New Zealand Trade and Enterprise is negotiating with an Australian company for a contract to redesign its website, the Herald understands.
The government department works to promote New Zealand businesses to international markets and attract investment in Kiwi companies.
An industry source says Australian-owned design firm DT was negotiating for the contract.
New Zealand Trade and Enterprise (NZTE) is understood to have passed over roughly 14 local agencies in the tender process, including Datacom, DNA and Terabyte.
The tender was advertised as the "NZTE Digital Ecosystem Programme" with a request for quotations from sole agencies.
Ron Christie, managing director of Wellington firm Catalyst, said the news came as a shock.
NZTE had strongly indicated a preference for an Auckland-based firm, Christie said.
"NZTE made it clear that the design and development team should be in Auckland," he said. "We ruled ourselves out for that reason, along with a number of other Wellington-based firms. Had we known they would pick an Australian firm, we would have applied."
DT's website advertises an office in Auckland, but only includes one cellphone number. The company is advertising for an account director on seek. In the advertisement, DT said: "[We] are a creative technology agency based in Melbourne and Sydney."
DT was not available for comment.
NZTE would not confirm whether it was in negotiations with DT. A spokeswoman for the department said: "No contract has been signed, however NZTE is in negotiation with an Auckland-based preferred supplier, with a proven track record in the New Zealand market."
The spokeswoman would not say if the supplier was Australian owned, but said the company was New Zealand-registered.
David Clark, Labour opposition spokesperson for economic development, trade and growth, said the tender was a "really bad look".
"NZTE has a responsibility to sell New Zealand. They should have worked with tenderers to find a local firm," Clark said.
"They owe New Zealand an explanation about this."
Clark said the tender decision showed NZTE wasn't looking at the big picture.
"This is an absolute PR disaster. It really doesn't bode well for their ability to sell New Zealand overseas."
NZTE's website mission statement reads: "We work to increase New Zealand companies' international success by helping them boost their global reach and build capability. We use our connections and government influence on behalf of businesses, and apply local knowledge - from the NZTE team and a network of private sector experts - to help them enter and grow in international markets."