Procurement manual

8.0 Procurement procedure 3 - Public transport services

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In this chapter

This chapter contains the following sections:

• 8.1 Overview
• 8.2 Definition
• 8.3 Strategic context
• 8.4 Delivery models
• 8.5 Supplier selection methods
• 8.6 Contracts

8.1 Overview

Introduction

Procurement procedure 3 - Public transport services consists of four parts:

• guidelines for understanding the strategic context for the procurement activity
• an outline of the delivery models available for use
• guidelines for the selection of a supplier selection method
• guidelines for contract forms to be used with the procurement procedure.

8.2 Definition

Purpose

This procurement procedure covers the outputs required for both the carriage of passengers on buses and ferries, and the necessary associated professional services to deliver public transport services.

Professional services associated with public transport services activities can also be purchased using procurement procedure 2 - planning and advice. This option allows the purchaser more flexibility and choice where required to better align the procurement procedure with the activity.

Note that this procurement procedure does not apply to the use of in-house professional services that have the NZTA's prior approval.

Summary of requirements

Approved organisations must follow the requirements below when using this procurement procedure.

Definition

The activity must fit within the definition for public transport service operations for the carriage of passengers on buses and ferries.

Strategic context

To use this procurement procedure, an approved organisation must understand the procurement activity's strategic context. This will enable the approved organisation to fully specify the outputs that are required and to understand the activity's complexity, scale, timing, innovation potential and risk, and assess the supplier market.

Delivery models

All approved organisations are permitted to use the staged and the design and implement delivery models as outlined in this procurement procedure.

The advanced delivery models (shared risk and supplier panel) can only be used with the NZTA's prior written approval under s25 of the LTMA.

Supplier selection methods

All approved organisations are permitted to use the supplier selection methods referred to in this procurement procedure.

The quality based supplier selection method is an advanced component where the output being purchased is anything other than professional services. As an advanced component, an approved organisation must have the NZTA's prior written approval under s25 of the LTMA for its use.

Rules

The rules set out in chapter 10 Rules must be followed.

Further assistance

Contact the NZTA if you are not sure if the activity conforms to the requirements of the public transport services procurement procedure, or if you wish to depart from the rules contained here.

8.3 Strategic context

Rule

An approved organisation must, as part of its assessment of the strategic context, assess all proposed procurement activity against the objectives set out in a procurement strategy which has been endorsed by the NZTA. At a minimum, the assessment must consider whether:

• the proposed procurement activity is consistent with the value for money objectives in the procurement strategy
• the proposed procurement activity is consistent with the policies or constraints, where relevant, in the procurement strategy
• any changes in the procurement environment since the development of the procurement strategy have a material effect on the procurement decisions made.

Where an approved organisation's procurement activities, choices and decisions are inconsistent with its procurement strategy, the approved organisation must document the reasons for its decisions.

See section 10.4 Procurement strategies for further details.

Reference procurement strategy

The strategic analysis will typically be undertaken at the commencement of the funding cycle and as part of any regular refresh of a procurement strategy. Circumstances can change, and therefore changes to the original specification or approach to the procurement activity could deliver better value for money.

At the commencement of each procurement activity, it is important to reflect on the specific strategic context in which the procurement is to be undertaken and ensure that the specific value for money objectives for that procurement activity can still be obtained. This assessment will involve looking at the assumptions documented in the procurement strategy and testing them against the current environment to check if they remain valid.

It is important to emphasise that, at this point, the approved organisation's strategic approach to procurement will already have had a significant influence on specifying the nature of the outputs to be purchased and their scale and complexity. The approved organisation will have considered:

• what is being purchased and why, and the timing
• the capacity, capability and competitiveness of the market to deliver the outputs
• the procurement capability of the approved organisation to manage the procurement activity
• the broad procurement options, including procurement procedures to be used and the delivery model.

