconditional undertaking, that is, a "bank guarantee". The financial institution undertakes to pay Defence the
amount set out in the undertaking, being the equivalent amount to that set out in the contract particulars, on receipt
of a demand from Defence.
There is a prescribed form of unconditional undertaking. However, if a financial institution wishes to use its own
form of unconditional undertaking rather than the prescribed form, this may be acceptable to Defence provided all
the requirements in the Defence proforma appear in substance in the form of undertaking provided by the financial
institution. Advice from the LSP should be sought if the contractor asserts that its bank wishes to use its own form
of undertaking.
13.3
Collateral Warranty
Under HC-1 2003, MCC-1 2003 and MW-2 2004, the contractor must obtain from subcontractors those warranties
as are specified for minimum warranty periods for goods supplied under the contract in a prescribed form. The
prescribed form of warranty is the "Collateral Warranty". This creates a direct legal relationship between Defence
and the "warrantors" which Defence can later enforce.
13.4
Moral Rights Consent
Certain works which attract copyright protection are also protected by moral rights. These are rights under the
Copyright Act 1968 (Cth) and are additional to traditional copyright. Unlike copyright, moral rights cannot be
assigned, licensed or waived. Moral rights attach to individual authors and not organisations such as companies.
An author's moral rights in respect of work are:
(a)
the right to be identified as author of that work;
(b)
the right to prevent authorship of the work being falsely attributed to someone else; and
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(c)
the right not to have the work subjected to derogatory treatment.
In an extreme case, an author may exercise the third right in the list above to limit how Defence could use material
created by that author. As an example, an architect who prepared a design for a building may claim that changes to
the design subsequently required by Defence amount to a derogatory treatment of the original design. This risk
exists despite the broad licence which the contractor grants to Defence under the contract (as the contractor or
consultant cannot licence use of the author's moral rights).
The contracts contain provisions which are aimed at protecting Defence and other parties engaged on a project
against any liability to the contractor or consultant (or to individuals who are authors of work under the agreement)
for breach of a person's moral rights in respect of any project documents by releasing Defence and other parties
engaged on a project from liability for certain acts which may otherwise be in breach of an individual's moral rights.
The contractor or consultant must obtain the consent of any person who is or may be an author of any material
which may be used in connection with the works or services in the form of the "Moral Rights Consent".
There are two forms of moral rights consent - one for an individual author and one where there are multiple authors.
13.5
Payment Claim
A "Payment Claim" is the prescribed form which must be completed and submitted by a contractor or consultant
when it makes a claim for payment.
13.6
Payment Statement
A "Payment Statement" is the prescribed form which the contract administrator must give the contractor or
consultant on behalf of Defence within 10 business days of receiving a payment claim from the contractor or
consultant. The Payment Statement must provide details of the payment claim to which it relates, the value of work
completed, the amount already paid to the contractor or consultant, and the amount which the contract administrator
believes to be payable to the contractor or consultant under the contract. If this amount is less than the amount
claimed by the contractor or consultant, the contract administrator must provide reasons for the lesser amount.
These reasons are critical.
Both this payment statement (and the payment claim, above) are in standard form because of the security of
payment legislation around Australia. To ensure that Defence and its contract administrators are in the best position
to comply with the requirements of the legislation in certifying payment claims, these forms have been provided and
must be used.
13.7
Expert Determination Agreement
The "Expert Determination Agreement" sets out the terms of appointment of an expert if a dispute is submitted to an
expert for determination.
13.8
Subcontractor and Consultant Deeds of Covenant
The subcontractor and consultant deeds of covenant bring Defence into direct contractual relationship with the
relevant subconsultants and subcontractors engaged by contractors or consultants. Subcontractors and
subconsultants employed by contractors or consultants warrant to Defence that in designing the project or elements
within the project they will exercise due care and skill. Subcontractors warrant to Defence that they will carry out
the subcontract works in a thorough and tradesmanlike manner using good quality materials which are fit for their
purpose.
Defence, by virtue of the contractual relationships created by the deeds, is in a position to commence an action
directly against subconsultants or subcontractors for defects in a project resulting from breach of the warranties
