Funding for Gumboot Friday/I Am Hope

We wrote to the Ministry of Health about the procurement of services from Gumboot Friday/I am Hope without an open, transparent, and competitive procurement process.

9 October 2024

Dr Diana Sarfati
Director-General of Health
Ministry of Health

Tēnā koe Dr Sarfati

Funding for Gumboot Friday/I Am Hope

I am writing about the decision to provide $24 million of public funding over four years to Gumboot Friday/I Am Hope (the Supplier) without an open, transparent, and competitive procurement process.

My Office became aware of the commitment to fund the Supplier when it was publicly announced as part of the Coalition Agreement between the National Party and New Zealand First (the Coalition Agreement). We also received correspondence about this matter and are aware of the media coverage and parliamentary questions about the commitment.

We sought information from the Ministry of Health (the Ministry) to understand the issues.

This letter outlines the process by which the decision to fund the Supplier was made and the process by which the Supplier has been engaged by the Ministry. I set out why I consider that several aspects of the process are unusual and inconsistent with good practice. I also indicate my concern that the facts in this situation create a challenging situation for public officials, and my ongoing interest in how the contract is monitored and value for money is achieved.

In doing so, I emphasise the letter does not:

question the importance or desirability of funding early and effective support for young people with mental health concerns;
comment on whether the decision to fund the Supplier was the right one, or on the quality of services provided by the Supplier; or
examine the development or content of the Coalition Agreement, which is the domain of the democratically elected representatives of political parties.

Background

During the 2023 General Election Campaign, the National Party’s election policies included a commitment to set up a Mental Health Innovation Fund with up to $20 million to provide matched funding to community mental health organisations “like Gumboot Friday.” New Zealand First’s policies included a commitment to provide the Supplier with $10 million over three years.

The Coalition Agreement announced on 24 November 2023 subsequently included a commitment to “fund Gumboot Friday/I Am Hope Charity to $6 million per year.” The Public Service Act 2020 sets out the process for political parties that wish to access support from public service agencies for the purposes of negotiations to form a government. There is no obligation to seek such advice, and I understand that a request was not made in this instance.

Ministers were officially sworn in and received their warrants on 27 November 2023. On 28 November 2023, the two coalition agreements and the Cabinet Manual were endorsed by Cabinet as the basis on which the Coalition Government will operate.¹

In November and December 2023, the Ministry provided advice to the incoming Minister for Mental Health (the Minister) on implementing the commitment to fund the Supplier. The Ministry initiated conversations with the Supplier at the Minister’s request in December 2023 and continued these discussions throughout early 2024.

The Ministry submitted a Budget bid on 16 February 2024 seeking $6 million each year in new spending to contract with the Supplier. The Budget bid stated that the initiative would involve a direct contract with the Supplier, while noting that officials considered other options, including an open tender. The Budget bid described some risks associated with the procurement, such as potential concerns from other mental health service providers about the process.

In March 2024, the Ministry formally requested that Health New Zealand – Te Whatu Ora (Health New Zealand) act as its agent in managing the contract and enter into a Memorandum of Understanding (MoU) to this effect. The MoU was agreed in late May 2024.

On 22 May 2024, the Deputy Prime Minister and the Minister for Mental Health made a pre-budget announcement that the Government would provide $24 million funding over four years to deliver youth mental health counselling through the Supplier. This funding was included in the Budget delivered on 30 May 2024.²

Ministry staff advised the Director-General of Health (the Director-General) on 5 June 2024 that there were no grounds to apply an exemption from open advertising under the New Zealand Government Procurement Rules (the Rules) as there were other organisations that deliver youth mental health services. The Ministry instead sought the Director-General’s approval to apply an opt-out provision of the Rules on the basis that the Supplier was providing health services (see further discussion below).³

On 12 June 2024, the Director-General approved the Ministry entering into a direct source contract with the Supplier and noted that the opt-out provision of the Rules would be applied. The contract between the Ministry and the Supplier was signed on 1 July 2024 and came into effect the same day.

Comments

Public money must be spent prudently and with due attention to transparency, integrity, accountability, and value for money. In particular, for public procurement there should be a clear and documented reason for why services are needed, why the provider was the best placed or only provider to deliver those services, and why the amount paid to the provider was appropriate. These principles help to maintain public trust and ensure that New Zealanders get the best possible outcomes and value for money from procurement spending.

Several aspects of this process are unusual and inconsistent with these principles, including that:

the selection of the Supplier and the amount of funding was decided without an open and transparent process to assess which type of service would best meet the policy objective, which providers might be able to deliver that service, and the appropriate amount to pay;
there was no opportunity for a fair, open, or competitive procurement process;
the funding for the new initiative (outlined in the Budget) was to a specific supplier, rather than to a broad policy initiative or to achieve a policy outcome;
the limited analysis on whether it was appropriate to directly contract the Supplier or whether the Supplier was best placed to deliver the policy objective was done only after the decision to provide funding to the Supplier had been made; and
the decision to opt-out of the Rules took place after the decision to engage the Supplier and without clear justification of why an opt-out was appropriate in this case.

I discuss key aspects of these issues below, including the steps the Ministry has taken to mitigate risks and ensure value for money.

Advice to incoming Ministers and Budget 2024

I recognise that the Ministry considered that it had been directed to engage the Supplier by virtue of the Coalition Agreement, its discussions with the Minister, and decisions about Budget 2024.