The analysis and conclusions on the above factors will have enabled the approved organisation to specify the required outputs during activity formulation and the development of a procurement strategy. To ensure that the specified outputs and the proposed approach to the procurement activity will obtain best value for money, the proposed approach must now be assessed to ensure consistency against the original objectives in light of the current situation.

The following checklist provides guidance on the matters that should be considered when undertaking this assessment. This process will ensure a full understanding of the strategic context for the particular procurement activity.

Strategic consideration	Questions for approved organisations
1. With reference to the RPTP, is there a clear statement of the outputs to be purchased?	Have all aspects of the components of the services been clearly specified? Have the key variables most relevant to the services, namely those that will impact on delivery of the services, been identified?
2. Is there a clear statement of the outputs to be purchased?	Have all elements of the output been clearly specified? Do you have a good understanding of the expected price that you will have to pay for the outputs?
3. Is there clear alignment to the objectives as stated in the procurement strategy?	Does your approach to this procurement activity still align with your strategic priorities? Is your proposed approach to aggregation and bundling (where relevant) consistent with your procurement strategy? Is there any reason why this procurement activity should no longer proceed? Are the identified economic, environmental and social considerations still relevant?
4. Is there appropriate procurement capability (either internal or external) to undertake the activity?	Do you have the capability to undertake the procurement activity? If not, where are the gaps and how is the required capability to be resourced? Do you have the necessary resources to deliver and monitor the contract? Are the risks associated with the procurement activity understood and quantified? Who is best placed to manage this risk?
5. What is the status of the supplier market?	Have there been any significant and relevant changes to the supplier market (ie number of suppliers, competitiveness of the market) that will affect your intended approach to the procurement activity? Are any other approved organisations purchasing similar goods and services? Is the proposed timing of your procurement activity able to be accommodated by the supplier market?
6. What are the risks and opportunities?	Are the identified risks and opportunities still relevant?

At the end of this step, the approved organisation will determine if the original assumptions as documented in the procurement strategy, as they relate to this procurement activity, still hold true.

If circumstances have changed and better value for money can now be obtained by an alternative approach, consider what can be done differently while acknowledging that the options at this stage are limited.

Confirm strategic context

Where the particular circumstances in which the activity is to be undertaken have changed since the procurement strategy was prepared and there is potential to enhance value for money through an alternative approach to the procurement activity, an approved organisation should take this into account. For example, there may now be opportunities to:

• collaborate with other approved organisations on the procurement activity
• aggregate or bundle a number of procurement activities into one larger procurement activity in order to obtain a pricing advantage through scale
• take advantage of innovation
• change the timing for the procurement activity.

In the event that an alternative approach is chosen as the most effective way to obtain better value for money, the purchaser should adopt this approach and fully specify the procurement activity in light of this changed assessment.

Document outputs

Having confirmed the strategic context of the specific procurement activity, the purchaser must document the link between the procurement strategy and the activity.

At the end of the strategic context assessment, the approved organisation will have fully specified and documented the outputs to be purchased. The approved organisation will clearly understand the factors associated with the delivery of the activity that need to be addressed during the procurement phase. This understanding is critical, as it provides the information required to determine which delivery model and supplier selection method are likely to produce the best value for money outcomes.

Where there are any changes in approach from what is specified in the procurement strategy, it is especially important to document the reasons for an alternative approach. If this requires the procurement strategy to be varied, the NZTA's endorsement of this variation should be sought at this stage.

The documentation process is likely to be an ongoing process as various decision points are reached. The approved organisation must meet the requirements set out in section 10.6 Documentation and publication requirements, including recording all decisions in relation to the selection of a delivery model and a supplier selection method.

8.4 Delivery models

Rule

All approved organisations are permitted to use the staged and the design and implement delivery models as outlined in this procurement procedure.

The advanced delivery models (shared risk and supplier panel) can only be used where an approved organisation has the NZTA's prior written approval under s25 of the LTMA.

Introduction

The delivery models available for use with this procurement procedure are:

• staged
• design and implement
• shared risk (advanced)
• supplier panel (advanced).

