Part 2: Leadership of the government procurement system

Using “functional leadership” to improve government procurement.

2.1
In this Part, we discuss:

NZGP's leadership role;
stakeholder engagement; and
the State Services Commission's role for overseeing procurement functional leadership.

Summary of findings

2.2
NZGP has demonstrated the benefits of having a single public organisation lead improvements in government procurement. This has included the benefits of central co-ordination and leadership, and how work performed centrally can lead to efficiencies. This is a significant achievement because cross-agency work is challenging and complex.

2.3
The estimated savings to the Crown from using all-of-government contracts have significantly outweighed the financial cost of running NZGP. Based on MBIE's 2017/18 data on its funding, spending through all-of-government contracts, and estimated savings, we calculate that, for every dollar New Zealand Government Procurement and Property received in revenue, public organisations achieved estimated savings of $5.84 on about $1.9 billion of spending through all-of-government contracts. In Appendix 4, we discuss the reliability of the savings estimates we used to make this calculation.

2.4
In our view, NZGP is at a critical stage. Public organisations have higher expectations of NZGP's leadership of government procurement, and NZGP is not meeting them.

2.5
Public organisations want NZGP to provide stronger leadership and direction, including supporting collaborative working and doing more to improve procurement capability. We agree that NZGP should address these areas.

2.6
NZGP would also need to review its internal capability for the next stage of its development to ensure that it is a centre of excellence for procurement.

2.7
NZGP would be more effective if it clearly defined its leadership role – for the entire public sector. NZGP needs to be clearer about how it will influence public organisations to see procurement as a strategic activity focused on achieving public value. It needs to think more strategically about how it can work with executive leaders and procurement professionals across the public sector.

2.8
The State Services Commission also needs to clarify its role for overseeing procurement functional leadership.

Defining the leadership role

2.9
NZGP's mandate is clear. It is the Government's lead on procurement policy. It is clear which public organisations are mandated to apply the Rules. The aims of functional leadership generally are clear. NZGP also has considerable flexibility in how it carries out its leadership role.

2.10
NZGP has successfully laid the foundations for effective procurement functional leadership, which has increased public organisations' expectations. They see the value in NZGP doing and co-ordinating more work to achieve even greater benefits.

2.11
NZGP would be more effective if it clearly defined its leadership role and communicated this to stakeholders. This would provide clarity to public organisations about what NZGP is accountable for and what public organisations are accountable for. NZGP and public organisations would then be able to hold each other to account.

2.12
In our view, NZGP has not put enough consideration into how it works with public organisations as strategic partners to improve procurement. NZGP needs to be clearer about how it will influence public organisations to see procurement as a strategic activity focused on achieving public value and not just a set of requirements they need to comply with.

2.13
NZGP needs to think strategically about how it can influence public organisations, including executive leaders and procurement professionals. NZGP should aim to have the widest possible influence with public organisations, including with local government and other non-mandated public organisations. This is important to get better outcomes from procurement in the medium- and longer-term interests of taxpayers, ratepayers, and the country as a whole.

2.14
NZGP prioritises working with mandated public organisations and large public organisations because they spend more on procurement. However, this approach overlooks the reputational and other risks smaller public organisations can face from poor procurement. Smaller public organisations often have less in-house procurement expertise.

2.15
Public organisations told us that NZGP had sometimes interpreted their requests for stronger leadership and direction as a need for new rules. They would prefer NZGP to exercise its leadership role and ask public organisations to work towards a particular goal or outcome and explain why it is important. Although rules are important, they are only one aspect of leadership.

2.16
We identified some areas where NZGP could show stronger leadership. These include:

doing more to identify and promote examples of good procurement practice to reinforce the desired changes;
evaluating innovative international good practice and encouraging their proper use in New Zealand;
working with procurement professionals, central agencies, other functional leaders, and/or heads of profession to produce a good-quality national data set on government procurement spending to support informed policy and procurement decisions; and
assessing important markets, such as telecommunications, to understand the risks to the Crown and consider how they could be addressed.

2.17
NZGP could also show stronger leadership in building capability in public organisations. For example, NZGP could assess international procurement competency frameworks and advise public organisations about their benefits or drawbacks. Public organisations suggested that NZGP could lead work to identify projected workforce needs during the next 10 years to inform its procurement capability development work.

