Part 4: Building partnerships

Ministry for Primary Industries: Managing the Primary Growth Partnership.

4.1
In this Part, we discuss:

Our expectations

4.2
We expected each partnership between the Ministry and its industry partner to be unique, meaning that the Ministry would not take a "one size fits all" approach to partnerships.

4.3
We expected that the Ministry would have a clear understanding of partnership and that partnership practices would be evident throughout PGP activities. Specifically, we expected that the Ministry would be responsive and supportive, to ensure that industry partners would achieve the intended long-term benefits of the programmes.

4.4
We expected that the Ministry would show that it was flexible, showed good faith towards the industry partner, and allocated appropriate resources to support the partnership. We also expected contracts to contain clear provisions about the management and ownership of intellectual property resulting from the programmes.

4.5
To assess whether the Ministry's performance met our expectations about how it built and maintained partnerships, we looked at evaluations and reviews of PGP, programme contracts, Ministry correspondence, IAP minutes, PSG minutes, and programme business cases. We reviewed evidence from our interviews about PGP programmes and how those partnerships were built and maintained.

Summary of findings

4.6
Partnerships are in place that are working for the benefit of programmes. Although some partnerships have experienced difficulties and needed to improve over time, some difficulties between partners are to be expected during a programme. Improved partnerships over time were a feature of all six programmes we reviewed.

4.7
The Ministry takes a flexible approach to partnerships. Over time, the Ministry has taken steps to better manage PGP and to better support its partnerships with industry.

4.8
PGP contracts include provisions that reflect how the Ministry and industry intend to work in partnership. When needed, the Ministry works with industry towards mutually agreeable solutions. The Ministry is prepared to hold its industry partners to account for meeting their obligations under PGP contracts.

4.9
The Ministry has introduced a stronger focus on collaborating with industry by promoting more engagement with and between industry partners. The Ministry is also putting more emphasis on working with other government entities.

4.10
Ensuring that partnerships are successful over the long term will be an ongoing challenge for the Ministry.

Partnerships between the Ministry and industry

Some partnerships have experienced difficulties after a pragmatic but challenging start

4.11
In the six programmes we reviewed, we saw examples of some partnerships that appeared to work well from the beginning and others that experienced difficulties and needed to improve over time. Prolonged work on business cases and long contract negotiations characterised early difficulties between partners.

4.12
Evidence from interviews and IAP correspondence showed that some relationships between partners were strained. We were told that some relationship difficulties were caused by partners talking past each other or not understanding the nature of the relationship they were supposed to be working in.

4.13
We recognise that forming effective partnerships can take time. Therefore, some relationship difficulties between partners are inevitable, particularly during the formative stages of a programme when the partners are learning to work together.

4.14
Some difficulties could have been avoided. For example, the 2013 learnings review found that the Ministry initially had inadequate capacity for introducing PGP and underestimated the size and complexity of some commercial negotiations (see paragraphs 3.13 to 3.16). In our view, this sometimes affected how the Ministry worked with its industry partners.

A flexible approach to partnerships

4.15
Ministry staff told us that the Ministry failed to explain to industry applicants what the nature of the partnership was that industry would be expected to work in. The 2012 review stated that the concept of partnership was being used in different ways. It recommended that the Ministry define what partnership meant and work partnership principles into all PGP practices and policies.

4.16
The Ministry did not accept this recommendation because it did not want to risk dictating the terms of partnership to industry applicants. It did not want to lose the "spirit of partnership" before the partnership had begun. However, Ministry staff said that industry partners often ended up defining partnership anyway.

4.17
We understand the Ministry's position. Each partnership between the Ministry and its various industry partners will be different because of the diverse nature of the programmes. Therefore, the Ministry needs to tailor its approach to partnerships, taking into account the nature of the work and the people involved. In our view, when forming new partnerships, managing human relationships between partners in a way that fosters trust and appropriately manages risk is more important than rigidly keeping to a set formula.

Taking steps to better manage PGP and better support partnerships with industry

4.18
In paragraphs 3.35 to 3.37, we discussed how the Ministry addressed 51 of the 2012 review's 63 recommendations. Although not all of these recommendations were specifically about partnership, we consider that many of the recommendations that the Ministry accepted support engagement between partners. For example, improved written guidance to applicants for PGP funding increases the likelihood of the proposal succeeding. The improved guidance also supports the relationship between potential partners from the beginning of their relationship.

4.19
The PGP Directorate set up in 2013 also improved how the Ministry managed PGP. As well as improving the Ministry's ability to manage critical PGP elements, the PGP Directorate supported partnerships by increasing the Ministry's ability to work effectively with industry partners.

4.20
The PGP Directorate is made up of one director, one manager, one principal adviser, one portfolio adviser, one business support analyst, one development adviser, and five investment managers. The PGP Directorate seeks input from other Ministry staff to help with assessments and draws on industry expertise throughout the Ministry. Investment managers seek to provide consistent support to PGP by sitting on PSGs and working with programmes. The principal adviser and development adviser work with industry parties as they develop proposals and business cases.

