The 4th edition of the Government Procurement Rules (Rules) were published this month. They are the good practice standards for government procurement, and were last substantially revised in March 2015.

The Rules apply to all public service departments, police, defence force and state services agencies, with a number of other central and local government agencies expected or encouraged to have regard to the Rules.

Government agencies spend approximately $41 billion dollars (around 18 percent of New Zealand’s GDP) annually on goods and services from external suppliers. The Rules are key to the Government’s effort to deliver better public value and public services.

Government agencies have until 1 October this year to prepare for the new Rules, although they are able to adopt the Rules immediately. Material changes include:

  • A wider range of factors to be taken into account during the process of sourcing.
  • Changes to construction procurement.
  • Increased reporting obligations.

In this FYI, we highlight some of the key changes.

Using procurement to achieve broader social and economic outcomes

The 3rd edition of the Rules broadly referenced the need for agencies to make balanced decisions which considered the social, environmental and economic effects of deals made.

The new Rules are more prescriptive, expressly encouraging and in some cases requiring agencies to consider secondary benefits, including environmental, social, economic and cultural outcomes when making sourcing decisions.

Implementing Priority Outcomes

The Rules identify four Priority Outcomes, that few would dispute:

  • Increase New Zealand businesses’ access to government procurement.
  • Increase the size and skill level of the domestic construction sector workforce.
  • Improve conditions for workers and future-proof the ability of New Zealand businesses to trade.
  • Support the transition to a net zero emissions economy and assist the Government to meet its goal of significant reduction in waste by 2020 and beyond.

The priority outcomes are not mandatory for all agencies. The Government will designate particular contracts or sectors where one or more of these priority outcomes must be implemented.

Increasing access for New Zealand businesses

When procuring construction contracts, agencies must consider how they can create opportunities for New Zealand businesses. This recognises that domestic firms may have lower work capacity and are less able to utilise economies of scale than international competitors. Following sourcing, agencies are required to monitor the commitments made by contracted parties relating to increasing access for NZ businesses.

Examples include structuring procurement into separate parts and publishing as a tender with separate subcategories, allowing smaller New Zealand firms to compete. Where such division is not possible, agencies are encouraged to engage with contracted parties to consider how New Zealand businesses could be included in the supply chain.

This requirement must be read against rule 3, which requires agencies to “treat suppliers from another country no less favourably than New Zealand suppliers”, which in turn reflects obligations in many FTAs.

Construction skills and training, improving conditions for workers (rules 18 and 19)

Agencies must include questions about the skills development and training practices of the supplier and their subcontractors when procuring construction works over $9 million. This reflects the Government’s stated priority of growing the capability and capacity of the construction workforce.

The Rules also require that all designated contracts set out expectations as to supplier compliance with safety standards and associated MBIE guidance. Agencies cannot simply assume that contractors will comply and are required to monitor them.

Move towards zero emissions and designing waste out of the system (rule 20)

Agencies entering into designated contracts are required to support procurement of low-emissions and low-waste goods, services and works, and encourage innovation to significantly reduce emission and waste impacts from goods and services.

All agencies are encouraged to support these goals, although it is not mandatory.

The rules specifically note the All of Government motor vehicle contract (a designated contract) and the guidance that MBIE has produced relating to low-emissions fleet options.

Construction procurement (rules 18, 64, 69)

The Rules will apply to a greater number of new construction works, with the relevant value threshold lowered from $10 million to $9 million (with provision for an annual review).

A rule referring to Private Public Partnerships procurement and the requirement to consult with the Treasury PPP team has been removed. There is a new requirement that all procurements of infrastructure with a total ownership cost of $50 million must consult with Treasury’s Interim Infrastructure Transactions Unit, established in November 2018 and soon to shift to the new NZ Infrastructure Commission/Te Waihanga.

“Where appropriate”, agencies are required to apply the good practices set out in the Construction Procurement guides when procuring construction works. There are four Guides published by MBIE website, including “matching capability to complexity” and “risk and value management”. Where the guides are not used, agencies must be able to produce documented evidence of the rationale for doing so.

Exceptions

Cases for exceptions can be made. In the same week as the Rules came out, the Minister of Defence announced a decision to spend over $1bn on SuperHercules aircraft to be acquired through a non-competitive process; and gave credible reasons why that was done.

