Appendix 2: Good procurement and contract management practice

Oranga Tamariki: Inquiry into procurement and contract management.

In this Appendix, we discuss:

  • what we mean by procurement and contract management;
  • why good procurement and contract management is important;
  • what good looks like; and
  • additional considerations about social services and te Tiriti o Waitangi.

What we mean by procurement and contract management

Procurement is the process that public organisations use to acquire goods and services to support their work. Procurement is more than just "buying something". It includes all the processes involved in public organisations planning what they need, acquiring goods and services, and subsequently managing the ongoing delivery with the provider of the goods and services.

Contract management is a critical stage of the procurement life cycle. We use the term "contract management" to describe activities that take place once goods and services have been sourced and those goods and services have been delivered. It covers creating the contract, executing it, monitoring and analysing performance under it, and managing relationships.

Good procurement and contract management is important

Procurement that achieves the public organisation's strategic intent and is managed well throughout the process can deliver more effective and efficient public services that improve outcomes for New Zealanders.

Effective contract management also contributes to effective and efficient public services by ensuring that:

  • the business benefits that were expected from the contract are realised;
  • all parties to the contract meet their respective obligations;
  • issues and risks are identified in enough time to be resolved or mitigated;
  • the likelihood of disputes with suppliers is minimised; and
  • suppliers are prepared to enter into future contracts.33

Although these considerations have a strong emphasis on process, managing those processes well has a direct link to substantive outcomes for public organisations and – more importantly – the people and communities they serve.

Good practice for public organisations

We have identified the following key principles that apply to the use of public resources, including procurement and contract management:

  • Accountability – Public organisations should be accountable for their performance and be able to give complete and accurate accounts of how they have used public funds, including funds they have provided to others for particular purposes. They should also have suitable governance and management arrangements to oversee funding arrangements.
  • Openness – Public organisations should be transparent in how they administer funds, both to support accountability and to promote clarity and a shared understanding of the respective roles and obligations of organisations and any external parties entering into funding arrangements.
  • Lawfulness – Public organisations must act within the law and meet their legal obligations.
  • Value for money – Public organisations should use resources effectively, economically, and without waste, with due regard for an arrangement's total costs and benefits and its contribution to the outcomes they are trying to achieve. Where practical, this might involve considering the costs of alternative supply arrangements.
  • Fairness – Public organisations have a general public law obligation to act fairly and reasonably. Public organisations must be, and must be seen to be, impartial in their decision-making. Public organisations might also at times need to consider the imbalance of power in some funding arrangements and whether it is significant enough for them to need to conduct the relationship in a different way.
  • Integrity – Anyone who is managing public resources must do so with the utmost integrity. The standards applying to public servants and other public sector employees are clear, and public organisations funding other organisations need to make clear that they expect similar standards from them.

These principles are similar to the principles of Government Procurement. Those principles apply to all procurement activity by government agencies and are embedded in the New Zealand Government Procurement Rules.34

To apply these principles, a public organisation needs to take a strategic approach to procurement and contract management that demonstrates its knowledge of the services it needs to procure.

It must also:

  • have good policies and procedures to guide its decision-making;
  • set out clear roles, responsibilities, and processes for decision-making and oversight;
  • have performance measures that are linked to the intended outcomes;
  • have robust processes to monitor supplier performance;
  • pay providers promptly; and
  • plan for the end of a contract and facilitate a smooth transition of services.

Additional considerations about social services and te Tiriti o Waitangi

Social services play a vital role for the public, including supporting the most vulnerable and disadvantaged people in New Zealand.

We recognise that procurement and contract management with social services can be difficult because:

  • there might be few suppliers of a service;
  • service providers might be small and have limited resources;
  • services can be complex and assessing their quality can be difficult;
  • people using the service might have multiple and complex needs;
  • demand for services is not always consistent; and
  • government budgeting processes and accountability mechanisms often use prescriptive contracts, a short contract period, and onerous reporting requirements.35

In 2021, the Government agreed to adopt a relational approach to commissioning from the social sector in the Social Sector Commissioning 2022–2028 Action Plan (the Action Plan).

Oranga Tamariki is one of the public organisations that the Action Plan applies to. The Action Plan aims to transform how public organisations commission social services, including by putting trusted, meaningful relationships at the heart of commissioning with the social sector.

The Action Plan includes principles that align with our Office's good practice guidance (for example, a focus on transparent decision-making and grounding the work in the needs of the people being served). The Action Plan also emphasises shared accountability and outcomes, ensuring the sector's sustainability, and enabling individuals, whānau, and communities to exercise choice.

The Action Plan has a strong emphasis on giving practical effect to te Tiriti o Waitangi, including that partnership, equitable outcomes, and self-determination of whānau, hapū, and iwi are key principles that the sector can work towards together.

33: See "Contract management" at auditnz.parliament.nz.

34: See procurement.govt.nz.

35: See New Zealand Productivity Commission (2015), More effective social services, at treasury.govt.nz.