4.21
In our view, providing continuous and consistent support for PGP from the beginning would have helped the Ministry and industry to build more effective partnerships.

Management practices and working in partnership

4.22
We observed several instances where, in our opinion, the Ministry's management practices reflected its partnership with the respective industry partners.

Management of PGP Agreements

4.23
PGP agreement is the preferred Ministry terminology for the contract between the Ministry and its industry partner. These contracts include provisions that reflect how the Ministry and industry intend to work in partnership. For example, provisions about how the partners will work together in good faith, dispute resolution processes, and the ownership and management of intellectual property (IP).

Introducing good faith clauses to contracts over time

4.24
To achieve the programme's long-term benefits and an effective partnership relationship between the Ministry and industry, contracts need to reflect the obligations of the parties. The contracts for the six programmes we reviewed showed continued improvement to appropriately reflect partnership.

4.25
An example of programme contracts reflecting the idea of partnership was the inclusion of a "good faith" clause. The PSH, Seeds, and FoodPlus contracts include a good faith clause that sets out how the partners will work together during the programme. The clause outlines how each party shall, acting reasonably and in good faith, work together to satisfy the requirements of the contract and work towards successful completion of the programme.

4.26
Early contracts did not include a good faith clause. At first, the Ministry used contract templates from the Foundation for Research, Science and Technology (FRST) for programmes. Because they were designed for a different purpose, the contract templates were not suitable for PGP. As a result, discussing matters about contract style instead of about the content and delivery of the programme delayed contract negotiations.

4.27
The Ministry recognised that the FRST contract templates were not suitable for PGP and began changing the template to better suit the needs of the Ministry and industry partners. This included introducing the good faith clause, which is now included in the PGP contract template.

Contracts defined a clear dispute resolution process

4.28
If the Ministry had significant concerns with the performance or delivery of a programme, it took a three-step approach:

  1. At first, the Ministry can raise any concerns about a programme with the respective PSG.
  2. If the PSG does not resolve the concerns, the chief executives of the Ministry and the industry partner discuss them.
  3. If the concerns are not resolved after discussions between chief executives, an independent performance review may be commissioned.

4.29
This process shows that the Ministry is willing to talk about performance concerns with partners and arrive at mutually agreeable solutions. In our view, this could avoid unnecessary conflict between partners and disruption to programme activities. We saw no examples of concerns between partners leading to an independent performance review.

All contracts contained clear provisions about the ownership and management of intellectual property

4.30
All contracts we reviewed clearly define the ownership of existing IP and provided guidance about how partners will work out the ownership of IP resulting from the programme. Arrangements for the ownership of IP differed between programmes.

4.31
All contracts we reviewed contained schedules to guide the management of IP. These principles are tailored for each programme and each partnership. Generally, the principles cover aspects such as how partners will work out the ownership of new IP and, where appropriate, the period during which the industry partner has exclusive use of new IP. For FarmIQ, the principles include guidance about how partners will manage unanticipated benefits arising from new IP.

4.32
Creating certainty about the ownership of new IP is unlikely until the partners fully understand the nature of any new IP. A principles-based approach to managing the ownership of new IP is appropriate as long as the principles are clearly understood.

4.33
In some instances, certainty about particular aspects of managing new IP was achievable. For example, the PSH contract describes the arrangements for sharing IP between the Ministry and the industry partner. The contract clearly shows ownership of new IP that the programme generates.

4.34
The arrangements for ownership of IP are different for different programmes. These differences are to be expected because each programme and each partnership is unique. However, it is important for the transparency of PGP that the Ministry clearly records the reasons for its agreements about the ownership of IP. For the six programmes we reviewed, the reasons for the decisions about the ownership of IP were not consistently recorded.

4.35
In our view, the reasons for decisions need to be recorded to ensure that PGP programmes are transparent. In practice, this enables the Ministry to demonstrate that decision-making has been considered, reasoned and rigorous.

Sharing intellectual property with an industry partner

4.36
We saw an example of the Ministry sharing its IP with an industry partner. We mention this because it shows how the partners arrived at a suitable solution to benefit the programme.

4.37
The Ministry shared specialist software with the PSH industry partner, to collect data while testing new fishing net designs. Sharing the software ensured that the information collected met government regulations and was compatible with the Ministry's data. The industry partner did not have to waste time and money creating similar software and could concentrate on other tasks.

Agreeing to exceptions to standard practices to support success

4.38
For four of the six programmes we reviewed, activities began before their respective contracts were confirmed. For example, the FarmIQ and Seeds programmes started early to account for the seasonally dependent nature of the programmes. To avoid risking the success of the two programmes, the Ministry agreed to start programme activities during contract negotiations. The partners agreed that, if a contract was not settled, the respective industry partner would meet the full cost of the activities.

4.39
Agreeing to start programme activities before the PGP contract had been confirmed showed how the Ministry effectively protected the public's investment in these programmes while, at the same time, being flexible enough to ensure that programmes would have the best chance of success.

