Part 4: Getting more benefits from New Zealand Government Procurement's work

Using “functional leadership” to improve government procurement.

4.1
In this Part, we discuss:

Summary of findings

4.2
The Rules and NZGP's actions have helped public organisations take a more consistent approach to procurement. However, NZGP still needs to make improvements to improve efficiency and effectiveness. In particular:

  • make it clearer how activities link to strategic goals;
  • use the information it collects more effectively;
  • communicate better with individual public organisations and the wider public sector on the information it collects; and
  • assess the implementation of actions to ensure that they are successful.

The Government Procurement Rules

4.3
The Rules provide a consistent framework for managing procurement, defining the overall goal for procurement (that is, public value), and setting out government priorities. Mandated public organisations must apply specific rules for procurements that are more than specified dollar values. They may apply these rules to procurements of lesser value because it is considered good practice. Other public organisations should consider applying the Rules because it is considered good practice.

4.4
Two areas where NZGP needs to focus on are social services procurement and local government procurement.

4.5
Social services procurement can be complex. In 2015, the Productivity Commission highlighted issues that needed addressing to improve the effectiveness of social services procurement.16

4.6
Public organisations that provide social services said that the Rules are not always suitable for social services procurement. They said that it was common for them to opt out of the Rules.

4.7
NZGP has recognised that social services procurement can be different from other sorts of procurement. For example, social services procurement might use relational contracting17 more than other types of procurement. NZGP has prepared sector-specific guidance to help public organisations apply the Rules. It is not clear how widely public organisations use and understand the guidance. NZGP needs to continue to work with public organisations that provide social services to support effective social services procurement.

4.8
We did not speak to local government organisations for our audit. However, we are aware, through our other work, that some local government organisations consider that the Rules do not necessarily support their social procurement goals (such as supporting local businesses). Local government organisations do not have to apply the Rules, but they apply aspects of the Rules that they consider useful. NZGP has appointed an account manager to work with local government organisations, which we understand has been beneficial. NZGP needs to continue working with local government organisations to identify how it can better support their procurement.

4.9
We understand from public organisations that they consult both the Rules and our Procurement guidance for public entities18 to support their decision-making. Some officials consider that there should be one set of guidance on procurement for the public sector. We plan to review our procurement guidance in 2020/21, including how that guidance sits alongside the Rules.

Reporting on public organisations' planned procurement

4.10
Mandated public organisations must send NZGP an annual report on their planned procurements for the coming year. They must review and update the reports at least every six months. NZGP collates the information into a spreadsheet, which it makes publicly available online to enable:

  • suppliers to find out about planned procurements and invest in their capacity; and
  • public organisations to identify opportunities for collaborative procurement.

4.11
Suppliers welcome the information but can be cautious about using it for decision-making because public organisations' procurement timelines can be delayed. Public organisations support having planned procurements publicly available, but they said that the current system is not useful. This is because the information can become out of date between reports, which limits its usefulness.

4.12
Public organisations would prefer an online system that would allow them to update their planned procurements as often as needed. They want a system where they can easily see other public organisations' planned procurements so they can collaborate where practicable.

4.13
Public organisations want NZGP to use the information that they provide to connect relevant public organisations. For example, public organisations said that they would welcome NZGP bringing public organisations together for mutual benefit, including discussing the potential for collaborative procurement.

4.14
NZGP needs to enable more timely information sharing and provide leadership in facilitating co-ordination and collaboration between public organisations.

All-of-government contracts

4.15
Mandated public organisations must use all-of-government contracts unless there is a good reason not to. NZGP records the reasons some mandated public organisations do not use some all-of-government contracts. NZGP gave us this data, which was dated 26 March 2019:

  • In 340 instances, NZGP accepted that a mandated public organisation had no business need for an all-of-government contract.
  • In 11 instances, NZGP did not accept a mandated public organisation's reason for not using an all-of-government contract. The Rules state that mandated public organisations wanting to opt out of an all-of-government contract must get approval from the Procurement Functional Leader. If a public organisation and the Procurement Functional Leader fail to agree to an opt-out, the State Services Commissioner will make a decision. We understand that NZGP has not asked the State Services Commissioner to make a decision for these instances.
  • In 1709 instances, NZGP accepted that a mandated public organisation had existing contracts in place and so could not use an all-of-government contract or was considering whether it would benefit from using an all-of-government contract. These instances also include instances where NZGP has not yet determined public organisations' reasons for not using a contract.

4.16
Generally, public organisations said that all-of-government contracts are worthwhile and produce savings for the Government as a whole. Having standard terms and conditions saves time and money and helps a consistent approach to managing liability risks. However, public organisations consider that NZGP has focused too much on cost savings and not enough on innovation and improving outcomes.

4.17
From 2019, NZGP is working differently with suppliers and public organisations to maximise the value from all-of-government contracts. It is too early to know whether this different approach will help address public organisations' concerns about the lack of focus on innovation and outcomes.

