Part 1: Introduction

1.1
Procurement covers all the business processes associated with purchasing, spanning the whole cycle from the identification of needs through to the end of a service contract or the end of the useful life and subsequent disposal of an asset.

1.2
Public entities often work in a complex environment in terms of both the type and range of goods or services being procured. To be effective and efficient in procuring goods or services, entities need to be clear about the overall objective of the procurement and select a procurement method that will give them best value for money. To do this effectively, public entities must have a detailed understanding of what they are procuring, the value and risk of the procurement, and how important the procurement is to achieving their overall goals and business strategy.

What is the focus of the procurement guidelines?

1.3
In these guidelines, which update and replace our 2001 publication Procurement: A Statement of Good Practice, we encourage every public entity to focus on the strategic management of their procurement function – to think smarter about procurement so that it adds value to the entity's service delivery.

1.4
These guidelines also expand on the different methods that public entities can use to approach the market (ranging from simple credit card purchases with local suppliers through to complex multi-stage offers) and the factors that they need to take into account when deciding on the appropriate method.

Who are the procurement guidelines for?

1.5
These guidelines are written to assist all public entities that are covered by section 5 of the Public Audit Act 2001. This includes schools, State-owned enterprises, government departments, Crown entities, and local authorities, as well as any subsidiaries or other controlled entities of the principal entity.

1.6
A public entity may use an agent to act on its behalf in procurement activities. This does not change the basic obligation of the entity to ensure that the procurement done on its behalf follows good practice. The entity remains accountable for the outcome of the procurement and any liability that attaches to it. Even if the agent is from the private sector, when acting for a public entity, they must meet the same standards of good procurement practice that apply to the public entity.

How should these guidelines be used?

1.7
These guidelines are a statement of good practice. They are not a set of rules. Rather, they outline the principles, considerations, and processes that should help public entities to meet ethical standards and act with integrity when procuring goods or services.

1.8
We expect a public entity to develop its own procurement policies and procedures that reflect the value and risk of the procurement that it does and that are appropriate to its overall business objectives and operations. A public entity may use these guidelines as a benchmark and guide on what its own procurement policies and procedures should contain.

1.9
As the auditor of public entities, we expect a public entity's procurement policies and procedures to compare favourably with these guidelines.

The overarching guide for managing public sector funding arrangements

1.10
We have produced an overarching guide Public sector purchases, grants, and gifts: Managing funding arrangements with external parties, which is available on our website (www.oag.govt.nz). It is designed to recognise the complex mix of different organisations, types of funding arrangements, and procedural rules and requirements that public entities face in delivering services and working with their communities, other levels of government, businesses, and non-government organisations. This guide should help public entities make sense of how the different processes and expectations fit together, to understand the basic principles that should guide their thinking, and to work logically through the choices that they need to make when they plan for, and enter into, any kind of funding arrangements with external parties.

1.11
The overarching guide describes the different types of funding arrangements, their common features, the factors that should guide decisions on the most appropriate form of a funding arrangement, and the high level expectations in terms of planning, selection, management, and review that accompany each type of funding arrangement.

1.12
The overarching guide should give public entities a clearer understanding of the expectations that we apply when we assess the conduct and performance of public entities (whether in annual audits, performance audits, other assurance work, or inquiries).

1.13
Public entities should familiarise themselves with the content of the overarching guide.

Relationship between these guidelines and the overarching guide

1.14
The overarching guide breaks down the general area of funding arrangements with external parties into three broad groups according to the fundamental purpose of the arrangement and then into seven subsidiary categories according to the type of contract, the available market, and the value of the purchase. Figure 1 shows the breakdown of the general area of funding arrangements with external parties into the three broad groups and seven categories.

Figure 1
Categories of funding arrangements with external parties

1.15
These guidelines set out our expectations and guidance on the four categories in the shaded area of Figure 1:

• Minor conventional purchases – These are goods or services that a public entity buys regularly, are of relatively low value, and are able to be bought through ordinary procurement systems. There will usually be a reasonable range of suppliers or providers to choose from, so that ordinary market disciplines and competitive processes are likely to be effective as a way of managing the price and value for money.
• Major conventional purchases – As with the previous category, the presence of an effectively functioning market is the main factor in a major conventional contracting environment. That means that ordinary market-based procurement techniques can be expected to operate well to manage the price and value for money. Major conventional purchases are high value – possibly worth millions of dollars. Inevitably, they carry higher risk to the organisation and require a different level of planning, authorisation, documentation, monitoring, and general management.
• Minor relational purchases – For the contracts in this category, conventional market-based systems may not be appropriate or particularly effective. This is largely due to the absence of an effective or meaningful market to provide the goods or services, and the strategic importance of the goods or services, or the relationship with the provider, for the public entity. In these situations, it may be more useful to give greater weight to the relationship or strategic dimensions of the contract and to develop other systems to manage the dimensions usually managed by competitive market mechanisms.
• Major relational purchases – The same factors identified under minor relational purchases apply here. The main difference between the previous category and this one is the value or size of the goods or services being purchased. A larger contract will inevitably require additional attention and management throughout its whole life cycle. There is an overlap between this category and that of major conventional purchases, through the growing use of relationship-based contracting arrangements in major projects such as infrastructure development.

1.16
These guidelines are particularly relevant to minor and major conventional purchases in a market context. These guidelines do comment on relational purchases (see Part 6), but we give these types of contracts more in-depth consideration in our good practice guide Principles to underpin management by public entities of funding to non-government organisations.

1.17
These guidelines do not provide guidance on the policies and procedures that public entities will need for grants and gifts. The Appendix lists some of our other publications, which may provide guidance on grants and gifts.