New Zealand to replace procurement rules with ‘economic benefit test’

New Zealand’s government has announced plans to bin 24 tendering rules to encourage more local procurement.

The proposed changes will reduce the number of rules from 71 to 47, by dropping agency requirements such as ensuring contracts for cleaning, catering, and security guard services pay a living wage, and purchasing low-waste or recyclable office supplies.

A new “economic benefit test” will replace the forsaken rules, requiring government agencies to consider the wider benefit to New Zealand of awarding contracts to domestic companies.

The new rule would apply to all goods, services, and contracts worth more than $100,000 and all construction works worth more than $9 million. Contracts below this threshold are expected to be awarded to New Zealand businesses with “capacity to deliver the contract”.

Finance Minister Nicola Willis said reducing the number of rules will simplify the process for New Zealand businesses.

“I know from my conversations with businesspeople that many find the paperwork involved in bidding for government contracts daunting,” she said.

“We are proposing to [scrap] rules that are redundant or unnecessary, duplicate content, repeat statutory and regulatory requirements or have never been applied in practice.

“Doing so will create export and employment opportunities and help New Zealand businesses to grow.”

Meanwhile, in Australia

A parallel conversation in Australia produced the Buy Australian Plan in 2022 – 23. 

This seeks to balance the government’s intent to direct more funding towards Australian businesses, ensure contracts still provide value for money, and stay compliant with Australia’s free trade agreements.

The greater part of the plan is about simplifying the way domestic businesses interact with government, and demystifying government procurement for new entrants. This is complemented by a target of awarding 25% of contracts to small businesses.

The idea is to provide easier access for everyone, reduce barriers to entry, and ultimately favour those not already receiving government work.

Unlike New Zealand’s rules, direct advantage is only offered to Australian companies for “major projects” of $20 million or more under various major project and industry assistance plans.

Finance Minister Katy Gallagher recently provided an update on this plan, clarifying the definition “Australian business” will only apply to those with 50% or more Australian ownership, principally traded on an Australian equities market, and with primary tax and business residency in Australia.

This followed the release in May of a scathing review of government procurement rules by small business ombud Bruce Bilson. He made 11 recommendations for significant changes to shift the advantage away from large established suppliers towards smaller domestic businesses. The government accepted two.

He said Commonwealth procurement has increasingly favoured large and existing suppliers since 2014, and the government’s changes to date have barely been noticed.

“The government’s initial response to our inquiry is underwhelming and I was surprised that several of the substantive recommendations and proposed reforms that have not been embraced,” he said.

“It is a disappointing response and at odds with the evidence, research and reference group input, and the clear view of those who made submissions about their direct experience trying to navigate the existing system.

“The sentiment that it is ‘all sorted’ or more of the same with a minor tweak here and there, was not reflected in any of the submissions, research or reference group input.”

Consultation on New Zealand’s proposed procurement changes closes April 8.

READ MORE:

Why government procurement rules aren’t enough to help suppliers