Ministerial Direction No 2: Contractual provisions for public construction

Ministerial Direction No 2: Contractual provisions for public construction

Issued by the Minister for Finance under the Project Development and Construction Management Act 1994

Effective 1 December 2016

Department of Treasury and Finance

1 Treasury Place

Melbourne Victoria 3002

Australia

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dtf.vic.gov.au
Authorised by the Victorian Government

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© State of Victoria 2016

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ISBN 978-1-925551-23-5 (pdf/online)

Published November 2016

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Contents

1.Introduction 4

1.1Authority 4

1.2Effectiveness 4

1.3Application 4

1.4Order of precedence 4

1.5Definitions and interpretation 4

2.Contractual requirements 5

2.1General principles 5

2.2Mandatory requirements for public construction contracts 6

1.Introduction

1.1Authority

This Direction is issued pursuant to Section 30 of the Act by Robin Scott, the Minister for Finance and the Minister responsible for Part 4 of the Act.

1.2Effectiveness

This Direction is effective from 1 December 2016 and supersedes Ministerial Direction No 2, version 1, effective from 1 December 1996, which is repealed and replaced from the effective date of this Direction.

1.3Application

This Direction applies to public construction as defined in the Act.

1.4Order of precedence

In accordance with Section 31 of the Act, to the extent that this Direction is inconsistent with a provision of a supply policy within the meaning of the FMA, this Direction is to prevail.

1.5Definitions and interpretation

(a)In this Direction:

Term	Meaning
Accountable Officer	has the meaning given to it in the FMA.
Act	means the Project Development and Construction Management Act 1994.
Agency	means a department or public body, in each case as defined in the Act.
FMA	means the Financial Management Act 1994.
Department	means the department supporting the Minister for the time being responsible for Part 4 of the Act.
related services	means building and construction related services.
Secretary	means the Secretary of the Department.
works	means building and construction works.

(b)For the purposes of this Direction, a reference to an Act or subordinate instrument is a reference to that Act or subordinate instrument as amended from time to time.

2.Contractual requirements

The following requirements must be adhered to when entering into any contract to undertake works and/or for the supply of related consultancy services.

2.1General principles

(a)General conditions of contract standard in the industry and where possible Australian Standards are to be used.

(b)Special conditions of contract are to be kept to a minimum and are not to be onerous.

(c)Contract conditions shall, as far as practicable, allocate risks to the party best able to manage the risk.

(d)Where applicable, the head contract shall require the use of subcontract conditions compatible with the head contract conditions and consistent with the principles of risk allocation and security of payment set out in this Direction.

(e)General conditions of contract, including special conditions, must be in a form approved by the Secretary or a person authorised in writing by the Secretary.

(f)A least six months’ notice shall be given by the Secretary (or the person authorised in writing by the Secretary) for the withdrawal of approval to use a form of contract.

(g)Contract values applicable to particular forms of contract, the process for approval of forms of contract, and other matters shall be specified in the Guide to Ministerial Direction No 2 published from time to time by the Secretary, which is hereby incorporated into this Direction.

2.2Mandatory requirements for public construction contracts

(a)Contracts must provide for:

(i)fair entitlement to payment;

(ii)prompt payment;

(iii)proof of payment to subcontractors and suppliers – at a minimum, mandatory standardised statutory declarations stating payments have been made;

(iv)the use of bank guarantees as an alternative to cash securities; and

(v)alternative dispute resolution.

(b)Contracts must prohibit the:

(i)use of ‘pay when paid’ or ‘pay if paid’ clauses in subcontracts; and

(ii)amendment of clauses relating to payment timing in subcontracts.