contained in the deeds. In this manner, Defence has a remedy directly against the party at fault which is a
significant protection to Defence where, for example, the contractor employing the consultants or subcontractors is
wound up.
A further protection of Defence's interest is the option in the deeds to take over the terms of engagement subcontract
(either itself or by a substituted contractor) to ensure subconsultants and subcontractors are bound to continue on a
project despite the contractor or consultant dropping out.
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14.
CONTRACT MANUALS
14.1
General
Contract manuals have been prepared to give guidance to Defence personnel on HC-1 2003, MCC-1 2003, DSC-1
2003 and MW-2 2004. The contract manuals for HC-1 2003, MCC-1 2003, DSC-1 2003 and MW-2 2004 comprise
six separate volumes which are discussed below.
The manuals are not a substitute for reading each contract. You should read the manuals in conjunction with each
contract, as this will assist your understanding of the contracts.
14.2
Volume 1 - Introduction
This volume provides background information about the format, structure and purpose of each of the contract
manuals. This volume also describes how the manual is divided into six separate volumes, being:
(a)
Volume 1: Introduction;
(b)
Volume 2: Completing the Tender and Contract Documents;
(c)
Volume 3: Clause- by-Clause Guidance for the Conditions of Contract;
(d)
Volume 4: Flowcharts;
(e)
Volume 5: Proforma Notices; and
(f)
Volume 6: Clause-by-Clause guidance for Special Conditions.
The key features of Volume 1 are set out below:
(g)
general background information including key principles;
(h)
details of optional clauses contained in the contract which can affect risk allocation;
(i)
details of the contract structure including pre-contractual tender stages;
(j)
a summary of the protection of Defence's rights (HC-1 2003 only: this contract contains provisions
which protect Defence against a number of matters including problems arising through nominating
subcontractors, the effect of approval on behalf of Defence of contractor design, environmental
pollution or damage, occupational health and safety problems);
(k)
description of the two phase delivery, being Planning Phase and Delivery Phase (MCC-1 2003 only);
and
(l)
notable features of the contract including contractor's remuneration, incentives, DCAP, and whole of
life/ecologically sustainable development (MCC-1 2003 only).
14.3
Volume 2 - Completing the Tender and Contract Documents
This volume provides detailed guidance on the tender process, from the issuing of the initial Invitation to Register
Interest document (two-stage tender process), the Tender Documents and the completion of the final contract
documents once the tender process is complete and the successful tender is selected.
The volume is separated into a number of sections, which reflect the different stages and procedures that must be
completed by Defence during the procurement process.
(a)
Section 1 - Outline of Manual
Section 1 contains general commentary on the manual and the tender process.
(b)
Section 2 - Invitation to Register Interest
Section 2 is broken down into the following sub-sections:
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(c)
(i)
general information;
(ii)
completing the ITR clauses by Defence. This sub-section sets out a table containing
information on the clauses which must be completed by Defence (or its ITR Administrator)
prior to issue to Applicants. The table also contains guidance notes;
(iii)
completing ITR Schedules by Defence. This sub-section lists all the ITR Schedules that
require the insertion of additional information by Defence (or its ITR Administrator) prior to
issue to Applicants; and
(iv)
clause-by-clause commentary. This sub-section sets out a clause-by-clause commentary on
specific clauses of the ITR.
Section 3 - Tender Documents
This section gives guidance on completion of the Tender Documents by Defence before being issued to
tenderers, details of the manner in which, and the conditions under which, a tenderer is to submit its
tender and the prerequisites to, and basis for consideration and acceptance of, tenders by Defence.
This section includes:
(d)
(i)
a table to assist Defence personnel in preparing the Tender Documents. The table lists all
the details that need to be filled out and amendments that need to be made by Defence to the
Tender Documents;
(ii)
clause-by-clause commentary on the specific clauses of the Tender Conditions;
(iii)
a summary of the table of Tender Particulars in Part 2 of the Tender Conditions with an
explanation as to what information needs to be inserted by Defence (or its Tender
Administrator); and
(iv)
commentary on the preparation and analysis of the Tender Schedules. Guidance notes are
also included as well as details of the information that is to be inserted by Defence (or its
Tender Administrator).
Section 4 - The Contract
This section provides commentary and guidance on completing the Conditions of Contract and the
Contract Particulars to enable them to be included in the Tender Documents.
(e)
Section 5 - Finalising the Contract
This section provides guidance on finalising the Conditions of Contract and Contract Particulars once
the successful tenderer is chosen and the parties wish to formally execute the contract, including:
14.4
(i)
what must and must not be included in the contract;
