2: The Ministry’s procurement approach

20. We examined how the Ministry prepared its overall procurement strategy and RFP for the 2008 bus tender process. We considered the extent to which the RFP reflected the Ministry’s earlier consultation with stakeholders, where appropriate, and the clarity with which any important changes to the RFP were communicated to stakeholders.

What we did

21. We reviewed the Ministry’s documentation from when its consultation for the 2008 bus tender process began in November 2005, through to the date that tenders closed for qualification submissions in April 2008. We also interviewed Ministry staff and contractors involved with the 2008 bus tender process.
22. We considered the quality of the Ministry’s documentation and the processes the Ministry followed until the date that qualification submissions were accepted. We formed a view on this aspect of the 2008 bus tender process based on the Ministry’s own contracting and purchasing policies, as well as good practice guidance on public sector procurement.

Our findings

Designing the 2008 bus tender process

23. The design of the Ministry’s procurement strategy began with its consultation with school boards of trustees, bus operators, and other interested parties on the overall system for contracting school bus services. The Ministry’s consultation process was thorough and inclusive. The Ministry used surveys, workshops, and a discussion document to obtain the views of these stakeholders, and then produced summaries of the consultation feedback. The Ministry published its responses to the feedback. We consider that this represents good practice.
24. The RFP evolved from this earlier consultation process, and had three main preparation phases. The first phase involved drafting the RFP (between July and October 2007). The initial draft of the RFP was placed on the Ministry’s website in October 2007 to enable feedback before the RFP was finalised. The Ministry notified bus operators about the draft RFP, and after receiving some feedback it placed an updated version on the Ministry’s website in December 2007. The last phase involved the release of the final RFP on the Government Electronic Tenders Service (GETS) website in March 2008, and a workshop with bus operators in April 2008.
25. We used a sample of the consultation feedback to assess the extent to which it was considered by the Ministry before the RFP was finalised. We did not expect the Ministry to reflect all feedback in the final RFP. Overall, we consider that the Ministry conscientiously considered the consultation feedback from bus operators and schools, and much of it was reflected in its final RFP.
26. Much of the feedback from schools related to the perceived benefits of using local bus operators and, in particular, those bus operators already providing local school transport services. The Ministry’s final RFP reflected this feedback by allowing up to five points to be awarded to incumbent bus operators when qualification submissions were evaluated.
27. There were specific instances where feedback obtained during consultation was not reflected in the RFP (for example, concerns about providing seatbelts in buses for school children). For the most part, these instances were well explained in Ministry papers and the external Ministry publication arising from the consultation process, the Contracting and Tendering Review Report (CaT Review Report, June 2007).
28. There was one notable area of concern raised by some bus operators during the consultation that was not reflected in the final RFP. Some bus operators expressed concern about the use of fleet pricing, even though it had been used in previous school transport tender processes. Fleet pricing is where a single price is offered for two or more routes.⁷ Some of the concerns related to perceptions that fleet pricing could enable economy-of-scale advantages for larger bus operators. The RFP permitted the use of fleet pricing.
29. A Ministry briefing paper acknowledged the potential benefit to the Ministry of fleet pricing on the costs of delivering school bus transport services:

… the Ministry wants to encourage fleet rate pricing as a means of obtaining greater cost efficiencies in school transport services, while at the same time maintaining long term competition in the sector …

30. The 2008 bus tender process enabled bus operators to submit pricing bids for groups of routes (route groupings) as well as a number of route groupings (cluster bidding). The bus operators chose which route groupings they wanted to combine into clusters. We consider that fleet pricing, route groupings, and cluster bidding further emphasised the importance of price in determining the outcome of the 2008 bus tender process.
31. At the same time, the Ministry’s procurement approach sought to preserve competition for school bus services by ensuring that no single bus operator obtained more than 75% of the school bus routes within a geographic region. This rule was not set out in the RFP. We were advised that the largest market share by a single bus operator in a geographic region is 62%.
32. The final RFP acknowledged that competitive pricing was a means of obtaining greater cost efficiency, and stated that value for money was an objective of the 2008 bus tender process.⁸
33. We consider that the Ministry’s decision to proceed with offering a fleet pricing opportunity was fair and reasonable. The Crown and its agents should always consider how best to achieve value for money in their use of public funds. The principles underpinning school transport policy emphasise safety and service quality. The Ministry’s use of a two-phase evaluation process ensured that vehicle age and safety and service quality considerations were given higher weighting and acted as a filter before the Ministry considered pricing submissions.
34. The 2008 bus tender process also enabled cluster bids. Cluster bidding is where bus operators bid for two or more route groupings (collections of individual routes in a common geographic area) with a single price. Cluster bidding had not been used before. Cluster bidding was clearly signalled in both the draft and final RFP.
35. It was not clear to us what analysis the Ministry did to assess what (if any) effect cluster pricing might have on the results of the 2008 bus tender process. If the Ministry had understood this potential effect, it might have been able to more effectively manage the expectations of stakeholders.
36. Combined, the ability to submit route grouping and cluster pricing⁹ gave a strong comparative advantage to larger bus operators over smaller bus operators. We are not critical of the consequences of these pricing arrangements, or their use in the 2008 bus tender process. However, we do consider that the Ministry should have placed more emphasis in discussions with stakeholders on the ability of bus operators to offer, and the likely effect of, cluster pricing and fleet pricing before the RFP was finalised. This might have helped the Ministry to better manage the expectations of smaller bus operators (whether incumbent or not) as they entered into the 2008 bus tender process, and after the outcomes were announced.

