Part 4: Preparing a contracted services plan for 2024/25

Oranga Tamariki: Inquiry into procurement and contract management.

4.1
In this Part, we describe how Oranga Tamariki prepared its contracted services plan for 2024/25.15 We discuss:

  • how Oranga Tamariki planned to reduce spending on contracts in 2024/25;
  • concerns that were raised about a lack of progress with the 2024/25 contracting round;
  • how Deputy Chief Executives reviewed the investment plan to make recommendations; and
  • the decisions about the contracting round that Oranga Tamariki made in late June and its notification to providers whose contracts expired on 30 June 2024.

Planning to reduce spending on contracts in 2024/25

4.2
In February 2024, Oranga Tamariki identified that, to achieve its baseline savings, it would need an "annual reduction of at least $30 million in contracted spending budgets". Te Riu considered ways to reach this target.

4.3
The first approach involved setting an overall regional budget that matched the level of baseline savings needed, enabling regional staff to determine the right mix of services in the area. Māori, Partnerships and Communities advised that this would need strong controls and that there were several risks (for example, that regional staff would make decisions without an investment strategy).

4.4
The second approach involved addressing "inefficiencies in national legacy programmes" such as Family Start, Services in Schools, Gateway, Targeted Supports post-Gateway, and Strengthening Families.16

4.5
Oranga Tamariki told the Minister in March 2024 that these national programmes cost about $100 million a year. Recent reviews of them suggested that they had one or more of the following features:

  • low utilisation rates;
  • poor evidence of outcomes;
  • misalignment with the new strategic direction for Oranga Tamariki; or
  • potential duplication of services with other agencies.

4.6
A Cabinet paper in May 2024 emphasised that Oranga Tamariki needed to develop its proposed changes to these programmes with other agencies involved in the programmes. Staff told us that they did not engage further with other agencies after the Cabinet paper or before Oranga Tamariki made decisions about contracts for 2024/25.

4.7
In February 2024, Te Riu also decided to discontinue Fee for Service arrangements and transition providers under these arrangements to an Outcome Agreement, where possible and appropriate. This was intended to provide more predictability about the cost of these services and meant that all contracted services would be covered by a single budget.

Reduced budget envelope for 2024/25

4.8
To meet its baseline savings targets, Oranga Tamariki decided to reduce its contracted services spending by $60 million in 2024/25.

4.9
Oranga Tamariki set its internal budget envelope for contracted services in 2024/25 at $400 million, compared to the $490 million set in 2023/24. The 2024/25 budget was intended to allow for other anticipated expenses and priorities, such as social sector pay equity, the Enabling Communities project,17 and the transition from Fee for Service arrangements to Outcome Agreements.

4.10
Taking these factors and other adjustments into account, the then Chief Financial Officer said that the budget represented a reduction of about $82.6 million for 2024/25. The Chief Financial Officer also said that there were options to close the $22.6 million gap between the estimated reduction and the intended $60 million reduction Oranga Tamariki had agreed on.

4.11
We found it difficult to reconcile these numbers with other estimated spending in the contracting round, and Oranga Tamariki had not settled its total spending on contracts for 2024/25 when we prepared this report.

Oranga Tamariki formally notified providers of the contracting round in March 2024

4.12
As mentioned in paragraph 3.9, Oranga Tamariki wrote to providers on 27 March 2024 to update them on the 2024/25 contracting round and related work. The letter for providers whose contracts expired on 30 June 2024 said that Oranga Tamariki was forecasting its needs, that it wanted to start discussing the future of their contracts "over the coming weeks", and that it could not "guarantee the on-going funding of services".

4.13
An email to all providers stated that "the well-being and best interests of children and young people are the first and paramount consideration in everything we do". It also said that contracting would focus more on performance and outcomes, in line with the Minister's expectations.

4.14
We understand that some providers had been given informal notice of these communications earlier. However, for many providers, this was the first communication from Oranga Tamariki about the 2024/25 contracting round.