(ii)
the parts that comprise the contract, namely the letter of acceptance or formal agreement,
Conditions of Contract, Contract Particulars, annexures to the Conditions of Contract,
Special Conditions and other documents referenced in the Contract Particulars;
(iii)
guidelines to the information and details to be included in Contract Particulars; and
(iv)
formalities for the execution of contracts.
Volume 3 - Clause-by-clause Guidance
This Volume provides a commentary on each clause of the Conditions of Contract, explaining the purpose of the
clause within the contract and matters of which personnel should be aware in relation to it. Interspersed throughout
the clause-by-clause commentary is general advice about issues likely to be encountered in the administration of the
contract, such as:
(a)
communication and meetings with various contractor or consultant personnel; and
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(b)
dealing with claims made by the contractor, including those in respect of the primary risk areas of time,
cost (including variations) and quality.
The Volume also provides a general discussion of the major themes within the contract, including quality and
defects, time and progress, variations and payment procedures.
14.5
Volume 4 - Flowcharts
This volume contains a number of flowcharts, which provide diagrammatical explanations for various processes
under HC-1 2003, MCC-1 2003, DSC-1 2003 and MW-2 2004. The flowcharts may be used by Defence to evaluate
the stages and steps within those processes and to understand what options Defence has and what actions should be
taken upon notification or occurrence of certain events.
For example, the flowcharts set out procedures to follow in relation to matters such as variations, payment,
termination, disputes and extensions of time. It is important to note that the flowcharts are intended to be used for
preliminary guidance only, and Defence personnel must carefully assess their rights and obligations under the
contract, where action is required.
14.6
Volume 5 - Proforma Notices
This volume contains proforma notices to assist both parties in complying with the formal notification requirements
of the Conditions of Contract.
The proforma notices:
(a)
indicate from and to whom particular notices or instructions must be sent;
(b)
set out information which must be contained in the notice;
(c)
contain instructions to the persons preparing the notice indicating what additional information should be
provided or completed; and
(d)
set out options where more than one option is provided.
14.7
Volume 6 - Clause-by-Clause Commentary on Special Conditions
This volume provides commentary on each clause of the menu of special conditions available for inclusion in
Defence contracts. The special conditions deal with specific issues including the discovery of hazardous substances
on site, the use of hazardous substances, and the Heritage Act 1995 (Vic) requirements (amongst others).
Importantly, the Special Conditions contain the occupational health and safety provisions applicable to each
jurisdiction.
The special conditions have not been included in the general Conditions of Contract, because they deal with subject
matter which is likely to be project specific. Therefore, their inclusion in Defence contracts needs to be considered
on a case-by-case basis. The words "ALL CONTRACTS" etc in the special conditions do not indicate that the
special condition should be used for all contracts, rather that the special condition can be used, if it is necessary for
the project, with amendments as indicated.
This process needs to be discriminating for two reasons. Firstly, an existing special condition should only be used
where an assessment has been made that it is generally required. Secondly, a consideration should be made of all
other project risks, and new special conditions developed to deal with any of those risks not covered by the existing
menu. Such "non-standard" special conditions should always be reviewed by a member of the LSP and the DCC.
15.
RISK ALLOCATION
As the Defence contracts have been developed for different types of projects and project delivery methods, the risk
allocation under each contract is not identical. Please refer to the table set out in Attachment A for a comparison of
the risk allocation under HC-1 2003, MW-2 2004, MCC-1 2003 and DSC-1 2003.
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Annexure A - Risk Matrix
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Risk
HC-1 2003
MW-2 2004
MCC-1 2003
DSC-1 2003
Risk of Works
Except to the extent that loss or
damage arises from a
"Commonwealth Risk", the
contractor bears the risk of, and
must indemnify Defence against,
loss or damage to the Works and
unfixed goods and materials
(whether on or off-Site) until a
Notice of Completion issues for the
Works.
As per HC-1 2003.
As per HC-1 2003.
No equivalent provision (given
no construction obligations) but
refer to indemnity below.
After the issue of a Notice of
Completion, the contractor's risk is
limited to any loss or damage to the
Works which results from
something that the contractor does
(or does not do) while it is
rectifying defects or from
something which occurred before
the issue of the Notice of
Completion. The contractor's risk
does not include a Commonwealth
Risk.
Commonwealth Risks include such
things as:

