Part 5: Sharing information with other public organisations

Inquiry into Callaghan Innovation’s procurement process.

5.1
In this Part, we describe:

Callaghan Innovation shared due diligence findings about Manaaki with other public organisations

5.2
During the procurement for the Start-up programme, Callaghan Innovation shared the findings from the due diligence on Manaaki with two other public organisations. This included:

  • sharing the first due diligence report with MBIE for a separate procurement; and
  • sending copies of both due diligence reports to:
    • MBIE, as the functional lead for procurement, and
    • New Zealand Trade and Enterprise (NZTE).

5.3
Figure 5 shows at what stages of the procurement Callaghan Innovation shared the due diligence reports about Manaaki with other public organisations.

Figure 5
Timeline of events when Callaghan Innovation shared the due diligence reports about Manaaki, May 2022 to June 2022

Timeline of events when Callaghan Innovation shared the due diligence reports about Manaaki, May 2022 to June 2022

Callaghan Innovation used the due diligence report about Manaaki for another procurement

5.4
In February 2022, Manaaki submitted an RFP to MBIE for the Regional Business Partner Network (the RBP network).21 Because Callaghan Innovation jointly funds the RBP network, it also needed to approve the outcome of the RFP.

5.5
On 11 May 2022, MBIE sent the tender evaluation report for the RBP network to Callaghan Innovation's Chief Executive to approve the preferred tenderers. MBIE told us that Manaaki was not successful because it had submitted a non-compliant bid. It also told us that the report proposed that Manaaki be informed that there was support for its proposals. However, unless MBIE could secure further funding, it would be unable to offer Manaaki a contract.

5.6
On 12 May, Callaghan Innovation shared the first due diligence report about Manaaki with MBIE, noting that Callaghan Innovation's due diligence process for the Start-up programme had raised serious concerns about Manaaki. On 13 May, the Chief Executive emailed MBIE recommending that MBIE tell Manaaki that it was unsuccessful in the RBP procurement until further due diligence could be carried out.

5.7
The final tender evaluation report for the RBP network did not include support for the proposal from Manaaki. MBIE told Manaaki on 17 May 2022 that it was not successful in the RFP for the RBP network.

5.8
Callaghan Innovation's Chief Executive later sent a copy of the second due diligence report to the Head of Small Business at MBIE. The accompanying email from the Chief Executive said that the findings represented an "evidenced and ongoing trend of intolerable behaviours towards founders and start-ups" and that Manaaki would be excluded from the procurement for the Start-up programme.

Callaghan Innovation shared the due diligence findings with the Ministry for Business, Innovation, and Employment and New Zealand Trade and Enterprise

5.9
Callaghan Innovation told us that it had felt obliged to escalate concerns about a tenderer who, in its view, had been shown to engage in poor behaviour and who was supplying services throughout the public sector.

5.10
On 17 June 2022, after receiving the second due diligence report, Callaghan Innovation's Chief Executive contacted MBIE's Chief Executive. The notes of this conversation stated that Callaghan Innovation's Chief Executive wanted to notify MBIE, as the functional lead for procurement, of the findings. Callaghan Innovation's aim was:

… to commence a conversation about how [Callaghan Innovation] could address this instance of unethical behaviour and curb the risk of similar future instances as part of a [joined up] approach.

5.11
The notes recorded that MBIE's Chief Executive suggested that Callaghan Innovation send what it could share to the Deputy Secretary with responsibility for government procurement.

5.12
The same day, Callaghan Innovation's Chief Executive sent a copy of both due diligence reports to the Deputy Secretary responsible for government procurement at MBIE and the Chief Executive of NZTE. The reports were sent to NZTE at the request of a Callaghan Innovation Board member who was also on the Board of NZTE.

5.13
The accompanying emails said that the findings about Manaaki were "overwhelmingly negative" and repeated the conclusions from the second due diligence report about Manaaki. These included the allegation about attempted misappropriation of government funds (see paragraph 4.47) and other serious allegations about Manaaki's business conduct and behaviour.

5.14
The covering email to the Deputy Secretary at MBIE noted that "there are clearly some issues uncovered in due diligence that you may wish to take action on" and that Callaghan Innovation had rejected Manaaki's proposal in accordance with the Procurement Rules.

5.15
MBIE's Deputy Secretary told us that he did not see the email until some months later and that it was unclear what Callaghan Innovation expected MBIE to do with the information. The Deputy Secretary also said that whatever action MBIE could take would be limited because it does not have a regulatory function for government procurement.

5.16
Callaghan Innovation's Chief Executive had earlier sent Callaghan Innovation Board members a copy of the first due diligence report. One of the Board members (who is also a NZTE Board member) asked whether the due diligence report could be shared with NZTE.

5.17
This Board member understood that Manaaki was providing or had provided services to NZTE. This belief was partly mistaken – although Manaaki had previously done work for NZTE, there were no plans for future work, by mutual agreement.

