Detailed findings from our 2024 follow-up
The Ministry is supporting organisations to increase their capability in managing strategic suppliers
The Ministry has continued making progress with its Supplier Relationship Management work programme. The purpose of the programme is to improve public sector practices and the resilience of supply chains, and to achieve greater value from suppliers.
As part of the work programme, the Ministry has produced guidance and tools to support organisations in managing supplier relationships. This includes tools that help organisations to identify their strategic suppliers and the level of engagement they should have with those suppliers.
The Ministry has improved its ability to manage relationships with suppliers for all-of-government contracts and to support the wider public sector to adopt the Supplier Relationship Management framework (such as through engagement activities and developing a community of practice). The Ministry has done this by establishing:
- a new team of five people to work with organisations in improving their own supplier relationship management practices, supported by guidance and templates. The team also help suppliers engage with the Government; and
- four Supplier Relationship Managers across the all-of-government contracts. The Supplier Relationship Managers drive deliberate and targeted supplier relationships to ensure performance and delivery through the contracts.
The Ministry considers that the capability of individual organisations to manage strategic suppliers has improved. The Ministry has identified which public organisations are doing this well and asked them to run workshops to share good practice with other public organisations. However, the Ministry told us it accepts that there is more work to do to support smaller organisations.
The Ministry requires mandated organisations to assess themselves against the Procurement Capability Index (a tool that organisations can use to rate themselves against a range of specified areas) every year and report the results to the Ministry. This includes an assessment of whether an organisation has identified the suppliers and providers that are critical to delivering strategic outcomes, and whether it understands and uses effective risk management practices to support all procurement activities. The Ministry intends to analyse the results of the organisations’ self-assessments to track their capability to manage strategic suppliers and to identify any aspects that might need further improvement.
In our view, the Ministry’s continued guidance and support of public organisations through its Strategic Relationship Management work programme is positive. We encourage the Ministry to analyse information from the Procurement Capability Index to ensure that it is having the intended effect of supporting organisations to increase their capability in managing strategic suppliers.
The Ministry has been given a stronger mandate for leading government procurement, including to manage strategic supplier risks
In July 2023, Cabinet agreed to give the Secretary for Business, Innovation and Employment the mandate of System Leader for Procurement. This replaced their previous mandate as a Procurement Functional Leader. As System Leader for Procurement, the Secretary has greater and more explicit powers within their mandated functions (see Figure 1) compared to Procurement Functional Leadership.3 This is to enable stronger central oversight, co-ordination, and accountability for procurement in the public sector.
Figure 1: Mandated functions of the Secretary for Business, Innovation and Employment
| Functions | Mandate: The Procurement System leader can: |
|---|---|
| System outcomes | Propose overall outcomes for the procurement system for Cabinet approval. |
| System settings and strategy | Develop, set, and direct organisations to use system-wide frameworks and arrangements that deliver on the outcomes approved by Cabinet, including collaborative contracts, systems, processes, practices, and procedures. |
| Workforce | Lift the capability and capacity of the government procurement profession, which may include setting core competencies. Provide specialist procurement resources, where it makes sense and is efficient for them to be provided centrally and may do so on a cost recovery basis where appropriate. |
| Collaboration | Facilitate opportunities for cross-agency collaboration across the government procurement system. |
| System performance | Require organisations to report and provide data and information necessary as needed in order to monitor system performance and support system-level decision-making. Publish data and information that is in the public interest. Identify areas of agency underperformance or non-compliance (if any), and require the relevant agency to confirm remedial actions. |
| System risk and assurance, including critical issues | Monitor for system, sector, and agency risks and critical issues that may undermine the integrity of the system. If significant or increasing risks are identified, advise relevant organisations and others what actions are required to mitigate them. |
| Cross-cutting | Inform and advise the Minister about procurement system performance and any areas of systemic underperformance. Co-ordinate specified procurement activities across the system. Influence market capacity and resilience. Must be consulted on and agree proposals from organisations to leverage government procurement system wide as a way of meeting their objectives. |
Source: Cabinet paper (July 2023), Report back on the Mandate of the Procurement System Leader, pages 6-7, at mbie.govt.nz.
