The Procurement manual is to be used for activities funded through the National Land Transport Programme and contains procurement procedures approved by the NZ Transport Agency for use by approved organisations when purchasing infrastructure, planning and advice, and public transport services. This manual also provides guidance on the application of these procurement procedures and the strategic context within which they operate.
A new version of the Procurement manual, Amendment 4 [PDF, 3.5 MB], is now available. The changes included in Amendment 4 are fully described in General circular 17/06 Amendment to the NZ Transport Agency Procurement manual [PDF, 860 KB].
There are a number of tools to assist in the use of the manual and application of Transport Agency procurement policies including:
For further information on the Transport Agency procurement policy, including the Procurement Manual and procurement procedures, view our frequently asked questions [PDF, 141 KB]
This chapter has been amended to incorporate new public transport procurement procedures.
This chapter contains the following sections:
This chapter lists the rules that are part of and govern the use of the procurement procedures contained in this manual. The rules can be varied by an approved organisation with the approval of the Transport Agency.
In this chapter, the following terms are used:
An approved organisation must ensure that, in addition to requirements under the LTMA, its procurement practices comply with all other relevant legal obligations.
While this manual cannot and does not attempt to remind approved organisations of their obligations under administrative law, contract law and other legislation, the Transport Agency requires approved organisations to comply with the wider legal framework to ensure that value for money outcomes are obtained.
Approval will be made under s25 of the LTMA. In assessing an application, the Transport Agency will consider value for money implications, including the impact on competition and on competitive markets.
An approved organisation must publish within one month details of all contracts let or direct appointments made under section 10.11 Direct appointment where competition reduces value for money or section 10.27 Direct appointment of a supplier for a public transport unit that are valued at $50,000 or more. Details must be available for a minimum of six months and must include the name of the supplier, the estimated value of the outputs and a brief description of the outputs to be delivered.
Approved organisations can generally satisfy the above requirements to ‘publish’ by publishing the information on their website.
Approved organisations should publish RFPs, EOIs, RFIs and invitations to suppliers to apply for prequalification on a recognised ‘tenders’ website. The central government GETS website(external link) and the local government LGTenders website(external link) are appropriate. Publication of RFPs in print media will sometimes be warranted, and approved organisations should consider publishing internationally for large or complex projects.
Approved organisations must use a procurement procedure in this manual to purchase the outputs required to permanently reinstate infrastructure following the completion of immediate response works.
To obtain the best value for money spent in all emergency reinstatement related activity (both immediate response and permanent reinstatement), the Transport Agency encourages approved organisations to make appropriate provisions within contracts for asset management and maintenance to deliver the works and services required to respond to emergencies. These contract provisions should also allow the approved organisation to purchase additional resources (additional to those provided through established contracts for asset management and maintenance) to respond to an emergency event where necessary.
Whenever the scale of permanent reinstatement work is significant, the Transport Agency expects the approved organisation to consider the options available to it. Typically, the option of completing the work within established contracts for asset management and maintenance will exist. However, that option needs to be compared with the option of going to the market and seeking competitive proposals.
Immediate response work is defined in the Transport Agency's Planning and Investment Knowledge Base and is exempt from procurement procedure requirements.
Any supplier selection process that is required, by this rule, to commence as an open competitive process may use a staged supplier selection process, which may involve shortlisting. Refer to section 5.3 Staged supplier selection process.
Where a supplier prequalification system is used, this rule is satisfied by regularly inviting suppliers to become prequalified. Refer to section 5.2 Approach to supplier selection.
Where a supplier panel delivery model is used, this rule is satisfied by an open contest to gain appointment to the panel.
If a point is reached in a supplier selection process where only one supplier remains both willing and able to supply the output(s) sought, the approved organisation may choose to negotiate the terms, including price, of a contract with that supplier using the direct appointment supplier selection method. Refer to appendix C Supplier selection methods.
|Contract for||Physical works||Professional services||Public transport services (gross contract price per year)|
Note: These dollar limits will be periodically reviewed and updated.