Legal\101242374.12
war, invasion,
revolution, hostilities,
act of foreign enemies,
civil war, rebellion,
insurrection or military
or usurped powers,
martial law or
confiscation by order
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Risk
HC-1 2003
MW-2 2004
MCC-1 2003
DSC-1 2003
No equivalent provision, but this
would effectively be the position
in any event to the extent of the
contractor's assumption of the
risk of the Works.
As per HC-1 2003.
No equivalent provision.
As per HC-1 2003 except that
there is no carve out for loss,
damage, injury or death
contributed to by Defence, the
contract administrator or another
contractor.
As per HC-1 2003.
No equivalent provision but
refer to indemnity below.
Generally as per HC-1 2003.
As per HC-1 2003.
No equivalent provision.
of government;
Reinstatement

terrorism; and

ionising radiations or
radioactive
contamination.
Contractor must reinstate at its own
cost, except where due to a
Commonwealth Risk.
Note: reinstate means to replace or
otherwise make good any loss of,
or repair the damage to, the Works
or any unfixed goods and
materials.
Public Liability
Except where it arises from a
Commonwealth Risk, the
contractor indemnifies Defence for
loss or damage to Defence property
and third party claims arising out
of property damage or personal
injury or death arising out of the
Contractor's Activities.
The contractor's responsibility is
reduced to the extent an act or
omission of Defence, the contract
administrator or another contractor
contributed to loss, damage, injury
or death.
Site Information
Legal\101242374.12
Defence warrants that it has made
available to the contractor certain
site information obtained by
Defence for purpose of the Works.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
Risk
HC-1 2003
MW-2 2004
MCC-1 2003
DSC-1 2003
Generally as per HC-1 2003,
except the provisions dealing
with Latent Conditions are not
optional. Defence bears the risk
of Latent Conditions.
No equivalent provision, as this
is dealt with in the subcontracts
for construction work.
No equivalent provision.
As per HC-1 2003.
MCC-1 2003 is design and
construct only. Contractor is
required to design the Works in
accordance with the Brief and
other requirements of the
Contract. Fitness for purpose
warranty as per HC-1 2003.
DSC-1 2003 is a design only
contract.
The site information does not form
part of the contract and to the
extent that the law permits,
Defence is not liable upon any
claim by the contractor arising out
of the site information.
Defence does not warrant,
guarantee or make any
representation about the accuracy
or adequacy of the site information.
Latent Conditions
HC-1 2003 includes the option of
transferring the risk of Latent
Conditions to the contractor
(usually where HC-1 2003 is being
used for design and construct
delivery).
If Defence bears the risk and a
Latent Condition is encountered or
found, then the contractor will be
entitled to an extension of time and
the payment of extra costs.
Contractor's design
HC-1 2003 can be used as a design
and construct contract. If the
contract is to be used for design
and construct, then the contract
will include a design brief, which
effectively sets out the design
obligations of the contractor.
Where the contractor is obliged to
design any part of the Works, it
must warrant that the Design
Documentation it prepares is fit for
its intended purpose and, upon
Completion, the Works will be fit
Legal\101242374.12
The contractor must also
undertake site investigations and
other risk reductions studies.
The contractor must advise the
contract administrator of every
The consultant is engaged to
carry out the Services described
in the Brief, using the standard
of care of an expert professional
provider.
The consultant's Design
Documentation must comply
with the requirements of the
Contract. The consultant must
also use its best endeavours to
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
Risk
HC-1 2003
MW-2 2004
for their intended purpose.
Review of Design
Documentation by
contract administrator
The contractor must submit Design
Documentation to the contractor
Administrator but there is no
obligation on the contract
administrator to review any Design
Documentation. The contract
administrator may only reject
Design Documentation if it is not
in accordance with the Contract.
