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#21-21 Update for tendering to manage cost volatility

Published: | Category: Technical advice note | Audiences: Road controlling authorities, Road traffic engineers & consultants, Roading contractors

This note is to advise all parties to capital works tenders that temporary arrangements will be made to the tendering process because of the current industry circumstances. 

Publication details

Purpose

This note is to advise all parties to capital works tenders that temporary arrangements will be made to the tendering process because of the current industry circumstances. As there is currently significant price volatility Waka Kotahi recognises that measures need to be taken to ensure a fairer approach to tendering and contract pricing. The Guidance Note applies to Capital Infrastructure (construction) only and excludes Maintenance and Operations. The changes apply to all current tenders and are effective from the date of issue of this note.

Guidance note: updated approach to cost escalation in Waka Kotahi physical works tenders [PDF, 220 KB]

General information

COVID-19 market disruptions have given rise to price escalation and price volatility. Elements of the Waka Kotahi existing tender process and contract escalation policy are not designed for these market conditions and require a different approach. Price uncertainty for input materials is impacting contractors’ ability to commit to firm tender prices, in some cases presenting an unmanageable commercial risk for our contractors that was not present pre-COVID-19. This could result in inefficient pricing and potentially reduce competition at the tender box. To support industry in these times of price volatility, Waka Kotahi is temporarily amending our contractual terms for new infrastructure tenders going into the market and where practicable for tenders active in the market today. The aim is to ensure a level playing field at the tender box and to de-risk our contracting partners of price risk that they cannot manage.

Changes

A Guidance Note entitled ‘Updated Approach to Cost Escalation in Waka Kotahi Physical Works Tenders November 2021’ (Guidance Note) and supporting Infometrics Report (November 2021) is available on the Procurement manual page of the Waka Kotahi website.

Procurement manual

The Guidance Note outlines background and resulting temporary changes to contractual terms to clause 4 of Schedule 17 (or 18) of the State highway construction contract proforma manual (SM031).

State highway construction contract proforma manual (SM031)

This will allow escalation indexation from contract commencement, rather than from 12 months after contract signing as has been the case until now. The current published version of SM031 has been updated to temporarily reflect the changes required in the Guidance Note. Changes are indicated in SM031 documents clause 4, Schedule 17 (or 18) by striking through the text in a manner that allows for reversing the process later. Note that the temporarily amended SM031 document does not constitute a new version.

All temporary contractual changes outlined in the Guidance Note shall be included in all new tenders and where practicable active tenders in the market, effective from the date of issue of this TAN.

Communication plan

Our main target audience for this Guidance Note is Waka Kotahi Project Managers, tender evaluation teams, and professional services consultants. Advice of these changes will be promulgated by:

  • publication of this TAN advising release of the Guidance Note
  • advice to the Road Efficiency Group of the steps being taken by Waka Kotahi
  • direct access via the Waka Kotahi intranet and external website
  • direct emails to commercial and portfolio managers
  • Microsoft Teams training sessions ‘Waka Kotahi Escalation Indices’ (Internal & External).

Implementation

The Procurement Team will notify all internal project managers with current tenders to follow the actions outlined in the Guidance Note including:

  • users with active tenders in the market will need to issue a Notice to Tenderers (NTT) to amend terms, verify contract details and identify any high risk materials so that they can consider treating them separately in the tender
  • users planning a new tender can download a copy of the current SM031 version which now includes the temporary amendments.

Any external parties that wish to know more should contact the information link below for further information.

Review plan

The effectiveness of this instruction will be measured by achieving full application of these current changes across our capital works tenders until market conditions improve, and the measures are no longer required. The changes to the SM031 Manual will then be reversed and this note will be revoked.

Publication details

Author: Waka Kotahi NZ Transport Agency
Published: January 2022
Version: 1
Location: Guidance note: updated approach to cost escalation in Waka Kotahi physical works tenders [PDF, 220 KB]

Further information

If you have any questions or feedback, please contact the Lead Advisor - Infrastructure at procurement@nzta.govt.nz using the subject line ‘Cost Escalation Guidance Note’.

 

Signed:

Greg Haldane
Chair, Ratification Group

Vanessa Browne
Delegated Approver