As noted above, it is not my role to examine the development or content of coalition agreements. They are political arrangements which help to demonstrate that the prospective government will have the confidence of the House. It is for the relevant parties to determine what they contain.

However, after the Government formed, the commitment to fund the Supplier was no longer purely a political matter. Any decision to fund the Supplier became an Executive decision on how to allocate public money. As such, the usual rules and conventions that apply to the Executive when making decisions on the use of public money ought to have been followed.

There are established conventions that generally discourage Ministers from directing the public service in relation to financial, operational, and contractual decisions. For example, the Cabinet Manual provides that “… Ministers should also take care to ensure that any direction they give their chief executive could not be construed as improper intervention in administrative, financial, operational, or contractual decisions that are the responsibility of the chief executive.”⁴

Put another way, it is for Ministers to make overarching policy decisions (such as an intention to fund counselling services for young people), but it is for the public service to ensure robust, fair, and transparent spending of public money – including selecting a supplier and ensuring value for money.

In this case, Cabinet had endorsed the commitment to purchase services from a particular provider. The Ministry therefore needed to provide advice to Ministers on implementing the commitment.

Ideally, we would have seen evidence that the Ministry had advised Ministers that the procurement departed from established practice, and raised the risks inherent in the decision to spend public money without a fair, transparent, and competitive procurement process. Although the Budget bid discussed some risks, the documents I have seen do not reassure me that the full range of risks associated with the procurement were communicated to Ministers.

In my view, it would also have been transparent, and promoted confidence in the process, had the Ministry sought a written direction on how the Minister wished to proceed in light of advice that noted the risks associated with the intended procurement process. The Ministry told me that it considered that Ministers’ expectations were clear and further clarification of the Minister’s expectations about the contracting decision was not needed.

Decision to use the opt-out provision of the Rules

As I have noted above, Ministry staff clearly documented the recommendation that the Director-General approve an opt-out from the Rules to justify directly engaging the Supplier. The Minister also told me that throughout the process he sought, and received, assurances that the implementation option chosen by the Ministry complied with the Rules.

I recognise the definition of “health services” in the Rules is broad and the provision is intended to provide flexibility to agencies in the way they source goods services or works in certain situations. The Ministry’s internal documentation also made efforts to analyse the procurement against the principles of Government Procurement,⁵ including noting that the Supplier was in a unique position to scale up service delivery quickly, and again highlighted some risks associated with the lack of a competitive procurement process.

However, the Rules also encourage organisations to consider their options, use good judgement to decide whether to opt-out, and document the reasons for why an opt-out is appropriate.

Although the advice to the Director-General noted that an exemption from open advertising would be inappropriate, it did not discuss why the opt-out provision was appropriate, nor any specific risks involved in using an opt-out. In my view, the lack of analysis on these points, and the timing of the decision to use the opt-out, means the analysis appeared designed to retrospectively justify an outcome that had already been decided, rather than provide a balanced assessment of the procurement process.

Efforts to ensure value for money through the contract

Despite the unusual elements of the process, I note that the Ministry has included terms in the contract to help ensure value for money. For example, the contract:

is for one year, after which the Ministry, at its discretion, may choose to renew the contract annually for a maximum of three years in total;
funds only specified counselling services and not expenses or daily allowances;
sets requirements about how the counselling services will be delivered;
requires the Supplier to report key deliverables at regular intervals to help the Ministry and Health New Zealand monitor performance; and
allows Health New Zealand to conduct regular, random, and risk-based auditing of services.

I also understand that the Ministry and Health New Zealand will hold quarterly reviews to ensure that any issues that might arise are identified quickly and resolved. These types of controls are important to ensure that services are delivered in keeping with the contract and value for money is achieved.

Conclusion

For the public and Parliament to be assured that public spending represents value for money, they should be able to see that there has been a robust process to select a provider best suited to deliver the services the Government needs, at an appropriate price. Open, transparent, and competitive procurement helps support trust and confidence in the decisions being made and is also a critical part of maintaining New Zealand’s reputation for public sector integrity.

I recognise that the expenditure is relatively modest in the context of Vote Health. I also acknowledge that officials were in a difficult position, given that the Coalition Agreement had included a commitment to provide $24 million of public money to the Supplier, and that the Ministry did not have a chance to advise on that commitment before it was made.

However, for the reasons I have outlined in this letter, I do not consider that the process in this case is consistent with the principles above. I also have concerns that this situation created challenges for public officials, and for transparency, value for money, and accountability for public spending more generally.

The Ministry told me that it intends to raise this procurement as a potential case study with the Public Service Commission and the Ministry of Business, Innovation and Employment. I support this initiative from the Ministry and look forward to seeing the results of that work at an appropriate time.

I also intend to monitor the progress of this initiative, including whether the contract is appropriately managed and delivers value for money.

Because of the public interest in this matter, I intend to publish this letter on my website.

I thank the Ministry for its assistance with our work to date.

Nāku noa, nā

John Ryan
Controller and Auditor-General

Copies to:

Fepulea’i Margie Apa, Chief Executive, Health New Zealand – Te Whatu Ora

1: See CO (24) 2.

2: The funding was allocated in Budget 2024 as a new initiative titled “Gumboot Friday – Delivering Free Youth Mental Health Counselling Services” in the Delivering Primary, Community, Public and Population Health Services appropriation in Vote Health.

3: See Rule 12.3.k.

4: See Paragraph 3.26(c).

5: See New Zealand Government Procurement, Government procurement principles (available here).