Where a closed contest identifies only two willing and able suppliers, despite reasonable efforts to identify a minimum of three, the supplier selection process may proceed with the two that have been identified using one of the available supplier selection methods.
If only one supplier is identified, then the approved organisation may negotiate the terms, including price, of a contract with that supplier using the direct appointment supplier selection method.
Approved organisations are encouraged to use registers to identify potential suppliers when a closed contest is used or the supplier is directly appointed. The use of a register mitigates some of the negative effects on open and competitive markets because all suppliers have the opportunity to indicate their interest and availability to potential purchasers.
A monopoly supplier situation exists where there is only one possible supplier of an output. Monopoly suppliers are therefore either a natural monopoly (such as the owner of land required to allow transport infrastructure development) or an entity that is in effect a monopoly for some structural reason (eg a service utility owner in a situation where a utility must be relocated to allow transport infrastructure development).
An approved organisation should have mechanisms in place to ensure as far as possible that it obtains value for money from a monopoly supplier. Mechanisms may include:
Monopoly supplier examples
The following are examples of monopoly supplier situations:
Lines companies for:
Owners of existing street lighting infrastructure for:
Utility service operators for:
Kiwi Rail’s Infrastructure and Engineering Team for:
Property owners for:
Property for an infrastructure project – purchase of either the freehold or a lease.
This rule applies in situations where competition may reduce value for money. In these situations, the direct appointment supplier selection method should be used.
Direct appointment under this rule should not be used as a routine way of purchasing, as it can deprive suppliers of the opportunity to compete.
An approved organisation must not let a contract that is materially different from that described in the RFP.
Every RFP must set out in sufficient detail:
Having set out these details in the RFP, the approved organisation must then select the supplier and let the contract in accordance with the process described in the RFP.
To encourage competition and innovation, the RFP should generally avoid specifying the methods to be used to achieve the outcomes. Specifying outcomes sets the non-negotiable boundaries, such as resource consent conditions, client-imposed conditions and conditions related to land, and allows room for alternative proposals within these boundaries.
Specifying outcomes allows RFP respondents to decide how the outcomes will be achieved. For example, an RFP may specify ‘No potholes to remain unfilled for more than x hours’, but would not specify how the contractor should go about achieving that outcome.
An approved organisation must use an available supplier selection method and follow the proposal evaluation procedure set out in each supplier selection method. Refer to appendix C Supplier selection methods.
An approved organisation must only enter into a contract with the preferred supplier identified by the chosen supplier selection method.
In the event that an approved organisation wishes to contract with a supplier other than the preferred supplier identified by the chosen supplier selection method and the conditions of tendering allow this, it must first obtain the Transport Agency's approval. This event is only likely to occur in exceptional circumstances.
Before approving such a variation to the above rule, the Transport Agency must be satisfied that the proposed approach is both legally acceptable and will enable the approved organisation to obtain best value for money.
Non-price attribute definitions
Relevant experience - The supplier’s previous experience in areas relevant to the outputs being purchased.
Relevant skills - The competence of the personnel that the supplier proposes to use, with particular regard to their skills and experience in areas relevant to the outputs being purchased.
Methodology - The procedures the supplier proposes to use to achieve the specified end result.
Track record - The supplier’s record of delivering works or services to the quality standards required, on time and within budget.
Resources: The equipment, including facilities and intellectual property that the supplier proposes to use to deliver the outputs.
Financial viability: The supplier’s ability to access the financial resources required to deliver the outputs to be purchased.
Rejecting a proposal through a ‘fail’ on a non-price attribute
It is standard practice to establish through the RFP that any proposal may be rejected at the sole discretion of the purchaser. In addition, the above rule refers to the need to establish, through the RFP, that a ‘fail’ on a non-price attribute will be a sufficient reason to reject a proposal.
Historically, under the Competitive pricing procedures manual rules, when the supplier selection method required that a non-price attribute be graded, a score of 35 or less was a ‘fail’ score for that attribute. Approved organisations should not depart from this well-established practice without good reason. They must also make their intentions clear through the RFP.
