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• Nature And Scope Of The Model Law
• Current Situation At New Zealand Law
• Impact Of Adoption On New Zealand Parties
• Recommendation

10 UNCITRAL Model Law on the Procurement of Goods, Construction and Services

NATURE AND SCOPE OF THE MODEL LAW

141 THE MODEL LAW on the Procurement of Goods, Construction and Services was adopted by UNCITRAL at its 27th session in 1994. Without superseding the earlier Model Law on Procurement of Goods and Construction, it extended the scope of the earlier text to include services. As at September 1999, legislation based on the Model Law has been enacted in Albania, Kyrgyzstan, Poland and Slovakia. While sound laws and practices for public sector procurement are desirable in all States, this need is felt particularly in developing countries and countries whose economies are in transition.¹³³ This tendency may explain why the above countries, none of which is a significant trading partner for New Zealand, have adopted the Model Law.

142 Traditionally, governments have tended to place procurement contracts with domestic industry, potentially distorting the natural flow of international trade and creating inefficiencies in the global economy.¹³⁴ International agreements can remove discrimination in government supplies contracts and achieve transparency in contract award procedures. The most significant international agreement currently in operation is the Agreement on Government Procurement (GPA), administered by the World Trade Organisation (WTO), which has been signed by 26 out of the 130 WTO member States, most notably Japan, Korea, the United States and the member States of the European Union. Australia is an observer to the GPA.

143 Like the Model Law, the GPA applies to goods and services, including construction services. The cornerstone of the Agreement is non-discrimination; parties are required to give the products, services and suppliers of any other party treatment “no less favourable” than that they give to their domestic products, services and suppliers (article III:1). To ensure that access to procurement is available to foreign products, services and suppliers, the GPA heavily emphasises procedures for providing transparency of laws, regulations, procedures and practices regarding government procurement. Disputes between parties to the GPA are subject to the WTO disputes resolution procedure.

144 The Model Law and the GPA do not actually differ greatly; to adopt either, or indeed both, would ensure an acceptable international tendering procedure.¹³⁵ However, adoption does carry risks by departing from existing procurement arrangements. Rosenberg identifies four risks:

• Any preference for domestic suppliers may be abandoned.
• There is limited flexibility in the tendering process.
• Review mechanisms may result in the cancellation of procurement, which in turn may harm the domestic economy.
• Opening the procurement process to scrutiny means greater involvement
  of lawyers and consultants, leading to higher tendering costs (and tender prices).¹³⁶

CURRENT SITUATION AT NEW ZEALAND LAW

145 The Model Law in its draft form was considered by the then Department of Justice in 1993, which concluded that there would be difficulty with the prescriptive nature of the Model Law. While the Department supported the Model Law’s aims of economic and efficient procurement processes free from artificial barriers, it felt that these aims could be achieved without rigid prescriptive legislation, and that the New Zealand state sector already provided incentives to achieve them without such legislation.¹³⁷ The Law Commission was also consulted, and agreed that legislation in this area was probably not necessary; uniformity could be achieved through guidelines or a handbook. The Law Commission queried whether any one agency in New Zealand would be in a position to give the approvals required by the Model Law, and whether movement towards deregulation, giving greater autonomy to state owned enterprises and Crown entities, may be inconsistent with the imposition of standard procedures in relation to procurement.¹³⁸ To take advantage of foreign governments’ preferences for their own local businesses, New Zealand parties can and do operate out of local subsidiaries.

IMPACT OF ADOPTION ON NEW ZEALAND PARTIES

146 If a procurement convention were adopted, the main advantage to New Zealand would be an enhanced access to foreign markets. However, this benefit needs to be balanced against the greater rigidity and cost that may be involved in adhering to prescribed tendering procedures. If adoption did proceed, New Zealand might accede to the GPA rather than the Model Law, for the obvious reason that a number of significant trading partners belong to the former agreement, which would mean a greater degree of harmonisation of law governing procurement procedures. The Ministry of Foreign Affairs and Trade (MFAT) considers that the degree of prescription in the GPA would be an issue for New Zealand’s decentralised and deregulated public sector.¹³⁹ However, these qualities are common to the public sectors of other WTO member States. Furthermore, while compliance with the procedures might be problematic for government entities of New Zealand who are procuring goods and services, New Zealand businesses wishing to offer goods and services to other governments would be wise to adhere to the GPA procedures. On the other hand, harmonisation may be achieved without the need for prescriptive legislation. For example, government procurement is the subject of action plans developed at Asia-Pacific Economic Co-operation (APEC), with the objective of achieving free and open procedures among member economies.¹⁴⁰

RECOMMENDATION

147 As a small trading nation, New Zealand has much to gain from initiatives such as the GPA which discourage protectionism and open up opportunities for the cross-border provision of goods and services. As responsibility for New Zealand’s representation at the WTO lies with the Ministry of Foreign Affairs and Trade, we recommend that MFAT consider whether New Zealand should acquire the status of observer to the GPA, with a view to negotiating accession.