The contract administrator does not
owe or assume any duty of care to
review any Design Documentation.
If it does review, then it does not
owe or assume any duty of care in
reviewing the Design
Documentation for errors,
omissions or compliance with the
contract.
Adopting Defence's
design
Legal\101242374.12
HC-1 2003 includes the option of
passing on the design risk arising
out of Defence's design consultants
by requiring the contractor to take
a novation of agreements between
Defence and its design consultants.
This is where document and
Unlike HC-1 2003, the contract
administrator must reject or give
their permission for the
contractor to use the contractor's
design.
The contract administrator owes
no duty to the contractor to
review the contractor's design for
errors, omissions or compliance
with the contract.
No equivalent provision.
MCC-1 2003
DSC-1 2003
reasonable available method of
design and construction for the
Works and the possible
alternative materials which are
suitable for use with each
particular method.
ensure that the Design
Documentation is fit for its
intended purpose (but it does
not have a strict fitness for
purpose obligation, as it is not
usual for consultants to do so, as
it is not usually capable of being
covered by professional
indemnity insurance).
The contractor must submit its
Design Documentation to the
contract Administrator for
review. This is both during
design development in the
Planning Phase and detailed
design during the Delivery
Phase.
As per HC-1 2003.
Given the greater flexibility
under this from of delivery, the
contract administrator is not
limited to rejecting design if it is
not in accordance with the
contract (as under HC-1 2003).
Otherwise as for HC-1 2003.
As per HC-1 2003, although it
would be less likely that
document and contract be used
here.
This contains the mirror
provision, enabling Defence to
novate the consultant to the
contractor, where document and
contract delivery is being used.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
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MW-2 2004
MCC-1 2003
DSC-1 2003
contract delivery is being used.
In these circumstances, contractor
bears full responsibility for past
and future design work prepared by
Defence's design consultants.
Liability for
subcontractors
Contractor responsible for
subcontractors and for all work
which is subcontracted.
As per HC-1 2003.
As per HC-1 2003.
The consultant remains liable to
Defence for all of the Services
regardless of whether they are
ultimately subcontracted to a
third party. Similarly, the
consultant will be liable to
Defence for all acts, omissions
and defaults of subconsultants.
Defects
Contractor must correct all defects
at its own cost unless the defect is
something for which the contractor
is not responsible (in which event
corrective work will be treated as a
variation).
Generally as per HC-1 2003.
Contract makes a distinction
between non-conforming works
and defects or omissions.
As per HC-1 2003.
As the contract is for design
services, it addresses defective
design in the form of noncomplying services rather than
defects.
Defence may accept work despite a
defect or order a variation to work
around the defect.
The Contractor has primary
responsibility for correcting all
parts of the Works that are:

non-conforming
(before the date of
Completion; or

defective or
omission (after the
date of Completion),
unless otherwise directed.
Defence can direct the contractor
to respond to a non-conformance
/ defect or omission in one of
Legal\101242374.12
The contract administrator may
instruct the contractor to
respond to the non-complying
services in one of the following
ways:

to reperform the
non-conforming
services by a
specified time;

take all reasonable
steps to mitigate the
effect of the noncompliance to
45
Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
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MW-2 2004
MCC-1 2003
DSC-1 2003
Defence; and
three ways:
Maintenance during
Defects Liability
Period ("DLP")
Legal\101242374.12
If provided for in the Contract
Particulars, the contractor must
ensure that during the DLP, such
planned and unplanned
maintenance is carried out:

as required by the
Commissioning and
Handover Plan; and

as is otherwise
necessary to ensure
Works are, at end of
DLP, in a condition fit
for their intended
purpose.