It is also important to clearly establish in the RFP what features of a proposal will make it unacceptable or ‘non-conforming’ and result in its rejection. Where a proposal must meet certain minimum standards (eg where a supplier must be certified as meeting a particular quality standard) or an input must meet a particular standard specification, then this must be made clear to prevent potential suppliers from investing effort in preparing a proposal when that supplier cannot meet the required minimum standard.
Part 1 of the above rule requires that three attributes (relevant experience, relevant skills and methodology) be used as a minimum. These three attributes are mandatory because best value for money spent is more likely to be obtained if the selected supplier has the relevant skills and experience, combined with a well thought through methodology. Note that these three non-price attributes are the ones focused most directly on the works or services to be delivered and on the skills and experience required to deliver, and are therefore an absolute minimum.
However, these attributes alone will often be insufficient to ensure that the supplier who will deliver the best value for money will be selected.
Purchasers are free to choose as many additional attributes from among those listed in part 2 of the rule or to add other attributes. Attributes (beyond the minimum three) should only be added when they will enhance the supplier selection process and help to obtain better value for money.
Where the supplier selection method allows grading of the non-price attributes, the purchaser must decide whether each attribute should be evaluated on the basis of pass or fail alone or whether they should also be graded.
Adding relevant non-price attributes that are to be evaluated on a pass or fail basis alone is sensible where the purchaser simply wishes to ensure that a potential supplier meets a given minimum standard. Adding attributes that are also to be graded must be considered more carefully.
A large number of attributes (or sub-attributes) that are to be graded tends to lead to a reduced range of the weighted sums of the non-price attribute grades and a reduced degree of ‘separation’ of proposals.
Appropriate attention must be given to setting the weights for the non-price attributes. They impact on the outcome of the proposal evaluation process by establishing the relative importance of the non-price attributes that are to be graded. Weights must be advised through the RFP.
See section 5.4 Supplier selection methods for guidelines on choosing weights.
A scale of 0 to 100 is used when grading non-price attributes. To help achieve consistency of practice, the Transport Agency recommends that grades be awarded in steps of five and that the following grading scale be used.
|90, 95 or 100||Demonstrates exceptional compliance or ability to convey exceptional provision of the requirement|
|75, 80 or 85||Requirements are fully covered in all material aspects|
|60, 65 or 70||Requirements are adequately covered|
|50 or 55||Adequate, with some deficiencies that are not likely to have any adverse effect|
|40 or 45||Barely adequate and would need considerable improvement in this attribute, if selected|
|35 or less||Total non-compliance or inability to convey provision of the requirement|
Typically, the price used in the supplier selection process is the unmodified price taken from each proposal. However, in some situations the proposed price will be modified before it is used in the supplier selection process. For example, where the supplier is to be paid an initial sum and over a period of years further amounts (eg for the maintenance or operation of an asset), then it may be appropriate to discount the later payments to give a net present value to be used in the supplier selection process.
When the price quality supplier selection method is used, a supplier quality premium value will ‘modify’ the proposal price (see appendix C Supplier selection methods). Where alternative proposals are permitted, an added value premium may modify a proposal price (see section 10.16 Alternative proposals and section 10.17 Added value premium).
Whenever proposal prices are modified in any way by the supplier selection process, the description of that process must be made clear in the RFP.
For some contract types, the price sought through the RFP, and used in the supplier selection process, may only be indirectly related to the final price. For example, it may be the total of a proxy schedule that is to be used to calculate the actual price to be paid, or a margin where the supplier is to be paid in the basis of actual cost plus a margin. Again, the RFP must describe how this will be done.
Choosing the price and non-price attribute weights
When using the price quality supplier selection method, the weights assigned to the price attribute and to those non-price attributes to be graded in the evaluation process are set at the discretion of the approved organisation, within the limits noted above.
See section 5.4 Supplier selection methods for guidelines on choosing weights.
Documentation of the rationale for choice of price weight
When an approved organisation chooses to use a price weight over 20, less than 70 or any combination of price and non-price weights that it has not previously used when purchasing a similar output, the NZTA requires that the rationale for the choice of price weight be documented. Refer to section 10.6 Documentation and publication requirements.