Each delivery model has distinct characteristics that suit particular procurement events. In general, the main factors influencing which delivery model should be applied are determined through reference to:

• the approved organisation's procurement strategy
• the defining characteristics of the procurement activity.

The defining characteristics of a procurement activity are its complexity, scale, timing, innovation potential, risk and supplier market. The following diagram illustrates the situations in which the staged, design and implement and shared risk delivery models may be used. Note that the supplier panel delivery model does not appear in the diagram because it gives purchasers complete flexibility as to the type of contractual arrangement that is established with the supplier. Therefore, an approved organisation may consider its use for any procurement activity.

Selecting a delivery model

The purchaser must consider the following factors (where relevant) when selecting a delivery model for a specific procurement activity:

• complexity and uncertainty
• scale
• timing and urgency
• innovation potential
• risk management
• supplier market.

Selecting a delivery model for a public transport services procurement activity involves analysing the conditions that surround the procurement event that were identified in the strategic context analysis and specified in the activity description. All considerations must be documented as part of the reporting requirements attached to this procedure.

The capability and capacity of the purchaser play an important role in determining which delivery models can be used. If, after assessment, the delivery model selected proves to be outside the purchaser's capability and capacity, an alternative delivery model should be selected. The purchaser should consider investing in the development of capability and capacity where no reasonable alternative exists.

For further guidelines, refer to appendix B Criteria for selecting a delivery model.

The following table provides examples of when to consider each delivery model that best fits a public transport services activity. It describes the circumstances under which it is advisable to use each of the models.

Delivery model	Consider when . . .	May not be suitable for . . .
Staged	Scale is small to medium. Complexity, uncertainty and risk are low. The approved organisation wishes to maintain some form of involvement and control over the activity. Scope is well defined and the opportunity for innovation is low.	Complex, large-scale activities. Activities that are difficult to specify. Activities with high levels of risk. Activities that require innovation and the capability to manage risk.
Design and implement	Scale is medium to large. Complexity, uncertainty and risk are correspondingly higher as well. There is more opportunity for the supplier to innovate during delivery. The approved organisation wishes to transfer some risk to the supplier.	Activities where the purchaser's requirements and required outcomes are not clearly identified at the outset of the contract. Activities where using specific designs provides more value for money than a proprietary design and operation process available in the marketplace.
Shared risk (advanced)	Scale is large. Complexity, uncertainty and risk are also high. It is unlikely that a single supplier is able to undertake the contract alone. Risk is best handled by and therefore transferred to suppliers who are incentivised to innovate. The purchaser has the necessary capabilities and resources to organise and manage a shared risk model.	Activities that can be fully specified. Activities with little scope for innovation. Activities where risk can be easily identified and managed by one of the parties.
Supplier panel (advanced)	There is value in the purchaser and suppliers collaborating closely. There are a number of small activities where supplier consistency would be valued. The volume of work may be too large for one supplier to undertake. Specialist skills or equipment are required. The procurement requirement cannot be adequately predicted.	When the supplier market for an output is deep. A series of large projects.

Staged delivery model

Under staged delivery, an activity is delivered through one or more separate contracts between the purchaser and supplier(s). These may include service design, delivery and monitoring.

Price determination

A robust price estimate for each stage, based on the known scope of services, will often be available at the time the supplier is engaged for that stage. The contract price may be a lump sum or taken from a schedule of prices.

The scope of services required to complete earlier stages, typically for professional services, is often not well defined at the beginning of those stages. In this case, a contract based on a lump sum or a schedule of prices will not be conducive to obtaining the best value for money. It would be better to select the supplier using the quality based supplier selection method and then negotiate the price or base it on a cost reimbursement model.