to correct the nonconformance / defect
or omission;

to carry out a
Variation; or

to ignore the nonconformance / defect
or omission, in
which case, Defence
accepts the Works as
is and recovers the
cost of rectifying the
defect from the
contractor.
No equivalent provision.

to take all
reasonable steps to
put Defence in (as
closely as possible)
the position it would
have been if the
consultant had
carried out the
Services in
accordance with the
contract.
Defence may also accept the
non-complying Services despite
the non-compliance and then
recover its costs and losses from
the consultant.
As per HC-1 2003.
No equivalent provision.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
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MW-2 2004
MCC-1 2003
DSC-1 2003
DLP
DLP commences on the Date of
Completion of the Works or a
Stage and continues for the period
specified in the Contract
Particulars, unless extended.
AS per HC-1 2003.
As per HC-1 2003.
No Defects Liability Period.
Extension of DLP
If Defence gives the contractor an
instruction during the DLP, the
DLP will be extended for the work
required by the instruction by the
period set out in the Contract
Particulars.
No equivalent provision.
As per HC-1 2003.
No equivalent provision.
Time Obligations
The contractor has to achieve
Completion by the Date for
Completion, whether of the Works
or (if applicable) each Stage.
As per HC-1 2003.
The contractor must use its best
endeavours to achieve
Completion of the Works or
each Stage by the relevant
Target Date.
The consultant has an obligation
to achieve the state milestones
by the stated milestone dates
(but see liquidated damages
below)
Extension of Time
The contractor may only claim an
extension of time if the cause of
delay was beyond its reasonable
control and there has been:
Acts of delay entitling the
contractor to claim an extension
of time are broader than under
HC-1 2003 and include:
MCC-1 2003 provides for a
Target Date rather than a fixed
date for completion.
As per HC-1 2003, except there
is no provision for extension for
additional events to be set out in
the Contract Particulars.

an Act of Prevention
(breach by Defence,
other acts or omissions
of Defence, contract
administrator or other
contractor, or a
variation); or

an act or omission of
Defence, the contract
administrator or an
employee of
Defence;

a Variation;
there are other events
of delay entitling, an
extension of time set
out in the Contract
Particulars (i.e. neutral

Latent Conditions;

proceedings being
taken by adjacent or
neighbouring owners

Legal\101242374.12
Unlike the extension of time
mechanism in HC-1 2003 where
there is a fixed date for
completion with liquidated
damages for delay, as there is
only a best endeavours
obligation upon the contractor to
reach Completion by the Target
Date, MCC-1 2003 does not
provide for any mechanism to
adjust the Target Date.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
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MW-2 2004
events, such as latent
conditions, weather or
industrial disputes).
Insurance
Legal\101242374.12
Contractor must effect the
following insurance policies:

construction risks
insurance

public liability
insurance;

workers compensation
insurance;

errors and omissions
insurance or
professional indemnity
insurance (if required
by the Contract
Particulars); and

any other insurances as
MCC-1 2003
DSC-1 2003
As per HC-1 2003.
Additionally, the contractor
must ensure that subcontractors
who perform design work
maintain professional indemnity
insurance or errors an omissions
insurance.
As per HC-1 2003 but excluding
construction risks insurance and
option for errors and omissions
insurance.
or occupiers;

civil commotion or
industrial dispute
which is not
confined to the
contractor or any
subcontractor;

inclement weather;

