Last week, MBIE published the 5th edition of the Government Procurement Rules (Rules) following public consultation and Cabinet approval. The new Rules are effective on 1 December 2025.
The value thresholds that dictate when the majority of the Rules will apply remain the same ($100,000 for goods, services and refurbishment works and $9m for construction works). However, the new Rules incorporate some significant changes that agencies and businesses will need to be familiar with, and agencies will need to reflect in their procurement processes. In our view, the changes that are likely to have the most profound impacts are:
- The new "economic benefit" test, including the requirement that economic benefit is a weighted evaluation criterion
- The rules relating to panels, where significant changes have been made to the establishment and management of panel contracts
- New rules regarding procurement processes and contract management, including increased reporting obligations for agencies to ensure greater transparency across government procurement.
We have summarised some of the key changes below.
The economic benefit test
The new Rules replace the previous "broader outcomes" concept (which required agencies to seek to achieve a number of specified outcomes, including both economic and environmental outcomes) with a new rule requiring "economic benefits to New Zealand". The new rule is considerably more prescriptive, and will require close consideration by agencies when planning and managing procurements, and by businesses when responding.
For contracts over the value thresholds, agencies must seek economic benefits to New Zealand in procurements, and evaluate those as part of the overall assessment of public value. Rule 8 lists examples of economic benefits, including:
- Making better use of New Zealand resources, such as increasing workforce participation, and providing training or apprenticeships
- Using New Zealand businesses, either directly or as subcontractors (including SMEs and regional businesses)
- Creating export opportunities
- Developing New Zealand industry capabilities or capacity
- Developing and adopting innovative products or practices that benefit New Zealand communities
- Considering sustainability and/or environmental benefits
- Contributing to positive social and cultural outcomes in New Zealand communities.
Agencies must now:
- Detail the economic benefits sought in their procurement notices, in a way that is proportionate to the procurement
- Include contract provisions to deliver the agreed economic benefits
- Monitor the agreed economic benefits to ensure contracted commitments are achieved.
Perhaps most significantly, agencies must apply a minimum 10% weighting for economic benefits as part of the evaluation criteria for proposals. The introduction of this mandatory weighting, along with an obligation to contract for the economic benefits and monitor their delivery, means agencies will need to do some careful thinking to specify the benefits they are seeking to achieve in a way that can be compared between suppliers when evaluating proposals, and then measured and monitored under the resulting contract.
Suppliers are also going to have to put serious thought into their responses in this area now that it will be weighted, as being able to demonstrate economic benefit to New Zealand could have a big impact on winning or losing a tender, depending on how close things are between suppliers across other evaluation criteria (ie their ability to meet the RFP requirements and their proposed pricing).
The "economics benefit" rule (Rule 8) also states that, when agencies' procurements don't meet the value thresholds, agencies are expected to award contracts to New Zealand businesses that are capable and have capacity to deliver the contract "unless there is good reason not to".
It will be interesting to see how this expectation is managed by agencies. For example, if an overseas supplier has a cheap or free product available now (agencies use some free software tools, for example), but a local supplier could provide a similar product at a slightly higher cost, or doesn’t have a product available but could provide one in time, will agencies be required to favour the local supplier rather than going with the cheaper and/or immediately available overseas product?There seems to us to be at least some scope for debate about what constitutes a "good reason" and this may be an area where it would be useful for some guidance to be provided in the future. When awarding a contract to an overseas supplier on the basis that "there is good reason" to do so, it will be useful for agencies to record those good reasons as part of their decision-making process, to demonstrate compliance with Rule 8.
It is worth noting that, for the purpose of Rule 8, the definition of New Zealand businesses includes Australian businesses also. While at first blush this may seem surprising, it is aligned to the Australian Commonwealth Procurement Rules (ACPR). The ACPR have various requirements to increase the opportunities for SMEs in government procurements and define a SME as "an Australian or New Zealand firm with fewer than 200 full-time equivalent employees".
There has been long-running pressure from New Zealand businesses to introduce a Rule that allows or requires government agencies to favour New Zealand suppliers, but some concern that New Zealand can’t go too far in that direction without breaching free trade agreements with other countries. We understand that the Government's view is that the new Rule 8 does not breach free trade agreements, and that New Zealand was an outlier amongst those with which we have such agreements not to have a procurement rule that enabled the benefit to the local economy to be taken into account in procurement decisions.
For example, the United Kingdom's Procurement Act 2023 requires procuring agencies to have regard to the “national procurement policy statement”. The current policy statement includes putting "UK firms in the best possible position to compete for and win public contracts" and driving economic growth and benefits to UK communities by providing opportunities for small businesses and "high quality jobs that offer fair wages".
Panels
The new Rules introduce some big changes for panel contracts. Agencies often use panels to make the procurement of common goods and services more efficient by setting up a panel of suppliers that they can purchase from, so they do not need to go through individual tenders every time a common good or service is needed.