4.15
Te Pai Ora SSPA and Oranga Tamariki also arranged an online hui, attended by more than 180 providers, to hear directly from Oranga Tamariki about the contracting round.

Regional staff input sought in April and May 2024

4.16
On 8 April 2024, National Office staff asked regional teams to provide investment proposals setting out which services should be continued, discontinued, or reduced in 2024/25. National Office provided regional staff with guidance and data to help them prepare these regional plans.

4.17
The guidance for regional staff set out three investment priorities, which were:

  • children receiving statutory services and supports (must have);
  • partnered responses (must have); and
  • prevention and early support (would like to have).

4.18
The data given to regional office staff to help inform their advice included:

  • the total number of children in the region based on 2018 census data;
  • children-in-need data from 2021; and
  • an indication of service volumes in the regions.

4.19
National Office determined that, due to budget sensitivity, regional staff could not be told about the contracted services budget for 2024/25.

4.20
National Office asked for the regional plans to be submitted by 12 April 2024. This effectively gave regional staff one week to review the relevant contracts in their region and make recommendations. National Office then collated the recommendations.

4.21
Each region provided the same core information. It included the provider's name; a description of the service; the 2023/24 contracted service volumes, rates, and total spend; and a recommended approach to the contract for 2024/25.

4.22
Some regions provided little or no commentary to explain their recommendation. Others explained why the service was needed, why it could be reduced, or the risks associated with reducing funding. However, not even the most detailed responses had a supporting rationale for every recommendation.

4.23
Oranga Tamariki told us that the collated regional investment proposals exceeded the indicative $400 million budget by about $20 million.

4.24
On 19 April 2024, National Office asked the regional teams to look again at the guidance it had provided on 8 April 2024 and review their regional investment plans accordingly. However, despite National Office's hope that the regional plans would propose savings, the total proposed funding in the revised regional plans increased to about $491 million.

4.25
At this stage, of 559 identified providers, Oranga Tamariki estimated that:

  • 108 providers would have all contracted funding discontinued;
  • 233 providers would receive reduced funding;
  • 170 providers would have no change to their 2023/24 funding;
  • 43 providers would receive an increase in funding; and
  • five new providers would be contracted for 2024/25.

4.26
An update to Te Riu in May 2024 said that proposed funding exceeded the budget.18 The update also included an appendix setting out more specific funding changes for programme areas (such as care, care support, early support, family and sexual violence services, strategic partnerships, and prevention).

4.27
The update did not include any specific information about risks to, or opportunities for, providers or the community, including the impact of the decisions on children. However, it did say that "In the absence of a system that makes clear the specific needs of tamariki and whānau to inform investment decisions, regional teams are best placed to understand those needs."

Central Contracting Team established

4.28
On 29 May 2024, the then Chief Investment Advisor raised concerns about the lack of progress on the contracting round with the Chief Executive. The Chief Investment Advisor had raised similar concerns before, including in formal weekly updates from March 2024. For example, an earlier update of 27 March 2024 raised concerns about a lack of planning for the contracting round, overdue payments, and noted he was seeking access to data on reconciliations. The update of 29 May 2024 reiterated similar concerns and emphasised that there were only four weeks until the end of the financial year and decisions had still not been made.

4.29
The Chief Investment Advisor advised the Chief Executive that delaying the decisions would cost "tens of millions". This was largely because of the need to fund transition periods for providers into 2024/25. Earlier decisions could have allowed Oranga Tamariki to exit the contracts by 30 June 2024.

4.30
The Chief Investment Advisor recommended setting up a central team to provide "instruction rather than engagement or consultation with staff to implement purchasing decisions". The Chief Executive agreed that there was a "need to come over the top now" and asked the Chief Investment Advisor for further advice on this approach.

4.31
The Chief Executive signed new instruments of delegation on 4 June 2024 that transferred responsibility for the contracting round to the Central Contracting Team. Te Riu was informed on 5 June 2024.