2.18
NZGP also needs to review the level of internal procurement capability and learning and development capability that it needs for the next phase of its development. The public organisations we spoke to want NZGP to be a centre of excellence for procurement. They consider that NZGP needs to have more staff with senior experience and expertise to provide effective guidance and leadership on procurement.

2.19
In our view, NZGP should increase its internal learning and development expertise to:

ensure that its activities fully achieve the expected benefits; and
provide advice and other support to help public organisations increase their procurement capability.

New Zealand Government Procurement's role in addressing poor procurement practices

2.20
Public organisations and suppliers sometimes want to bring procurement practices that are not consistent with the Rules to NZGP's attention without making a formal complaint.¹⁰

2.21
Public organisations and suppliers want NZGP to consider using the information they report to:

intervene on a specific procurement to ensure consistency with the Rules before contracts are awarded;
help improve procurement capability in public organisations; or
use its influence to prevent similar situations from recurring by providing more guidance or education.

2.22
Poor procurement practices can be unfair to suppliers and decrease trust and confidence in public organisations. NZGP's role in these situations needs to be clearer. This is an important part of NZGP clarifying its leadership role.

2.23
As we explained in Part 1, NZGP is not a regulator and cannot enforce mandated public organisations to comply with the Rules (which we discuss further in Part 4). Chief executives are responsible for their procurement decisions. This tension was built into the way that procurement functional leadership was set up. However, in our view, NZGP could make greater use of its position to provide advice and improve procurement practices when poor practices are brought to its attention.

2.24
NZGP could also share information with chief executives and suppliers about common types of issues, and what public organisations and suppliers have done, or need to do, to reduce the frequency of these issues. This could sit alongside NZGP's work to highlight good procurement practices.

Getting and addressing suppliers' comments

2.25
NZGP has proactively sought feedback from suppliers about their experiences of government procurement generally through an annual survey. In our view, suppliers' feedback was too general to enable NZGP to target quality improvement interventions by public organisation or type of procurement.

2.26
Suppliers suggested that NZGP provide a way for them to make comments on a public organisation's procurement while it is in progress. In 2019, NZGP responded by providing a facility for this through the Government Electronic Tender Service. Suppliers' use of this facility will depend on how much trust they have in NZGP and how NZGP uses the information suppliers provide to improve procurement. Nevertheless, we see this as a positive move.

2.27
NZGP can use the information and other data it collects to identify and address commonly occurring poor practices. It can also identify public organisations that need specific help to improve their procurement capability and practices.

2.28
In our view, NZGP could also tell suppliers how it uses their feedback. This would give suppliers confidence that NZGP understands their comments and is addressing the issues.

Stakeholder engagement

2.29
NZGP needs to identify its stakeholders and prepare an engagement strategy that makes it clear how it will inform, influence, or involve each stakeholder group. NZGP needs to more clearly define which groups it works with and how it expects to work with each of them.

2.30
NZGP works mostly with procurement professionals.¹¹ It works much less with executive leaders, even though they are often responsible for procurement decisions. NZGP mainly communicates with executive leaders in writing. Executive leaders have varying levels of interest in procurement and might not accept NZGP's invitations to attend procurement events.

2.31
It is important that NZGP works with procurement professionals because it is responsible for building the profession. However, NZGP needs to do more work with executive leaders to involve, inform, and influence them to get better outcomes from procurement. Executive leaders, for example, may decide how to invest in capability development and technological support for procurement.

2.32
Better information leads to better decision-making. NZGP could do more to promote the need for good-quality procurement data to executive leaders. For example, some of the public organisations involved in our audit were not able to quickly produce a report confirming that all spending that should have gone through an all-of-government contract had done so. We found that few public organisations could easily get answers to questions such as: What are we buying? From whom? How often? And how does this compare with earlier years? In Appendix 3, we explain in more detail why it is important to have easy access to procurement spending data for analysis.

