Part 2: Background

Inquiry into the Ministry of Health's contracting with Allen and Clarke Policy and Regulatory Specialists Limited.

2.1
Our inquiry principally examined relationships between the Ministry of Health and:

its former employees, Matthew Allen and David Clarke; and
a company that was established by Mr Allen and Mr Clarke when they were employed by the Ministry, and which the Ministry contracted with a number of times during a 4-year period.

2.2
In this Part, we discuss the size and the scale of the Ministry’s expenditure and contracting activity, the employment history of Mr Allen and Mr Clarke, the nature of the company in question, and its contracts with the Ministry.

The Ministry of Health

2.3
The Ministry is “the Government’s primary adviser on health policy and issues and its contribution to improving health and independence is largely indirect. This contribution is through the Ministry’s advice to, influence on and relationships with the government, District Health Boards, practitioners, iwi and Māori organisations, Pacific communities, providers, non-governmental organisations, other government sectors and the public.”¹

2.4
The Ministry has a Director-General, and is organised into 8 directorates² each under a Deputy Director-General, and a separate Risk and Assurance Unit reporting directly to the Director-General. There are also 8 business units, 4 attached to the Public Health Directorate, 3 to the Corporate and Information Directorate, and 1 to the DHB Funding and Performance Directorate.

2.5
The Ministry’s annual appropriations for outputs in 2005-06 total $9,199 million.³ The Ministry manages its output-related expenditure in 3 ways:

$150.2 million of the 2005-06 expenditure is on departmental outputs provided by the Ministry. These outputs include policy advice, purchasing national health services, monitoring the performance of the funders and providers of health and disability services, developing and administering regulations, ministerial services, and information services (departmental output expenditure). These functions are performed either directly by Ministry staff (under an employment agreement) or by other parties such as consultants. Some of the work by Allen & Clarke was in this category.
$1,807 million of the 2005-06 expenditure is for non-departmental outputs provided by third parties. These health outputs, managed at a national level by the Ministry, are delivered on contract by third parties (some of which are Crown entities). The Ministry has included in this category some externally contracted work to support the delivery of outputs by third parties. Some of the work by Allen & Clarke was in this category.
$7,242 million of the 2005-06 expenditure is for non-departmental health and disability-support outputs provided by DHBs. None of the work by Allen & Clarke was in this category.

2.6
Much of the Ministry’s expenditure is on contracts for goods and services. The Ministry therefore has a major procurement function, and the existence of sound and comprehensive policy and procedures for procurement and contract management is essential. Any significant shortcomings would represent a serious risk not only to the Ministry but also to the Government.

2.7
The Ministry has undergone significant organisational change during the last 5 years. In particular, the merger with the Health Funding Authority (the HFA) on 1 January 2001 and the absorption of parts of the Crown Company Monitoring and Advisory Unit had a significant effect on the policy environment and culture existing within the Ministry. The merger with the HFA involved a very significant increase in the Ministry’s responsibility for expenditure on health services. The organisational changes also required the merging of administrative systems, and this affected the contract management systems.

2.8
The Ministry told us that the following significant initiatives have affected its ability to move as quickly as it would have liked to improve contracting and procurement practice:

devolution of some disability services from the Ministry to DHBs;
other major priorities, such as development of public health policy for tobacco control, meningococcal strategy, SARS response and the national immunisation register; and
development and implementation of key government strategies, such as the Primary Health Care Strategy.

The Ministry of Health’s employment of Matthew Allen and David Clarke

2.9
The principals of Allen & Clarke – Matthew Allen and David Clarke – are both former employees of the Ministry.

2.10
Mr Allen was employed in a permanent position as Team Leader, National Drug Policy, within the Public Health Directorate of the Ministry. On 28 March 2001 he wrote to the Ministry advising his intention to resign to take a fixed-term employment position with Medsafe (a business unit of the Public Health Directorate), and inviting the Ministry to discuss other contract opportunities with him. He vacated his Team Leader position on 11 May 2001. On 14 May 2001 he moved to the Joint Therapeutic Agency project (the JTA project) with Medsafe. His new employment agreement was for 30 hours a week for a 3-year fixed term.

2.11
On 20 December 2001 Mr Allen advised the Ministry he was resigning from his fixed-term position. In his resignation letter, he expressed a wish to focus on other opportunities including consultancy work. On 17 January 2002 he finished his duties as an employee with the Ministry.

2.12
Mr Clarke was initially employed in a permanent position as a solicitor in Health Legal. He resigned from this position with effect from 27 April 2001. On 30 April 2001 he began work on the JTA project, working with Medsafe. His new employment agreement was for a 3-year fixed term.

2.13
On 21 February 2002 Mr Clarke advised the Ministry he was resigning. This followed a communication with the Ministry on 17 January 2002, in which he had asked that his employment status be reviewed and had suggested that a contract arrangement might have benefits both for him and for the Ministry (including financial savings) in respect of the JTA project. Mr Clarke stressed in the letter the need to record the process by which such an arrangement might be reached. His resignation letter on 21 February 2002 referred to the contracting arrangement that had been agreed for him to provide services to the JTA project. On 15 March 2002 he finished his duties as an employee with the Ministry.

Allen and Clarke Policy and Regulatory Specialists Limited

2.14
The principals incorporated Allen & Clarke on 23 June 2000, while they were permanent employees of the Ministry. Allen & Clarke describes itself as a company specialising in policy and regulatory development in a number of sectors, including government, both in New Zealand and internationally.

2.15
Allen & Clarke did not start business until 2001. The company has grown in size since that time, from 2 principals to about 13 staff today. The company also subcontracts other specialists for projects, and at present has 9 other people working under contract. Allen & Clarke told us at the time we undertook our inquiry that work for the Ministry accounted for about 15% of the company’s turnover.

Contracts between the Ministry of Health and Allen & Clarke

2.16
The Ministry’s 8 directorates include Public Health, Disability Services, Mental Health, Corporate and Information, and Sector Policy, all of which Allen & Clarke did some work for. The company also had contracts with the Risk and Assurance Unit, and 3 of the business units under the Public Health Directorate – Medsafe, the National Screening Unit, and the National Radiation Laboratory.

2.17
Between 11 June 2001 and 1 February 2005, the Ministry entered into 60 contracts with Allen & Clarke. The total value of the 60 contracts was $1,362,000 (excluding GST). The value of the contracts was distributed as follows:

Less than $10,000 28 contracts
Exactly $10,000 4 contracts
Greater than $10,000, but less than $50,000 23 contracts
Greater than $50,000 5 contracts

2.18
Four of the contracts involved contestable or tendered processes. The other 56 contracts were awarded on a non-contestable basis.

2.19
Appendix 1 has been derived from information provided by the Ministry, and contains a schedule of the contracts entered into between the Ministry and Allen & Clarke during the period 11 June 2001 to 1 February 2005. It also indicates the duration of those contracts and whether the contracts were subject to a contestable procurement process. We have some reservations about the completeness of the information contained in the schedule, and these matters are noted in Appendix 1.

1: The Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2006, page 708.

2: These are described in the Ministry's Annual Report 2004/05, pages 9-13.

3: This figure and those immediately below are from the Estimates of Appropriations for the Government of New Zealand for the year ending 30 June 2006, pages 704 and 718.

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