Additional reporting obligations (rules 53, 70 and 71)

Greater reporting obligations have been implemented in the new Rules. Agencies are required to:

  • Provide data and information to the Chief Executive of MBIE on procurement activity including the Broader Outcomes discussed above.
  • Submit a completed Procurement Capability Index (PCI) self-assessment to MBIE annually as part of reviewing their own capability;
  • Maintain a Significant Service Contracts Framework (SSCF) report, and update it every six months. This framework records contracts that are critically important to the business and pose a significant risk and / or impact in the event of supplier failure.
Uncertainty regarding permissible considerations and weighting

An issue our local authority clients often encounter is whether or not a local authority can favour local suppliers ahead of those outside the district or region in making procurement decisions. This issue can also arise for central Government agencies wanting to prefer local providers.

While the Rules forbid discrimination against international firms, they do not expressly address how a “local verses national” assessment should be approached, nor whether it is even a permissible consideration.

Different industries have different considerations in this area:

  • The 2019 Defence Capability Plan contains a chapter on “Working with Industry” with a clear focus on favouring local suppliers and the bold statement “value for money is enhanced when New Zealand based suppliers are engaged in the supply and support of military capacity”. This is laudable, and not uncommon in defence procurement (the Australian submarine purchase programme appeared to have a significant focus where they should be built).  However, in the CPTPPA environment foreign suppliers will no doubt watch our procurement processes carefully.
  • Local authority approved activities funded by NZTA, and those provided by NZTA itself (such as State highways) must be procured using a procurement procedure approved by NZTA. NZTA has a 250 page manual of procurement procedures designed to meet the statutory objective of “best value for money”.

Being a statutory requirement, the NZTA Procurement Manual will prevail if there is inconsistency with the MBIE Rules.

The NZTA Procurement Manual unambiguously states (in a 2017 amendment) “Purchasers need to be careful not to favour a ‘local’ supplier over one from another district, region or county [sic “country”?] on the basis of a factor that is not relevant to delivery of the required outputs or outcome”.

If you would like legal advice on the application of these news rules or on updating your procurement practices, please get in touch with the authors below.

Authors

Michael Weatherall, Partner
Lisa Curran, Special Advisor

“Route to the decision” – Scottish court rejects challenge to adjudicator’s decision that did not expressly address a material line of defence

Written by Kate Holland In UK Grid Solutions Limited and Amey Power Services Limited v Scottish Hydro Electric Transmission PLC,[1] the unsuccessful party to an adjudication sought to resist enforcement on the grounds that 1) the adjudicator had failed to address a...

Asking a decision-maker to take a sneaky peek isn’t a strategically clever move: adjudicator’s decision held unenforceable due to breach of without prejudice rules

Written by Maria Cole A party (AZ) brought proceedings in the England and Wales Technology and Construction Court (Court) to enforce the decision of an adjudicator against the respondent (BY).[1] During the adjudication, AZ had placed without prejudice emails before...

Failed waterproofing causes a flood of costs

Written by Sam Dorne Legal battle over failed waterproofing comes to an end after plaintiffs prove their damages at the High Court in duty of care breach. Water water everywhere In the heart of Flat Bush, Auckland, stand the Nikau Apartments – a residential complex...

Mayor Brown is right about why public sector contracts go over time and over budget

Written by Rabin Rabindran and Derek Firth  In his opinion piece (NZ Herald 21 February 2024) Mayor Brown provides a number of reasons for these overruns.  They include an obsession with governance skills rather than a range of skills directly useful to the sector...

BuildLaw Issue 53

March 2024Download PDF   CONTENTS From the Editor BuildLaw in Brief A cat among pigeons Major changes to seismic building standards Failed waterproofing causes a flood of costs Asking a decisionmaker to take a sneaky peak isn’t a strategically clever...

High Court soundly dismisses judicial review of adjudication determinations but may inadvertently have put the cat among the pigeons

By Alexander Lyall In Sam Pemberton Civil Ltd v Robertson,[1] the High Court considered applications for judicial review of two related adjudication determinations. In dismissing the applications, the Court underscored some of the key functions of the Construction...

