Part 2: Looking at functional leadership

Introducing our work about procurement.

2.1
In the first year of our work on procurement, we will look at MBIE's leadership role for public sector procurement. We will be looking at how effectively and efficiently MBIE is:

improving procurement practices through its activities and its all-of-government contracts; and
developing procurement workforce expertise and capability in central government.

2.2
In this Part, we provide some context behind our proposed work on MBIE's leadership role for public sector procurement. Specifically, we describe:

the reform of government procurement that placed MBIE as the "functional lead" of procurement in the public sector; and
our proposed audit work on MBIE.

2.3
We will also be examining the Government Chief Digital Officer's role as the functional lead in information and communications technology (ICT) procurement.

The Government introduced functional leadership for procurement

2.4
In 2009, the Government Procurement Reform programme was started to save costs in uncomplicated, common areas of spending through all-of-government contracts. Other programme goals were to build procurement capability and capacity, enhance New Zealand business participation, and improve procurement governance throughout government agencies.

2.5
As a result of the Government Procurement Reform programme, the former Ministry of Economic Development (now part of MBIE) and the Department of Internal Affairs established "centres of expertise" to deliver different parts of the Government Procurement Reform programme.

2.6
The reforms achieved some results. For example, it was estimated that, as of 2012, $353 million in savings for all-of-government contracts would accrue over the contract life.⁶ In 2012, the Government considered that more needed to be done to make a significant and lasting change in public sector procurement and enable it to work differently with the supplier market. To do this, the Chief Executive of MBIE was made a functional leader for government procurement.

2.7
The State Services Commission describes functional leadership as being aimed at maximising the benefits and reducing the overall costs to government of common business activities that might not be achieved by an agency-by-agency approach.⁷

2.8
The procurement functional leadership role has three main objectives:

improve procurement and commercial capability;
create cost savings and deliver better value through better procurement; and
create an environment for business to succeed.

2.9
MBIE's role involved:

leading policy advice about procurement;
providing procurement guides, tools, and templates for public organisations to use;
reviewing procurement plans for activities valued at more than $5 million or where there are significant risks;
providing commercial assistance with strategic and high-risk projects;
establishing, overseeing, and facilitating collaborative contracts, for example, all-of-government, common capability, and syndicated contracts;⁸
building and measuring ongoing procurement capability; and
advising ministers on procurement-related matters.⁹

2.10
The procurement reforms used a devolved procurement model, with individual chief executives and governing bodies accountable for their organisation's performance in procurement. However, it is "centre-led", with the functional leader supporting improved procurement practices by providing leadership and encouraging greater collaboration between public organisations.

2.11
Functional leadership is intended to give clearer accountability, provide improved information about how well public organisations carry out procurement, and give increased opportunity to influence the quality of procurement.

2.12
To improve capability, MBIE has:

set standards and expectations through frameworks and guidance;
prepared a self-assessment tool, the Procurement Capability Index, to enable organisations to assess their procurement capability and identify where they can make improvements;
developed a procurement graduate recruitment programme; and
established a specialised social services procurement team.

2.13
MBIE also works with local councils. Local councils are encouraged to apply the principles and guidance issued by MBIE, including the Government Rules of Sourcing, and to make use of all-of-government contracts. MBIE also provides some guidance and support to local councils with their procurement planning and activities.

Other organisations involved in public sector procurement

2.14
The Treasury leads the Government's overall investment management. For procurement, it co-ordinates New Zealand's public private partnership programme, manages "Gateway" reviews on specific procurement projects,¹⁰ and provides advice on the performance of functional leaders operating in the system.

2.15
The State Services Commission has an overall leadership role in public sector management, and supports organisations in exercising their functional leadership responsibilities.

2.16
The Chief Executive of the Department of Internal Affairs is the Government Chief Digital Officer (GCDO). As the functional leader, the GCDO is responsible for setting digital policy and standards, improving investments, establishing and managing services, developing capability, and system assurance (assuring risk management and effective investment throughout government) for the state sector. In relation to ICT procurement, the GCDO leads the establishment and management of all-of-government ICT contracts.

Innovations in procurement processes

2.17
Further change in procurement continues. A recent example is the government digital procurement channel Marketplace,¹¹ developed by government and the wider market working together. It aims to reduce barriers for suppliers working with government and to make procurement easier for public organisations.

Our proposed audit work

2.18
We propose to look at the functional leadership roles of both MBIE and the GCDO.

2.19
Functional leadership aims to build procurement capability, improve effectiveness, and reduce the overall costs to government of common business functions.

2.20
MBIE's initiatives as the functional lead of procurement are intended to:

allow public organisations to access procurement expertise;
make procuring of common goods and services easier and allow public organisations to focus on achieving business outcomes; and
allow different individuals and organisations to share ideas, lessons, and best practice.

2.21
As functional leaders, MBIE and the GCDO are critical to enabling quality and effective procurement services across public organisations. MBIE has an important leadership role in improving procurement practices and capability, and improving efficiency through its all-of-government contracts and its activities. Likewise, the GCDO's functional leadership responsibilities require it to support ICT assurance and procurement throughout government.

2.22
ICT procurement can be particularly challenging and often high risk because of:

the rapidly changing nature of ICT;
the specialised nature of ICT;
the size, value, and complexity of ICT procurement;
senior managers and boards often lacking the necessary capability to make informed decisions about ICT procurement;
the difficulty attracting the right commercial and technical expertise; and
the relatively small supplier market in New Zealand.

We intend to carry out performance audits looking at: how well MBIE's functional leadership creates efficiencies and improves services and service delivery. Our audit will specifically examine the part that all-of-government contracting plays in this; and how well MBIE's functional leadership develops procurement workforce expertise and capability in central government.
We intend to examine aspects of how well the GCDO is fulfilling its leadership role in ICT procurement.

6: Cabinet paper to the Cabinet State Sector Reform and Expenditure Committee (2012), Government Procurement Functional Leadership.

7: For more information on functional leadership, see www.ssc.govt.nz.

8: See procurement.govt.nz: All-of-government contracts and common capability contracts are both supply agreements with approved suppliers for selected common goods or services purchased throughout government. The former are established by the procurement functional lead, and all eligible public organisations must purchase from the all-of-government contracts unless there is a good reason not to. Syndicated contracts typically involve a group of public organisations aggregating their respective needs and collectively going to the market for goods, services, or works.

9: Cabinet Office Circular CO (15) 5: Investment Management and Asset Performance in the State Services, pages 9-10. More generally, functional leadership aims to drive efficiencies, develop expertise and capability, and improve services and service delivery (See "Why Functional Leadership?" at www.ssc.govt.nz).

10: These reviews examine programmes and projects at important decision points in their life cycle to provide assurance that they can progress successfully to the next stage.

11: See "Start of a new era in digital government procurement processes" (9 August 2018) at www.beehive.govt.nz.