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Rule 12:
Exemption from open advertising

Primary requirement

  1. Agencies may exempt a procurement from open advertising if the facts and circumstances meet one or more of the circumstances listed in Appendix 2 below.

Application

  1. Agencies must not exempt a procurement from open advertising to:
    1. avoid competition
    2. protect domestic suppliers
    3. discriminate against any domestic or international supplier.
  2. If an agency exempts a procurement from open advertising, it must:
    1. Obtain sufficient evidence of the facts and circumstances, given the value, risk and complexity, to justify the reason/s for the exemption before starting the procurement, and
    2. document the rationale for the decision before approaching the supplier/s. 
  3. The rationale document must include:
    1. the name of the agency
    2. a description of the goods, services or works
    3. the maximum total estimated value (Rule 7) of the goods, services or works
    4. the specific exemption/s, that applies (from the list in Appendix 2)
    5. details of the facts and circumstances that justify the exemption 
    6. information that demonstrates that it will achieve public value; and 
    7. the name and position of the person approving the decision to exempt the procurement from open advertising. 
  4. Agencies must publish a Contract Award Notice (Rule 32) on GETS for any procurement that it has exempted from open advertising.

More information

Appendix 2: Valid exemptions from open advertising

Valid exemptions from open advertising are:

  1. Emergency: A genuine emergency as defined by the Guide to Emergency Procurement.

    Emergency procurement

    Urgent situations that are created by an agency, such as lack of advance planning, do not constitute an emergency.
  2. Following an open competitive process: An agency may use a closed competitive process or direct source process to procure goods, services and works if:
    1. it has openly advertised the contract opportunity in the last 12 months, and
    2. it has not substantially changed the core procurement requirements, and
    3. the first time the opportunity was advertised it:
      1. did not receive any responses, or
      2. did not receive any responses that complied with the pre-conditions (Rule 14) or conformed with or met the requirements (including quantity), or
      3. received responses from suppliers who it has reasonable grounds to believe have colluded, and this can be verified, and no other responses complied with the pre-conditions (Rule 14) or conformed with or met the requirements.
  3. Only one supplier: If the goods, services or works can be supplied by only one supplier and there is no reasonable alternative or substitute because:
    1. for technical reasons there is no real competition, or
    2. the procurement relates to the acquisition of intellectual property or rights to intellectual property (including patents or copyrights), or other exclusive rights, or
    3. the procurement is for a work of art.
  4. Judicial court order: where a New Zealand judicial court order specifies a supplier or suppliers that must be used to deliver services ordered by the court.
  5. Additional goods, services or works: Goods, services or works additional to the original requirements that are necessary for complete delivery. This rule applies where all three of the following conditions are met:
    1. the original contract was openly advertised, and
    2. a change of supplier cannot be made for economic or technical reasons, and
    3. a change of supplier would cause significant inconvenience or substantial duplication of costs for the agency.
  6. Prototype: Purchasing a prototype for research, experiment, study or original development. Original development may include a limited production or supply if this is necessary to:
    1. carry out field tests and incorporate the findings, or
    2. prove that the good or service or works can be produced or supplied in large numbers to an agreed quality standard. This exemption does not apply to quantity production or supply to establish commercial viability or to recover research and development costs. Once the contract for the prototype has been fulfilled, an agency must openly advertise any subsequent procurement of the same goods, services or works, except where co-development or co-production for military or essential security purposes (Appendix 1.13.c) have taken place.
  7. Commodity market: Goods purchased on a commodity market.
  8. Exceptionally advantageous conditions: For purchases made in exceptionally advantageous conditions that only arise in the very short term. This exemption does not cover routine purchases from regular suppliers.
  9. Design contest: Where a contract is awarded to the winner of a design contest. To meet this exemption:
    1. the design contest must have been organised in a manner that is consistent with the Rules, and
    2. the contest must be judged by a panel whose members understand that the winner will be awarded a contract, and
    3. members of the panel do not have any conflict of interest in carrying out the judging of the contest.
  10. Market-led proposals: Where the Government receives a market-led proposal as described in The Treasury’s guidance on Market-led proposals, the proposal successfully passes all stages of assessment, and all of the following apply: 
    1. the proposal aligns with government and community interests 
    2. the proposal justifies exclusive negotiations with Government 
    3. the proposal represents value for money

Guidance: Market-led proposals [PDF, 1.3 MB] – The Treasury

Secondary procurement

When an agency is purchasing from an established panel (such as an All-of-Government contract, Common capability contracts, Syndicated contract or an agency panel), this is called secondary procurement.

The agency does not need to openly advertise secondary contract opportunities, but the conditions of secondary procurement set out in Rule 22 will apply.

Rule 22: Panel of suppliers

Documenting rationale

This rationale may form part of the business case or procurement plan or may be a stand-alone document.

Closed competitive and direct source

If you use a direct source (with one known supplier) or a closed competitive process (with several known suppliers), you should follow the Panel Guide and exercise proportionality. You should ensure that you properly evaluate capacity, capability, risk and public value and do appropriate due diligence.

More information about panel guides is under Rule 22.

Rule 22: Panel of suppliers

For more information on closed competitive process or direct source process, refer to the Guide to Procurement:

Options for approaching the market

For more information on emergency procurement, refer to: 

Emergency procurement

Examples of additional goods, services or works

Examples of additional goods, services or works include:

  • in a construction contract, additional ground works that were only discovered on excavating the site
  • supplying replacement parts
  • additional consultancy services where an unexpected issue arises
  • an enhancement or change to an integrated IT system.

Examples of technical reasons

A technical reason could be:

  • where there’s a need to match with existing equipment, software or services
  • where an agency has a custom-designed IT system and only the supplier that designed it fully understands the code base
  • where one supplier has, over time, developed such an intimate knowledge of an outdated or complex system that the agency can reasonably claim other suppliers would not have a similar level of readily available knowledge
  • where a spare part or component is only available from one supplier
  • where only one supplier has essential, highly specialised expertise, technology, or qualifications, for example, an internationally recognised expert doing cutting-edge work in science or medicine
  • where a construction company has already been contracted to do the base build of a building, and the efficiencies gained by being established onsite mean there would be no real competition in bidding for the fit out. This should not be used as a default position to avoid proper procurement planning.

A procurement relating to intellectual property rights could be:

  • where an agency is purchasing an online subscription to content, or other services with unique characteristics
  • where an agency is purchasing software licences from a proprietary supplier for software embedded in its operating environment
  • a unique piece of art that is protected by copyright and not available elsewhere.

Only one supplier

There may be situations where there’s more than one supplier, but for technical reasons there is no real competition. For these, it would still be appropriate to run a closed, rather than open, competitive process with several suppliers.

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