Broader outcomes — and constructing a better New Zealand

James Riddoch and Boome Kim of Greenwood Roche Project Lawyers.

With $61.9 billion of the Government’s budget being spent on infrastructure over the next four years, the scale of that opportunity and the impact on the construction industry is increasing. “Broader outcomes” are part of the Government’s wider reform agenda, and James Riddoch and Boome Kim of Greenwood Roche Project Lawyers examine their increasing prevalence in the procurement process.

In 2018, the Government expressly recognised that its procurement activities offered a unique opportunity to achieve broader cultural, economic, environmental and social outcomes for New Zealand.

With $61.9 billion of the Government’s budget being spent on infrastructure over the next four years, the scale of that opportunity and the impact on the construction industry is increasing.

The recognition of broader outcomes is part of the Government’s wider reform agenda, and was effected through the 4th edition of the Government Procurement Rules (Rules) in 2019.

The Rules are mandatory for much of the public sector, and recognise that Government procurement can, and should, be used to support broader outcomes that go beyond the immediate purchase of goods and services.

Rule 16 of the Rules requires agencies to consider broader outcomes in its procurement decisions and, if appropriate, incorporate them.

Rule 46 applies to the contract award stage of a procurement, and requires an agency to award the contract to the supplier that will deliver the best public value, including broader outcomes, over the whole of life of the goods, services or works.

This is subject to the supplier demonstrating that it understands and can deliver the requirements of the procurement.

This shift of emphasis from price to whole of life value is welcome, and the express incorporation of broader outcomes in assessing value is very significant.

Where contracts have been designated by Cabinet and/or Ministers to achieve a priority outcome, agencies must include requirements relating to that outcome in their procurement.

A current priority outcome that applies to the procurement of construction works is the upskilling and development of the construction workforce.

Accordingly, agencies must include in their procurement questions relating to this priority, and then consider the responses to those questions (including by appropriately weighting the response where a weighted attribute model is used).

Additionally, Rule 17 requires mandated agencies to consider how to create opportunities for New Zealand businesses, including Maori, Pasifika and regional businesses, and social enterprises.

This priority has been strengthened through a progressive procurement policy introduced in December 2020, which requires mandated agencies to award 5% of its total number of annual procurement contracts to Maori businesses.

The public sector’s understanding and application of broader outcomes has developed considerably to the point where it is becoming decisive in public procurement awards.

In a procurement evaluated using a weighted attribute model, broader outcomes typically range from 10% to 20%. However, one recent All-of-Government panel tender designated 40% of the total score to broader outcomes evaluation. 

This can be decisive where it is difficult to differentiate between suppliers on other attributes.

If suppliers are consistently scoring 6s and 7s on other non-price attributes and are similar on price, then broader outcomes become determinative, even with a weighting of 10%.

This was the case in the recent Waka Kotahi North-Western Auckland roading tender — O Mahurangi Penlink — where the two final, competing consortiums were otherwise level throughout the evaluation process.

Some agencies are making broader outcomes binary by assessing them as a pre-qualification issue — you either pass or fail.

These government policies are now having a wider impact throughout the private sector. Scott Jacobs from The Bridge, a market strategy consultancy involved in broader outcomes delivery, has observed:

“It’s now having a network effect throughout supply chains in the construction and property sectors. Not only government, but also head contractors, banks and investors, and changing attitudes from the public, are all demanding a greater demonstration of businesses to act on their social license to operate as they supply goods and services into these projects.”

Large construction companies that contract with government are showing a preference to subcontract with, and procure supplies from, parties who will assist them in delivering broader outcomes.

A recent example of this is how a tier one civil contractor, in its own tendering process for subcontractors and landscaping materials for a major roading infrastructure project, required that 25% of those materials be sourced from mana whenua-owned nurseries.

Broader outcomes are, therefore, relevant at all levels of the supply chain, and in the private and public sector.

Demonstrating public value and the achievement of broader outcomes is becoming key to gaining and retaining market share.

How to achieve broader outcomes:

• Analyse your current position — do your policies match the Government’s approach?

• Engage with your customer base and ask: what’s important to them in relation to broader outcomes or Environmental Social and Governance (ESG) factors?

• Think about where your company should be, and develop a target and a strategy to meet these goals.

• Measure and demonstrate your progress to keep yourself accountable.

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