Decision not to inquire into procurement practice at Housing New Zealand Corporation

In April 2012, the Auditor-General received two requests to investigate procurement practice at Housing New Zealand Corporation (HNZC). The requests followed a newspaper report about allegations that a manager at HNZC had been inappropriately pressured to award a contract to a particular company. Concerns raised with us included that HNZC might be acting outside the tendering requirements for government departments and its own policies, that there may need to be more transparency around urgent procurement activity relating to the Christchurch earthquakes, and that HNZC had not properly investigated the particular allegations.

We obtained background information from HNZC to enable us to assess these concerns. We have concluded that the particular matter does not warrant further investigation by this Office, for the reasons set out below. However, we are taking account of the general concerns as we plan our ongoing programme of work to provide assurance about how public money is being used as Christchurch is rebuilt. Our programme includes specific audit work on how well public sector entities are managing procurement during the rebuilding.

As a first point, we note that HNZC is a Crown entity rather than a government department. This means that it is not bound by the mandatory rules approved by Cabinet for departments, which set specific rules on how and when contracts must be put to tender. We therefore assessed HNZC’s actions against its own policies and general principles of public sector procurement.

HNZC owns many properties around the country and has a well-established set of arrangements with contractors to maintain those properties. The earthquakes repeatedly damaged many of HNZC’s properties in Canterbury, creating additional work. That work included urgent repairs to restore basic health and safety requirements, other less urgent repair work, and work to close up properties that were no longer habitable and to keep them tidy.

HNZC either extended existing contracts or reached new agreements directly with suppliers to get this work done. Its policies enable direct procurement, without any tender process or similar, so long as there is a justifiable reason and the decision is properly authorised. We are satisfied that the urgency and nature of the work meant that it was sensible for HNZC to make direct approaches to suppliers after the earthquakes rather than to use ordinary market-based processes. HNZC took steps to ensure that prices for the additional work were reasonable, usually by linking to existing contract schedules and pricing. We have also confirmed that the use of direct procurement was short-term. HNZC has reverted to open procurement processes for future repair work in Christchurch.

We have seen no evidence supporting the suggestion of inappropriate pressure to award contracts to particular providers. We have not been able to identify a past or proposed contract that matches the description of the contract described in the original newspaper article. We also confirmed that HNZC had taken reasonable steps to investigate the concerns when they were first raised.