Express law No. 61

19 September 2007

Changes affecting building work funded by the Australian
Government

This Express law outlines how changes to the
Commonwealth Procurement Guidelines, Commonwealth OHS
legislation, and new model clauses for the Building and
Construction OHS Accreditation Scheme and the National
Code of Practice for the Construction Industry could
affect your project.

Current legislation and policies

There are three key regimes affecting the building and
construction industry that Commonwealth agencies will need
to consider when they are providing funding for building
work to be carried out. These are:

  • the legislated Building and Construction OHS Accreditation
    Scheme (the OHS Accreditation Scheme) established under
    s 35 of the Building and Construction Industry Improvement
    Act 2005 (Cth) (the BCII Act) through the Building
    and Construction Industry Improvement (Accreditation
    Scheme) Regulations 2005 (Cth) (the BCII Regulations)
  • the policy regime under the National Code of Practice
    for the Construction Industry (the Code) and the Australian
    Government Implementation Guidelines for the National
    Code of Practice for the Construction Industry (the Implementation
    Guidelines), revised September 2005 and reissued June
    2006
  • the policy regime under the Commonwealth Procurement
    Guidelines (CPGs), which contain requirements in relation
    to procurement generally and specific requirements (the
    Mandatory Procurement Procedures) for procurements that
    exceed certain financial thresholds, including thresholds
    that apply to construction projects.

Changes to implement Stage Two of the OHS Accreditation
Scheme

Summary

From 1 October 2007, the application of the OHS Accreditation
Scheme is expected to be changed to:

  • make OHS accreditation by building contractors a condition
    which will apply to indirect Commonwealth funding
    of building and construction projects where the Commonwealth
    contribution is at least $5 million and at least 50 per
    cent of the project value, or the Commonwealth contribution
    is at least $10 million irrespective of the proportion
    of funding
  • lower the monetary threshold at which the accreditation
    requirement applies to directly funded projects
    from $6 million to $3 million
  • provide new model clauses to be included in direct
    and indirect funding agreements, agreements to lease,
    contracts, and tender documents, to reflect the application
    of the OHS Accreditation Scheme.

Indirect funding includes funding provided via grant,
funding agreements and similar non-legally-binding vehicles
such as memoranda of understanding.

Current application of Building and Construction Industry
Improvement Act (Stage One)

Currently, the requirement for a party to a contract with
the Commonwealth to be accredited under the OHS Accreditation
Scheme is triggered by s 35(4) of the BCII Act, which provides:

The Commonwealth or a Commonwealth authority must not
enter into a Commonwealth building contract with a person
or persons unless the person, or each of the persons,
is an accredited person at the time the contract is entered
into. This subsection does not apply to contracts prescribed
by the regulations.

Therefore, unless the contract is prescribed by the BCII
Regulations, application of Stage One of the OHS Accreditation
Scheme is currently triggered where the Commonwealth enters
into a 'Commonwealth building contract' (defined
as 'a contract under which a person agrees with the
Commonwealth to carry out building work or arrange for
building work to be carried out').

Contracts that are currently prescribed for the purposes
of s 35(4) of the BCII Act, and to which Stage One of the
OHS Accreditation Scheme does not therefore apply, are
listed under Reg 24(1) of the BCII Regulations and include
contracts where:

  • the value of the contract is less than $6 million
  • the contract is entered into before March 2006
  • the contract for building work is to be carried out
    outside of Australia, or
  • where there is a contract whereby each person who
    agrees with the Commonwealth to arrange to carry out
    building work is required to ensure that any person engaged
    by that person (that is, the person who contracted with
    the Commonwealth) to carry out the building work is accredited
    under the OHS Accreditation Scheme and the contract is
    approved by the Federal Safety Commissioner before it
    is signed on behalf of the Commonwealth.

Definition of 'building work': The
definition of 'building work' in s 5 of the
BCII Act is broad and includes construction, alteration,
extension, restoration, repair, dismantling or demolition
of buildings, structures or works that form part of, or
are to form part of, the land, irrespective of whether
it is permanent or non-permanent work. It also covers installation
of works such as heating, lighting, air conditioning, fire
protection and communications systems (among others).

Application of Building and Construction Industry Improvement
Act from commencement of Stage Two

The Building and Construction Industry Improvement Amendment
(OHS) Bill 2007 was passed by the Senate on 13 September
2007. The amendments to the BCII Act will apply as Stage
Two of the OHS Accreditation Scheme. The key amendments
that are relevant to agencies that are directly or indirectly
funding building work are:

New s 35(4):

(4) The Commonwealth or a Commonwealth authority must
not fund building work unless:

(a) contracts for the building work entered into with
builders will be entered into with builders who are accredited
persons; and

(b) at the time of funding, the Commonwealth or the
Commonwealth authority, as the case may be, takes appropriate
steps to ensure that builders will be accredited persons
when they carry out the building work.

This subsection does not apply to building work prescribed
by the regulations.

New s 35(5), which extends to both direct and indirect
Commonwealth funding:

(5) For the purposes of this section, the Commonwealth
or a Commonwealth authority funds building work if it:

(a) pays for, or otherwise funds or finances, the building
work (whether directly or indirectly); or

(b) facilitates the carrying out of the building work
by entering into, or otherwise funding or financing (whether
directly or indirectly), a pre-construction agreement
that relates to the building work.

There is no longer a definition of 'Commonwealth
building contract'. Instead, there is now a definition
for 'builder', which, 'in relation to
building work, means a person who carries out any of the
building work'. The broad definition of 'building
work' in s 5 of the BCII Act remains the same.