Choosing a price weight for a professional services contract
Under the above rule, weights up to 70 are allowed. An approved organisation proposing to use a weight over 20 for a contract for professional services needs to have tested that proposal before use. See section 5.4 Supplier selection methods.
Choosing a price weight for contracts other than professional services contracts
Under the above rule, weights as low as 10 are allowed. An approved organisation proposing to use a weight less than 70 for a contract other than professional services needs to have tested that proposal before use. See section 5.4 Supplier selection methods.
An approved organisation should exercise care when specifying the scope and requirements of an RFP and the level of detail used to describe the outputs. Where the outputs are narrowly specified, consider the benefits of broadening the scope of the RFP to encourage innovation through alternative proposals. For example, if an RFP specifies that the output is a retaining wall and provides detailed drawings and specifications, then the submission of alternatives will be encouraged by broadly specifying the desired outcome in the RFP and deliberately stating that alternative proposals will be considered.
Where the scope and requirements of an RFP and the outputs are all broadly specified, then it will generally not be necessary to allow alternative proposals. All proposals submitted are effectively alternative ways to deliver the broadly defined outcome. Where the output is a professional service, it will typically be specified in the RFP in broad terms and an alternative proposal is therefore unlikely to add further value.
Approved organisations may reserve the right (through the RFP) to reject any alternative proposal, regardless of the outcome of the evaluation.
When an alternative proposal is outside the scope of the RFP but offers a better outcome, the approved organisation should consider declining all proposals and issuing a revised RFP that will accommodate the alternative. To be fair to the supplier offering the alternative, the approved organisation should not reveal the detail of any innovative idea used in the alternative proposal. Approved organisations should exercise caution when declining all proposals and requesting new proposals, and specific legal advice should always be obtained.
Approved organisations are not required to request an accompanying ‘non-alternative’ proposal with any alternative proposal. Where an approved organisation requests two proposals, careful consideration must be given to the purpose of the request to ensure that unnecessary costs are not placed on potential suppliers.
An added value premium is defined in this manual (see appendix G Definition of terms) as the amount more that the approved organisation is prepared to pay for the output offered by an alternative proposal.
Where the approved organisation receives an alternative proposal and considers that it may significantly improve whole-of-life value for money, then it should consider whether an added value premium should be determined.
An alternative proposal may have both a supplier quality premium and an added value premium associated with it if the price quality supplier selection method is used. The supplier quality premium relates to the characteristics of the supplier and the added value premium relates to the output offered by the alternative proposal. The supplier quality premium is defined (see appendix G Definition of terms) as the amount more that the approved organisation is prepared to pay for a higher-quality supplier.
Being aware of the distinction between the supplier quality premium and the added value premium helps an approved organisation to avoid paying a premium twice for the same potential to enhance value for money.
Where an alternative proposal affects the cost to the purchaser, the added value premium should be based on the discounted difference in whole-of-life cost for the alternative. Where it would affect the benefits to be obtained, the added value premium should be based on the discounted difference in benefits for the alternative. The benefit value would be divided by the incremental benefit to cost ratio to determine the added value premium figure.
Determining an added value premium is a comparative exercise. The added value premium is the difference in the amount that the approved organisation is prepared to pay to purchase the output offered by an alternative proposal, rather than the minimum standard output specified in the RFP. If the alternative proposal offers more than the minimum standard output, the added value premium will be positive. If it offers less, the premium will be negative.
Best value for money is not likely to be obtained if suppliers expect that negotiation will be used to reduce their price when a competitive process has already been used to encourage suppliers to offer their best price.
This rule applies to negotiation with the preferred supplier prior to a contract being let. It does not apply to negotiation when using the quality based or direct appointment supplier selection methods or the negotiation or consultation processes that are part of an early dialogue or interactive tendering process.
Section 5.5 Evaluation of proposalsdiscusses the integrity of supplier selection processes, including the need for the proposal evaluation team to understand both technical issues and more general legal obligations that the purchaser has to proposal submitters.
