Procurement Agreement Checklist For NZ Suppliers

Aroha runs a small packaging business in Auckland. After weeks of tender questions and pricing rounds, she finally gets the good news: her business has been selected as a preferred supplier for a large organisation.

Then the contract arrives. It is 42 pages long, with KPIs, audit rights, insurance requirements, payment rules and a termination for convenience clause tucked near the back.

If you have been handed a procurement agreement, it's completely normal to feel unsure about what you can push back on. The key is to review the contract in a practical way: what are you promising, what could go wrong, and what would it cost your business if it did?

What Is A Procurement Agreement In New Zealand?

A procurement agreement is a contract that sets out how your business will supply goods or services to a customer under clear supply terms, often after a tender, request for proposal or supplier panel process.

In New Zealand, procurement contracts are commonly used by:

• government agencies and Crown entities
• councils and publicly funded organisations
• large corporates with formal supplier onboarding rules
• schools, healthcare providers, charities and not-for-profits
• head contractors who need specialist subcontractors

The agreement usually does more than say what you're selling and the price. It can also control how you perform the work, report on it, manage risk and deal with the customer if something goes wrong.

For government supplier contracts in NZ, you may also see references to the Government Procurement Rules, procurement policies, supplier codes of conduct, broader outcomes, health and safety requirements and conflicts of interest. These may sit outside the main agreement, but still apply if they're incorporated by reference.

That matters because a short clause saying you must comply with all policies provided to you can pull in a lot of obligations. Before you sign, ask for the full set of documents that apply, including schedules, service levels, purchase order terms, tender responses and any online supplier portal terms.

What Should You Check Before Signing A Supplier Procurement Contract?

You should check whether the contract matches the commercial deal you actually agreed, and whether the legal risk is proportionate to the value of the work.

Start with the documents in this order:

1. Contract details: check the legal names, NZBN, address, contract term and who can sign for each party.
2. Scope of supply: write exactly what goods or services you'll provide, what is excluded, and what depends on the customer giving you information or access.
3. Specifications: attach technical requirements, quality standards, delivery locations and any customer policies you must follow.
4. Price and payment: list prices, GST treatment, expenses, invoicing requirements, payment timing and what happens if an invoice is disputed.
5. KPIs and service levels: state how performance is measured, how often it is reported, and what happens if a target is missed.
6. Change control: include a process for price changes, scope changes, urgent work and customer-requested variations.
7. Liability and indemnities: check the liability cap, carve-outs, exclusions and any uncapped indemnities.
8. Insurance: confirm the types and amounts of cover required, and whether your current policies meet them.
9. Termination: check termination for convenience, termination for breach, notice periods and handover obligations.
10. Data, confidentiality and IP: clarify who owns what, how confidential information is protected, and how personal information is handled under the Privacy Act 2020.

This outline is a useful review tool, but it isn't a finished contract. Procurement documents work best when they're tailored to your business, your margins and the operational reality of delivering the work.

How Do You Review The Scope, KPIs And Service Levels?

You review scope and KPIs by asking whether the contract describes something your business can actually deliver, measure and prove.

Procurement agreements often use broad wording like all services reasonably required or meet customer expectations. That can sound harmless, but it may make your obligations wider than your pricing allows.

Look closely at:

• deliverables: what exactly must be delivered, and in what format
• volumes: whether there's a minimum order, forecast volume or no guaranteed work
• timeframes: delivery dates, response times, implementation milestones and cut-off times
• dependencies: what the customer must provide before you can perform
• acceptance: when goods or services are treated as accepted, and how defects are notified
• remedies: service credits, re-performance, replacement, price reductions or other consequences

Say you supply office coffee machines to a government department. The contract says you must respond to service faults within 4 hours anywhere in New Zealand. Your team can do that in Auckland and Wellington, but not in Invercargill without a local contractor.

A practical fix might be to split the KPI by region. For example, 4 business hours in main centres, 1 business day in regional locations, and best endeavours for remote sites. That kind of wording gives the customer a useful service commitment without setting your business up to fail.

If there are service credits or liquidated damages, make sure they're clear, capped and linked to things within your control. A $500 monthly service fee shouldn't carry unlimited financial exposure because a courier was delayed by weather.

Should You Accept The Customer's Liability Cap?

It depends, but you shouldn't accept a liability cap until you know what sits inside it, what sits outside it, and whether the number is commercially sensible.

A liability cap limits how much your business may have to pay if something goes wrong. Common caps include:

• the fees paid under the contract in the last 12 months
• a fixed dollar amount
• the value of the relevant purchase order
• an amount linked to your insurance cover

The cap is only part of the story. You also need to check the carve-outs. Many procurement agreements say the cap doesn't apply to things like confidentiality breaches, privacy breaches, IP infringement, fraud, wilful misconduct, health and safety issues or indemnities.

Some carve-outs are reasonable. Others can remove most of the protection the cap was meant to give you.

For example, if your annual contract value is $80,000 and the liability cap is $80,000, that might look manageable. But if the indemnity for third party claims is uncapped, and the customer could claim lost profits, investigation costs and reputational damage, your real exposure may be much higher.

Also check whether the contract excludes indirect or consequential loss. This wording can be tricky because different contracts define it differently. From a supplier perspective, you usually want clear exclusions for loss of profit, loss of revenue, loss of opportunity and business interruption, unless you have knowingly priced that risk into the deal.

