Auditor-General's overview

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

Oranga Tamariki – Ministry for Children is responsible for caring for and protecting some of New Zealand's most vulnerable children. However, it cannot do its job without help and so it contracts with social service providers to deliver services to children and families in need.

These contracts are worth about half a billion dollars each year.

It is crucial that Oranga Tamariki manages these contracts well. Failing to do so might result in children and their families not receiving the support that they need when and where they need it.

If contract decisions are not supported by a sound process, relevant information, and clear decision-making criteria, it is unlikely that contracted services can achieve the desired outcomes for children and value for money for the public. Any perceived failures from this process affects public trust and confidence in critical public services.

In July 2024, concerns were raised with my Office about contract management, particularly the contracting decisions for 2024/25. These services are critical for children and their families, involve significant public spending, and managing the contracts for them poorly could undermine public trust. Given this, I decided to inquire into the concerns that had been raised.

What happened in the contracting round

In 2023/24, Oranga Tamariki spent about $537 million contracting with about 550 providers of a broad range of services. About one-third of these contracts were due to expire on 30 June 2024.

Before the 2024/25 contracting round, Oranga Tamariki was aware of issues with its procurement and contract management practices. It had also identified financial pressures in its contracted services budget and was forecasting that its 2023/24 spending would go over budget. It had started work to address these issues, but it had not implemented improvements before it began the 2024/25 contracting round.

In November 2023, the Minister for Children directed Oranga Tamariki to refocus its spending on its core functions and activities. The Government also directed Oranga Tamariki to achieve financial savings of 6.5% from its overall budget.

To contribute to these savings and address financial pressures, Oranga Tamariki considered ways to reduce its spending on contracted services.

As part of this process, Oranga Tamariki decided to fully recover any funding that it considered providers had not spent on services (known as reconciliation). Previously, Oranga Tamariki had generally allowed providers to retain funding even if they had not achieved 100% of all contracted measures. For example, providers could move funding from under-utilised services to over-utilised services to meet demand.

Oranga Tamariki did not provide adequate advance warning of this change in practice. Providers were taken by surprise and the reconciliation process did not go smoothly. Reconciliation occurred at the same time as the 2024/25 contracting round and drew the focus of Oranga Tamariki away from decisions about what services it wanted to contract in the future.

In February 2024, Oranga Tamariki also decided to reduce spending on contracted services in 2024/25 by about $60 million. To achieve this, it sought to review its entire contracted services budget, including contracts that were expiring on 30 June 2024 and multi-year contracts that were not due to expire.

Oranga Tamariki sought input from its regional staff. However, in the end, senior staff in its National Office made top-down decisions about the contracting round. It was unclear how regional staff's input informed those decisions.

Oranga Tamariki also made decisions late in the process. It did not adequately document the decisions' rationale, or any risks associated with them. We did not see evidence that Oranga Tamariki understood how its decisions would affect children and their families. Decision-making documents did not include information about the consequences for children of funding reductions or whether the reductions could jeopardise providers' financial viability or their ability to provide services for other public organisations.

Oranga Tamariki communicated its decisions to providers late and without enough advance notice. For example, on 27 June 2024 it informed providers whose contracts were set to expire on 30 June 2024. Because of the long weekend for Matariki, those providers effectively had only several working hours' notice that Oranga Tamariki would not renew their contracts. Oranga Tamariki also did not give providers clear reasons why it had made its decisions.

Oranga Tamariki placed the onus on providers whose contracts were expiring or being discontinued to transition children and their families to alternative providers. However, it did not provide adequate support or information to facilitate this process. In some instances, Oranga Tamariki continued to refer children and their families to providers whose services it was discontinuing.

Other matters complicated the contracting round. Oranga Tamariki carried out a major organisational restructure at the same time, and this affected its communication and relationships with providers. At short notice and late in the process, it transferred responsibility for the contracting round away from, and then back to, the team that originally led the work.

Negotiations to vary and exit from contracts continued well into 2024/25. Providers continued to experience difficulties getting clear, timely responses from Oranga Tamariki. Oranga Tamariki used threats of termination and did not pay some providers, which put pressure on them to agree to vary their contracts.

Oranga Tamariki was still carrying out the contracting round when we wrote this report. In early 2025, the Minister for Children asked Oranga Tamariki to pause its review of contracts and extend certain contracts until 31 December 2025. It was working through this request's implications when we prepared this report.

Our findings

Oranga Tamariki was entitled to make decisions about which services it wanted to purchase, including deciding to discontinue services or enter negotiations to vary contracts. It is also important to monitor providers' performance to ensure that public money is being spent in keeping with the contract.

I recognise the challenges that Oranga Tamariki faced and do not doubt that Oranga Tamariki intends its spending to benefit the children who need it and that it wants to target this spending well.

Providers also told us that they understood that Oranga Tamariki was in a difficult situation and that it could not guarantee them funding.

However, Oranga Tamariki was poorly prepared to carry out the 2024/25 contracting round. It did not have a strategic approach to procurement and contract management that was informed by a comprehensive understanding of providers, their services, or most importantly the needs of children and their families. It had not made material improvements to its contracting practices despite being aware of issues with them for some years.

Oranga Tamariki did not plan the contracting round well and left its decision-making until late in the process. It documented its decision-making poorly and its decisions were not adequately informed by evidence of how they would affect children and their families.

The effects of decisions on children and their families are still not known. Given that this is the core role of Oranga Tamariki, it is unacceptable for it to be in this situation.

Many other aspects of procurement and contract management during the 2024/25 contracting round were not in line with good practice. For example, Oranga Tamariki did not demonstrate good practice in:

• setting performance measures and monitoring performance;
• paying promptly for services that had been provided, including ongoing delays in passing on social sector pay equity funding to providers;
• negotiating changes to, and planning to exit from, contracts; and
• managing its relationships with providers and te Tiriti o Waitangi partners.

In addition, Oranga Tamariki was slow in, or resistant to, acknowledging responsibility for errors. At its worst, its public statements appeared to blame providers for a situation that was fundamentally its responsibility.

I consider that these failures have harmed trust and confidence in Oranga Tamariki. In my view, Oranga Tamariki could have avoided many of the issues that arose in the contracting round if it had robust procurement and contract management systems. Oranga Tamariki needed to place as much emphasis on managing contracts and relationships with suppliers well as it did on procuring the services in the first place.

Public organisations need to actively demonstrate that they can act as a trusted partner, including when they have made explicit commitments to partners and providers about te Tiriti o Waitangi. They need to have sound ethical judgement, do what they say they will do, accept where they have made mistakes, and take steps to improve.

I consider that Oranga Tamariki fell short of these expectations in the 2024/25 contracting round.

I acknowledge that Oranga Tamariki had commissioned a review of the contracting process and begun work to improve its procurement and contract management practices. However, it needs to make significant and urgent improvements to address the concerns outlined in this report.

Concluding remarks

I thank Oranga Tamariki, providers, and the many others who contributed information to this inquiry, including iwi and community representatives and staff in other public organisations, for their time in assisting us with this inquiry.

My Office intends to monitor these issues closely and follow up with Oranga Tamariki as it makes improvements in response to this report's recommendations.

Nāku noa, nā

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

8 May 2025