Government Procurement

Public Sector Procurement after the Court of Appeal decision in Problem Gambling

On Tuesday, 14 November 2017, I was asked to present a paper at a Legalwise seminar on Public Decision Making and Reason Writing.  The focus of my paper was on the relevance of the Government Rules of Sourcing, the WTO Government Procurement Agreement (GPA), which New Zealand acceded to on 13 July 2015, and recent case law on importing public law issues into challenges of Government procurement projects.

The accepted position, outlined by Lord Hoffman in Pratt Contractors v Transit [2003] UKPC 83, is that internal government rules are a matter of compliance for the procuring body, but are not a basis for challenge by disappointed contractors.  That position was largely confirmed by the NZ Court of Appeal in 2008 in the case of Lab Tests v Auckland District Health Board [2008] NZCA 385.  In relation to the availability of judicial review, the Court of Appeal held that such review was really only available in cases of fraud, corruption and bad faith.

In Ririnui v Landcorp [2016] NZSC 62, the Supreme Court opened the door slightly on judicial review, however that case would seem to be relatively fact specific.

This approach was confirmed by the Court of Appeal, in A-G v Problem Gambling Foundation of New Zealand [2016] NZCA 609, overturning the decision of Woodhouse J in the High Court (Problem Gambling Foundation v A-G [2015] NZHC 1701).  Winkelmann J made a number of important findings in the Court of Appeal:

  • the narrow test for judicial review outlined by the Court of Appeal in Lab Tests is to be preferred, being available only in cases of fraud, corruption, bad faith and similar circumstances, and not as an avenue for disappointed bidders to challenge procurement processes
  • the Government Rules of Sourcing may bind Government agencies, but they do not impose a procedural obligation enforceable by potential contractors
  • fairness and good faith are requirements in procurement processes, however they only require honesty and a willingness to consider information which might change a reasonable and honestly held view – those evaluating tenders are not required to leave their previous experience at the door
  • if a request for proposals excludes the intention of creating legal relationships during the tender procedure, then a process contract cannot be implied
  • in order to establish a breach of legitimate expectation, the claimant must establish – (1) the nature of the commitment by the public authority, whether by promise, settled practice or policy; (2) that the reliance on the promise, practice or policy was legitimate; and (3) the appropriate remedy

Notably, the Court of Appeal has widened (slightly) the grounds for judicial review from the narrow test proposed in Lab Tests by the reference to similar circumstance, but that will really be factually specific for each case.  The Problem Gambling Foundation failed, in the Court of Appeal’s view, to make out that case.

In relation to the Government Rules of Sourcing, while they cannot be used a basis for challenge, as outlined by Winkelmann J, if a process contract can be implied, and if those Rules are incorporated into the tender procedures, either directly or by reference, then clearly they can be used as a basis for challenge.  That challenge would, then, be in contract, rather than by judicial review.

In relation to the GPA, while this is a State to State agreement, the NZ Government is required to establish a review board to hear complaints from suppliers from other States over breaches of the GPA.  The review board has the power to direct the contract to be set aside, the procurement process to be run again and/or to award damages for breach of the GPA.  While the Government Rules of Sourcing are broadly consistent with the GPA, the latter is more prescriptive.  Much like the current discussions over ISDS, it will be interesting to see if any foreign corporates take the opportunity to challenge a public procurement process in NZ.

A copy of my paper is available here:

Government Procurement – Legalwise

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Direct Payment Agreements and s292 – Ebert Construction v Sanson

There is growing acceptance across the construction industry, particularly among financiers and owners, that payments need to flow down the contract chain to those actually doing the work.  This has seen a growth in construction contracts requiring head contractors to prove payment of their subcontractors, if cashflow is to continue; and in financiers also requiring proof of such payment.  Similarly, head contractors are seeking direct payment obligations from project financiers to protect themselves against developer default.

The difficulty with these arrangements is that, in the event of insolvency, preferring one subcontractor over other unsecured creditors (for the obvious reason that they are needed on site), thereby diverting those payments out of the creditor pool, runs the risk of being voidable insolvent transactions in terms of s292 of the Companies Act 1993.

The recent decision of the Court of Appeal in Ebert Construction v Sanson clarifies that position.  The attached article was published in the September edition of LawTalk and has been submitted to the International Bar Association’s publication Construction Law International.

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America’s Cup 2017 – New Development for Auckland?

Following the success of Team New Zealand’s America’s Cup challenge in Bermuda last month, there has been rather a lot of comment in the press over where the next Cup defence should be held, what will be needed, and who will pay for it.

Back in 1995, we were confronted with the same questions.  The erstwhile Auckland Regional Services Trust came to the rescue, and Auckland’s Viaduct Basin has seen the benefit since.

Here is an article I drafted for the latest edition of the New Zealand Law Society’s magazine, Law Talk, discussing that development –  LT 909 Americas Cup 2017

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Judge orders mediation over wastewater plant dispute

After years of odour and insect problems with the Whanganui District Council’s wastewater treatment plant at Airport Road, the District Council has finally taken the step to sue the facility’s designers MWH Global.  The estimated cost of replacing the plant is reported to be $38 million, which is a significant burden for the people of Whanganui, and a potentially significant liability for MWH Global.