If the customer won't move on the cap, you might negotiate the scope, KPIs, insurance, pricing or termination rights instead. Risk can be managed in more than one place.

What Insurance And Audit Rights Are Reasonable?

Insurance and audit rights are reasonable when they match the risk of the work and don't give the customer open-ended access to your business.

Insurance Requirements

Procurement contracts and service agreements often require public liability insurance, professional indemnity insurance, cyber insurance, statutory liability insurance or motor vehicle cover. The right mix depends on what you supply.

Before you sign, check:

• whether you already hold the required policies
• whether the policy limits match the contract
• whether your insurer covers the exact services you're providing
• whether the customer must be named as an interested party
• whether you must provide certificates of currency every year
• whether the cost of extra insurance changes your margin

Don't assume a policy will respond just because you have insurance. If the contract creates obligations outside your normal business activities, your insurer may not cover them.

Audit Rights

Audit rights let the customer check whether you're complying with the agreement. For government supplier contracts, audit rights can be quite detailed because public money, probity and reporting obligations are involved.

That doesn't mean the customer should have unlimited access. Reasonable audit clauses usually cover:

• reasonable notice before an audit, except for urgent security or fraud concerns
• audits during normal business hours
• limits on how often audits can happen
• access only to records relevant to the contract
• confidentiality obligations for the auditor
• protection for your other customers' confidential information

If you handle personal information, the Privacy Act 2020 also matters. Your contract should clearly say how personal information is collected, stored, used, shared, accessed, corrected and deleted, especially if the customer requires audit access to systems or records containing personal data.

Can The Customer End The Contract For Convenience?

Yes, if the contract says so, the customer may be able to end the contract even if you have done nothing wrong.

Termination for convenience is common in procurement agreements, particularly in government and large enterprise contracts. The customer may want flexibility if budgets change, funding stops, priorities shift or internal approvals don't continue.

For suppliers, the issue isn't always whether the clause exists. It's whether the exit process is fair enough for the way you operate.

Check these points:

• notice period: is the customer giving 5 business days, 30 days, 60 days or another period?
• payment for work done: will you be paid for goods delivered, services performed and approved expenses up to termination?
• committed costs: will the customer cover stock, materials, licences or subcontractor costs you can't reasonably cancel?
• minimum spend: is there any guaranteed volume, or can the customer walk away with no spend at all?
• handover: how much transition support must you provide, and will you be paid for it?
• return of materials: who pays freight, storage, disposal or decommissioning costs?

Here is how this can play out. Mike runs a Christchurch-based uniform supplier. He wins a 12-month contract to supply branded shirts for $6,000 per month, and orders $18,000 of fabric upfront because the customer requires a custom colour.

The contract allows termination for convenience on 10 business days' notice, with payment only for items already delivered. If the customer exits in month 2, Mike may be left with fabric he can't sell elsewhere.

A more balanced clause might say the customer pays for work performed plus reasonable, non-cancellable costs that were approved or necessary to meet the contract. That gives the customer flexibility, while protecting Mike from carrying the whole cost of their change in plans.

How Should Payment Timing And Pricing Be Set Out?

Payment terms should say when you can invoice, what the customer must do to approve or dispute an invoice, and when money is due in your bank account.

Many procurement contracts are strict about invoicing. If you miss a purchase order number, use the wrong portal or fail to attach a timesheet, payment can be delayed even where the customer accepts the work.

Check whether the contract covers:

• when invoices can be issued, such as on delivery, monthly in arrears or at milestones
• the payment period, such as a set number of days after a valid invoice
• what counts as a valid invoice
• how quickly the customer must raise an invoice dispute
• whether the customer can withhold the whole invoice or only the disputed part
• whether prices are fixed, indexed, reviewable or linked to supplier cost increases
• whether GST, freight, travel, out-of-pocket expenses and currency changes are covered

For long-term supply agreements, fixed pricing can become risky if wages, materials, freight or exchange rates move. You may need a price review clause, especially if you import goods, rely on specialist labour or commit to service levels over several years.

You should also check the contract against the Fair Trading Act 1986. Don't promise performance, stock availability, environmental benefits or delivery timing that your business can't substantiate. Misleading claims in tender responses, product documents or sales materials can create problems even if the main contract is carefully drafted.

If you supply goods or services to another business, the Consumer Guarantees Act 1993 may be excluded for business transactions, but only where the contract does this properly and the exclusion is fair and reasonable. If the customer is acquiring goods or services for personal, domestic or household use, different rules can apply.

Key Takeaways

• A procurement agreement can pull in schedules, policies, tender responses and supplier portal terms, so review the full document set before signing.
• Scope, KPIs and service levels should match what your business can realistically deliver, measure and price.
• Liability caps need careful checking because carve-outs and indemnities can make your real exposure much higher.
• Insurance, audit rights and privacy obligations should be proportionate to the work and should protect your other customer information.
• Termination for convenience is common, but you can often negotiate payment for work done and reasonable non-cancellable costs.
• Payment terms should be practical, including clear invoice rules, dispute processes, GST treatment and price review rights.

If you'd like help with reviewing a procurement agreement, negotiating supplier terms, checking your liability position or tailoring your supply contract, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.