Deputy Chief Executives' review of the investment plan

4.32
Because the regional staff's proposed funding exceeded the budget, a small group of Deputy Chief Executives went through the contracted services plan line by line over several days to recommend which services to continue, discontinue, or vary.

4.33
Oranga Tamariki provided us with a picture of a whiteboard from the meeting room that set out the decision-making factors for contracts that the Deputy Chief Executives referred to during the line-by-line review. Deputy Chief Executives had information on utilisation levels for the services, and we understand that National Office staff provided support during this process.

4.34
However, no minutes of the Deputy Chief Executives' discussions were taken, and the reasons for decisions about particular service lines were not formally recorded. We are not aware that staff gave any formal briefings or advice to support these discussions, and Oranga Tamariki did not provide us with any.

4.35
We also understand that regional staff had no further input into this process, despite Māori, Partnerships and Communities previously stating that regional staff were best placed to understand the impact of decisions on children and their families.

4.36
The Deputy Chief Executives completed their line-by-line review on 6 June 2024. On 7 June 2024, Māori, Partnerships and Communities gave the contracted services plan to the Chief Investment Advisor. It also provided a handover document containing key information and links to various documents and spreadsheets about reconciliation work and the 2024/25 contracting round.

4.37
The handover document said that, at this point, the projected budget for 2024/25 was about $393 million. This represented a reduction of almost $100 million from the revised regional proposals. However, the estimated impacts on providers did not appear to have been updated from when the revised regional funding proposals were prepared to take the reduced funding into account.

4.38
On 9 June 2024, the Chief Investment Advisor provided an analysis of the contracted services plan to the Chief Executive. The Chief Investment Advisor said that the plan did not set out:

  • the purchasing choices available to Oranga Tamariki;
  • how decision criteria had been applied;
  • how the decisions linked to policy settings, fiscal sustainability requirements, and the Enabling Communities programme of work;
  • the preferred approach's benefits and risks; or
  • how the plan aligned with the approach communicated to the Minister and Cabinet.

4.39
The analysis also modelled several different scenarios to understand potential budget implications. The Chief Investment Advisor estimated that, under each scenario, there would be a likely budget shortfall of millions of dollars, even if mitigations were put in place.

Decisions about contracts expiring on 30 June 2024

4.40
The Central Contracting Team was set up on 10 June 2024 and took on responsibility for the 2024/25 contracting round. It was a multidisciplinary team from throughout Oranga Tamariki, including legal and finance support.

4.41
On 11 June 2024, the Central Contracting Team emailed providers about the indicative timeline for the contracting round. The email stated that Oranga Tamariki would write to all providers with expiring Outcome Agreements in the next two weeks and that it would also write to those providers whose current arrangements Oranga Tamariki wanted to change.

4.42
The email said that Oranga Tamariki intended to have contracts in place in July 2024. It also said that, if this was not possible, then Oranga Tamariki would continue to purchase the services on the understanding that:

  • either party can terminate the service that was due to expire with 30 days' notice until such time as the new Outcome Agreement or variation is executed; and
  • funding for the services will be payable in accordance with the terms of the new Outcome Agreement or variation, upon its execution.

4.43
The Central Contracting Team carried out further work during June 2024. This included:

  • providing regular updates to the Chief Executive and Te Riu;
  • providing a brief update to the Minister on progress most days between 10 June and 4 July 2024;
  • segmenting providers into categories based on their 2023/24 funding (excluding pay equity) – large (more than $3 million), middle, or small (less than $0.2 million); and
  • engaging with some large providers and Te Pai Ora SSPA on 25 June 2024 to discuss the approach to the contracting round and concerns from the sector.

4.44
On 24 June 2024, the Central Contracting Team gave the Chief Executive a memorandum setting out an approach to deciding about contracts and communicating that decision to affected providers. We understand that, to help prepare this memorandum, the Chief Investment Advisor directed members of the Central Contracting Team to contact regional managers to ask about risks associated with allowing contracts to cease.

