7. Promoting Opportunity Through Good Practice
Note: The advice in this section is subject to the requirements of the Mandatory Rules for Procurement by Departments (2006).
Achieving the intent of the Government's procurement policy depends not only on awareness of the policy principles, but also on good practice. Cost-effective procurement may involve new approaches and procedures to take advantage of changes in the marketplace and technology, but competition remains a key principle of policy and good practice. This will help to ensure the best value for money, while avoiding unfair denial of opportunities or discrimination.
Agencies' purchasing procedures should be guided by the Auditor-General's publication Procurement: A Statement of Good Practice [link to OAG website]. This sets out the principles of good practice and gives detailed advice on planning and conducting the procurement process, and contract management. As suggested in the Auditor-General's Introduction, "each public entity should use the statement as a benchmark for its own procurement policies and practices, and as a guide to what its own procurement manual should contain".
The following discussion in this policy guide supplements the Auditor-General's advice by commenting on some particular areas where lack of attention to good practice could frustrate the Government's procurement policy by unduly restricting competitive opportunities for domestic and other suppliers.
Purchasing Methods
Decisions on how to approach the market are best made in the context of a procurement plan which may be simple or complex, according to the degree of risk of the procurement and difficulty in specifying the requirement (see the Auditor-General's Statement 2.2 for advice on procurement planning). The plan should be based on adequate market research (see Researching the Market).
In principle, the advertising of an open request for tender should be the preferred method for substantial purchases, as it offers all interested domestic and other suppliers fair and equitable opportunity, and allows evaluation of a range of competing offers in the assessment of best value for money. For good practice guidance on open tendering, see the Auditor-General's Statement 3.5.
At the same time, the method should be appropriate to the market for the particular goods or services, and the circumstances of the procurement. These considerations may mean that open call for tender is not practicable or cost-effective. For advice on appropriate use of less open procedures, including emergency procurement, selective procurement, quotation and closed tendering, see the Auditor-General's Statement 3.1 to 3.4.
Note: Departments are now required to use open tendering procedures as the norm unless specified exceptions apply – see Mandatory Rules for Procurement by Departments (2006).
A staged approach, e.g. invitation for registration of interest and pre-qualification of suppliers followed by request for tender from selected respondents (closed tendering), may be needed to limit a large field of potential tenderers to those with a realistic chance of success, without unduly restricting opportunity at the outset. This approach may be particularly appropriate for complex or high-value requirements, to minimise costs to suppliers and buyers in preparing and evaluating tenders.
Note: A staged approach is allowed under the Mandatory Rules for Procurement by Departments (2006) provided that the initial stage (application to meet conditions of participation e.g. registration or pre-qualification) is open.
General guidance on the multi-stage tender method is given in the Auditor-General's Statement 3.7. A guideline for a staged IT procurement process, which is competitive and consistent with the Government procurement policy and good practice, is set out on page 48 of the State Services Commission/Treasury publication Guidelines for Managing and Monitoring Major IT Projects.
Note: The Mandatory Rules for Procurement by Departments (2006) prescribe procedures for staged tendering (including open supplier registration/qualification procedures).
Forward Procurement Plans
Publication of forward procurement plans with advance notice of requirements may enable suppliers to:
- develop and produce goods to order if they are given reasonable time to do so;
- modify their product(s) to meet the requirements;
- offer innovative and competitive solutions; and
- develop appropriate joint venture proposals.
Note: Publication of Annual Procurement Plans is now a requirement under the Mandatory Rules for Procurement by Departments (2006).
Buying Patterns
Combining frequent purchases in long-term contracts or standing offer arrangements will often be more cost-effective for both buyers and suppliers. Purchasing of small and regular requirements under period contracts arranged by brokers may also be economical.
Collaborative procurement arrangements between public sector agencies are also encouraged by the Government, and are facilitated by e-procurement developments. Each agency should assess the possibility of savings through co-ordinating some or all purchases of goods and services in common use with other government organisations. "Syndicated procurement" arrangements should be seriously considered. For current developments and opportunities to participate, agency procurement staff should consult the Public Sector Procurement Community of Practice workspace (a password-protected interactive forum). For guidance on good practice issues involved in syndicated procurement, see also the Auditor-General's Statement, Part 3 [link to OAG website].
