Defining public construction (Public construction - Guidance 1.3b)

Effective date: 30 December 2018

Objective: To help practitioners work out if a procurement is public construction

Summary

This guidance sets out examples of matters which:

• meet the definition of public construction
• may potentially be included in the definition of public construction
• are not included as public construction.

Defining public construction

The Ministerial Directions apply to procurement of ‘public construction’, which is a term defined in the Project Development and Construction Management Act 1994 as:

‘any matter relating to the construction, maintenance, rehabilitation, alteration, extension or demolition of any improvements on land by, or on behalf of, departments or public bodies and includes:

• design and construction practices
• tendering processes
• project delivery
• contract administration.

Taken literally, the words ‘any matter relating to’ in this definition mean the Directions could apply to almost anything with a connection to improvements made to land. However, practitioners generally take a more practical view, to avoid perverse outcomes in the application of the rules.

When it is unclear if a procurement falls within the definition of public construction, practitioners will need to make a judgement on the most appropriate way to categorise their procurement. This may mean that in some situations the Directions are the most appropriate rules for that procurement, while in others the Victorian Government Purchasing Board policies will be used. In all cases, the overarching principles set out in the Standing Directions 2018 made under the Financial Management Act apply.

Advice should be sought in the first instance from the area responsible for procurement within the Agency to ensure a consistent application of the requirements within the Agency’s internal governance frameworks, when it is unclear if a procurement falls within the definition of public construction.

If further information is required, the Construction Policy Unit within the Department of Treasury and Finance can provide additional advice to help determine whether the procurement is public construction.

The Victorian Government Purchasing Board can provide advice for goods and services procurement.

All decisions about whether or not a procurement is ‘public construction’ and the reasons supporting the decision should be clearly documented.

Once a decision is made, the applicable rules should be followed consistently throughout the procurement process.

Applying the definition of public construction

Some types of procurement that are relatively easy to classify as public construction, In practice, however, there are a many matters that are more difficult to classify.

The following general questions may help practitioners determine whether a procurement which may meet the definition of public construction should be classified as a ‘public construction’:

• If the procurement is for a package of goods or services, some of which are public construction and others that are not, what is the primary and predominant focus of the procurement and are goods or services required for the project acquired under the same contract?
• Does the procurement have an obvious physical impact on land or an improvement to land, for example does it alter the land or physical structures on it?
• What contractual terms are most appropriate for the procurement, for example is there a site that must be managed? What warranties are needed from the supplier?
• Is the procurement covered by a mandatory State Purchase Contract, such as financial advisory services, probity or legal services? If so, then the State Purchase Contract applies.
• Are the costs associated with the procurement classed as asset expenditure or output (operational) expenditure for financial reporting purposes? Practitioners should note that while this may be helpful in some situations, it is not a determinative assessment as not all asset expenditure is public construction, for example rolling stock or information communication and technology equipment.

Activities commonly raised for clarification are listed and the underlying thinking leading to the classification are presented to support consistency in the interpretation of what is considered public construction procurement.

Examples of matters are set out which:

• are clearly included as public construction
• may potentially be included as public construction
• are not included as public construction.

Examples of matters which meet the definition of public construction

Building and construction-related services

Professional services such as:

• architectural services
• engineering design
• surveying
• construction and project management.

Note: services covered by State Purchase Contracts must be procured in accordance with the State Purchase Contracts. For example, legal advice for the purpose of delivering a construction project must be procured under the State Purchase Contract.

Preparatory works

Preparatory works, including:

• excavation and grading
• demolition
• drainage
• earthworks
• foundations
• fencing
• geotechnical investigations
• site clearing
• scaffolding.

Building and construction works

Works, such as:

• bricklaying
• erecting frames and walls
• concreting
• carpentry
• flooring
• tiling
• plumbing
• roofing / guttering.

Installation of fittings, such as:

• electrical wiring
• heating
• ventilation
• power supply
• drainage
• fire protection.

Civil works, including:

• roads
• bridges
• sewers
• pipelines
• railways
• industrial plant
• bores
• dredging
• retaining walls.

Temporary structures that require construction works for their installation or use

Temporary structures that require construction works for their installation. The construction works may include earthworks, footings, drainage and installation of utilities as needed for the use of the temporary structure.

Supply of goods, where the goods are intended for incorporation into a project

The supply of construction goods, whether in advance of a project, or directly supplied by the principal during a project, intended for installation into a project. In this case, there is a direct connection between the goods purchased and a project. Examples include the supply of railway sleepers or pipes intended for a specific project, to ensure availability of the goods at the required time.

Examples of matters which meet the definition of public construction depending on the particular circumstances of the procurement

Maintenance

Maintenance’ is included in the the Project Development and Construction Management Act 1994 definition of ‘public construction’; however practitioners define ‘maintenance’ differently.

The key link in the Project Development and Construction Management Act 1994 definition is that the maintenance must be ‘on the improvement to land’, that is the fixed asset.

Where maintenance is focused on the physical structure and fixtures, it is covered by the definition of public construction. Examples include structural repairs, lifecycle items, repairs that extend the life of the structure.

Where maintenance is of non fixed items, even where these have been installed as part of an initial construction project or constitute capital expenditure for financial reporting purposes, the Victorian Government Purchasing Board policies may be more appropriate. Examples include changing light globes, servicing of removable air conditioning units (as opposed to ventilation systems), and repairs to modular furniture.

Maintenance activities may be covered by a broader facilities management agreement. For example, a contract which covers provision of general cleaning, gardening and security services may also include minor works such as repairing broken windows, which would ordinarily be considered public construction.