Relationship management

Under a staged model, once service design is complete, roles for parties are typically well defined and it is possible to clearly specify the outputs with respect to quality, frequency, route and service details. The outputs are often well understood through past experience. Where the outputs are well defined, the purchaser can maintain more control over delivery and is more able to control scope. The purchaser is more likely to receive appropriate proposals aligned with initial cost estimates. Risk is largely managed by the purchaser.

Advantages

• The purchaser can control service design and delivery, and set minimum vehicle quality requirements.
• The purchaser can assess customer satisfaction and control any actions to be taken to improve service delivery.
• Greater certainty over the final outputs is possible.
• Design of the final output is likely to be well aligned with the purchaser's requirements.
• Contract management is simplified, as decisions are made solely by the purchaser.
• Well-defined scope of services increases the likelihood of appropriate proposals and aligned cost estimates.
• Transaction costs for both supplier(s) and the purchaser are reduced.
• Competitiveness and market efficiency can be encouraged by breaking up larger packages of work to allow a broader range of suppliers to compete for contracts.

Disadvantages

• The detailed prescription of routes, timetables, capacity and minimum vehicle quality requirements may restrict innovation.
• Separation of service designer and operator may not encourage innovation, particularly the ability to design, plan or manage risk out of the delivery process.
• There is ongoing and significant involvement of the purchaser.
• Design errors may be costly to fix.
• Less coordination between design and operation could lead to implementation issues and higher costs.
• The purchaser's resource requirements are higher and may require ongoing project management resources.

Design and implement delivery model

A design and implement delivery model uses a single supplier to complete all detailed service design and operate the service. This usually involves a net lump sum price arrangement and more risk accepted by the supplier.

Under a design and implement model, the purchaser prepares a briefing to the market that sets out desired service outcomes and high-level service specifications, which may include key destinations and may specify minimum service frequency. A design and implement contract is then awarded to the preferred supplier to deliver the service design and operate the services.

Price determination

The preferred supplier must be able to price the final outputs before a contract is entered into. An iterative process may be used to progressively refine the design of the final output before the price is agreed.

A lump sum contract price may be used, and payments may vary subject to the supplier meeting the set of performance criteria specified in the contract. Under such an arrangement, payments to the supplier may be by an annual lump sum paid by regular instalments.

Relationship management

Under the design and implement model, risk is transferred from the purchaser to the supplier, with the supplier assuming responsibility for delivery. With the transfer of risk, the purchaser has less need to be involved in the detailed service design and operation - this is the responsibility of the supplier. The purchaser instead focuses on ensuring that the desired outcomes can be achieved.

Advantages

• Some of the time and cost associated with a staged delivery model are removed, and may lead to quicker start times and potentially earlier commencement of services.
• The purchaser can concentrate on the outcomes, and not get lost in minutiae.
• Technical and financial risk to the purchaser is reduced, as the supplier is responsible for design and operation.
• The purchaser needs less design resource.
• Overlapping design and operation increases the potential for innovation and for obtaining the best value for money spent.

Disadvantages

• Proposal preparation costs for potential suppliers are increased, which may be reflected in the proposal price. This may be offset by efficiency savings.
• Risks may be increased around design quality, outcomes and costs.
• Unknown risks may be transferred to the purchaser at contract completion.
• Greater supplier exposure to risk may increase the price.
• Post-contract award variations may increase costs due to disruptions to the supplier's process.
• Some potential suppliers may be deterred by the greater risk.
• More purchaser resource may be required for contract management.

Shared risk delivery model (advanced)

A shared risk delivery model uses an integrated team comprising the purchaser and supplier participants, which may include designers, implementers and suppliers.

Team members are incentivised to work collaboratively and impartially to deliver what is best for the project and to achieve high performance standards. Successful collaboration demands that all parties' commercial interests be aligned. Risk is shared by all parties and there are only two possible outcomes to working together: either all parties succeed or all parties fail. No team member can win at the expense of another.

The shared risk delivery model includes alliances and competitive alliances.

Price determination

The price is determined through negotiation involving all team members and is based on cost reimbursement with incentives to add value. A target price mechanism is often used with this model.