Changes to the stated RFP process

37. As part of our inquiry, we examined the clarity with which the Ministry communicated to stakeholders any important changes to the stated RFP process. Rule 30 of the RFP stated that any changes would be communicated through the GETS website.
38. The Ministry updated the draft RFP between when the RFP was published on the Ministry’s website in October 2007 and when the RFP was finalised in March 2008. This was intentional: the Ministry released the RFP in draft form so that it could incorporate any feedback.
39. After the final RFP was placed on the GETS website in March 2008, the Ministry hosted two workshops about the RFP with bus operators in April 2008. This provided a useful opportunity for any queries to be raised and answered in an open forum. We were told that the Ministry did not use the workshop to advise participants of every change made to the final RFP during the six months after the draft RFP was first placed on its website. We consider that this was a fair and reasonable approach for the Ministry to take.
40. The Ministry made changes to the stated RFP process after the RFP was finalised in March 2008. We examined each of these changes carefully, and looked at how they were communicated to bus operators. We identified three main changes:
    • changes to the timetable for announcements, after the Ministry took longer than expected to evaluate qualification and pricing submissions;
    • a decision to refine how some of the evaluation criteria were applied, so that they could better reflect the range of bus operators’ circumstances; and
    • a decision to include qualification ratings in the evaluation of cluster pricing bids, to make it consistent with the evaluation methods used for other bid types, even though this had not been made explicit in the final RFP.
41. The Ministry did not notify any of these process changes through the GETS website. Instead, the Ministry used its weekly email newsletter to all 165 bus operators to communicate the first two changes. It considered this approach to be more direct than relying on bus operators visiting the GETS website.
42. The third change was not communicated at all. The Ministry considered that including qualification ratings in the evaluation of cluster pricing bids was consistent with its evaluation method for other bid types, and therefore did not constitute a change to the RFP. The Ministry told us that it was important to include qualification ratings so that safety and service standards could be part of the evaluation of cluster pricing bids. The Ministry viewed it as a clarification of process and not a change that needed to be communicated to bus operators.
43. Based on our understanding of the RFP and earlier consultation documents, we consider that this was a change to a reasonable person’s understanding of how cluster pricing bids would be evaluated by the Ministry, even if the change made the evaluation method consistent with how all other bid types were evaluated. It should have been communicated to bus operators.
44. In our view, all three changes should have been communicated through the GETS website. The Ministry’s weekly email newsletters were not an adequate substitute for communicating changes to the final RFP. The email newsletters could have been used as a supplementary means of communicating the changes.

Alignment with good practice guidance

45. We assessed the Ministry’s 2008 bus tender process against its own purchasing and contract management policies, and against good practice guidance about public sector procurement.¹⁰
46. There were some departures from the Ministry’s procurement policies and guidance. We did not identify any major causes for concern when we compared the 2008 bus tender process with good practice guidance about public sector procurement.
47. Overall, we consider that the departures from the Ministry’s policies were not significant. It is natural for any in-depth review of a procurement process to identify departures from policy (sometimes these are well-reasoned and documented) and areas for improvement. We have identified a number of minor areas for improvement, and we expect the Ministry to address these in any future procurement of school transport services.
48. To address these departures, we expect the Ministry to:
    • use the experience of the 2008 bus tender process (and other school bus tender processes) to inform the procurement strategy and RFP design of subsequent bus tender processes;
    • ensure that there is clear responsibility for the strategic oversight of subsequent bus tender processes, so that early warnings of strategic and political risks can be escalated and managed appropriately and in a timely way;
    • expressly reflect the Government’s school transport policy objectives in its procurement plan objectives and evaluation criteria to clearly align the objectives in the critical documents at each level of decision-making;
    • prepare procurement plans and contract management plans that are in keeping with its contract management and purchasing policies;
    • include procurement plan objectives in RFPs so that potential suppliers can more easily understand the policy priorities underpinning the tender process;
    • require the evaluation criteria, as well as the RFP, to be explicitly approved for release;
    • consider what changes should be made to enhance the quality assurance processes; and
    • ensure that more complete records are kept to support important decisions made as the RFP is designed and as the submissions are evaluated. This will require giving recordkeeping guidance to any contractors and consultants.

Conclusions

49. The Ministry’s process for preparing its RFP for the 2008 bus tender process was based on thorough and inclusive consultation and, for the most part, the consultation feedback was reflected in the final RFP. Where the consultation feedback was not reflected in the final RFP, the Ministry had justifiable reasons for deciding not to include it.
50. Some of these decisions meant that larger bus operators would have a competitive advantage in the 2008 bus tender process. The Ministry had designed a procurement approach that recognised the need to achieve value for money. It was aware that the use of a range of fleet pricing options could result in a significant change to the pool of school bus operators.
51. Overall, the Ministry’s 2008 bus tender process met the most significant procurement requirements set out in its own policies, and in the good practice guidance promulgated by the Ministry of Economic Development and by our Office. Notwithstanding this, there are some minor areas for improvement that we expect the Ministry to address in any future bus tender processes.

7: The Appendix sets out brief descriptions of the bidding types.

8: Ministry of Education (17 March 2008), Request for Proposals for School Bus Services, page 8.

9: Both route grouping and cluster pricing enable bus operators to offer the same rate for each kilometre.

10: Office of the Auditor-General (2008), Procurement guidance for public entities: a good practice guide; Ministry of Economic Development (2006), Mandatory Rules for Procurement by Departments; Ministry of Economic Development (2007), Government Procurement in New Zealand, a Policy Guide for Purchasers; Ministry of Education (2006), Contract Management Policy and Purchasing Policy.