2.33
What came through strongly in our conversations with public organisations and suppliers were issues about how much and how early NZGP collaborates and communicates. For example:

Public organisations have to supply certain information, such as procurement capability assessments and planned procurements, to NZGP. NZGP is slow to give feedback to public organisations on this information and how NZGP uses the information. In some instances, NZGP does not provide any feedback.
NZGP involves stakeholders too late in its policy and planning and can be slow to consider or act on their comments.

2.34
Currently, NZGP decides its work programme within MBIE's regular business-planning arrangements. NZGP often seeks comments on its plans from public organisations and suppliers through various advisory groups.

2.35
Public organisations that are not part of advisory groups get little or no information about NZGP's plans, which limits their contribution. These public organisations said that they find out about NZGP's planned work in a piecemeal way. An exception to this was NZGP's approach to improving the procurement capability of public organisations that provide social services. This approach was developed with involvement from executive leaders and procurement professionals from the start.

2.36
To build on the good work NZGP has done on planning to improve procurement capability of public organisations that provide social services, we suggest that NZGP consider using co-design, partnership, or other collaborative approaches to defining problems and coming up with solutions for more of its work. These types of approaches would need to align with NZGP's stakeholder engagement strategy.

2.37
Improving the way it collaborates would further build NZGP's credibility with public organisations and should lead to better progress in improving procurement. This would also make it easier for executive leaders to support NZGP's work by influencing their organisations. NZGP would need to allow time to work collaboratively with public organisations and advise Ministers on the advantages of this approach.

2.38
NZGP's work has been managed within MBIE's regular line management arrangements. We suggest that NZGP consider adding other governance arrangements to support its cross-agency work, such as working with a representative group of chief executives.

Recommendation 1
We recommend that New Zealand Government Procurement:

clearly define its leadership role and responsibilities for improving government procurement; and
identify its stakeholders and revise its approach to stakeholder engagement to work more collaboratively with public organisations and central agencies.

The State Services Commission's role

2.39
Cabinet expected the State Services Commission to support the Procurement Functional Leader by:

communicating government expectations to public organisations in the State services;
helping it engage the wider public sector;
helping it engage with Ministers on significant organisation-level issues; and
where necessary, taking a hands-on role in helping resolve issues that arise between the Procurement Functional Leader and public organisations.¹²

2.40
The State Services Commission routinely discusses procurement functional leadership with MBIE's chief executive through the usual processes it uses for working with chief executives.

2.41
However, the State Services Commission's role in setting expectations for procurement functional leadership and reviewing its performance is not clear. There needs to be greater clarity about the State Services Commission's role for overseeing procurement functional leadership.

2.42
For example, the State Services Commission could:

require NZGP to have a suitable framework for achieving transparency and accountability for procurement functional leadership (such as a national work plan, indicators, and reporting); and
with NZGP, periodically review the effectiveness of procurement functional leadership.

2.43
We expect that a periodic review would:

involve other central agencies,¹³ public organisations, and suppliers to get their perspective on achievements, challenges, and barriers to progress;
consider wider matters, such as the effectiveness of relationships between NZGP and relevant functional leaders (such as the Government Chief Digital Office¹⁴) or heads of profession; and
consider whether NZGP's mandate is fit for purpose for the next period (for example, the next five years) and whether refinements could be worthwhile.

Recommendation 2
We recommend that the State Services Commission clarify its oversight role for procurement functional leadership in the public sector.

Recommendation 3
We recommend that the State Services Commission, as appropriate, clarify its oversight role for other functional leaders in the public sector.

2.44
The State Services Commission told us that it accepts the need for greater transparency of functional leadership roles and plans to address this by updating the mandate letters for functional leaders and in the work being done to reform the State sector.

10: NZGP investigates formal complaints from suppliers. On average, it receives about 13 complaints a year.

11: We include in this group people who have other roles, such as chief financial officer or chief legal advisor, and who have lead responsibility in their organisations for procurement.

12: Offices of the Minister for Economic Development and the Minister of State Services (2012), Government procurement functional Leadership SEC (12) 90, at procurement.govt.nz.

13: For example, the Treasury is well placed to identify improvements in procurement capability and decision-making through its reviews of Better Business Cases for significant investment.

14: The Government Chief Digital Office manages all-of-government contracts for information and communications technology.