Relationship management

A shared risk model brings together an integrated team of the purchaser and suppliers. This approach minimises the barriers to information sharing and reduces negotiation, management and enforcement costs over the contract life.

Using this model, the purchaser assumes all risk, but brings together a team to manage and mitigate it. The combined expertise of the team contributes to obtaining the best value for money; all parties work together to determine the best course of action.

Advantages

• The contract is collaborative.
• All parties work together to determine the best course of action and to obtain best value for money.
• The team is motivated to proactively manage risk by sharing responsibility for it.
• Value can be added by involving the delivery experts in the planning and design phases.
• The team can draw on a wide variety of expertise.
• There is significant opportunity for innovation.
• Contract administration is minimised.
• There is pricing transparency.
• Improved coordination increases efficiency.

Disadvantages

• Direct price competition is removed.
• An individual team member (eg the purchaser) may dominate decisions.
• All parties are required to invest significant resource.
• Some avenues for legal recourse are removed.
• Participants are exposed to a broad range of risks.
• Participants are liable for the performance of other team members.
• Senior management resource is required to manage relationships.
• The purchaser's ability to make unilateral decisions is restricted.
• Procurement process costs are increased for all parties.
• Risk sharing may limit the number of suppliers willing to participate.

Supplier panel delivery model (advanced)

The supplier panel delivery model establishes a relationship with a group of suppliers that will be used to deliver a bundle of outputs for a group of activities. This does not imply an exclusive arrangement between the purchaser and the panel. Occasionally, the purchaser may engage suppliers that are not panel members to deliver similar outputs.

This model enables the purchaser to appoint a range of suppliers that, as a panel, offer the best combination of skills and experience required to deliver the outputs.

The supplier panel model uses a two-stage process. In the first stage, suppliers are appointed to the panel. In the second stage, tasks are allocated to panel members. Tasks may be allocated to a preferred panel member by direct appointment or through a competitive process involving two or more panel members.

A supplier panel may be appropriate in the following circumstances:

• There are a number of suppliers who can provide the required services.
• There is strong and ongoing demand for the services.
• The procurement requirement may not always be able to be adequately predicted.
• There is an advantage in having a choice of suppliers to select from at reasonably short notice.

Price determination

As noted above, the supplier panel delivery model uses a two-stage process.

Stage 1

In the first stage, suppliers are selected and appointed to the panel. Open competition is to be used to select suppliers.

When the suppliers are appointed to the panel, only the broad scope of the work to be undertaken is defined. The price of what will be supplied cannot be settled at the time of engagement. The purchaser and supplier(s) will agree at the time of engagement on a mechanism that will determine the price for the work that a supplier will be asked to deliver.

The contract between the purchaser and the suppliers on the supplier panel is usually referred to as a ‘framework’ contract.

Stage 2

In the second stage, work is allocated to panel members. This may or may not involve a competition between suppliers on the panel to win the right to deliver a particular part of the work. The allocation of work can be determined in a variety of ways. The following examples are typical means of allocating work:

• a non-competitive basis (eg obtaining a quote from any one panel member)
• a competitive basis (eg obtaining quotes from several panel members)
• an equal division of work basis
• a rotational basis
• a geographic basis
• a preferred supplier basis (eg some suppliers may be preferred for particular activities, or one supplier is given the opportunity to undertake the work, with other suppliers approached if necessary).

The precise mechanism for allocating work to the members of a supplier panel is a strategic consideration. Approved organisations wishing to use this advanced delivery model will need to set out their expected means of allocating work when seeking approval from the NZTA to use this advanced model.

The mechanism for allocating work must be agreed in the framework contract by all parties.

Relationship management

The supplier panel model provides for the establishment of collaborative relationships between the purchaser and the suppliers. It should also encourage panel members to have a high level of awareness of the purchaser's requirements.

Performance can be incentivised by making the allocation of tasks to panel members dependent on the quality of their performance on earlier panel tasks.

