Part 4: Direct procurement

Procurement guidance for public entities.

Open competitive processes – for example, inviting quotes, tenders, or proposals from more than one supplier – will not be applicable for all procurement by a public entity. In some instances, a public entity may procure directly from a supplier. In deciding to take this approach, a public entity will need to consider the value and risk of the purchase as well as the outcome that it intends from the procurement.

A public entity's policies and procedures need to include guidance so staff understand when they are able to go directly to a supplier to procure goods or services. This guidance could include indicative dollar thresholds.

Procuring directly from a supplier

Low value, low risk goods or services


We expect that a public entity will consider purchasing directly from a supplier where:

  • the value of the goods or services is very low;
  • the purchase of these goods or services is on an as-required basis;
  • it is not practical to aggregate separate orders for the goods or services; or
  • the cost of seeking quotes or tenders would be out of proportion to the value of the benefits likely to be obtained or impractical in the circumstances.

We expect a public entity to have clear policies and procedures in place that set out what is reasonable expenditure in these situations, the method of payment, and the documentation that staff members must retain to support the procurement.

We expect a public entity to ensure that staff are aware of, and comply with, its sensitive expenditure policies.


A public entity should include guidance in its policies and procedures on:

  • the types and values of the goods or services that can be procured directly from a supplier; and
  • the procedures to be followed, including the method of payment, the documentation to be retained for proof of procurement, and the requirements for authorising the procurement.

A public entity should also have procedures in place to ensure that:

  • the rates are reasonable and consistent with the market rates for items of a similar nature;
  • it does regular reviews to ensure the reasonableness of prices, including randomly inviting quotations at appropriate time intervals;
  • the required goods or services are not split into components or a succession of orders to enable orders to be placed without seeking competitive prices; and
  • fairness and equity are assured.

Procurement cards

Using procurement cards can be an efficient way to procure low value and low risk goods and services, because:

  • Cardholders can purchase directly from a supplier, which reduces costs. They do not have to fill in purchase request forms that have to be processed by purchasing staff.
  • Cardholders can order and receive items much more quickly – often the same day. This reduces the need for large inventory holdings.
  • Less time spent checking and authorising purchases improves efficiency. The price of the item is charged to the card. At the end of an agreed period, the public entity will receive a statement listing the purchases so that they can be verified. The card company sends a consolidated invoice to the public entity, which is settled in one payment.

A public entity should ensure that it has robust policies and procedures around the use of procurement cards. A public entity should consider procedures that:

  • assign the procurement card to a named individual and a cost centre;
  • limit the procurement cardholder to certain suppliers, certain types of goods or services, and a certain monetary value;
  • limit the monthly expenditure on the procurement card; and
  • ensure that the monthly transactions are reviewed and verified by the procurement cardholder's manager.

Selective procurement


We expect that, for higher risk and higher value procurement, a public entity will normally use a competitive process (for example, a quote or tender). However, there are circumstances where a public entity will be justified in procuring from a selected supplier. Examples include where:

  • the goods or services require specialised skills or are very complex and there is a limited number of qualified suppliers;
  • the required goods or services are available from only one source;
  • only one supplier has the capacity to deliver at the time required, and this can be adequately attested; or
  • standardisation or compatibility with existing equipment or services is necessary, and can be achieved through only one supplier.

We expect selective procurement decisions to be supported by a properly developed business case and market research to reveal those suppliers that have the appropriate level of skill to provide the goods or services.


A public entity should include guidance in its policies and procedures on:

  • the procedures for deciding when a selective procurement is warranted;
  • the procedures required to identify a supplier and confirm the supplier's capability to deliver the goods or services;
  • the need to assess the supplier's performance against established criteria; and
  • the need for market testing. A public entity should satisfy itself from time to time that a selective procurement is still justified. This might include advertising to seek expressions of interest from other suppliers.

Each decision to make a selective procurement should be:

  • taken systematically by staff who have the necessary knowledge and experience of the procurement environment – assisted, as required, by external expert advice; and
  • supported by an approved business case.

A public entity should identify a supplier using information about all known possible alternative suppliers. Before deciding to make a selective procurement, a public entity should take adequate steps to ensure the supplier's suitability, and to document what information it obtained in this check. Steps might include obtaining references (with the supplier's consent) that attest to the standards of the supplier's past performance.

Emergency procurement

In an emergency, it may not be possible to satisfy the principle of open and effective competition throughout the procurement process. A public entity may therefore dispense with parts of the procurement process if it needs to react quickly to genuinely unforeseen events.


We expect a public entity to use emergency procurement only in genuinely unforeseen urgent circumstances. Poor planning or organisation of a procurement does not justify using an emergency process.


A public entity should include guidance in its relevant policies and procedures on what constitutes an emergency. Relevant criteria may include when:

  • life, property, or equipment is immediately at risk; or
  • standards of public health, welfare, or safety need to be re-established without delay, such as disaster relief.