The 4th edition of the Rules provided that agencies "should" use competitive secondary procurement processes when purchasing under a panel. Now agencies "must" use competitive secondary procurement processes unless there is a good reason not to do so. Under the new Rules:
- Each panel must have a "panel guide" including the secondary procurement processes (which agencies must use)
- There is an exhaustive list of accepted secondary procurement processes, and agencies may only use the processes in this list (previously agencies could use these methods, but could also establish their own methods)
- The “direct source” method, where an agency purchases direct from one supplier on a panel without offering the opportunity to others, is more prescriptive, and includes a requirement to document how the supplier was chosen “based on capacity, capability, risk, public value, and due diligence”.
Contract management and accountability
Agencies are now expressly required to have:
- A systematic way of identifying their contracts and important details for each contract
- A contract management plan for each contract that is right sized based on the contract’s value, complexity, risk, and duration.
In addition, and as an example of the Government's focus on accountability, the new Rules require that agencies must publish a public contract award notice each time they directly source (or award a contract to a supplier following a secondary procurement process) from a panel of suppliers.
The requirement to publish award notices for appointments from a panel of suppliers where the procurement has a value of more than $100,000 is an increase from the $10,000 value proposed in the consultation version of the Rules. We think the increase is a good move. Having a threshold of $10,000 would have created a significant administrative burden for panels that have a high turnover of lower value work. It may also have disincentivised agencies from using panel contracts when they may be able to directly source services under $100,000 outside a panel and avoid the notice requirements. Panels are generally established to make it easier for agencies to buy things that they need often (and potentially minimise the burden to suppliers of having to go prepare detailed RFP responses for multiple customers), so in our view it makes a lot of sense that the threshold has been increased to match the value threshold above which open advertisement would otherwise be required.
Another new addition to the final version of the Rules (we assume in response to feedback received during the consultation period and in line with the objective of providing more transparency) is the requirement that the expected budget is included in the procurement notice "where known and appropriate". It will be interesting to see how agencies interpret that phrase.
Other changes
Given the Rules have been subject to a reasonably significant rewrite that has seen a reduction of the number of rules from 71 to 47, it's not surprising that there are a lot of changes that agencies will need to work through. Other significant changes of note include:
- New procurement principle – A new procurement principle has been added to "right-size" the procurement to be efficient, reduce time and cost, and make it easy to do business with government. This is a new addition following consultation on the draft Rules and will be welcome news to suppliers who have expressed some frustration with the time, effort and cost sometimes needed to prepare detailed responses for potential contract opportunities of relatively low value
- Sufficient time – The Rules now specify that suppliers must be given a minimum of 20 clear business days to respond to procurement processes, with factors for agencies to consider to increase the period. The 4th edition, by contrast, provided a formula for the minimum time period, with the starting point varying depending on the type of process and reducing after applying any allowable deductions (with the table showing periods of between eight and 15 clear business days if all allowable deductions apply)
- Due diligence - There is now a single rule to conduct appropriate due diligence. Previously this concept was largely contained in information boxes that did not form part of the Rules
- Code of conduct - Agencies must engage with suppliers that act with integrity, and incorporate a supplier code of conduct in every contract
- Subcontractors - Agencies should select suppliers who have good processes for managing their subcontractors and engage subcontractors that demonstrate good practice, and must require their suppliers to provide information on subcontractors, and (on request) changes to subcontractors over the term of the contract
- Oral responses - A new option recognising it is possible to accept oral rather than written responses
- Agencies are expressly prohibited from including a technical specification that requires a supplier to have previously been awarded a contract by a named buyer of a New Zealand government agency. We anticipate that this has been added to the final Rules to reflect a concern from suppliers that some agencies are not sufficiently open to using suppliers that may have not had previous New Zealand public sector experience or have had the opportunity to work previously with the particular agency.
What do I need to do differently?
There is a short time before the new Rules come into force.
Agencies need to:
- Review their procurement policies against the new Rules and update any policies and templates to ensure they reflect how the agency will implement the new Rules
- Do some thinking about the economic benefits test and how the agency will consider economic benefits when looking at procurement opportunities, including the evaluation criteria and contract provisions
- Ensure they have a systematic way of identifying their contracts, and for each contract have a contract management plan and processes in place to ensure that they can meet the notification requirements in the Rules.
A number of the requirements in the new Rules described in this summary are likely to mean more work for procurement teams (eg documenting how suppliers were chosen, additional reporting, contract management requirements, creating panel guides).
Suppliers should also familiarise themselves with the new Rules. In particular, suppliers will need to be familiar with the economic benefits test and carefully consider how they will demonstrate those benefits when responding to a procurement.
Our expertise
We can help your agency or business work out how to navigate the changes to the Rules. We are experts in how the government purchases goods and services, and provides funding to private sector entities, including for services provided to the public.
We help our public sector clients with the full procurement lifecycle — starting with designing a procurement method that gives the best value for money and achieves the best outcome for the client. We work through the planning, selection, management, and review options for the procurement processes.
We also help private sector clients understand and navigate public sector procurement documents, and successfully engage in procurement processes.
