Response from the Ministry of Business, Innovation and Employment

Response to our recommendations about Strategic suppliers: Understanding and managing the risks of service disruption.

26 May 2023

Leeanne McAviney
Assistant Auditor-General - Sector Performance Group
Office of the Auditor-General | Te Mana Arotake
PO Box 3928
Wellington 6011

Dear Leeanne

RE: FOLLOWING UP ON PERFORMANCE AUDIT OF Strategic Suppliers: Understanding and managing the risks of service disruption

Thank you for your correspondence dated 3 April 2023 regarding the 2021 Performance Audit of Strategic Suppliers: Understanding and managing the risks of service disruption. I welcome the opportunity to provide a response on how we are addressing the recommendations of the performance audit. I provide this response as System Leader for Procurement.

Government procurement in New Zealand is highly decentralised - that is, aside from a small number of government-wide contracts, individual agencies are responsible and accountable for their own procurement activities. The Government Procurement Rules (Rules), together with the Five Principles of Government Procurement, the Government's Charter of Expectations and good practice guidance provide the framework within which agencies undertake their procurement. While the Rules represent good practice, they are mandatory for Ministries, Departments, Crown entities and Public Finance Act Schedule 4A companies. Local authorities are encouraged to apply the Rules to their procurement and therefore, our role vis-à-vis local authorities is one of encouraging and supporting good procurement practice. MBIE, through New Zealand Government Procurement (NZGP), administers the Rules, provides good practice guidance and delivers capability initiatives (among other things).

I note that the report includes a number of MBIE-specific recommendations and one recommendation made to MBIE and other agencies. Overall, action has been taken to address the recommendations in the report. I note that the matter of understanding and managing the risks of service disruption by strategic suppliers is an ongoing undertaking. As system lead for government procurement, I continue to have an interest and role in supporting government agencies to understand and manage these risks as well as continuing to work with central agencies to support collective efforts to reduce risk and improve resilience.

In respect of Recommendation 2, the Secretary for Business, Innovation and Employment has been named the system leader for procurement. A report back to Cabinet on the mandate for Procurement System Leadership is expected to be confirmed by August. In line with the Procurement for the Future programme of work (agreed by Cabinet in 2021), I will be looking to strengthen accountability and delivery across the procurement system, including understanding supply and supplier risks in key sectors and across the system.

My role as Procurement System Leader involves ongoing engagement with the relevant agencies on interruption to supply of essential services during an emergency, delivery risks, and supplier failure. Mechanisms are already in place for regular engagement by System Leaders, investment officials and on the national risk management approaches described the responses from DIA and NEMA. The audit report has driven greater clarity in the roles that DPMC, NEMA, Treasury, DIA and the Public Service Commission play in managing supply and supplier risk (as outlined in their individual responses to the audit report), from investment planning through to delivery, especially during an emergency.

With respect to the remaining recommendations, below is a summary of key initiatives aimed at lifting procurement capability and promoting good practice to help agencies identify critical and strategic supply partners and manage these relationships. Initiatives include:

  • The launch of a whole of government approach to supplier relationship management (SRM). This consists of an SRM toolkit containing an extensive library of context material and tools to enable agencies to establish and maintain an SRM programme that is relevant to their business requirements. The toolkit provides recommendations for governance structures, as well as meeting focus and frequency that supports supplier resilience.
  • Engagement with agencies on the value of SRM and the use of the toolkit to implement SRM in an agency.
  • Initial discussions with agencies to understand capability requirements to undertake SRM successfully. This information will feed into further work on capability development in respect of SRM.
  • Work is underway to consider amendment of the Procurement Capability Index (a self-assessment tool that enables an organisation to understand its procurement capability and identify areas for improvement). Under consideration is the addition of a question that would look at an organisation's application of best practice as benchmarked against the SRM Guidance and Toolkit.
  • Building on the work underway in creating a social sector competency framework, the development of a general procurement competency framework will start before the end of the calendar year as part of the Procurement for the Future work programme. Consideration will be given to the inclusion of competency indicators in the area of SRM.
  • The Procurement for the Future programme includes a review of the Government Procurement Rules to cover the full procurement life cycle, including a stronger focus on contract and supplier relationship management, not just sourcing. Scoping of this review is currently underway.
  • The reporting against the significant service contracts framework has shown that limited insights were available from the reporting, highlighting the need to invest in developing SRM capability including identifying and addressing supply and supplier risk. As such, NZGP has concluded that more value can be provided to the system by using its resources to create awareness and improve skills in SRM. The relevant materials and reporting template have been maintained on the NZGP website so that agencies can continue to use the framework to support their internal understanding and management of significant services contract suppliers.

Yours sincerely

Carolyn Tremain
Te Tumu Wharekarae mō Hikina Whakatutuki
Secretary for Business, Innovation Employment and Chief Executive