Technocratic payment regime not the priority under the Construction Contracts Act

Written by Alexander Lyall In Dem Home Ltd v New Gate Ltd[1] the High Court considered whether a payment claim had been validly served under the Construction Contracts Act 2002 (the CCA). The decision is an ever-important reminder that the CCA is designed to maintain...

Highly stressful circumstances: Court of Appeal assesses contract in earthquake insurance mess

Written by Alexander Lyall   The Court of Appeal (the Court) has issued a decision in a long-running dispute between a Christchurch homeowner and her insurance and legal advocates. Pfisterer v Claims Resolution Service Limited & Anor[1] contains a close look...

Kane v Venues NSW: The Handrail Tale

Written by Sam Dorne The case of Venues NSW v Kane [2023] NSWCA 192, involving a patron’s fall within the lower concourse of the western grandstand of the McDonald Jones Stadium in Newcastle, Australia, looks at a fundamental legal question surrounding the duty of...

How do you solve a problem like retentions?

Written by Kate Holland The use of retentions in construction contracts is culturally ingrained in the industry but it is increasingly seen as an outdated and unfair practice. In the UK, there have long been calls to abolish or regulate retentions, but little progress...

The “measured duty” to love thy neighbour: private nuisance and naturally occurring hazards

Written by Maria Cole A Christchurch landowner, whose property sits at the foot of unstable clifftop land purchased by the Crown following the Canterbury earthquakes, has failed in the Supreme Court to obtain damages in “private nuisance” for the risk of further...

BuildLaw Issue 52

December 2023Download PDF   CONTENTS From the Editor BuildLaw in Brief How do you solve a problem like retentions? The “measured duty” to love thy neighbour: Private nuisance and naturally occurring hazards. Disruption claims: Are your project records up to date?...

New regulations for building products

Written by Richard Pidgeon The Building (Building Product Information Requirements) Regulations 2022 set out how information about building products contributes to building code compliance. The regulations stipulate that information on how products are to be installed...

Mainzeal saga ends in the Supreme Court

By Richard Pidgeon In Yan v Mainzeal Property and Construction Limited [2023] NZSC 113 the Supreme Court upheld damages against Mr Yan in the sum of $39.8 million and the remaining three directors (including Dame Jenny Shipley) jointly with Mr Yan in the sum of $6.6...

Obstructed view review

Written by Maria Cole Introduction In Wynyard Quarter Residents Association Incorporated v Auckland Council and Orams Group Limited,[1] a group of apartment owners filed judicial review proceedings seeking to overturn an Auckland Council decision to grant resource...

The losing streak is over: English rugby wins… right to bring claim against contractor

Written by Alexander Lyall Nearly 10 years on, English rugby finally has a victory related to the 2015 Rugby World Cup. In FM Conway Ltd v Rugby Football Union,[1] a company contracted by the English Rugby Football Union (the RFU) for maintenance works at Twickenham...

Keep calm and carry on: English Court of Appeal overturns controversial High Court ruling and clarifies guiding principles in serial adjudications

By Kate Holland The English High Court caused concern earlier this year when it held that an adjudicator had breached natural justice by holding himself bound by a previous adjudicator’s findings. Now, in Sudlows Ltd v Global Switch Estates 1 Limited,[1] the Court of...

Moving home

Written by Richard Pidgeon A family became dissatisfied with a house removal firm who had shifted their home from Remuera to Katikati. In Stott v Uplifting Homes Ltd [2023] NZHC 1514, the High Court determined the level of compensation after the contract was...

Big loss for insurer in legal battle with Napier Council over leaky building clause

Written by Sam Dorne In a recent case, the Supreme Court of New Zealand ruled in favour of the Napier City Council in an insurance claim involving building defects including weathertightness or “leaky building” issues, in what is seen as a return to the status quo...

BuildLaw Issue 51

September 2023Download PDF   CONTENTS BuildLaw in Brief Keep calm and carry on Mainzeal saga ends in the Supreme Court New Zealand: Insurance under Scrutiny Obstructed view review Case in Brief: Esk Valley marae injunction Res judicata and declarations relating...