The relationships and responsibilities of contractors and consultants in infrastructure development can be complex, and liability for design and performance failures hard to pin; hence the truism that it is never a good idea to sue your consultants.  In a triumph of pragmatism over the thorny issues of liability in negligence, Justice Denis Clifford has ordered the parties to mediation.

If ever there was a case of a sensible suggestion, this must surely be it.  We can only hope for the sake of the people of Whanganui that both parties recognise the opportunity for what it is, and reach a realistic agreement to resolve the issue.

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John Walton named in the NBR as an International Arbitrator to Watch

It was gratifying to be named at number 5 in the list of 11 of the country’s up and coming arbitrators in the latest NBR Online.  

My entry read as follows:

One of the most experienced construction adjudicators and arbitrators, John Walton is an AMINZ Council member and Fellow of the Chartered Institute of Arbitrators in London.  He brings a wealth of knowledge in the construction sector, having advised on disputes in major projects over the last 25 years, including the Hong Kong Airport Project, Contact Energy’s Otahuhu Combined Cycle power station, the Waikato River Water Treatment Plant and the Mangere Wastewater Treatment Plant, the Ultra Fast Broadband project and the North Island Main Electricity Grid Upgrade.  He is well placed to enter into the international commercial arbitration scene.

The list is reproduced in Law Fuel online.

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Securing Positive Project Outcomes using NEC3

The NEC3 suite of contracts is growing in use in New Zealand.  The contracts were used with apparent success for the development of the stadium and other facilities for the London Olympics in 2012, and it is the preferred form of contract by the Office of Government Commerce for all public private partnerships in the UK.

In NZ, the engineering and construction contract was used for the development of the Northland Events Centre for the Rugby World Cup in 2011.  At $16.5 million, the development was more modest that some others, but it was on time, within budget, and effective.

This paper was prepared for the NEC Users’ Group Australasia conference in Christchurch on 27 August 2013.

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Risk-avoidance in construction and major procurement contracts

A proper allocation of risk is generally not achieved by simply accepting a standard or doctrinaire approach.

Risks are usually project specific, and therefore need to be identified on a project by project basis. This is most effectively done by developing a risk register, first within the project team, then refining it during the tender process, and maintaining it after award on a collaborative basis with the contractor as work progresses. Skilled, experienced project teams for the employer and contractor working together from the outset of a project are important to this process.

This paper, Risk-Avoidance, Transfer, Acceptance or Management was jointly prepared by John Walton and English construction law specialist, John Bellhouse (of Gray’s Inn).  We previously worked together in Hong Kong on the new airport project.  The paper was presented to the Society of Construction Law international conference in May 2012, for which it was awarded a prize.

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Public Private Partnerships – Best value for money?

Amid the sea of confusing acronyms, one just won’t go away; PPPs, or public private partnerships.

For Governments, the appeal is obvious.  Access to private capital for public infrastructure development, private sector management efficiencies, a potential long term infrastructure investment vehicle for members of the public, enhancement of capital markets and all the economic benefits that accelerated infrastructure development brings with it.

Yet, New Zealand has been slow to join the UK and much of Australia in leaping aboard the PPP bandwagon.  With a certain air of inevitability, the Government’s announcement on Wednesday suggests that all that is about to change.

So, what are PPPs, and why are they so useful?

This paper was prepared in response to the Government’s announcement on 11 August 2010 that  public agencies proposing projects with a whole-of-life cost of more than $25 million will consider and evaluate alternative procurement options including public private partnerships (PPP).

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Renewable Energy – achieving 90%

In September 2008, the Government notified its proposed national policy statement for renewable energy.

Aside from its much maligned requirements for low energy light bulbs and 3 minute showers, the draft policy statement started an important discussion over how we wish to secure energy supplies in a carbon constrained environment.

This paper was submitted for my Master of Laws degree in May 2009.

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Project Mediation – Recognising and managing conflict with the projects’ best interests at heart

While it is reassuring to lawyers that the courts reserve the right to correct errors of law, for the main protagonists in construction disputes, owners and contractors and all those standing behind them, the frequently subtle distinctions argued by lawyers using arcane language wear the patience and strengthen a growing suspicion that these legal niceties are being established at their expense, with little real benefit to them.

Ultimately, the parties want a successful project.  With a few notable exceptions, in large construction projects, this can be hard to achieve without disagreements arising.  Sadly, the traditional method of competitively tendering projects  with maximum certainty for owners at considerable cost to the contractors who participate makes some level of disagreement an inevitability.  What is frequently missing in such contracting is any focus on avoiding disputes from arising in the first place.  It is the aim of project mediation to identify potential disputes as early as possible, and deal with them before the parties’ positions become hopelessly entrenched.

This paper was prepared in September 2007 and was used as the basis for an article in the October edition of The NZ Lawyer dealing with alternative dispute resolution.

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