In our view, these functions give the Ministry a clear role and mandate to support the effective management of strategic suppliers across the public sector. For example, we had observed in our 2021 audit that the Ministry did not have a mandate to co-ordinate risk assessment and management for government strategic suppliers. We consider that it now does because the Ministry is able to require information from organisations to monitor system performance and system risks and inform Ministers about procurement system performance.
The Government has less visibility of strategic suppliers that support a wider range of public services across the public sector
When we completed our 2021 audit, the Ministry required mandated organisations to report key information about significant service contracts. This information had data quality limitations and was not regularly analysed. We recommended that the Ministry improve the reporting tool and regularly analyse and report its findings to the Government to support better management of the risks associated with strategic suppliers.
In October 2022, the Ministry stopped requiring organisations to report on their significant service contracts. The Ministry told us this was because of the pressure on organisations to respond to Covid-19, the effort required by organisations to collect the information, and the limited usefulness of the information being collected.
The Ministry told us that there is other data and intelligence that can be used to identify strategic suppliers across the public sector. These include:
- insights and information from helping organisations with implementing Supplier Relationship Management;
- data on organisations’ spending through all-of-government contracts managed by the Ministry, which can be used to identify suppliers that have been awarded multiple contracts by organisations; and
- post-award notification data on the Government Electronic Tenders Service. This data is publicly available via dashboards for all mandated organisations. The Ministry expects this will increase the quality and quantity of data provided, making it more meaningful in identifying strategic suppliers.
However, each of these sources of information provide only part of the picture. For example, procurement through all-of-government contracts managed by the Ministry is about $3 billion each year.4 This is out of a total government annual spending on third-party goods and services of about $52.5 billion.5
This limits the Ministry’s ability to identify strategic suppliers that support a range of important services across the public sector, and to manage the risks associated with them. Depending on what is collected, aggregated procurement data could enable the Ministry to analyse what services are being bought by which organisations, at what cost, from what suppliers, and the criticality of those goods and services to providing public services. This would allow identification of strategic suppliers for individual organisations, and for the public sector as a whole.
This information would enable the Ministry to ensure that the public sector is actively managing the risks of disruption to services. For example, supporting organisations could collaborate and co-ordinate with each other on contingencies to reduce risks to services if the supplier cannot fulfil their obligations. However, the Ministry observed that organisations do not always have capacity to lead system-wide initiatives like syndicated contracts.
There are other benefits to improving information about government procurement. The Ministry considers that organisations could currently do more to collaborate on procuring goods and services. Aggregated procurement data will help the Ministry to identify opportunities to procure common services and goods more efficiently.
The Ministry is establishing a procurement platform that could provide comprehensive data and intelligence on procurement, including identifying strategic suppliers across the public sector. The Ministry is planning to roll out the platform in a staged approach over several years.
Until the procurement platform is fully implemented, the Government will continue to lack system-wide visibility of strategic suppliers and, therefore, how much it relies on any one supplier. The Government will also continue to lack visibility of the risk of disruption to important public services if a strategic supplier fails. In the meantime, it is important for the Ministry to maintain as comprehensive and complete view as possible of the Government’s strategic suppliers. The Ministry told us that it is yet to make decisions on requiring significant service contracts reporting in 2024, and that it would consider our findings in more detail before proceeding.
3: The Procurement Functional Leader influences the procurement activities of organisations by setting expectations in the Government Procurement Rules, issuing guidance that organisations must consider, and managing the supply of common goods and services.
4: Cabinet paper (July 2023), Report back on the Mandate of the Procurement System Leader, pages 4-5, at mbie.govt.nz.
5: Cabinet paper (July 2023), Report back on the Mandate of the Procurement System Leader, page 4, at mbie.govt.nz.