4.45
The memorandum mainly focused on contracts that were set to expire on 30 June 2024. In particular, the memorandum set out the contracts Oranga Tamariki did not intend to renew on 30 June 2024 and sought agreement to inform the affected providers. The memorandum said that the team had not identified any risks with ceasing these contracts, although it did not state exactly how Oranga Tamariki had determined this (for example, what type of risks had been considered).

4.46
The memorandum recommended renewing other contracts that were due to expire on 30 June at their current level (for example, because regional managers had identified risk with ceasing the contract or there was a need to maintain programmes that aligned with Government priorities), or varying the contracts to their 2023/24 utilisation levels.

4.47
The Central Contracting Team recommended that, after it had notified providers with expiring contracts, it should consider contracts that were not expiring on 30 June 2024 that Oranga Tamariki wanted to cease.

4.48
The Chief Executive agreed to the memorandum's recommendations on 25 June 2024.

Informing providers with expiring contracts

4.49
The Central Contracting Team began to notify providers whose contracts were expiring on 30 June 2024 about the decisions Oranga Tamariki had made.

4.50
Letters communicating the decisions were sent on 27 June 2024. The next day was a public holiday for Matariki, followed by the weekend of 29-30 June.

4.51
Documents from Oranga Tamariki show that 29 providers with contracts expiring on 30 June 2024 were notified on 27 June 2024 that their contract would not be renewed. We understand that these contracts were worth about $3.9 million in total. The timing of the notification meant that these providers were effectively given several working hours' notice of the decision not to renew their contract. The emails notifying providers that we have seen were generic and did not explain why Oranga Tamariki would not renew the contracts.

4.52
Some providers whose contracts ended on 30 June 2024 told us that they had heard earlier that year that Oranga Tamariki might make changes and could not guarantee funding for expiring contracts. However, when they heard nothing further, they were taken by surprise when their contracts were not rolled over as had been the practice in previous years. We were told this included providers who had contracted with Oranga Tamariki (and its institutional predecessors) for many years and had not been given any indication that it had concerns about their performance.

4.53
Oranga Tamariki also notified the remaining providers whose contracts expired on 30 June 2024 and who it wanted to continue contracting with.

4.54
This email reaffirmed that, because new Outcome Agreements would not be in place by 1 July 2024, Oranga Tamariki would continue to purchase services within the scope of providers' expiring Outcome Agreements, on the understanding that either party could "terminate any service that was due to expire with 30 days' notice".

4.55
Oranga Tamariki indicated that it would communicate on 1 July 2024 whether it wanted to renew some of the services in full or vary them.

Central Contracting Team disestablished

4.56
On 4 July 2024, the Chief Investment Advisor raised concerns about difficulty getting access to Māori, Partnerships and Communities staff to support the contracting round. He informed the Chief Executive that the contracting round could not be completed under these circumstances.

4.57
We understand that, at this point, the Chief Executive decided that responsibility for the contracting round should return to Māori, Partnerships and Communities. Its title after the organisational restructure was Enabling Communities & Investment.

4.58
The Chief Investment Advisor provided a handover to staff in the Office of the Chief Executive and resigned effective 5 July 2024. The Minister for Children was notified on 12 July 2024 that the Deputy Chief Executive, Enabling Communities & Investment was "now leading the provider work".

4.59
We understand that the Central Contracting Team was not formally disestablished at this time and that some of its staff continued to support Enabling Communities & Investment. However, we also heard that, from this point, there were fewer opportunities for staff from some teams (particularly the legal team) to contribute to the contracting round.

Further decisions about contracts in July 2024

4.60
On 12 July 2024, the Deputy Chief Executive, Enabling Communities & Investment wrote to all remaining providers with expired contracts.

4.61
The letter stated that "provisions were made to extend services for four weeks to ensure services continue to be provided at the levels described in your expired Outcome Agreement". We understand that this was a reference to the ability for either party to terminate any service with 30 days' notice, which earlier communications to providers had mentioned.