When determining if a procurement that bundles a number of maintenance activities together is public construction, practitioners should focus on the:

• predominant purpose of that contract
• potential impact of the activities on the land or building where the activities are being undertaken.

Information communication and technology

Installation of information communication and technology may be included as part of package of works. Activities within that package may include public construction. Examples include cabling behind walls, signs on freeways or installation of networks in office space.

The ongoing operation of and upgrades to information communication and technology infrastructure may not constitute ‘public construction’ where it is focused on the operation of the system, rather than maintenance of, or upgrades to, the built components.

When determining if a procurement of information communication and technology is public construction, practitioners should consider the predominant purpose of the procurement, noting:

• Software development services are covered by the e services register and are not public construction.
• Where an information communication and technology system includes both installation of ‘hard’ components (such as wiring) in addition to provision of the software, consider the predominant purpose of the procurement and whether the built component is incidental to the procurement of the software.

Interior design and fit out

Interior design and physical fit-out is often included in a package of works for a building or construction project.

When interior design and fit-out is undertaken after the initial build, to determining whether the work constitutes public construction practitioners should consider:

• the nature of the fit out and works being undertaken
• whether it is an the improvement to land
• whether the physical fit-out is the primary purpose of the procurement or whether it is incidental.

Where painting is undertaken as part of a broader package of works, it should be procured as part of the package. However, procuring painting on its own, depending on its scale and method, might or might not be construction.

A wall, even a moveable wall, forms part of a building. In contrast, an unattached workstation, for example modular furniture, may be more properly considered a supply of goods. Whether the works are a more permanent alteration to a building due to the scale of works should be considered.

Carpeting undertaken alongside carpenters, floorers, electricians, and the like. in a whole building is likely to be ‘public construction’, whereas replacing a carpet in a single room may be a supply of goods.

Tables and chairs may be procured as part of a works package when an initial fit out is undertaken, but subsequent procurements may be more appropriately handled under the Victorian Government Purchasing Board policies.

Landscaping

Where landscaping is undertaken alongside the design and execution of a building or construction project, it is ‘public construction’. However, ongoing maintenance of landscaped areas may not be.

For example, general gardening activities, such as clearing leaves and lawn mowing, may be considered more akin to cleaning on some sites, whereas others, such as a road reserve, may be more properly classified as maintenance of the improvement to land, as this work is critical for preserving the built infrastructure.

Practitioners should consider:

• the nature and scale of the landscaping works being undertaken
• the equipment required to undertake the works
• how the works relate to and impact on the physical asset.

Examples of matters which do not meet the definition of public construction

The definition of Construction Services includes services directly related to the delivery of Works, including architectural and design services. It does not include services indirectly related to the delivery of Works, including legal advisory services and commercial advisory services.

It is important to consider this distinction when determining if the Directions apply to a procurement.

The following examples set when services may be indirectly related to the Works and the Ministerial Directions do not apply.

Goods with no installation

Procurement of goods for the purpose of operating a building, even where the initial procurement may have been part of a package of works covered by the Directions, is likely to be covered by the Victorian Government Purchasing Board policies, where the goods are not supplied with any installation component.

Where there is an installation component (as for information communication and technology), practitioners should consider whether the installation is incidental or a primary feature of the procurement. If installation is a major element of the procurement, then the Directions may be more appropriate.

Services that do not impact on physical structure

Services that do not impact on a physical structure of a building are covered by the Victorian Government Purchasing Board supply policies. For instance, provision of ‘soft services’ under a facilities management contract are most appropriately dealt with under the Victorian Government Purchasing Board supply policies, even though they are linked to the operation of a building, for example security services, reception services and catering.

Services such as couriers, real estate services, legal services and business case planning, may be used to facilitate the completion of a building or construction project and included in a project budget. However, these services should be procured under Victorian Government Purchasing Board supply policies, including State Purchase Contracts and mandatory panels where applicable.

There may be instances where suppliers, who normally provide Construction Services, are engaged to provide non construction advice, which is unrelated to alterations to a physical asset, such as business planning. In these cases, the Victorian Government Purchasing Board rules may be more appropriate for the procurement.

State Purchase Contracts

State Purchase Contracts are standing offer agreements for the supply of common use goods and services to the Victorian Government. Some State Purchase Contracts are mandatory depending on the good or service being procured and whether the government entity is an in scope entity for the purposes of the Victorian Government Purchasing Board.

Practitioners should note that State Purchase Contracts apply for a number of services relevant for public construction projects such as probity advisers, commercial and financial advisory services and legal advisers who advise on transaction planning, structuring and documentation.

The rules governing the application of these State Purchase Contracts must be followed in the context of public construction projects.

Cleaning

Although cleaning generally falls under the Victorian Government Purchasing Board policies, site cleaning as part of completion of a building or construction project, is considered public construction and is covered by the Directions.

In some circumstances there may be overlap between ‘cleaning, such as the removal of graffiti, and ‘maintenance’, such as where graffiti removal is included in a package for maintenance of an improvement to land.

Temporary structures that do not require construction works for their installation or use

Temporary structures that do not require construction works for their installation are similar to goods without installation and are better covered by the Victorian Government Purchasing Board policies, as the supply of goods without installation. An example is a flat pack greenhouse that does not require works for its installation or use.

Supply of goods, to be held in a depot or store

The supply of construction goods not intended for installation into a project. In this case, there is a no direct connection between the goods purchased and any project. Examples include the supply fixtures and fitting held in a depot or store for general use, even if with later use they are incorporated into Works.

Tools and support

The Practitioners Toolkit includes key documents, guidance and information about the Ministerial Directions and Instructions for public construction.

For further information about the Ministerial Directions and Instructions for public construction procurement, please contact the Construction Policy Team.