4.18
There is also a general view that all-of-government contracts are more effective for goods than for services. For example, public organisations raised several issues with the all-of-government contracts for recruitment and consulting services. These issues included too many suppliers on the panels, a lack of information on suppliers' performance, lack of transparency on how the contracts function, and that the contracts prevent innovation. There is also scepticism about whether the contracts have delivered reduced business rates.

4.19
There appear to be opportunities to improve the effectiveness of each all-of-government contract and take-up, and therefore savings.

4.20
Some public organisations want NZGP to introduce more all-of-government contracts. At the time of our audit, NZGP did not have plans to do so.

4.21
In Part 1, we stated that about 3% of total government procurement spending is through all-of-government contracts. The other 97% is spent on a wide range of goods and services – from tyres through to health and social services and construction of major assets. The lack of easily available national-level procurement spending data makes it difficult to identify when new all-of-government contracts could be worthwhile. Nevertheless, we consider that opportunities for new all-of-government contracts should be explored and the conclusions of that work reported to public organisations, suppliers, and the public.

4.22
Some public organisations wanted the management of all-of-government contracts to be more automated to make it easier to sign up to them and buy from catalogues. NZGP is aware that greater use of technology could improve efficiency. For example, NZGP is working with the Government Chief Digital Office to make the construction consultancy all-of-government contract available through the Government Chief Digital Office's online Marketplace. NZGP told us that, if this pilot is successful, it would consider transferring other all-of-government contracts into the online Marketplace.

4.23
The New Zealand Government Procurement and Property Group and the Government Chief Digital Office have a joint Digital Procurement Governance Group. One of the group's tasks is to determine and monitor the strategic direction of digital procurement platforms. Increased automation would likely produce efficiencies, freeing up staff in public organisations and functional leadership positions to focus on higher-value work.

Significant service contracts framework

4.24
NZGP introduced the significant service contracts framework to provide a consistent approach for mandated public organisations to report contracts that:

  • are critically important to delivering the organisations' business goals; or
  • pose a significant risk and/or adverse outcome in the event of supplier failure.

4.25
Mandated public organisations must review and update the reports at least every six months (by 1 March and 1 October).

4.26
Mandated public organisations said that the significant service contracts framework has been worthwhile. The framework enables procurement professionals to engage with executive leaders about certain contracts. In some instances, executive leaders gave greater attention to getting better outcomes from significant service contracts and improving their risk management. To the extent that this happens, the framework has been worthwhile.

4.27
Public organisations are required to send reports to NZGP. However, because NZGP does not comment on the reports, individually or collectively, public organisations view this requirement as a compliance exercise. Public organisations said that, without advice to the contrary, they assume that NZGP approves of their mitigation strategies for the significant service contracts. NZGP needs to provide timely and proactive responses to individual public organisations to "close the loop".

4.28
NZGP is slow to analyse the public organisations' reports and does not share its analysis of all the reports with the organisations. For example, NZGP's analysis of the reports for October 2018 and March 2019 was not finalised in early August 2019. Public organisations were due to submit their next annual report by 1 October 2019.

4.29
Public organisations said that they were keen to understand from NZGP whether other public organisations had reported similar issues with the same contracts. They wanted NZGP to connect public organisations with similar issues. This would allow public organisations to learn from each other and, where practical, work collaboratively together and with suppliers to address problems. NZGP needs to better manage and use the information it gets on significant service contracts risks to improve service delivery and manage risks to the Crown.

Building procurement capability

4.30
NZGP and public organisations each have a role in improving government procurement. Building public organisations' procurement capability is crucial for improving procurement. It includes:

  • increasing the number of procurement professionals and improving their quality;
  • building the capability of staff who have occasional or part-time responsibility for aspects of procurement as part of their main role; and
  • ensuring that executive leaders know the sorts of questions that they could ask to get good advice from procurement professionals to help them achieve their strategic goals.

4.31
NZGP has introduced a range of initiatives aimed at improving procurement capability. However, the public organisations we spoke to consider that NZGP has prioritised achieving cost savings through all-of-government contracts over improving procurement capability. Public organisations want NZGP to prioritise improving procurement capability, which they need to improve the quality of procurement decision-making, promote more mature and streamlined procurement, and promote innovation.

4.32
Public organisations look to NZGP to create initiatives that allow them to increase capability efficiently. Some public organisations said that the lack of a clear national direction for training and development, including what work NZGP would do or co-ordinate, had slowed their progress in upskilling staff.

4.33
NZGP's approach to training and development has been inconsistent. For example, NZGP initially provided subsidised procurement training for public organisations' staff because the public organisations would not pay for the training. NZGP also ran popular classes on demystifying procurement but stopped them. The course is now online. Public organisations told us that they valued the classes because they provided a place for shared learning and would welcome their return.