Being prepared to hold industry partners to account for meeting contract obligations

4.40
Having a good partnership with industry is a delicate balance for the Ministry. It has to be flexible when working with industry to achieve programme results, enabling the partners to develop solutions to problems as they arise and maintain a good working relationship.

4.41
On the other hand, the Ministry is accountable for public money that has been committed to programmes and needs to know when to step in and escalate matters as needed.

4.42
The Ministry can seek to enforce contract requirements in several ways. These include inviting the industry partners to meet with the IAP to discuss any performance concerns, engaging in the dispute resolution process, or withholding funding when other avenues have been exhausted.

4.43
We looked for examples of the Ministry enforcing contract requirements.

4.44
We found that NZSTX had funding suspended between July and September 2012 because finalising the annual plan for 2012/13 was delayed as the Ministry and the industry partner worked through how World Trade Organisation obligations affected the eligibility of some activities for PGP funding (see paragraph 4.48).

4.45
We also found that the Dairy Value Chain programme had funding suspended for a project between July and December 2012 because of delays in submitting an annual plan for 2012/13. Industry partners are required to submit an annual plan, which could include variations to the programme activities and annual budget for review and approval by the relevant PSG, by 31 May each year. If this time frame is not met, the programme is in breach of contract.

World Trade Organisation obligations are actively considered, and programmes are being managed accordingly

4.46
The Ministry, the IAP, and PSGs have to be careful that programmes comply with World Trade Organisation (WTO) obligations to ensure that there is no perception of, or actual, government subsidising of industries, which is not permitted under WTO obligations of promoting fair competition in trading. For example, in July 2013, the IAP noted that it needed to be aware of WTO obligations when considering overseas marketing activities of programmes.

4.47
Our review of the six programmes showed that consideration of WTO obligations is a high priority for the IAP and the Ministry.

4.48
When we reviewed IAP minutes about the NZSTX 2012/13 business case addendum, we found that the IAP had noted that almost $2 million for branded marketing activities was ineligible for PGP funding because of WTO obligations. To take account of this, the PSG agreed that the industry partner would fully fund the branded marketing activities. The Ministry suspended paying invoices for programme activities until the business case addendum was finalised and the contract variation had been signed off.

4.49
Another example of how WTO obligations were managed was the PSH programme's approach to net-testing. The most effective way to test fishing nets is to use them. The Ministry and the IAP were uncomfortable with funding PSH to catch fish during testing, which could be seen as subsiding industry.

4.50
To ensure that there was no perception of subsidising industry, the value of the fish caught was used to offset the cost of the net-testing. This meant that industry could not profit from government funding. On-board Ministry observers were involved in tracking the amount of fish caught. A further benefit of this approach was that fish caught for testing purposes were used rather than disposed of.

4.51
In our view, WTO obligations are being actively considered as part of the management of PGP and programmes are being managed accordingly.

Encouraging collaboration

The Ministry has introduced a stronger focus on collaborating with industry by promoting engagement with and between industry partners

4.52
The Ministry told us that it is encouraging relationships between industry partners and, since 2013, has been working with them as a "community" by promoting more engagement. This includes regular communications with industry partners, annual PGP meetings, and thematic workshops. These workshops are intended to support collaborative action and thinking on matters and opportunities that have been identified during PGP programmes.

4.53
The Ministry hosted the first partner's workshop in April 2014, which identified themes for subsequent workshops.

4.54
In the second half of 2014, the Ministry hosted four thematic workshops – about intangible assets and IP, extension strategies, technology transfer, and data systems and databases. The workshops were attended by representatives of current PGP programmes, and several Ministry staff. These workshops provide an opportunity for primary industries to share ideas about ways to maximise collaboration among the programmes. The Ministry plans to continue holding thematic workshops and has a workshop scheduled in January 2015 on Māori agribusiness.

More emphasis on collaborating with other government entities

4.55
Ministry staff said the Ministry was putting more emphasis on working with other public entities. Its main relationships are with New Zealand Trade and Enterprise and the Treasury. It also wants stronger relationships with Callaghan Innovation and the Ministry of Business, Innovation and Employment. The Ministry wants to act as a broker that can connect applicants and PGP industry partners with other relevant services offered by other public entities.

Ensuring that partnerships succeed in the long term

4.56
PGP partnerships underpin the successful achievement of programme outcomes in the long term. The Ministry needs to ensure that it engages effectively with its industry partners on an ongoing basis.

4.57
This means that the Ministry is continually looking at the health of its partnerships and for opportunities to strengthen and promote partnerships to ensure that they are effective. In Parts 3 and 4, we discussed how the Ministry has been doing this by taking a flexible approach to partnerships, seeking to ensure that it has adequate representation on PSGs, and setting up a dedicated PGP Directorate, which improved the Ministry's ability to engage with industry partners.

4.58
Among other things, it is important that the Ministry ensure that there is an appropriate balance of skills, experience, and influence between the partners in the programmes.

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