The flexibility of this model allows for risk to be managed in ways that best match specific tasks.

Advantages

• There is flexibility to move resources to urgent tasks and to fast-track activities as required.
• The skills and experience of more than one panel member can be used for the delivery of a specific task.
• The costs involved in supplier selection and engagement for a programme of many small and similar activities are reduced.
• Purchaser knowledge of supplier capability increases over time because of the ongoing relationship.
• Supplier knowledge of purchaser requirements increases over time because of the ongoing relationship.
• Competitive tension between suppliers is maintained over the contract duration.
• The purchaser can choose from a range of suppliers that, as a panel, offer the best combination of skills and experience required to deliver the outputs.
• Where more than one panel member has similar skills or experience, the risk of shortages is reduced.
• The potential for cost savings and improved value for money is increased through the selection of the best-qualified and most cost-efficient supplier.

Disadvantages

• The additional costs to both the purchaser and the suppliers of establishing the panel may outweigh any benefits.
• The opportunities for new suppliers to enter the market are reduced as long as the panel remains in place.

Supplier panel vs prequalification

Supplier panels are sometimes confused with prequalification systems. The table below sets out their important features.

Supplier panel	Prequalification
Staged process for appointment.	Staged process for appointment.
Advanced delivery model.	Stage in a supplier selection process.
A purchaser may have more than one supplier panel.	A purchaser may have more than one prequalification register.
Established once with a finite number of suppliers determined by the purchaser.	Any number of suppliers can apply to be on a prequalification register.
The supplier for a particular piece of work is determined by a process set out in the framework contract. This may or may not involve competition among panel members.	The supplier for a particular piece of work is determined by a competition among all prequalified suppliers.
Panel members enter into a contract with the purchaser for a particular project or for a term.	Prequalification registers are usually for particular types of work and are not confined by project or term. There is no contract between the purchaser and the prequalified suppliers.
Supplier panels, once formed, are not normally reopened for new suppliers to join. Where this is permitted, it would need to be clearly set out in the framework contract.	Prequalification registers are updated or opened to new suppliers on a regular basis.

8.5 Supplier selection methods

Rule

All approved organisations are permitted to use the supplier selection methods referred to in this procurement procedure.

The quality based supplier selection method is an advanced component where the output being purchased is anything other than professional services. As an advanced component, an approved organisation must have the NZTA's prior written approval under s25 of the LTMA for its use.

Introduction

This section details the process for selecting the most suitable supplier selection method to use in combination with the chosen delivery model.

The following tables show the supplier selection methods that provide a good fit with the delivery models specified for this procurement procedure.

See chapter 5 Supplier selection process for detailed guidelines on the application of the supplier selection methods listed here. See appendix D Procurement procedure decision trees for a graphic which links strategic context, delivery models and supplier selection methods.

Staged delivery model

The following table sets out guidelines on selecting a supplier selection method.