Take a rain cheque – Full Federal Court of Australia reads common sense into insurance policy

By Alexander Lyall A decision by the Full Federal Court of Australia has provided clarification about the wording of an insurance policy for a construction project. In Acciona Infrastructure Australia Pty Ltd v Zurich Australian Insurance Limited [2023] FCAFC 47,[1] ...

Case update: English Court of Appeal confirms ‘useless’ ADR procedure too uncertain to enforce

By Kate Holland In our December 2022 issue of BuildLaw, we reported on a case in the English High Court[1] about an unusual alternative dispute resolution (ADR) procedure in a construction contract that was held to be too uncertain to be an enforceable condition...

English Court of Appeal confirms ‘useless’ ADR procedure too uncertain to enforce

By Kate Holland In our December 2022 issue of BuildLaw, we reported on a case in the English High Court[1] about an unusual alternative dispute resolution (ADR) procedure in a construction contract that was held to be too uncertain to be an enforceable condition...

Disgruntled builders lose defective cladding dispute

By Sam Dorne In Goodman-Jones v Hughey & ors [2023] NZHC 604, two experienced builders brought a claim for damages for a perceived defective installation of cladding for a new build. Despite the action being brought against multiple defendants the Court found that...

BuildLaw Issue 50

June 2023Download PDF   CONTENTS BuildLaw in Brief: Recent key developments in the construction industry Bad faith and without substantial merit – What it means and what it takes Disgruntled builders lose defective cladding dispute High-rise blues Build-to-Rent:...

Craftiness is not an abuse of process

With cashflow a persistent concern for companies in the construction industry, a recent decision in the New South Wales Supreme Court may alleviate some of the stress. The decision should affirm to struggling parties that there is no problem with taking strategic...

Privileged glimpses: Curtain falls on art gallery’s nuisance ‘human zoo’ exhibit

By Kate Holland The UK Supreme Court has ruled that the London Tate Modern’s public viewing gallery overlooking the luxury glass-walled apartments nearby, is a visual intrusion amounting to the tort of nuisance. The decision in has attracted criticism for prioritising...

Waiver and estoppel arguments raised in interim payment dispute

By Sam Dorne The English Court of Appeal case of A & V Building Solutions Limited v J & B Hopkins Limited has highlighted issues parties face when there is ambiguity in relation to dates for requesting interim payment in construction contracts.[1] The case...

Doing business in Australia? Then you need to know when you still might have to pick up the whole tab

By Maria Cole If you have a commercial contract in Australia, it’s probably governed by Australian law, which includes the proportionate liability regime.[1] Broadly, proportionate liability means if there are multiple parties to a contract and things go wrong, a...

Parliament passes sweeping amendments to construction payment regime

By Alexander Lyall Parliament has recently enacted legislation allowing for comprehensive changes to the Construction Contracts Act 2002. The Construction Contracts (Retention Money) Amendment Act 2023 passed its third reading on Wednesday 29 March and received Royal...

BuildLaw Issue 49

March 2023Download pdf   CONTENTS Diamond Glass slices damages in airport contract Case in Brief: Craftiness is not an abuse of process (Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd [2023] NSWSC 99) That...

Builder terminates contract with a “sorry mate…costs are going through the roof”

By Kate Holland With the construction industry in the grip of labour and supply shortages and spiralling costs, a recent decision of the Queensland court is a timely reminder of the established principles of contractual repudiation. The decision is a warning to...

Ripping up the Resource Management Act

By Adrian Sharma The Resource Management Act 1991 (RMA) is one of New Zealand’s most important pieces of legislation. It governs what can be built where, when, and how. But more than 30 years on from its introduction, and after numerous amendments, the controversial...

To bespoke or too bespoke – the case of an ADR clause that couldn’t be enforced

By Kate Holland In a recent English decision, the Technology and Construction Court held that a clause in a construction contract requiring the parties to refer a dispute to ADR was a condition precedent to commencing litigation in the courts. However, the Court also...

The Court of Appeal sounds the all clear and it’s business as usual under the CCA: so file a payment schedule or pay up!

By Maria Cole A decision issued by the High Court last year caused a “head in hands” moment in the construction industry in relation to the payment claim regime. The High Court set aside a statutory demand which had been filed to enforce a payment claim as a debt due...