Clause 1.22 of the Explanatory Memorandum states that:

… a broad definition of builder has been
adopted that would on its face extend the accreditation
requirement beyond head contractors to persons they contract
with. However, the new subsection 35(4) provides for
regulations to be made to prescribe contracts to which
the accreditation requirement will not apply, and it
is intended that regulations will be made to limit the
accreditation requirement to head contractors.

Application to both indirectly and directly funded
projects: As a result of the amendments to the BCII
Act, the requirement for accreditation under the OHS
Accreditation Scheme will apply to both directly and
indirectly funded projects from 1 October 2007. Unlike
the previous s 35(4), there will no longer be a need
for agencies to be entering into a 'Commonwealth
building contract' (or any other form of legally
binding agreement, for that matter) to trigger the application
of the OHS Accreditation Scheme, with the key link now
being the provision of Commonwealth funding and its value.

Monetary thresholds for indirectly funded projects–OHS
Accreditation Scheme: It is expected that the $6
million threshold under the BCII Regulations will be
reduced to $3 million for directly funded projects.

Monetary thresholds for indirectly funded projects–OHS
Accreditation Scheme: In the case of indirectly funded
projects (based on project value), the OHS Accreditation
Scheme is expected to apply if the value of the Australian
Government contribution is:

at least $5 million and represents at least 50 per cent
of the total construction project value, or

$10 million or more, irrespective of the proportion of
the Australian Government funding.

National Code of Practice for the Construction Industry

Summary

There have also been some changes made to the model clauses
for the application of the Implementation Guidelines in
particular to provide model clauses for indirect funding.

Application of the Code

The Code has a very broad application–it applies
to all Australian Government departments, agencies covered
by the Financial Management and Accountability Act 1997 (the
FMA Act), and Commonwealth Authorities and Companies
Act 1997 bodies (see ss 2.2 and 2.3 of the Implementation
Guidelines). Note that it prevents the Commonwealth from
accepting a tender for construction work if the tenderer
is not compliant with the Code at the time of tender (see
s 1.10 of the Implementation Guidelines).

The Code covers a wide range of building and construction
work (see s 2 of the Implementation Guidelines), which
is much broader than the definition of 'building
work' used for the purposes of the OHS Accreditation
Scheme. For example, the Code extends to contracts with
consultants and project managers (see s 4.5 of the Implementation
Guidelines). Grants and funding agreements are specifically
referred to in s 4.6 of the Implementation Guidelines,
and there is a particular reference to funds being provided
from the Australian Government to the states and territories
or local governments.

Threshold for projects funded by the Commonwealth

There is no monetary threshold for work that is directly
funded by the Commonwealth, only for indirectly funded
projects.

The same thresholds apply to indirectly funded projects
(through grant or other programs) as are expected to apply
to Stage Two of the OHS Accreditation Scheme from 1 October
2007.

Model clauses

There are now new model clauses for the Code, which include:

  • model clauses for inclusion in grants and funding
    agreements (where the $5 million or $10 million threshold
    is met for indirectly funded work)
  • short-form clauses for inclusion in tenders, purchase
    orders, or other contractual documentation for directly
    funded work where the value of the contract is less than
    $25,000
  • a requirement that compliance with the Code and the
    Implementation Guidelines must be made a condition of
    tender for Australian Government funded work
  • clauses for inclusion in all tender documentation
    and contracts for both directly and indirectly funded
    projects (where the value of the work is more than $25,000
    for directly funded work and where the $5 million or
    $10 million threshold is met for indirectly funded work).
    The tender documents also include a standard form of
    tenderer declaration of compliance with the Code to be
    included in tender documentation.

The Commonwealth Procurement Guidelines

Under the CPGs, Mandatory Procurement Procedures apply
to procurement of construction services if the value of
those services exceeds certain thresholds. The definition
of 'construction services' is set out in the
CPGs and expanded upon in Finance Circular 2005/12. Finance
Circular 2007/02 advises that the threshold has been increased
from $6 million to $9 million. Construction projects that
fall under the $9 million threshold are still required
to comply with other aspects of the CPGs.

The CPGs (including the Mandatory Procurement Procedures)
apply to all FMA Act agencies. The Mandatory Procurement
Procedures also apply to Commonwealth authorities and companies
listed in Schedule 1 of the Commonwealth Authorities and
Companies Regulations 1997.

The CPGs do not apply to grants.

Useful links

BCII Act and OHS Accreditation Scheme

Australian
Government Building and Construction OHS Accreditation
Scheme: Guidance for Australian Government Agencies

Scheme
Documentation

Accreditation
Register
(List of Contractors who have OHS Scheme
Accreditation)

Model
clauses
for OHS Accreditation Scheme

National Code of Practice for the Construction Industry

Australian
Government Implementation Guidelines for the National
Code of Practice for the Construction Industry

Tender
and Contract Documentation
(Model clauses for Code)

Commonwealth Procurement Guidelines

Commonwealth
Procurement Guidelines

Finance
Circular 2006/02: Commonwealth Procurement Guidelines–Clarification

Finance
Circular 2007/02: Commonwealth Procurement Guidelines–Threshold
for Procurement of Construction Services

For further information please contact:

Zoe Loughton
Senior Lawyer
T 02 6253 7441 F 02 6253 7306
zoe.loughton@ags.gov.au

Mark Sheridan
Senior Lawyer
T 02 9581 7569 F 02 9581 7445
mark.sheridan@ags.gov.au

Important: The material in Express law is
provided to clients as an early, interim view for general
information only, and further analysis on the matter
may be prepared by AGS. The material should not be
relied upon for the purpose of a particular matter.
Please contact AGS before any action or decision is
taken on the basis of any of the material in this message.