Supplier type	Supplier selection method and rationale
Selecting the professional services supplier(s)	Direct appointment Direct appointment must only be used in the circumstances described in appendix C Supplier selection methods and where it will deliver best value for money. Lowest price conforming Lowest price conforming should be used where the purchaser determines that best value for money can be obtained by selecting the supplier(s) that offer the lowest price and meet the requirements as set out in the RFP. This method should only be used where the output required is very well specified. Appendix C Supplier selection methods contains further details. Purchaser nominated price Purchaser nominated price should be used where the purchaser has predetermined the price that it is prepared to pay for the desired outputs. Best value for money is obtained by selecting the supplier(s) that provide the best proposal for the price as set out in the RFP. This method is typically used for such activities as strategy studies, feasibility studies, transportation studies and investigations. Appendix C Supplier selection methods contains further details. Price quality Price quality should be used where the specified outputs can be priced by the supplier(s) and where the purchaser determines that best value for money will be obtained by selecting the supplier(s) that offer the best combination of price and quality requirements as set out in the RFP. Appendix C Supplier selection methods contains further details. Quality based Quality based should be used where the purchaser determines that best value for money can be obtained by selecting the best quality supplier(s) and then negotiating the price with that supplier(s). Appendix C Supplier selection methods contains further details.
Selecting the service delivery supplier(s)	Direct appointment Direct appointment must only be used in the circumstances described in appendix C Supplier selection methods and where it will deliver best value for money. Lowest price conforming Lowest price conforming should be used where the purchaser determines that best value for money can be obtained by selecting the supplier(s) that offer the lowest price and meet the requirements as set out in the RFP. This method should only be used where the output required is very well specified. Appendix C Supplier selection methods contains further details. Price quality Price quality should be used where the outputs can be priced by the supplier(s) and where the purchaser determines that best value for money will be obtained by selecting the supplier(s) that offer the best combination of price and quality requirements as set out in the RFP. Appendix C Supplier selection methods contains further details. Quality based Quality based should be used where the purchaser determines that best value for money can be obtained by selecting the best quality supplier(s) and then negotiating the price with that supplier(s). Note: This is an advanced component when used for anything other than professional services. Appendix C Supplier selection methods contains further details.

Design and implement delivery model

A design and implement delivery model involves appointing a single supplier who assumes responsibility for the overall delivery of the activity and assumes a larger portion of the risk than the purchaser. This therefore requires the purchaser to place greater emphasis on quality when selecting a supplier.

It would be uncommon for the purchaser nominated price supplier selection method to be used to select the supplier under a design and implement delivery model.

The following table sets out guidelines on selecting a supplier selection method.

Supplier type

Supplier selection method and rationale

Selecting the supplier

Direct appointment Direct appointment must only be used in the circumstances described in appendix C Supplier selection methods and where it will deliver best value for money. Lowest price conforming Lowest price conforming should be used where the purchaser determines that best value for money can be obtained by selecting the supplier that offers the lowest price and meets the requirements as set out in the RFP. This method should only be used where the output required is very well specified. Appendix C Supplier selection methods contains further details. Price quality Price quality should be used where the specified outputs can be priced by the supplier(s) and where the purchaser determines that best value for money will be obtained by selecting the supplier that offers the best combination of price and quality requirements as set out in the RFP. Appendix C Supplier selection methods contains further details. Quality based Quality based should be used where the purchaser determines that best value for money can be obtained by selecting the best quality supplier and then negotiating the price with that supplier. Although it would be uncommon for this method to be used with the design and implement delivery model, in some circumstances best value for money may be obtained by using this method to select the best supplier and then negotiate a price for the output(s). Note: This is an advanced component when used for anything other than professional services. Appendix C Supplier selection methods contains further details.

Shared risk delivery model (advanced)

A shared risk model should be used for activities that have high levels of uncertainty. The transfer of risk to the party best able to manage it and the potential for innovation are important features of this delivery model. These features, when combined with the scale and uncertainty of the activity, indicate that a focus on the quality of the supplier is of high importance.

Typically, only the price quality and quality based supplier selection methods are used with a shared risk model. Direct appointment may sometimes be used.

The following table sets out guidelines on selecting a supplier selection method.

Supplier type

Supplier selection method and rationale

Selecting the supplier(s)

Direct appointment Direct appointment must only be used in the circumstances described in appendix C Supplier selection methods and where it will deliver best value for money. Price quality Price quality should be used where the specified outputs can be priced by the supplier(s) and where the purchaser determines that best value for money will be obtained by selecting the supplier(s) that offer the best combination of price and quality requirements as set out in the RFP. It is uncommon to use this method with a shared risk delivery model, as the price is usually established by negotiation. However, respondents to a proposal may be asked to submit a management fee that would be used as the ‘price’ when applying this method. Alternatively, they may be asked to price a proxy schedule that would be used in the supplier selection process and later as the basis for negotiation of the actual price of the works and services. As an example, the ‘competitive alliance’ approach typically uses the price quality supplier selection method to select the preferred supplier from the two suppliers engaged to prepare and price competitive proposals. Appendix C Supplier selection methods contains further details. Quality based Quality based should be used where the purchaser determines that best value for money can be obtained by selecting the best quality supplier(s) and then negotiating the price with the supplier(s). Note: This is an advanced component when used for anything other than professional services. Appendix C Supplier selection methods contains further details.

