Following the Rules of public sector buying

The government recently released mandatory rules for government procurement (The Rules) that apply to all “public service departments” listed in the Schedule to the State Sector Act 1988, plus the Defence Force and the Police. However, the government encourages their application in the wider public sector “as appropriate”.

Application of the Rules

The Rules apply to all contracts for goods and services that exceed a threshold of $100,000 or, in the case of construction contracts, $10 million. This value is calculated by looking at the procurement over the term of the relevant contract and means that departments will need to look ahead and forecast future purchases under a contract when considering exactly how much it is worth.

Importantly, the Rules expressly provide that departments should not structure their procurement to avoid the Rules (for example, by splitting one procurement into different contracts). Although there are exceptions to the Rules listed in Appendix 1, it seems likely that departments will adopt a conservative approach when deciding whether the Rules apply to a particular procurement.

Key aspects of the Rules

The Rules are more prescriptive than previous policies and include requirements that will have implications for departments and suppliers alike, particularly in relation to information technology and telecommunications (IT&T) procurement. Some of those requirements include:

Technical specifications

Technical specifications must, where appropriate, specify performance and function rather than design or descriptive characteristics. Further, technical specifications should not refer to specific trademarks, patent, design or type, specific origin, producer or supplier, unless there is no sufficiently precise or intelligible way of describing the procurement requirements without doing so, and provided that the words “or equivalent” are included.

These requirements may limit a department’s ability to ask for specific goods or services to be part of the package offered by the supplier. Departments will need to focus on the performance or functionality they are looking for and leave it to suppliers to propose the relevant solution.

Departments are also required not to seek or accept advice when preparing the technical specification from a “person who may have an interest in the procurement, if to do so would prejudice fair competition”.

Suppliers will need to consider whether they should assist with the development of specifications prior to a tender being run. If a department does engage a supplier to assist with preparation of specifications, the department will need to consider whether that supplier can also submit a tender proposal in relation to them.

Tendering process

Open tenders should be run for purchases above the minimum thresholds, except in limited circumstances. Departments must publish notices on the Government Electronic Tendering Service (GETS) when calling for open tenders.

Exceptions to open tendering relevant to IT&T procurement include:

• where the goods and services can only be supplied by one supplier because of intellectual property or technical reasons and there is no reasonable alternative;

• where the department requires replacement parts, extensions or upgrades of equipment or software from the original supplier and changing supplier may have certain adverse consequences and

• procurement of prototypes — though subsequent procurement of the final solution will be subject to the Rules.

Pre-qualification

Departments must limit preconditions such as financial or performance guarantees to those which are essential to ensure the suppliers’ capability to fulfil the contract. Departments can establish a list of suppliers qualified to participate in a procurement process, though this does not override the open tender requirements. If such a list is established, the department must ensure suppliers can apply to join it at any time and a notice must be made continuously available on GETS to that effect.

Awarding contracts

Departments must only consider proposals for award where they conform to the “essential requirements” of the tender.

This is potentially significant as tender documentation often grants departments the right to accept or reject non-conforming proposals. There may still be potential to accept a proposal that meets the “essential requirements” of the tender documentation but that does not conform in some non-essential way.

Drawing a line between the two will not be easy and it may be that departments should clearly state in tender documentation what the “essential requirements” of the tender are to help avoid any challenge on the ground that a contract was awarded to a non-conforming tenderer.

Post-award obligations

Once the contract has been awarded, the department must inform all tenderers of the decision and, if requested, explain to each unsuccessful tenderer why they were unsuccessful. A notice outlining the key aspects of the contract, including the name of the successful party and the contract value, must be published on GETS even if an open tender was not conducted. Departments will need to ensure they have sufficient rights to post this information and suppliers will need to be aware of this transparency requirement.

If at any time during or after the tender process a supplier considers they have not been treated fairly, they can complain to the department. Departments must be “open to, and accord impartial and timely consideration” to any complaint. Departments must also keep records of the process adopted and the reasons for their decision in the event their decision is challenged.

Annual procurement plans

Departments must publish annual procurement plans (APPs) on GETS by July 1 each year. This year’s deadline has been extended to July 14 to enable technical changes to be made to GETS. APPs must be updated at least every six months. This is further overhead for departments, though APPs may already be prepared by departments in one form or another.

Conclusion

It is important for both departments and suppliers of IT&T solutions to be familiar with the Rules, including those points summarised above.

While they emphasise familiar concepts such as fairness, openness and transparency, they place further restrictions on how departments run their procurement.

Karen Ngan is a partner and Mark Hargreaves is a senior associate with Simpson Grierson's ICT group.