Competitive dialogue

Competitive dialogue is a flexible tender process that allows for better strategic outcomes when dealing with complex or unusual procurements.

This is useful for procurements where you know what your needs are, but you don’t know how those needs can be met. For example, if you needed to cross a river; you could build a bridge, build a tunnel, contract a ferry service or maybe the market has alternate solutions you’re not aware of.

It was developed in the EU, which strictly regulates the process. New Zealand is not bound by the same regulations for competitive dialogue, though the general Government Procurement Rules align with international best practice.

Competitive dialogue process

Competitive dialogue is different to more traditional tender processes because it lets agencies discuss each aspect of the procurement with suppliers before specifying the requirements, and before inviting suppliers to submit final tenders or proposals.

1. Publish and shortlist

Agencies first list the opportunity through an ‘Invitation to Participate’ on GETS and may promote it to suppliers. Once suppliers apply, the agency shortlists suppliers to participate in the competitive dialogue process, using their selection criteria.

2. Dialogue

A structured dialogue phase allows agencies to work one-on-one with each shortlisted supplier to develop possible solutions.  Then, one or more suppliers are invited to proceed to the next stage.

3. Invite tenders and evaluate

Agencies finalise their requirements and invite the supplier(s) to submit tenders. The competitive tension between suppliers stimulates innovative ideas and can result in better value for money. Agencies then evaluate the tenders.

4. Award the contract

Agencies select their preferred supplier(s) and award the contract.

This guide is for initial reference and doesn’t replace sound procurement planning. It contains public sector information from the UK Government, licensed under the Open Government Licence.

If you need advice about procurement planning, email us.

Benefits of a well-managed competitive dialogue process

For agencies, the opportunity to maximise value for money and minimise risk, by:

• testing how deliverable the solutions are
• exploring opportunities for innovation throughout the contract’s life
• ensuring suppliers understand and align with government policy and strategy
• exploring the balance between cost, quality, and broader outcomes.

For suppliers, the opportunity to:

• have an informed and honest discussion about any concerns
• understand the risk to any upfront investment they need to make
• understand their long-term financial exposure.

For both parties, the competitive dialogue process can:

• result in better quality, fit-for-purpose tenders
• prevent scope or cost ‘creep’
• help build the relationship with the other party and resolve potential problems before the contract is awarded
• reduce how long it takes to negotiate and award the contract.

Costs of competitive dialogue

Competitive dialogue can be expensive and resource-intensive, both for the agency and participating suppliers. You can balance these costs against the advantages, like the potential for increased value for money.

The cost of the process should be considered in the solution’s total whole-of-life cost.

You can consider paying shortlisted suppliers for their participation in the dialogue phase, if you think costs may be a barrier to participation.

You don’t have to do this, but if you do, include the payments in your total whole-of-life cost calculation.

Estimating the monetary value of a procurement

When to use competitive dialogue

Competitive dialogue works well for procurements where at least some of the following apply:

• there isn’t an ‘off the shelf’ solution or an established market for the goods or services you want to procure
• you’re not able to describe your requirements without discussing possible solutions with potential suppliers
• the legal, contractual and/or financial context is complex
• milestones and KPIs are complex or have many dependencies on all parties
• the risk to your business continuity is high
• you suspect there will be hidden costs, or costs that are hard to quantify
• your agency, or this specific project, requires a high level of due diligence (for example, if the project has critical safety or security impacts)
• there is a high degree of unpredictability, for example, in service demand volumes
• the requirements make assumptions that need testing.

Typically, competitive dialogue works well for complex procurements like:

• new or innovative solutions, such as telehealth or clean energy
• construction and infrastructure projects
• digital technology projects (including development of AI-assisted services)
• Public Private Partnership (PPP) and Private Finance Incentive (PFI) schemes. 

Market competition

Your competitive dialogue process needs enough potential suppliers to promote genuine competition. Engage early with the market and listen to supplier’s perspectives. This will help you structure the process and requirements in a way that motivates enough suppliers to participate.

If your market research and analysis show there’s not enough competition for the procurement, consider other processes, like planning a design contest or doing research and development.

Your early market research can also help determine how you will treat suppliers’ intellectual property. See Managing ideas and information for more on this.

Managing ideas and information

How competitive dialogue differs to a traditional tender process

The procurement lifecycle represents good procurement practice, and it applies to all procurement processes, including competitive dialogue. However, the order of stages in a competitive dialogue process differs because of its unique structured dialogue sessions.

The differences are highlighted in yellow.

How to use competitive dialogue

The planning phase

Preparing for the dialogue

To prepare for the sessions, you’ll need to:

• decide how many sessions you’ll need
• set a realistic timetable 
• decide who’ll lead the sessions for your agency
• plan how you’ll structure each session, including:
  • who from your team and the supplier’s team will attend. Think about whether you need support from outside your team, like technical specialists, commercial, and legal expertise.
  • where sessions will take place. Having the project team in the same location throughout the process helps communication and engagement. 
  • how you’ll record discussions. Good note-keeping gives you a robust record of what was offered, committed to and agreed. It also records progress and outstanding actions, and ensures all suppliers get consistent information. Thorough and accurate records will keep the process honest and provide an audit trail. 