The guidance should set out the procedures that should be used in an emergency. Relevant issues include:

  • lines and levels of authority and control – who is authorised to do what; and
  • quality control – in general, the procurement should be limited to what is necessary to cope with the emergency.

The guidance should also set out what quality assurance and self-review needs to be put in place. Points to cover could include:

  • Were the staff used in the procurement process appropriately qualified and trained?
  • Were the prescribed criteria and procedures followed?
  • Was the outcome satisfactory, and what lessons can be learned?
  • Did the public entity's management systems identify procurement requirements in a timely way?

Standing arrangements

Standing arrangements are procurement arrangements where a public entity is able to procure directly from suppliers for an agreed period of time. A public entity can set up these standing arrangements after a competitive process, or a public entity may wish to take advantage of competitive processes used by other public entities (for example, by joining a syndicated procurement arrangement).

Entering into standing arrangements is a reasonable procurement strategy for the goods or services identified as being in quadrant 2 of Figure 2 – goods or services that have high value but where the risk to the entity is low. These goods or services are generally widely used by public entities. They have no special requirements, are simple to specify, and have common standards.

Examples of the types of goods or services that could be considered for these arrangements, depending on their value, include:

  • fuel;
  • motor vehicles;
  • air travel; and
  • stationery.

Syndicated procurement

Syndicated procurement involves groups of public entities aggregating their procurement requirements to achieve improved outcomes through greater purchasing power and reduced procurement costs.

The two syndicated procurement models most widely used by public entities are:

  • the common use provision (CUP) – where a public entity includes a CUP clause in its procurement and contract documents to enable eligible public entities to join the contract for its remaining term; and
  • a cluster – where a group of public entities collaborate before going to the market and approach the market collectively (that is, they aggregate their requirements). Other public entities cannot subsequently join the contract unless the contract contains a CUP clause.

Both models may be combined to provide the greatest degree of flexibility for all potential participants.


We expect public entities to be aware of the Commerce Act 1986 and avoid anti-competitive conduct and arrangements.

We expect a public entity to be aware of, and comply with, the conditions that apply to public entities setting up and joining syndicated CUP contracts. A full list of those conditions can be found in the government procurement section of the Ministry of Economic Development's website (


If a public entity has had involvement with, or intends to be involved in, syndicated procurement, its relevant policies and procedures should cover those arrangements.

A public entity should include guidance in its policies and procedures on the need for the public entity to carefully consider the effects of the syndicated procurement on the market.

The guidance should include what a public entity should consider when looking at the effects of syndicated procurement on the market and what it needs to do to comply with the Commerce Act 1986. For example, a further increase in volume delivered by a single supplier, even at more favourable rates than competitors, might create a position of market dominance, reducing future competitiveness in the relevant market.

The guidance should also cover the need for the public entity to seek legal advice before entering into arrangements with other entities to jointly procure goods or services. In most cases, such arrangements will not be prohibited by the Commerce Act 1986, but they must be carefully structured. Particular care is needed if the entity is a large purchaser with a substantial degree of market power. Similarly, if a public entity wishes to procure goods or services from joint suppliers, when those suppliers would otherwise compete to supply the goods or services, the public entity should seek legal advice at the earliest possible stage.

The guidance should set out the requirements that apply to public entities when setting up or joining a CUP contract. These include the requirements that a public entity have the Syndicated Contracts Review Board endorse the use of the CUP before the public entity approaches the market with such an arrangement and that a public entity must not join a CUP contract that has not been so endorsed.

Guidance on CUP contracts should also cover the need for a public entity:

  • to satisfy itself through market research and analysis that joining a CUP contract offers value for money; and
  • to ensure that the terms and conditions of the contract will meet its needs. The core terms and conditions, including pricing, must not be renegotiated for individual participants. Any negotiation should be limited to service levels and schedules.

Guidance on cluster arrangements should cover the need for a public entity to clearly understand the terms of the contract, especially:

  • responsibilities for managing the contract;
  • responsibilities for contract reviews;
  • responsibilities for arranging additional terms;
  • termination provisions, including options on termination;
  • pricing options; and
  • protection of supplier pricing and contract information.

Guidance on cluster arrangements should also address the need for a procurement plan. It is necessary that each entity in the cluster has a common understanding of:

  • the role of the syndicate members and the responsibilities of the designated lead public entity – for example, to issue the RFP and receive tenders or proposals;
  • the procurement requirements and the specifications;
  • the method of procurement;
  • how the goods or services will be evaluated;
  • the form and content of the contract with the supplier;
  • the initial contract management strategy, transition arrangements, and performance management measures; and
  • termination and re-tender or proposal procedures.

If the cluster appoints a private sector agent to conduct the procurement process on its behalf, additional considerations include:

  • the form and content of the contract with the agent;
  • potential changes to the risk profile of the procurement that arise from involving a third party; and
  • the need for the agent to comply with important principles and practices (see the over-riding considerations in Part 2).

In line with the Mandatory Rules for Procurement by Departments, government departments need to publish a notice on GETS inviting interested suppliers to submit a tender or proposal or apply to meet conditions of participation in the syndicated procurement process.