5.18
As explained, the Chief Executive then sent copies of both due diligence reports about Manaaki to the Chief Executive of NZTE. The covering email explained that Callaghan Innovation was sharing the reports because "NZTE may have done work with or are considering Manaaki to provide services on behalf of NZTE".

5.19
NZTE's Chief Executive told us that NZTE had no current or prospective contracts with Manaaki and that NZTE did not take any action after receiving the due diligence reports.

5.20
Callaghan Innovation's procurement team told us that it did not know that the reports had been shared with NZTE until after they had been sent. Although the procurement and legal teams were aware of the phone call with the Chief Executive of MBIE, Callaghan Innovation did not seek any legal advice about what it was able to share, nor did it seek advice about sharing the due diligence reports with NZTE before they were shared.

5.21
The chairperson of Callaghan Innovation's Board told us that the due diligence reports were shared with the Board's full knowledge and support. The Board said that it understood that the terms in the RFP document allowed Callaghan Innovation to share information with other public organisations. This was not the case.

The changing justifications Callaghan Innovation gave for sharing information

5.22
Callaghan Innovation provided three different justifications to NZTE and the two different business units of MBIE for sharing the due diligence reports about Manaaki. They were the following:

  • It told NZTE that "all applicants approved due diligence information to be shared across the government".
  • It told MBIE, as the functional lead for procurement, that "the terms in our RFP enable us to share any due diligence findings across the government".
  • For the RBP network procurement, it told MBIE that it shared the information "pursuant to an agency information-sharing clause we have in our Founder RFP documentation".

5.23
The Chief Executive, the procurement team, and the Board told us that they understood that the RFP document's terms allowed Callaghan Innovation to share information with other public organisations.

5.24
In October 2022, in response to concerns about the procurement that Manaaki raised, Callaghan Innovation gave another reason for sharing the due diligence reports with other public organisations.

5.25
The terms of the Start-up programme procurement provide that obligations about confidential information are subject to requirements imposed by law, including the Official Information Act and parliamentary and constitutional convention.

5.26
Callaghan Innovation told Manaaki that, because MBIE is Callaghan Innovation's monitoring agency, it shared the due diligence reports as part of its reporting process and to comply with the constitutional convention of "no surprises" and the Government Procurement Principles.

5.27
In its response to Manaaki's complaint under Procurement Rule 50 in January 2023, Callaghan Innovation expanded this explanation. It said that it considers that the clauses in the RFP document's terms about confidential information should be read as ensuring that confidential information is not shared outside of the government or unnecessarily within the government.

5.28
Callaghan Innovation said that it considered it appropriate to share information between "closely linked public organisations all of whom have a legitimate interest and/or role in the information and/or processes in question".

Our observations about Callaghan Innovation sharing this information

Expectations of confidentiality in procurement

5.29
Rule 4 of the Procurement Rules states that public organisations must protect suppliers' confidential or commercially sensitive information. Public organisations must not disclose confidential or commercially sensitive information unless:

  • the supplier has already agreed to it in writing, or
  • the disclosure is required by law (eg under the Official Information Act 1982), convention or Parliamentary or Cabinet Office practice, or
  • it is a limited disclosure expressly notified in a Notice of Procurement to which suppliers have consented by participating in the process.22

5.30
The Procurement Rules do not define confidential information.

5.31
Appendix 2 sets out the RFP terms and conditions relating to confidentiality. Clause 6.17 states that the buyer and respondent will both take reasonable steps to protect each other's confidential information. Neither party should disclose the other party's confidential information to a third party for any purpose other than participating in the RFP process without written consent, except when required by law.

5.32
The government's standard RFP terms define confidential information as information that is by its nature confidential or that the recipient knows, or ought to know, is confidential to the provider or the third party that supplied it to the provider. It excludes information that is publicly available or that the recipient acquired entirely independently of the provider.

Callaghan Innovation did not act consistently with the requirement to protect supplier information

5.33
Clause 1.6b of the Start-up programme's RFP document confirmed that there were no variations to the government's standard RFP terms. Therefore, no clauses in the Start-up programme RFP document allow information from the due diligence process to be shared with other public organisations without the tenderer's written consent, except for the limited reasons set out in Appendix 2.

5.34
In our view, the due diligence information about Manaaki that Callaghan Innovation shared with other public organisations clearly meets the definition of confidential information in the RFP terms.

5.35
Although some of the information collected was publicly available, the contractor used the information Manaaki provided in the RFP document to identify people to interview. The information collected for the due diligence was provided to Callaghan Innovation confidentially and had the potential to affect the reputation and commercial position of Manaaki.

5.36
If Callaghan Innovation wanted to be able to share information relating to a tender, it should have clearly communicated to tenderers and those it spoke to as part of the due diligence the circumstances that might lead to information from the due diligence being shared more widely.