Once you have decided who from your team will attend, brief them on how you will treat any sensitive data and intellectual property. In dialogue, you can develop either:

• a different solution with each shortlisted supplier, or
• a single solution where you use both:
  • generic elements that are common to the solution
  • particular elements of each supplier’s solutions that they agree to share. 

Decide and communicate which of these you will do in advance.

Invitation to participate

You’ll need to publish an ‘Invitation to Participate (Competitive Dialogue)’ (ITP) for suppliers on GETS.

Before you do this, decide:

• whether it’s a condition of participating in the procurement that suppliers agree to share their intellectual property
• who will own any new intellectual property developed in the dialogue sessions.

For more about intellectual property, see Managing ideas and information.

It’s important to give potential suppliers enough time to respond to your ITP. See Rule 34:

Minimum time periods by process

Shortlisting suppliers

A successful process depends on engaging the right number of suppliers. Three can be a good number to shortlist, because:

• you need enough suppliers to create genuine competition, but not so many that they drop out because they think they won’t win 
• it’s impractical to hold dialogue sessions with lots of suppliers
• you may need to pay suppliers to commit to the dialogue phase.

You must explain the process to each shortlisted supplier, so they know what to expect and when.

This may be the first time that some suppliers have been in a competitive dialogue process.

Before the dialogue phase starts, make sure that shortlisted suppliers understand:

• whether you are developing single or multiple solutions
• your needs, and the outcome or result you need to achieve
• the critical success factors for the procurement
• how their bids will be assessed against the award criteria
• how you’ll handle commercially sensitive information and protect their intellectual property, both throughout the dialogue process and in the final contract.

Managing ideas and information

The dialogue phase

The dialogue phase is made up of:

• inviting shortlisted suppliers to identify and develop potential solutions
• discussing your needs in detail with each supplier and refining your requirements as a result 
• sharing your requirements as they’re being refined with all shortlisted suppliers
• suppliers developing their solutions to meet your emerging requirements.

Circulate an agenda in advance to get everyone clear on the purpose of the first dialogue session(s) and give suppliers enough time to establish their team.

The objective of the first round of meetings should be to ensure suppliers:

• have confidence in and clarity of the process, including timetable and resource need
• understand the requirements and operational context
• have met key decision makers and team members.

There are three phases in competitive dialogue: the planning phase, the dialogue phase and the post-dialogue phase. Here’s a typical competitive dialogue process:

Planning phase

1. Publish a Future Procurement Opportunity
2. Meet with industry bodies and key suppliers
3. Provide a pre-tender-briefing to the market
4. Prepare a procurement plan
5. Publish invitation to participate on GETS
6. Shortlist suppliers

Dialogue phase

1. Invite shortlisted suppliers to participate in dialogue
2. Meet with individual suppliers
3. Develop solutions with shortlisted suppliers
4. Specify requirements

This phase can repeat if needed.

Post-dialogue

1. Issue RFP or RFT to shortlisted suppliers.
2. Evaluate responses using the RFP or RFT criteria.
3. Select preferred supplier, confirm commitments and award contract.
4. Debrief unsuccessful suppliers.
5. Publish Contract Award Notice on GETS.

For complex projects, the dialogue phase can be long. You’ll need to plan carefully to make sure that:

• the process doesn’t take any longer than it needs to
• you allow suppliers enough time to arrange for their people to attend dialogue meetings
• your same team ideally attends all of the dialogue sessions with all of the suppliers, so that you can compare outputs and form a consistent view
• you can clearly specify your requirements by the end.

Keep detailed records of your meetings.

Closing the dialogue

The dialogue phase is where the process is most flexible, so keep dialogue open until you’re confident you’ve identified the solution(s) that best meet your needs.

Before you close the dialogue, make sure that shortlisted suppliers:

• fully understand your requirements 
• are able to submit final bids that will fully meet your requirements 
• have a clear idea about whether their bid will be acceptable to you.

The post-dialogue phase

The post-dialogue phase includes:

• inviting shortlisted suppliers to submit proposals or tenders
• evaluating responses
• selecting the preferred supplier, confirming their commitments and awarding the contract
• debriefing suppliers. 

Inviting shortlisted suppliers to respond

Once you’ve closed the dialogue phase, you must invite all of the shortlisted suppliers to bid using either a:

• request for proposal (RFP) based on the individual solution(s) that you have developed with each supplier
• request for tender (RFT) based on one common solution.

This is a closed tender. It is not advertised on GETS. You may not invite any other supplier, who has not been shortlisted, to bid.

Make sure you give your shortlisted suppliers enough time to respond.

Rule 34: Minimum time periods by process

Changes to requirements

If you need to give extra information or change your requirements after you’ve invited shortlisted suppliers to submit their responses, you must:

• send any changes before the deadline for responses
• make the changes available to all participating suppliers, at the same time
• give suppliers enough time to respond to the changes, which may mean:
  • extending the deadline for responses 
  • allowing suppliers who have already submitted their responses a fair opportunity to change them.