The lead entity is not responsible for managing the contractual relationship between the supplier and any participating public entity, but it is responsible for any contract benchmarking, review negotiation, and price changes for participating public entities during the term of the contract. A contract management plan is essential to ensure that benefits anticipated from the contract are achieved. Cluster members need to assure themselves that:

  • each entity has appointed a manager to manage its relationship with the supplier;
  • each entity understands the lead entity's responsibility for managing the core contractual conditions;
  • there is a process for resolving disputes and settling grievances between the cluster members and the supplier; and
  • there is provision for identifying problem areas at an early stage and for initiating remedial action.

The contract should set out how a cluster member can exit the arrangement. Careful consideration should also be given to conditions for terminating the contract during the period of the contract. Lead entities should consult with cluster members when completing or renewing the contract. Any extension of the contract should be in keeping with the contract extension clause in the contract.

If the procurement will involve the development of intellectual property, cluster members should:

  • clearly identify who (the cluster or the supplier) owns any intellectual property developed; and
  • identify any background intellectual property and secure the cluster's right to use it.

Panel contracts

A panel contract (or panel arrangement or standing offer) is a contractual arrangement with a group of suppliers to provide services as and when required, under a schedule of rates for each supplier or based on a quotation.

Panel contracts are appropriate where:

  • fixed prices, fees, or rates can be agreed with each supplier;
  • the “demand” or requirement for goods or services cannot be predicted;
  • the goods or services do not all need to be provided by the same supplier;
  • there are specific requirements, such as specialist skills and knowledge;
  • allowing for greater choice of supplier is seen as an advantage or provides a contingency in case an alternative supplier is required because a conflict of interest arises with a preferred supplier;
  • goods or services may need to be procured at short notice;
  • a public entity may need a variety of skills at different stages; and
  • it cannot be predicted that one supplier could provide the goods or services at any point in time – for example, the work cannot be handled by one particular supplier alone.

This method is most commonly used for the supply of professional services, such as legal advice, IT advice, financial and accounting advice, and specialist consultancy services.


We expect a public entity to set up panel contracts through a competitive process.

We expect a public entity to decide the method it will use to divide the work between the panel members before it invites potential suppliers to participate in the competitive process. The potential suppliers should be made aware of the method, and the method should be followed.

A public entity should ensure that the panel contract has a provision that enables the public entity to review membership and remove panel members if required. The contract should specify grounds for terminating a supplier's membership of the panel.

If the rate of use of the panel falls below expectations, a public entity should review the need for retaining the panel contract.


A public entity's relevant policies and procedures should include guidance on the need for the procurement documentation to make it clear that the public entity is seeking to engage a panel. For example, the documentation should include:

  • how many suppliers will be on the panel – if this is undetermined, the documentation should set out how the evaluation team will decide it;
  • the criteria the public entity will use to evaluate suppliers against each other and against the public entity's needs;
  • what will be required of suppliers in terms of service levels, response times, and other performance measures;
  • how the public entity will engage panel members to do particular work; and
  • circumstances that may lead to a supplier being removed from a panel, such as insolvency.

The public entity needs to decide how it will allocate the work to panel members before it advertises its intention to set up the panel. This information needs to be included in the procurement documents. The type of methods that may be used are:

  • Hierarchical – One panel member receives most of the work unless they are unable to supply the public entity's needs or have a conflict of interest. In this case, the work is allocated to the next available panel member.
  • Equal division of work – This can be handled by an upper limit arrangement, where the next supplier is chosen once a specified dollar limit is reached by one supplier.
  • Rotational basis – Work is distributed to each panel member in turn regardless of value or time.
  • Reliability and expertise – Work is allocated to the panel member who is most suitable and available.

A public entity's policies and procedures should cover the need to treat panel members fairly and to maintain a competitive supply base.

Public entities should also provide guidance on the types of method of engagement and the circumstances where each applies. For example:

  • Standing offer arrangements are usually used for services as required, often on the basis of a tender or proposal, quotation, or other arrangement (for example, a fixed fee arrangement). Generally, the “offer” has a limited time frame after which it would lapse and a new set of fees or arrangements would be negotiated.
  • Period contracts involve an individual contract with each panel member for a fixed period of time. Generally, period contracts incorporate other more complex elements than time.
  • Retainers are generally used for professional advisory or consultancy services. The panel member is paid a prescribed fee to ensure access to defined services or to a defined amount of services, for a period when required. This is probably the least common arrangement because it involves a forward payment for services that may or may not be used.

The guidance should also specify the number of suppliers to include on a panel. This is a matter of judgement and may differ for each type of goods or services being provided. In determining the number of suppliers on the panel, the public entity should consider:

  • the anticipated amount of work to be performed;
  • the type and breadth of work to be performed and whether individual panel members are able to fulfil all requirements;
  • the cost to the panel members and the public entity of the procurement arrangement; and
  • the numbers that would ensure a reasonable level of work for all panel members.
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