The Transport Agency's Planning and investment knowledge base defines those activities that are classified as minor and ancillary works and establishes the requirements that must be met by an approved organisation before it can purchase minor and ancillary works from its own business unit.
Approved organisations must be fair in all their dealings with proposal submitters. This is especially important when an approved organisation’s business unit is involved, either as a potential supplier or as a sub-contractor to one or more of the other proposal submitters. The approved organisation must always ensure that it acts in a fair and transparent manner.
The term of term service contracts should be chosen with care. For large-value term service contracts, the term and the termination dates should be determined in the approved organisation’s procurement strategy.
The following matters should be considered when deciding the term of each of these contracts (and the degree of aggregation and bundling of services within each contract):
Term service contracts can be let under a simple fixed-term arrangement (eg two or four years). Approved organisations should consider the advantages (and disadvantages) of letting a contract for an initial term with optional term extensions as an alternative to a simple fixed term. Under such an arrangement, a term extension is normally conditional on supplier performance and can, therefore, provide an incentive to perform well. However, it can also inflate the proposal price to cover the risk of early termination.
The Transport Agency will consider applications to vary this rule to allow a contract term longer than five years (eg where the purchaser wishes to establish a 10-year PSMC).
An approved organisation must document in its procurement strategy the rationale for seeking approval of a contract term beyond the five-year maximum term.
The Transport Agency will consider applications to vary this rule to allow a contract term extension to take the total term beyond the term advised through the RFP (non-tendered renewal).
An approved organisation must document its rationale for seeking approval to extend a contract beyond the term advised through the RFP in its procurement strategy.
When applying for a contract term extension, the purchaser must show that they have considered all options, including the option of re-tendering the work in an open competition. The Transport Agency expects that any application to approve a contract term extension beyond the term advised through the RFP will include:
The approved organisation should advise potential suppliers that a contract may be extended as soon as possible and update these suppliers on the status of its plans to extend at least annually.
If the purchaser considers that a contract may be extended beyond the term advised in the RFP when it is issued, they should indicate this at the time.
Under some circumstances, approved organisations can protect themselves from the risks associated with supplier performance by specifying a bond payable if the supplier defaults.
Approved organisations should exercise caution when requiring bonds, as they can act as a barrier to competition and deter capable suppliers from participating in the supplier selection process.
A sufficient time between contract award and commencement will depend on several factors including the supplier market, the peak vehicle requirement of the public transport services contract and the type of vehicle(s) required.
A contract with a small peak vehicle requirement, where a number of suppliers are able to supply the vehicles could have a comparatively short lead-in time.
Larger contracts where providers may need to obtain new vehicles will generally need a lead-in time no less than nine months. A longer lead-in time could also encourage new market entrants, who may need to establish depots and hire staff.
The terms for bus public transport unit contracts procured under the partnering delivery model are fixed; not a maximum or minimum term.
The 12-year term for like-for-like units is a one-off term available to suppliers who previously held commercial service registrations under the Public Transport Management Act 2008.
Bus units procured through an open supplier selection process will have a term of nine years with a gross price reset at six years, see section 10.28: Gross price reset for public transport units (note that this is different from a six-year contract with an optional three-year extension, commonly described as a 6+3). The reset is on price only and is not intended to be an opportunity to end the contract.
Commercial units will have a term of nine years. This is to provide an incentive for suppliers with units with a high commerciality ratio to operate the unit without a subsidy as a commercial unit.
Units that are directly appointed, other than commercial units or like-for-like contracts will have a six-year term.
The term of emergency contracts, established without using an approved procurement procedure in terms of s26 of the LTMA, is limited to six months.
Indexation on the gross cost transfers input risk from suppliers to the purchaser, reducing the risk premium suppliers would otherwise incorporate into tender prices. Price adjustment should be calculated and paid in arrears as soon as practicable after the publication of the index for the related quarter (eg the index for the March quarter that is published in late May should be paid in June).
These provisions transfer input price risk from suppliers to the purchasers.