4.34
NZGP's inconsistent approach has meant that some public organisations have held off commissioning procurement courses from training providers. They said that NZGP is better placed to identify common training needs across the public sector and, for example, commission work on suitable course outlines. Providing courses that meet these training needs would help recruitment and induction when staff change organisations. Public organisations said that they would base their in-house procurement training on these course outlines. To complement in-house training, they would welcome opportunities for shared learning.

4.35
NZGP has done some good work with public organisations that provide social services to produce a training strategy for their staff (the social services training strategy).19 NZGP has also provided research that establishes a baseline for assessing the strategy's implementation.20 The strategy shows a thorough understanding of adult learning and development requirements. To make it even more effective, the strategy could also:

  • address the learning needs of leaders who are responsible for strategic procurement decisions but do not come from an operational background; and
  • develop further the thought-leadership ideas introduced in the strategy.

4.36
Public organisations we spoke to generally support the social services training strategy. However, the relative lack of priority that line managers give to training staff and providing funding for training has slowed the strategy's implementation.

4.37
The graduate programme is an example of how NZGP and public organisations can work together to increase the number of procurement professionals and improve their capability. NZGP employs graduates for up to two years. Some graduates are employed by a host organisation before they complete the two-year programme. Graduates work at a different public organisation every six months. Larger organisations tend to host the graduates because they are able to accommodate them more easily and meet their learning needs.

4.38
NZGP has also established a Developing Leaders Group. However, there are no clear criteria that participants need to get into that group (for example, procurement experience and/or qualifications). There are also no clear learning goals for participants and assignments aimed at achieving them. Some of the assignments that we reviewed appeared to have limited relevance to developing procurement leadership.

4.39
NZGP plans to procure an electronic Learning Management System for procurement to deliver online educational material. It will be available to all public organisations and their staff. It will provide a learning record for individuals and public organisations and enable users to provide feedback on the materials.

4.40
In 2015, NZGP introduced the Procurement Capability Index (PCI) – a self-assessment tool for public organisations to assess their procurement capability. Public organisations assess themselves once a year and provide a report to NZGP by 1 October each year.21

4.41
It has been difficult to identify trends in procurement capability because the PCI's questions have changed each year since 2015. The tool was revised in response to public organisations' comments. NZGP intends the 2018 version, which is now online, to continue unchanged. The PCI provides a status report on how each public organisation manages its procurement. Eventually, only large public organisations will use the current PCI. In 2018 and 2019, NZGP piloted a different PCI for small and medium-sized public organisations. So far, fewer than 10 public organisations are using it.

4.42
Public organisations we spoke to said that they want, but do not get, comments from NZGP on their annual self-assessments. Public organisations want NZGP to recognise their achievements, tell them where NZGP wants them to improve, and (as needed) advise them where they can get help to improve. It is important that NZGP provides timely feedback to public organisations to support improved procurement capability. NZGP's feedback could be more rounded by including in its assessment any comments from suppliers (see paragraphs 2.25-2.28) and any other information about the public organisation's procurement capability.

4.43
Public organisations do get feedback on their PCI when a third party, such as NZGP, validates it. Public organisations' can request to have their PCI assessments validated by NZGP. NZGP can also initiate a validation process. The 25 investment-intensive public organisations involved in the Treasury's Investor Confidence Rating (ICR) have their most recent PCI validated as part of the three-yearly ICR because PCI scores make up part of the ICR.

4.44
Cabinet expected that NZGP would share the PCI results with chief executives so that they would know where they stood compared to their peers. This has not yet happened. NZGP told us it planned to share its analysis of the October 2018 PCI results in late 2019 and to release a version of the report to the public. Public organisations were required to submit their 2019 self-assessments by 1 October 2019.

4.45
It takes time to produce a change in procurement capability to the extent that it would produce a materially different self-assessment. In some respects, the PCI is similar to the ICR, which assesses selected public organisations' investment management capability and performance. The ICR is done every three years because it takes time for changes in performance to come into effect. We suggest that NZGP reconsider how often it requires public organisations to complete the PCI. For example, the frequency of assessments might depend on public organisations' scores and how long it would take them to implement any improvement plans.

16: Productivity Commission (2015), More effective social services, at productivity.govt.nz.

17: A relational contract is based on a relationship of trust between the parties. The explicit terms of the contract are just an outline, as there are implicit terms and understandings that determine the behaviour of the parties.

18: Available on our website, at oag.govt.nz.

19: New Zealand Government Procurement (2018), Social services procurement: Training strategy 2018-21.

20: New Zealand Government Procurement (2017), Measuring success: Establishing a baseline.

21: The PCI replaced intensive procurement capability assessments that NZGP had commissioned in the first two to three years of its operation. Public organisations received a written report of the assessment, including recommendations. The assessments were expensive, and only a few public organisations could be reviewed each year.