TOR | Terms of Reference Guideline
Annex 2: Some key points to consider when preparing TOR
Good TOR are essential to ensure that providers, NZAID and our partners are clear about the requirements of an assignment, particularly when TOR define contractual agreements. Problems may arise if the following issues are not adequately covered:
Clarity of purpose
The assignment team should be able to read the TOR and readily understand the required outcomes without needing to interpret or seek further advice to resolve ambiguous or unclear meaning. TOR must clearly define the outputs that are required, by when, by what methods, and to what standard. If contracting is involved, this will also include the price for which outputs are required. Unclear or ambiguous expression of TOR requirements, particularly for contractors, is likely to result in a different understanding of the assignment and risk not achieving the desired outcomes.
Clarity of tasking
Incomplete or unclear TOR are likely to cause delays in starting the assignment, particularly for TORs involving contracting or other forms of procurement. These will require additional discussions, negotiations and re-writing the TOR before the procurement process can begin. Ambiguous TOR for RFTs can also result in proposals that do not address NZAID’s needs, leading to the possibility of having to re-tender. Delays in establishing a contract can have financial implications as well as impact upon operations.
Scoping the assignment
Poorly scoped and written TOR may result in a service provider underestimating the work required. Subsequent discovery that the work is more complex and challenging than expected creates risk that the provider will not be able to deliver work on time, or that LOVs will need to be prepared to extend contracts.
Delivery delays can have serious flow-on effects for programme delivery and partnerships. Delays can also have financial implications — funding allocated for an assignment or consequent work, in one financial year cannot always be carried to the next if the assignment has not be undertaken. Poor TOR can therefore impact on budgets for the next financial year.
Determining the appropriate level of direction
TOR which are overly prescriptive, either in terms of specifics of outputs, or how work should be undertaken, increase the risk of disputes, failure to achieve desired outcomes, and potentially limit innovation and competition. NZAID expects all its assignments to be carried out according to our operating principles and policies. Some of this will require reference in the ‘methodology’ section of the TOR. However some procurements will relate to very technical areas of speciality. Under these circumstances, while there are occasions where it is appropriate to prescribe specific methodology, recognised good practice is to specify required outcomes only.
The importance of milestones and clear payment schedules
In many cases NZAID links scheduled payments to delivery of milestone achievements. These must be clearly specified, either in the TOR or accompanying payment schedule. Vague milestones make it difficult to track progress on contracts, and increase the risk that NZAID will pay providers for carrying out substandard work, or even for work which has not occurred.
TOR guidance to contractor selection
Poor TOR for contracting can result in difficulty in the contractor selection process, because information required for assessment and scoring may not be present or clear in the proposals or tenders received. There are legal risks in these situations. Tendering often involves a lot of unpaid work for contractors and they expect a fair, transparent, and efficient process from us. Unsuccessful tenderers for contracts frequently seek justification when their proposals are not accepted, and they have rights of appeal through legal process if they conclude that fair process was not followed during selection.
NZAID must be able to demonstrate that an objective assessment was conducted when tenders were selected. Poor quality TOR can hinder this process.
Implications of New Zealand public sector procurement rules
The NZAID Procurement Policy sets out the expectations for all NZAID procurement (establish link). In respect of TOR, those being managed by NZAID should not:
- create unnecessary obstacles to international trade or domestic supply (such as referring to a particular specific origin, producer or supplier)
- require trade mark or trade name, patent, design or type, unless there is no other sufficiently precise or intelligible way of describing the procurement requirements unless, in such cases, words such as “or equivalent” are included in the tender documentation;
- seek or accept advice to be used in the preparation or adoption of any TOR for a particular procurement from a person that may have an interest in that procurement, if to do so would prejudice fair competition
- use jargon – appropriate suppliers may be turned-off by its use
- be overly prescriptive or, equally, unfocused as they may limit the number of suppliers able to comply.