Exemption from open advertising
Explains the circumstances under which an agency may be exempt from the requirement to openly advertise.
- An agency does not need to openly advertise a contract opportunity on GETS if an exemption from open advertising under Rule 15.9 applies.
- If the procurement is exempt from open advertising, an agency must use either a closed competitive process (with a limited number of known suppliers) or a direct source process (with a known supplier).
- An agency must not exempt a procurement from open advertising to:
- avoid competition
- protect domestic suppliers
- discriminate against any domestic or international supplier.
More information on closed competitive and direct source
Processes that comply with the Rules where there is a valid exemption from open advertising are:
- Closed competitive: a Request for Quote, Request for Tender or Request for Proposal restricted to a limited number of known suppliers
- Direct source: a closed Request for Quote, Request for Proposal or Request for Tender restricted to a known supplier.
If an exemption from open advertising applies, an agency must still comply with all the other Rules.
If an agency uses a direct source process (with one known supplier) it does not mean that it can instantly contract that supplier. It should request a formal proposal from the supplier and evaluate the proposal, assess its value for money, which isn't always the cheapest price, and undertake due diligence before deciding to negotiate a contract. It must not simply approach one supplier and award a contract without proper evaluation of capacity, capability, risk, value for money and due diligence.
Document the rationale
- If an agency exempts a procurement from open advertising under Rule 15.9, it must:
- obtain evidence of the facts and circumstances to verify the reason/s for the exemption before starting the procurement, and
- document the rationale for the decision. This rationale may form part of the business case or procurement plan or may be a stand-alone document.
- The rationale document must include:
- the name of the agency
- a description of the goods, services or works
- the maximum total estimated value (Rule 9) of the goods, services or works
- the specific exemption/s, that applies (from the list in Rule 15.9)
- details of the facts and circumstances which justify the exemption.
- A senior manager must endorse the rationale before the agency undertakes the procurement. The agency must retain the documented rationale for audit purposes.
- If MBIE asks for the documented rationale, the agency must promptly make it available.
GETS Contract Award Notice
- Agencies must publish a Contract Award Notice (Rule 45) on GETS for any procurement that it has exempted from open advertising, except when doing secondary procurement (Rule 15.9.i).
- Valid exemptions from open advertising are:
- Emergency: A genuine emergency as defined by MBIE’s Quick Guide to Emergency Procurement. Urgent situations that are created by an agency, such as lack of advance planning, do not constitute an emergency.
- Following an open tender: An agency may use a closed competitive process or direct source process to procure goods, services and works if:
- it has openly advertised the contract opportunity in the last 12 months, and
- it has not substantially changed the core procurement requirements, and
- the first time the opportunity was advertised it:
(a) did not receive any responses, or
(b) did not receive any responses that complied with the pre-conditions (Rule 25) or conformed with or met the requirements (including quantity), or
(c) 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 25) or conformed with or met the requirements.
- 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:
- for technical reasons there is no real competition, or
- the procurement relates to the acquisition of intellectual property or rights to intellectual property (including patents or copyrights), or other exclusive rights, or
- the procurement is for a work of art.
- 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:
- the original contract was openly advertised, and
- a change of supplier cannot be made for economic or technical reasons, and
- a change of supplier would cause significant inconvenience or substantial duplication of costs for the agency.
- 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:
- carry out field tests and incorporate the findings, or
- 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.
- Commodity market: Goods purchased on a commodity market.
- 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.
- Design contest: Where a contract is awarded to the winner of a design contest. To meet this exemption:
- the design contest must have been organised in a manner which is consistent with the Rules, and
- the contest must be judged by a panel whose members understand that the winner will be awarded a contract, and
- members of the panel do not have any conflict of interest in carrying out the judging of the contest.
- Secondary procurement: Where an agency has established a Panel of Suppliers (in accordance with Rule 54) or is purchasing under an All-of-Government Contract (Rule 55), Syndicated Contract (Rule 56) or Common Capability Contract (Rule 57), it does not need to openly advertise individual contract opportunities that are awarded through that arrangement.
- Unsolicited unique proposal: Where an agency receives an unsolicited proposal, as described in MBIE’s Guide to unsolicited unique proposals, and all of the following apply:
- the proposal is unique
- the proposal aligns with government objectives
- the goods, services or works are not otherwise readily available in the market place
- the proposal represents value for money.
More information on collusion and bid rigging
Read more about collusion and bid rigging in the Commerce Commission’s guidelines How to recognise and deter bid rigging
Collaboration is not necessarily unlawful. In certain types of procurement you may want suppliers to collaborate (eg to form a joint venture). You can allow for this in your Notice of Procurement and include conditions that suppliers must be transparent about their collaboration (eg suppliers must state who they have collaborated with to prepare their response).
If you have reasonable grounds to believe that suppliers have colluded, you should alert the Commerce Commission which has the role of investigating this kind of conduct.
More information on 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:
- a need to match with existing equipment, software or services
- where an agency has a bespoke IT system that was custom-designed for it and only the supplier that designed it fully understands the code base
- where one supplier has, over a period of time, developed such an intimate knowledge of an outdated or complex system that the agency can reasonably claim that 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, qualifications or skills, eg an internationally recognised expert doing cutting edge work in a field of science or medicine.
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 that is embedded in its operating environment
- a unique piece of art that is protected by copyright and not available elsewhere.
Examples of a prototype
Examples of a prototype include a product or system, and a pilot for new ways of working or delivering services.
Definition of commodity market
A legally regulated exchange where raw goods or primary products, such as agricultural produce, metals and electricity, are bought and sold using standardised contracts (e.g. the London Metal Exchange).
More information on exceptionally advantageous conditions
Exceptionally advantageous conditions include a one-time event such as a sale by public auction or a sale resulting from liquidation, bankruptcy or receivership.
Guide to unsolicited unique proposals
An unsolicited unique proposal is an approach initiated by a supplier proposing a unique solution which is not available in the market place.