The Transport Agency will use survey information from suppliers on cost structures to review the index formula approximately every five years. The latest version of the indices will apply to contracts, including any changes to the composition and weighting of the index (ie the version of the indices that existed when the contract was let will not necessarily apply for the term of the contract, if it changes as a result of the Transport Agency’s review).
Contract price adjustment is intended to cover all inflation (or deflation) that occurs from the quarter that tenders close, including the interval between the close of tenders and the commencement of the service (ie the adjustment reflects the fluctuation in input prices between the quarter in which services are priced and each quarter in which services are delivered).
Suppliers do not need to forecast inflation for the period leading up to the commencement of the contract, nor for any initial contract period.
The Cost indices for public transport tool provides the latest index values and describes their derivation and use.
All bus contracts must include, as a minimum, the key performance indicators specified in the performance measurement and monitoring chapter of this manual (refer to chapter 11 Performance measurement and monitoring).
There are three circumstances where suppliers for public transport units can be directly appointed without going through a competitive process.
When selecting the supplier of public transport services contracts using direct appointment the process set out in appendix I Contract negotiation processes for bus public transport units must be followed.
A Transport Agency representative, in their role as investor in public transport services, will be present at some negotiations to provide the Transport Agency and the Crown assurance that the agreed price achieved in negotiations is efficient. A Transport Agency representative will be present at:
Bus public transport unit contracts longer than six years, will have the annual gross price reset at year six of the contract to ensure confidence in costs. This is a reset of the price only. It is not a review of the contract terms, or an opportunity to end the contract early.
The reset price will apply for the start of year seven of the contract, and if necessary will be paid in arrears.
The price reset is intended to recognise that agreements need to ensure value for money is being achieved in the longer term, and a reasonable balance is being maintained between operator profit and the expenditure of public funds.
Over time, indexation payments, changes in farebox recovery and financial incentive mechanisms may shift the balance between value for money and sustainable revenue. The reset process is designed to restore the balance.
This reset may result in the annual gross price increasing or decreasing.
Where reliable information is not available the contract is to be awarded as a gross price contract for the first full year of operation, transitioning to a partnering contract, incorporating a financial incentive mechanism, at end of the first year once baseline data is available.
Any public transport services that were registered as commercial under section 32 of the Public Transport Management Act 2008 will need to be transitioned. There are three possible transition paths for current commercial service registrations:
In regions with existing commercial services that form part of a unit or units, careful consideration should be given to how like-for-like units will be accommodated.
Tender rounds will need to be held to provide benchmark prices before any like-for-like contracts can be entered into. In regions where benchmarking is not possible, other arrangements will need to made to ensure confidence that value for money is being achieved.
The RUB has been developed in collaboration with regional councils, the Bus and Coach Association, operators, bus builders and suppliers. User groups were also consulted as part of its development.
The intention is that the RUB forms a common standard for urban buses in New Zealand and that the dimensions and features in the RUB are accepted by all regional councils as a prerequisite for receiving Transport Agency investment.
The RUB may be amended from time-to-time (but typically every three years), the most recent update should always be used in tenders and this can be found at www.nzta.govt.nz/resources/requirements-for-urban-buses/index.html
In addition, all urban bus public transport units should consider the additional matters and good practice as set out in the RUB.
Contracts for fare subsidy schemes should allow for modifications to the scheme that result from amendments to the RPTP.
The approved organisation is responsible for determining the average fare. If there are no existing public transport or taxi operations on which to base the average fare, the determination should be based on comparable services in similar areas.
Approved organisations should be satisfied that their contribution to the total reimbursement for Total Mobility services does not exceed the average taxi fare being charged in the area covered by the service.
Where services use voluntary input, the sum of the donation paid and subsidy received should be less than the average taxi fare.
Off-peak for the SuperGold scheme is defined by the Government as 9am to 3pm, then 6.30pm to the end of service, and all services on weekends and public holidays. Eligible hours will be set to time of boarding. A 10-minute buffer around the off-peak start and finish times on ticketing machines is acceptable.