delay of any
governmental
authority in giving
any Approval; or

compliance with the
requirements of local
or other authorities.
As per HC-1 2003 but excluding
option for errors and omissions
insurance.
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MW-2 2004
MCC-1 2003
DSC-1 2003
As per HC-1 2003, except that it
is not an optional clause.
The contractor is entitled to
have its fixed preliminaries
("Contractor's Work Fee")
increased by the amount of extra
costs incurred in respect of
delays caused by Defence acts
or omissions.
No equivalent provision.
As per HC-1 2003.
As per HC-1 2003.
As per HC-1 2003.
No equivalent provisions.
No equivalent provisions.
Defence can direct the
consultant to accelerate, but it
only has a best endeavours
obligation to do so.
required by the
Contract Particulars.
Contractor must ensure that
subcontractors have workers
compensation insurance.
Delay costs/agreed
damages
HC-1 2003 includes an option for
the payment of delay damages
payable by Defence for delays
caused by breach of contract to
take the form of "agreed damages".
The contractor is entitled to be paid
the amount specified in the
Contract Particulars for each day
by which the Date for Completion
is extended due to a breach by
Defence.
The agreed damages operate as a
limitation on Defence's liability for
damages (just like liquidated
damages in reverse).
Suspension
The contractor has no right to
suspend work under the Contract
unless ordered to do so by the
contract administrator.
However, if Security of Payment
legislation applies, contractor may
have a right to suspend work.
Acceleration
Legal\101242374.12
Instead of granting an extension of
time, Defence can require the
contractor to accelerate through all
or part of the delay, in exchange
for paying the relevant direct costs
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
Risk
HC-1 2003
MW-2 2004
MCC-1 2003
DSC-1 2003
As per HC-1 2003.
As per HC-1 2003.
No equivalent provision.
As per HC-1 2003.
MCC-1 2003 has the option of
including an incentive
mechanism which rewards early
completion (as well as other
exceptional performance).
No equivalent provision.
of doing so plus an agreed margin.
Unfixed goods and
materials
Unfixed goods or materials will not
be included in the value of the
work unless certain conditions
have been satisfied including the
provision of additional security for
the amount claimed by the
contractor and
evidence that title to the goods will
pass to Defence on payment.
Additional security will be released
once the goods and materials are
incorporated into the works.
Bonus incentive
A bonus may be stipulated in the
Contract Particulars. Defence must
pay the contractor the bonus
amount for each day Completion of
the Works or a Stage is early (i.e.
occurs before the fixed bonus date,
which is not subject to extensions).
The incentive mechanism uses
key performance indicators to
calculate the incentive.
The contractor must provide a
monthly report with each
payment claim which includes
an analysis of its performance
against the key performance
indicators.
Indemnity
Legal\101242374.12
Contractor must indemnify
Defence against any liability,
claim, cost, loss or damage arising
out of a breach by the contractor.
As per HC-1 2003.
As per HC-1 2003.
As per HC-1 2003.
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Department of Defence - Infrastructure Division - Suite of Contracts - An Introduction
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HC-1 2003
MW-2 2004
MCC-1 2003
DSC-1 2003
Liquidated damages
If the Works or a Stage do not
reach Completion by the relevant
Date for Completion, the contractor
must pay liquidated damages at the
rate specified in the Contract
Particulars for every day after the
Date for Completion until the Date
of Completion or until the contract
is terminated (whichever occurs
first).
As per HC-1 2003.
No equivalent provision.
No equivalent provision.
Delayed access
A failure by Defence to grant
access to the Site by the contractual
date is not a breach of Contract.
As per HC-1 2003.
No equivalent provision as there
is no extension of time or agreed
damages mechanism.
No equivalent provision.
Contractor's only entitlement is to
the actual costs incurred for
delayed access and to an extension
of time to any relevant Date for
Completion.
Security
The contractor must provide
security to Defence by way of an
unconditional undertaking (bank
guarantee) within 14 days of the
Award Date.
As per HC-1 2003.
As per HC-1 2003 except that
contractor must provide security
as a condition precedent to
Planning Phase Approval.
No equivalent provision.
Release of Security
Defence must release 50% of the
security upon Completion of the
Works or for each and every Stage
and the remaining 50% at the end
of the last DLP. Defence may vary
these amounts where it considers
that more money is required to be
withheld in order to ensure that the
interests of Defence are protected.
As per HC-1 2003, except that
Defence has no right to vary the
amounts.
As per HC-1 2003.
No equivalent provision.
Legal\101242374.12
51