Auditor-General's overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

Each year, central government organisations spend about $52.5 billion procuring infrastructure, goods, and services. Local government organisations also carry out substantial procurement activities.

All public organisations should be competent in carrying out procurement activities. Doing public procurement well is critical to maintaining public trust and ensuring that New Zealanders get the best possible outcomes from this significant spending.

For these reasons, my Office has carried out a multi-year work programme looking at how well the public sector manages procurement. This report brings together the findings of that work since 2018 and highlights the areas where I consider most improvement is needed.

Procurement planning is essential

Public sector staff are often under pressure to make decisions quickly and show tangible actions. Good procurement planning doesn't need to stand in the way of action.

Many of the matters I have recently raised about procurement processes could have easily been avoided by allowing more planning time at the outset to consider how to get the best ultimate outcome for the public. In my Office's work, we often see that this foundational step is significantly underinvested in or treated as a compliance exercise. Without adequate planning, procurement processes can be delayed, cost more, fail, or later be challenged.

Planning needs to be proportionate to the scale, impact, and complexity of the procurement, and informed by a good understanding of what is to be procured, the market, the risks, and the best approach.

Well-managed conflicts of interest support integrity

Conflicts of interest are common in New Zealand.

Where there is poor management of these conflicts (either real or perceived), serious issues can arise. Poorly managed conflicts can create a perception that procurement processes are unfair and lack integrity. Given this, managing conflicts of interest is a critical area for the public sector to get right.

My Office is frequently asked to look into situations where the people involved in a procurement are thought to have an inappropriate interest in the outcome of the procurement, including at ministerial level. Too often in this work we see inadequate systems to identify conflicts of interest, conflicts of interest not being managed, or conflicts of interest being managed poorly.

There are well-established approaches to managing conflicts, including my Office's own guidance. Public organisations should have a robust approach to identifying and managing risks from actual, potential, or perceived conflicts of interest. This underpins the integrity of public sector procurement decision-making. It is an area all public sector leaders should focus on getting right in their organisations.

Transparency matters

Transparency helps support trust and confidence in the way public procurement is carried out. However, balancing transparency with confidentiality requirements in a procurement process can be challenging.

Much of my Office's published work involves explaining the facts of a situation that have been unclear or not publicly available. Public concerns about integrity can be reduced when organisations clearly set out the processes followed, the results of decisions, and the reasons for making decisions.

When my Office examined 246 examples of urgent emergency procurement from six organisations (between June 2018 and July 2022), we found that only 6% of those procurements published the required contract award notice on the Government Electronic Tender Service. Others have made similar findings about non-urgent procurement processes. We have also seen examples of procurement processes modified after they had begun, and unclear records of reasons for deciding on successful tenderers.

I am encouraged to see that data and transparency is one of three focus areas in the 2022 New Zealand Government Procurement Strategy.¹ Sustained effort will be needed to ensure compliance with the current rules and good practice.

Contract management

Effective contract management ensures that suppliers are delivering what has been paid for and intended outcomes are being achieved. An initially well-run procurement process can be undermined by a lack of monitoring of contract performance, terms, and conditions.

In my Office's inquiry work, we often see cases of relatively small procurements (approved under policy exemptions) expanding into large procurements, incurring significant spending which would normally have required more robust processes. When senior staff are involved in approving such expansions to cost and scope, the public are particularly interested to know the reasons for this and whether it reflects on the integrity of public sector leadership. We also see in our audit work significant areas for improvement in contract management more generally.

Supply chain resilience

Many of the public services that we rely on to keep us safe, protect our livelihoods, and help us recover after an emergency are supported by strategic suppliers. These suppliers provide goods and services that are critical to the delivery of public services and are not easily replaced. In recent years, there have been a number of emergencies that have highlighted issues with supply chain resilience.

In 2021, we found a lack of system-wide visibility of strategic suppliers to government. This makes it difficult to identify and manage the risks of disruption to critical services and to build resilience into these supply chains.

Actions in the New Zealand Government Procurement Strategy provide an opportunity to improve risk management and the system-wide visibility of strategic suppliers. This could support organisations to build a more strategic and resilient supply chain for the public sector and avoid the common "panic then forget" response to emergencies.

Applying the principles of good procurement

There is extensive and well-considered guidance available for the public sector on how to do procurement well. This guidance is supported by five principles for good procurement.²

When dealing with an emergency or looking to innovate, it is likely that the guidance will not always be applicable. In situations where the guidance doesn't directly apply, organisations need to consider how they can continue to uphold the principles of good procurement.

Innovation and new ways of working are critical to an effective and efficient public service. New ways of working with NGOs, community providers, and other suppliers are a key part of improving public services and providing value for money. However, some new and innovative types of procurement have not been widely adopted because staff were not encouraged to take them up or were not confident on how to do it well. In these situations, staff may have been concerned that they would be criticised for operating outside of the rules, even if they were acting within the principles of good procurement.

It is therefore important that those involved in procurement understand the principles of good procurement and are confident applying them in new situations and in times of pressure. It is also important that leaders support them to do this and accept that not all innovation will be successful. If done with integrity, alongside applying good procurement principles, procurement will be consistent with the public's expectations on how public money should be spent.

Improving public sector procurement

Because of my Office's role, we are usually involved where things have not gone to plan rather than when they have. Although this report highlights matters for improvement, we often see public sector procurement that is well-managed and meets the integrity standards that the public expect.

However, many of the issues I have raised are long standing. Our findings repeatedly demonstrate a failure to apply existing procurement policy or adopt best practice. Good procurement does not need to be slow. Done well, it can enable innovation and support value for money.

A refreshed leadership focus on the key elements of good procurement will be essential for making the improvements that are needed. To support this, we have provided questions for leaders to consider in Appendix 1 of this report.

Although the Ministry of Business, Innovation and Employment is a system leader with responsibility for procurement across central government, all senior leaders should lead by example. The tone and expectations set at the top of an organisation are crucial to integrity, promoting good practice, and demonstrating what is seen as acceptable when managing procurement.

I encourage all leaders of public organisations to consider the matters raised in this report and to invest in opportunities for improvement in their organisations.

Nāku noa, nā

John Ryan
Controller and Auditor-General | Tumuaki o te Mana Arotake

22 May 2024

1: New Zealand Government (2022), Procurement for the future: New Zealand Government Procurement Strategy July 2022, at procurement.govt.nz.

2: See "Government procurement principles", at procurement.govt.nz.