5.37
For example, Callaghan Innovation has explained that there is considerable overlap between the Start-up programme and the RBP network. However, Callaghan Innovation did not plan for circumstances where it might wish to share information about these two procurements (which were being carried out to similar time frames), how this might affect the due diligence processes for each of the procurements, and what tenderers would need to be told about the potential for information sharing.

5.38
In its later correspondence with Manaaki, Callaghan Innovation explained that its reasons for sharing the information were to give effect to the "no surprises" convention. The Cabinet Manual states that officials should be guided by the "no surprises" convention in their relationships with Ministers for issues of significance in their portfolios. Callaghan Innovation interpreted this as applying to sharing between public organisations. We do not accept that this is a valid argument.

5.39
We would be surprised if due diligence reports for a procurement were considered the type of information that would be escalated to a Minister through a monitoring department. We consider that any advice on such a matter would be, at most, to provide situational awareness because neither the Minister nor the Ministry is involved in making the decision. We do not accept that this principle applies to sharing information between public organisations generally.

5.40
There was no valid reason for sharing the due diligence information with NZTE, because it had no role or legitimate interest in the procurement and no current working relationship with Manaaki. It appears that Callaghan Innovation shared the due diligence findings with NZTE solely because a Board member requested it.

5.41
In our view, Callaghan Innovation did not comply with the Procurement Rules when it shared information from the due diligence on Manaaki with other public organisations. We do not accept Callaghan Innovation's various explanations to justify its decision to share the information.

Callaghan Innovation did not act fairly and transparently when it shared the due diligence information

5.42
In our view, Callaghan Innovation's actions in sharing information were not fair or transparent.

5.43
Callaghan Innovation had not planned how it would gather information from the due diligence, manage that information, or safely keep it. Nor had it considered the circumstances where it might share the information it collected.

5.44
Callaghan Innovation shared unredacted copies of the due diligence reports with different public organisations for different reasons. However, we did not see evidence that Callaghan Innovation considered whether there were valid reasons for sharing the detailed due diligence reports with all recipients.

5.45
We expected Callaghan Innovation, when deciding whether to share the information from its procurement, in each instance to:

  • seek appropriate advice on sharing this information, including what was reasonable for it to share;
  • consider any risks involved in sharing the information; and
  • consider what processes or checks (if any) it might need to meet its obligations under the Procurement Rules.

5.46
Callaghan Innovation did not seek advice about whether the terms of the RFP document allowed it to share information from the due diligence process before deciding to share that information. Callaghan Innovation also did not tell Manaaki that it was going to share the information or ask Manaaki for permission to do so.

5.47
Manaaki found out that the information had been shared only from a later Official Information Act response. This was despite Manaaki previously expressing concern to Callaghan Innovation about commercial risk if information got into the public domain.

5.48
Callaghan Innovation shared the first due diligence report about Manaaki with MBIE on 11 May 2022. This was before Callaghan Innovation met with Manaaki to discuss the findings of the due diligence. Although it did not change the result of the RBP network procurement for Manaaki, we consider that this further illustrates the lack of natural justice in the process.

5.49
When sharing information with others, public organisations need to ensure that the information is accurate and balanced. Callaghan Innovation's emails to other public organisations were strongly worded and included the conclusions drawn in the second due diligence report about Manaaki.

5.50
The emails did not make it clear that these "findings" included some details that had not been tested with Manaaki and some conclusions that were not supported by either testimony or exhibits.

5.51
As we explained in paragraphs 3.68-3.70, the findings in the due diligence reports were based primarily on testimony. For our inquiry, we reviewed the due diligence reports and the supporting exhibits that the contractor provided to Callaghan Innovation. The supporting exhibits were mainly individual statements that interviewees subsequently confirmed were correct.

5.52
Some documents were provided, but there was limited corroborating evidence to support the conclusions reached in the due diligence reports. Further, as we explained in paragraphs 4.47-4.48, the conclusion that there was "attempted misappropriation of government funds" was not supported by the interviewees' testimony.

5.53
Although it is usual to rely on references for due diligence or employment purposes (and testimony is a valid form of evidence), they are by their nature confidential, are done with the full knowledge of those being assessed, and would not usually be shared more widely because they represent an individual's opinion.

5.54
In making its decision about the procurement, Callaghan Innovation was able to consider the information Manaaki had provided both verbally and by email in response to the concerns that had been raised. None of this was included in the due diligence reports. This meant that recipients of the due diligence reports were not given a balanced view of all the information collected for the due diligence.

5.55
Callaghan Innovation should have considered whether it needed a higher threshold of evidence to support the information it planned to share with other public organisations, and it should have also considered what information should be shared to ensure that the information was both accurate and fair.

5.56
Our view is that it was inappropriate for Callaghan Innovation to share the due diligence reports without adequate context or a reasonable opportunity for Manaaki to respond.

21: The RBP network provides small-to-medium business owners with access to advice and support through 14 regional growth agencies. The RFP was seeking partners to provide regionally based services as part of a panel of "growth advisors".

22: See "Rule 4: Protecting supplier information", at procurement.govt.nz.