4.62
Enabling Communities & Investment prepared two sets of advice for the Chief Executive. These briefings did not explicitly refer to the previous advice from late June 2024 (see paragraphs 4.40-4.48) or continue the approach of segmenting providers. We understand that advice and decisions from this point were based instead on the contracted services plan prepared by Deputy Chief Executives in early June.

4.63
Oranga Tamariki made its first set of decisions on 16 July 2024. They included:

  • releasing payments due on 20 July 2024 to providers who were currently "in contract" with no changes to services or who received Tākai (previously SKIP)19 grant funding;
  • drafting Outcome Agreements for, and engaging with, providers that Oranga Tamariki wanted to continue contracting with; and
  • agreeing a notice period of three months for the 29 providers who received formal notice that their services were no longer needed.

4.64
Oranga Tamariki made its second set of decisions on 19 July 2024. They focused on:

  • reducing or discontinuing services, including services under contracts that did not expire on 30 June 2024; and
  • drafting Outcome Agreements for, and engaging with, providers to give effect to decisions to reduce or discontinue services.

4.65
The briefing in the second set of advice said that staff had reviewed and analysed all contracts and service lines. It also that the Chief Financial Officer and the Deputy Chief Executives of Enabling Communities & Investment, Tamariki and Whānau Services (formerly Service Delivery), and Residences and Homes had endorsed the proposals.

4.66
The briefing stated that total 2024/25 contracted services funding was $423.26 million and provided a breakdown of this spending. The briefing did not discuss how this aligned with the previous budget of $400 million, its impact on providers, or its implications for children, young people, and their families.

Figure 1
Contracted services funding for 2024/25, as at 19 July 2024

Category of contracted service Funding
$ million		 Percentage of funding
Early support 131.81 31.0
Care 117.04 28.0
Care support 64.91 16.0
Youth justice 33.48 8.0
Transitions 26.03 6.0
Strategic partnerships 22.54 5.0
Family violence and sexual violence 9.81 2.0
Intensive intervention 8.97 2.0
Prevention 4.75 1.0
Enabling communities 3.92 1.0
Total $423.26m 100%

Source: Data provided by Oranga Tamariki.

4.67
The briefing said that funding had been set aside for matters such as additional care capacity if needed, social sector pay equity, maintaining funding for family and sexual violence services, and a notice period for those services Oranga Tamariki was exiting in 2024/25.

4.68
The final budget amount in the contracted services plan for 2024/25 was about $429 million, excluding pay equity, transitional or support funding, and other projected expenditure.20 The excluded expenditure totalled almost $100 million, bringing the projected total cost to $529 million.

15: We use the phrase "contracted services plan" to refer to decisions Oranga Tamariki made about which providers it would contract with in 2024/25, the services it intended to contract, and the cost of these services.

16: Family Start is an early home visiting programme. Services in Schools include Social Workers in Schools, Multi-agency Services in Secondary Schools, and Youth Workers in Secondary Schools. Gateway is specialist assessment that aims to comprehensively identify children and young people's needs and develop a co-ordinated plan to meet those needs. Targeted Supports post-Gateway are primary-level mental health services, alcohol and drug services in residences, and support services for children with a diagnosed disability or mental health disability and/or their primary caregiver. Strengthening Families is a programme for vulnerable whānau with tamariki who need support, where a co-ordinator helps to co-ordinate government services.

17: The Enabling Communities project describes the work Oranga Tamariki engaged in to decentralise its funding and functions to te Tiriti o Waitangi and community partners.

18: This was provided in an update to Te Riu dated 24 May 2024, and was minuted at the Te Riu Governance Hui on 28 May 2024.

19: SKIP is Strategies for Kids, Information for Parents.

20: The information provided to us did not explain the variance between the figure presented in the 19 July 2024 briefing ($423 million) and the final contracted services plan ($429 million). However, we understand that there were some relatively minor adjustments to the plan after it had been approved.