BuildLaw Issue 48

December 2022Download pdf   CONTENTS The Court of Appeal sounds the all clear and it’s business as usual under the CCA: so issue a payment schedule or pay up! Case in Brief: Builder terminates contract with a “sorry mate… costs are going through the roof” but...

Labelling an image as an ‘artist impression’ was found not to give a developer artistic licence in a claim of misleading and deceptive conduct over an ‘off-the-plan’ premium apartment

By Maria Cole Australian consumer protection law was given an outing in the Federal Court of Australia when a developer merely added the words ‘artist impression’ to a computer generated image it intended to use in its marketing materials for an ‘off-the-plan’...

Fire risk – defective cladding litigation heats up

By Sam Dorne In England and Wales, the Technology and Construction Court in Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC) (14 July 2022) has released the first decision arising out of a defective cladding dispute following the Grenfell Tower...

BuildLaw Issue 47

September 2022CONTENTS Competition not working well in residential building suppliesmarket Fire risk – defective cladding litigation heats up Case in Brief: Supreme Court of New South Wales finds forcemajeure clause offered no protection for loss and damage togoods in...

WA Supreme Court finds no implied licence to use home design plan

By Kate Holland In a recent Australian case, the WA Supreme Court was unwilling to interpret a contract between a home builder and their client to imply a licence allowing the client to use the builder’s design in whatever way they pleased. Although the case was...

Overhaul coming to the regulation of engineers

By Sam Dorne The Ministry of Business, Innovation and Employment (MBIE) undertook a consultation in 2021 to reform the regulatory regime for engineers. The reforms will move away from a voluntary accreditation scheme into a formal regulated regime.   Current...

Expert “evidence” needs to be more than just bald assertions to win the day

By Adrian Sharma Leakage issues in a building can be a real dampener. A recent decision of the Queensland Civil and Administrative Tribunal (the Tribunal) which considered conflicting expert evidence on water ingress issues in a newly built property highlighted the...

An adjudicator’s decision on a construction contract is definitely worth the paper it’s written on!

By Maria Cole It’s only in rare circumstances that the courts will interfere with the decision of an adjudicator on a construction contract. A recent decision out of the English Technology and Construction Court (TCC) considered arguments that an adjudicator acted in...

You break it you bought it: Supreme Court confirms you can’t cancel a contract for failure to satisfy a condition if your own behaviour had a material effect on the failure

By Belinda Green.   We’ve known for a long time that a party can’t rely on a failure to satisfy a condition if the condition failed to satisfy because of their action. But we never really had an explanation of how bad that “failure” had to be until now. In its...

BuildLaw Issue 46

March 2022CONTENTS You break it you bought it: Supreme Court confirms you can’t cancel a contract for failure to satisfy a condition if your own behaviour had a material effect on the failure Case in Brief: Unhelpful expert witness sees homeowners succeed in defective...

Vicarious liability and subcontractors

By Sam Dorne Liability in tort depends upon proof of a personal breach of duty, with one true exception, vicarious liability. The law of negligence is generally fault based; a defendant is personally liable only for the defendant’s own negligent acts and omissions....

Limitation for payment claims under construction contracts

By Sam Dorne The decision in Hirst v Dunbar [2022] EWHC 41 (TCC) considers the impact of payment provisions in a construction contract, whether through contract or implied terms, and the commencement of the limitation period for payment claims under the contract. It...

Extensions of time in construction contracts

By Jo O’Dea   In an extension of time claim, blame for the delay was a relevant consideration when assessing what was “fair and reasonable”.   In CAJ v CAI [2021] 5 GCA 102, the Singapore Court of Appeal considered the issue of extensions of time in...

BuildLaw Issue 45

March 2022CONTENTS Extensions of time in construction contracts Construction contract procedure and dispute resolution: There really is a reason to pay attention to the boring stuff Principals beware, constructive acceleration is here UK: Important announcement on the...

Testing the waters: New South Wales Supreme Court considers the prevention principle

By Hannah Aziz  Court provides further confirmation that the prevention principle can be excluded by the terms of a contract.   Introduction Following our recent commentary comparing the operation of the prevention principle in New South Wales and Victoria, the...
Skip to content