Advantages of committing to supply arrangements over an extended period should be weighed against possible effects on competitive opportunities for domestic suppliers, and agencies' own interests in maintaining a competitive and innovative supplier base.
Transparency of Opportunities for Suppliers
To promote competition, all publicly available opportunities (e.g. invitations to tender or submit proposals, pre-qualify or register interest) should be advertised on GETS which may be supplemented by use of other electronic and print media such as the metropolitan newspapers and trade or specialist journals.
Publication of contract award notices provides a further source of market information to suppliers interested in future opportunities.
Note: The Mandatory Rules for Procurement by Departments (2006) require the use of GETS for publication of tender opportunities, and also of contract award notices for procurement valued at or above $100,000.
Researching the Market
The extent of market research should be in reasonable proportion to the value, significance and/or complexity of the requirement. If a public call for tender or registration of interest, or similar open approach to the market, is not considered cost-effective or appropriate,6 research should aim to identify a reasonable range of competitive suppliers. Even where open tendering or registration of interest is to be undertaken, the formal process should be preceded by sufficient market research to ensure that the documents are robust and meaningful.
Information about potential suppliers and alternative solutions will be available from various sources including informal contacts with firms, internal records, print and electronic publications (such as business directories, suppliers' brochures, trade journals), industry associations and environmental accreditation schemes (see Environmental Accreditation). A growing number of suppliers are making their company information available on the Internet.
Publication of an open "request for information" (RFI) on GETS is another method of obtaining preliminary information on potential market solutions to a broadly outlined requirement. It should be noted, however, that it is not acceptable practice to use the RFI as a substitute for an open call for initial registration of interest (ROI) and prequalification in a staged tendering process.
For information about New Zealand suppliers, their products and their capabilities relevant to major projects, agencies, project developers and prime contractors should consult the relevant sector specialist of the ICN.
As agencies are ultimately accountable for their decisions about whom to approach in the market, procurement staff should document their market research, including any direct contacts with potential suppliers.
Established sources of supply and any existing registered/prequalified supplier lists should be regularly reviewed. Existing lists should be open for application by new suppliers at any time, and an invitation to apply should be advertised at reasonable intervals.
Note: it is a requirement of the Mandatory Rules for Procurement by Departments (2006) that any supplier lists in continuous use be published on GETS.
Agencies should also keep a record of competitive suppliers who have responded to invitations in the past. Instances where suppliers have consistently proved to be uncompetitive or non-performing should also be documented in case of need to justify decisions to exclude them from selection in future.
Defining Requirements
Avoid specifying any feature which unnecessarily discriminates, either directly or indirectly, against any supplier or group of suppliers (e.g. a feature specific to a particular technology or brand of product). If a brand name needs to be used, a term such as "or equivalent" should be added.
Note: a non-discriminatory approach in specifications is required under the Mandatory Rules for Procurement by Departments (2006).
Requirements should be defined, and specifications written, in functional and performance terms wherever possible, in conjunction with a material or technical specification if necessary. This will encourage effective competition by giving opportunity for suppliers to develop solutions capable of satisfying the agency's requirements.
Pre-tender briefings and discussions may provide an opportunity for prospective parties to improve their understanding of the perceived requirement. It may be useful to consult relevant industry organisations and/or the ICN [link to ICN website]. Certainly, more than one potential supplier should be involved in the preliminary discussions, to avoid supplier imprinting.
Specifications for standing requirements should be reviewed from time to time.
Dealing with Unfamiliar Products: Risk Aversion
A reason sometimes given by buyers reluctant to buy certain domestic products or services is that "they are unproven", a risk averse attitude. This may be prudent in principle but can easily be taken to an undesirable extreme. It may unnecessarily reduce competition and cause buyers to miss out on innovative, cost effective and environmentally preferable solutions.
Procurement staff uncertain about a new domestic product should seek additional information from the ICN, users of the product, or sources of environmental impact information (see Environmental Issues) as appropriate.
Specifying appropriate standards and quality assurance (see below) will also help to ensure fitness for purpose and minimise risk when accepting innovative solutions or sources of supply.