Supplier panel delivery model (advanced)

The selection of the supplier panel should be undertaken as a staged process, with stage 1 focused on the appointment of suppliers to the panel and stage 2 allocating work to panel members.

Stage 1: Appointing suppliers to the panel

Panels can be appointed through the price quality or quality based supplier selection methods.

For the price quality supplier selection method, a proxy schedule is commonly used to determine price.

Note: The quality based supplier selection method is an advanced component when used for anything other than professional services.

Stage 2: Allocating work to panel members

This stage involves selecting a member of the supplier panel to carry out a particular activity. The specific process for allocating work will be part of the detail that requires approval by the NZTA for use by the purchaser.

8.6 Contracts

Introduction

Once a preferred supplier is selected, an approved organisation will enter into a contract with that supplier. The contract establishes the form of the relationship between the parties and stipulates the terms and conditions for the purchase of the outputs.

Scope of contracts

The scope of contracts will vary according to the outputs to be purchased. Public transport services contracts should cover:

• description of the outputs being purchased
• term of contract
• price and review mechanisms (where applicable)
• standard terms and conditions (eg limitation of liability and insurance)
• health and safety requirements
• variations and time extensions
• disputes resolution
• contract default conditions and termination processes
• other issues that may be specific to the individual procurement.

In some situations, the full specification of the outputs may not be possible due to the scope and complexity of the activity. Activities that are well defined can be more fully specified in the contract than activities that are more broadly defined at the outset and then become better defined as the activity is undertaken. It may sometimes be difficult to specify every potential contingency that could arise during the contract period.

Form of contract

Contract form is individual to a particular activity. The decision on contract form rests with the approved organisation.

There is no standard contract form for public transport services in use in New Zealand. Individual approved organisations have their own contract forms. Factors that will assist an approved organisation to establish the form contract include:

• type and number of supplier(s)
• form of relationship
• type and volume of output(s)
• scale and complexity
• risk management strategy and incentives.

This manual contains no specific guidance on the contract form to be adopted under this procurement procedure. Approved organisations can adopt the form of contract that best suits their requirements.

Purchasers must advise potential suppliers of the proposed contract terms and conditions, including the proposed form of contract. See section 10.12 RFP contents and conformity.

Changes to contracts

This manual sets out guidelines for how contracts may be changed after they have been let. The rules for public transport services contracts are:

• 10.11 Direct appointment where competition reduces value for money (requires, in some circumstances, the approved organisation to make public significant increases in the outputs to be delivered under a contract)
• 10.24 Maximum term of a term service contract for public transport services (restricts changes to the term of a term service contract)
• 10.26 Contract service level changes for public transport services (restricts service level changes)
• 10.28 Fare adjustments - public transport services (net contracts) (restricts changes to a contract following a fare adjustment).

This manual contains no other restrictions on changes that can be made to public transport services contracts.

Contract price adjustment for cost fluctuation

The NZTA requires approved organisations to make provisions in contracts for contract price adjustment for cost fluctuation (see section 10.27 Contract price adjustment for input price variation public transport services).

Note that the NZTA limits funding assistance for contract price adjustment for cost fluctuation to the amount calculated using the appropriate NZTA index.

Bus contract key performance indicators

The NZTA requires approved organisations to include key performance indicators in bus contracts (see section 10.29 Key performance indicators for public transport (bus) contracts. Key performance indicators can be used to assess service delivery performance and, for example, to determine whether a contract will be extended in terms of the contract.