Evaluating responses and awarding the contract

You should evaluate bids based on the:

• award criteria that you set out in your RFP or RFT 
• best fit-for-purpose
• best value for money, which isn’t always the cheapest price.

More information about evaluating responses:

Evaluating responses

When you’ve identified the preferred supplier, you can ask them to clarify aspects of their winning bid and confirm their commitments before awarding the contract.

Publish a Contract Award Notice on GETS within 30 business days of all parties signing the contract.

Debriefing unsuccessful suppliers

It’s important to let suppliers know why they weren’t successful. At the least, offer to debrief each supplier on:

• the reasons the proposal or tender was not successful 
• how their proposal or tender performed against the award criteria 
• the relative advantages of the winning proposal or tender 
• any questions they may have. 

If you give good feedback, your debrief will help:

• suppliers to improve tenders for future procurements
• maintain the relationship with the supplier
• minimise supplier complaints.

Debriefing unsuccessful suppliers

Managing ideas and information

Sharing information and ideas

Competitive dialogue is about capturing innovation. You want suppliers to come up with new ways of doing things.

This means asking your shortlisted suppliers to share their ideas and sensitive business information with you. You must protect this information unless the suppliers have agreed to share it as a condition of participating.

Protect this information by asking your shortlisted suppliers to identify their existing intellectual property (IP) and commercially sensitive information in non-disclosure agreements (NDAs). You’ll need an NDA with each shortlisted supplier before you begin dialogue sessions.

If a participating supplier is incumbent in a related contract, their information may give them an advantage. You should challenge whether this is sensitive, or whether it could be shared with all participating suppliers under the NDA.

This way you can differentiate any existing IP from new IP that you co-create with your suppliers in dialogue.

Unless the supplier agrees to it beforehand in writing, you must not disclose any of the information in the NDA.

Ownership of new intellectual property

Before you approach the market, decide how you’ll deal with any new IP that you develop with suppliers in dialogue.

Set out your intentions about the ownership, licensing and future commercialisation of any new IP in your Invitation to Participate.

Allowing the supplier to commercialise the new IP encourages innovation and economic development.

The standard options for ownership of any new IP are:

• The supplier owns it but licenses the agency to use it.
• Your agency owns it but licenses the supplier to use and commercialise it.
• Your agency owns it and commercialises it.

Probity

Protection and ownership of intellectual property is an area that exposes you to risk.

Develop a probity plan that sets out the risks and how you’ll manage them.

Appointing an independent probity auditor to the procurement can help manage risks.

The following guidelines have more about intellectual property:

• Guidance note 3: Procuring copyright works (updated Jan 2015) – Data.govt.nz
• NZGOAL (New Zealand Government Open Access and Licensing) framework – Data.govt.nz

Intellectual property

Competitive dialogue risks and common pitfalls

Good procurement is about being risk aware, not necessarily risk averse.

Like all procurement processes, competitive dialogue gives better results if you manage the risks.

Risks to think about include:

• poor understanding of the competitive dialogue process leading to unplanned costs for your agency and suppliers
• poor planning increasing timelines and making the procurement harder to manage
• suppliers choosing not to participate, or dropping out of the process, because they’re worried about:
  • the perceived chances of winning the contract compared to the cost of participating
  • how long the process will take
  • protecting their IP and commercially sensitive information 
  • how the competitive dialogue process works.

There’s also a risk to your agency’s reputation as a credible buyer, if you:

• use competitive dialogue when a standard process would do
• lock into a particular solution too early
• unfairly advantage a ‘favourite’ supplier
• disclose or use your suppliers’ intellectual property without consent.

Managing the risks of competitive dialogue

To manage the risks, make sure that:

• everyone involved in the procurement understands the process
• you consider the cost of the competitive dialogue process when you calculate the whole-of-life cost of your procurement
• you set a realistic timeline for the process
• you think through all the strategic elements of the project before you advertise the contract opportunity
• your procurement team has capacity and access to the technical, commercial, financial and legal skills needed to manage the process
• you plan for how to manage any probity or risks associated with competitive dialogue
• competitive dialogue is the right process for your procurement. If you’re not sure, email us.

Common pitfalls of competitive dialogue

• Poor early market engagement: Before starting a competitive dialogue process, consult the market on whether your goals are achievable and realistic. This may take some time but will ensure both your agency and the market have confidence in the process before committing money to it.
• Limited competition: Lack of competitive tension during the competitive dialogue process impacts agencies’ buying power and the chance to maximise value for money. Use early market engagement to test market interest and expected level of competition between suppliers.
• Scope creep: It’s possible that despite a well-planned process, your agency will experience unforeseen changes and issues. Try to anticipate these if you can and, if they do arise, seek advice from commercial and legal teams to assess the implications.
• Poor cost control: The cost of running a competitive dialogue process can be high for agencies and bidders. If cost becomes a concern for either party, pause the process to reassess its viability.
• Lack of continuity in the team: Having the same team throughout will maintain momentum and build the suppliers confidence in the process. Agencies should expect suppliers to also use a team that will see the process through, including with a role in contract mobilisation if they’re successful.