Standards
Specifications should refer to domestic and international standards applicable in New Zealand. Standards specified should be the same or equivalent for supplies from any source. Information about applicable standards is available from Standards New Zealand [link to SNZ website]. There is also a range of environmental accreditation schemes (see Environmental Issues).
Quality Assurance
It will not be cost-effective to require formal quality assurance for all purchases, particularly small purchases with low cost of non-compliance or failure. In these cases, normal commercial or industry practice (e.g. suppliers' or manufacturers' guarantees) may give adequate assurance of quality.
Where it is determined that there is a need for formal quality assurance, as in the case of highly technical or critical supplies, the required standard should be nominated in the specification or request for offer. Third-party certification of a supplier's quality assurance to a recognised standard, such as the ISO 9000 series, provides objective evidence that the supplier can consistently produce a good or service meeting the requirements and minimises the need for inspection of the product or production process by the purchaser.
An up-to-date listing of accredited certifying bodies in New Zealand and Australia is available on request from the Joint Accreditation System of Australia and New Zealand. JAS-ANZ has also compiled a register of certified suppliers which can be consulted to determine the quality assurance status of potential suppliers of the product or service required.
The Telarc SAI Limited Q-Base code, which is based on ISO 9000, makes quality assurance certification more accessible to smaller companies with limited resources and may well be adequate as an alternative formal quality system for less critical supplies. See the Telarc website.
The ICN also includes suppliers' quality assurance certification details in its domestic industry capabilities database.
Evaluation
Tenders should be evaluated against selection criteria which have been disclosed, in broad categories at least, in the tender documents (as disclosure may create enforceable obligations, the Auditor-General's Statement of Good Practice recommends legal advice in deciding the level of detail to be disclosed). Suppliers' claims should be checked, particularly regarding standards and quality assurance, domestic servicing and through-life support, and environmental impact from production, use and disposal.
Note: The Mandatory Rules for Procurement by Departments (2006) require publication in the tender documents of the essential requirements and evaluation criteria for the procurement.
Applicable customs duties and GST must be taken into account in the pricing of imported goods. A customs broker or the New Zealand Customs Service will be able to advise if the goods are subject to duty.
Purchasing agencies should also be alert to the possibility of low-priced tenders involving dumped or subsidised imports which unfairly compete with New Zealand products and could be subject to an application for trade remedies under the Dumping and Countervailing Duties Act 1988. For advice in such cases, purchasers should contact the Trade Remedies Group of the Ministry of Economic Development.
Adequate records of the evaluation process and the reasons for final decisions must be kept. Purchasing agencies are accountable for purchasing decisions and may be required to provide information about them in cases of queries raised by unsuccessful tenderers and complaints investigations by the Ministry of Economic Development or the Auditor-General, or requests under the Official Information Act, for example.
Debriefing
Information to tenderers should include notice that debriefing will be available on request, and give relevant contact details. This is important for good working relationships between buyers and suppliers, and may be a source of useful feedback from the marketplace, particularly in more complex purchases.
Note: supplier debriefing is a requirement of the Mandatory Rules for Procurement by Departments (2006). The debriefing process should be as transparent as possible, with frank and honest exchange of information. Limits will be imposed, however, by the requirements of commercial confidentiality and need to maintain fair competition between suppliers.
Debriefing should help unsuccessful domestic and other suppliers understand what they did, or are doing, to make their bids uncompetitive or how their goods or services might be further developed. Successful tenderers may also be interested in knowing how they performed against the evaluation criteria to help them in continuing to prepare competitive bids for future purchasing requirements.
Supplier Complaints
Purchasing agencies should give fair and objective consideration to complaints from domestic suppliers that they have not been given full, fair and reasonable opportunity, or from foreign suppliers that they have been discriminated against. Unresolved complaints may be investigated by the Ministry of Economic Development (Government Procurement Development Group) in consultation with the purchasing agency (see Appendix 1). If necessary the Ministry will report to relevant Ministers with recommendations on appropriate action. The Auditor-General or Ombudsmen may also investigate complaints of unfair treatment or mismanagement. In some cases it may be possible for an aggrieved supplier to have recourse to the courts for judicial review or an action for breach of contract. Procurement managers and purchasing staff should take care not to let a previous genuine and reasonable (even if mistaken) complaint prejudice their fair treatment of the supplier concerned in future.
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