Response to the Ministry of Health

10 November 2021

Dr Ashley Bloomfield
Director-General
Ministry of Health

Tēnā koe Dr Bloomfield

MINISTRY OF HEALTH’S PROCUREMENT FOR COVID-19 SALIVA TESTING SERVICES

As you are aware, concerns were raised with us regarding the Ministry of Health’s procurement of Covid-19 saliva testing services. Those concerns were broad and included:

the Ministry’s decision not to appoint an external probity auditor to support the procurement;
the Ministry’s management of probity during the procurement;
the Ministry’s choice of members for its procurement panel and management of conflicts of interest;
the communication provided to tenderers throughout the procurement process, particularly regarding delays;
the possibility of a pre-determined procurement outcome;
the provider the Ministry selected to deliver saliva testing, and the delays in announcing this;
the slow pace at which saliva testing was procured as part of the public health response; and
the slow pace at which saliva testing is being implemented despite the urgency surrounding the procurement.

As a result of these concerns, we met with Ministry staff and sought information about aspects of the procurement so we could understand how it was managed and how final decisions were made. We also looked at the internal assurance review of the procurement process carried out by the Ministry. The review outlined opportunities, and an intention for improvement in the Ministry’s procurement practice. The Ministry told us it is taking steps to improve how it manages future procurements.

Having reviewed information from the Ministry, we consider further inquiry is not warranted at this time. However, I have identified serious concerns about aspects of how this procurement was managed that we outline in this letter.

Background

On 12 March 2021, the Ministry issued a Request for Proposal (RFP) seeking suitably accredited suppliers of end-to-end saliva testing services to be used mainly at the border. The Ministry required the successful supplier/s to have the capability to have tests processed by a laboratory with Independent Accreditation New Zealand (IANZ) accreditation to ISO 15189 for Covid-19 polymerase chain reaction testing (specifically using saliva as the sample). It was a pre-condition in the RFP that the supplier would either already have this accreditation or be reasonably able to achieve this by mid-April 2021.

We note from the Ministry’s records that the expected cost of procuring this service was more than $50 million. In my view, this was a significant procurement from both a financial and service delivery perspective.

On the basis that the Ministry considered saliva testing was needed urgently as part of the Covid-19 response, officials prepared an internal exemption memorandum that sought approval to reduce the time the RFP was in the market from a minimum period of 25 business days (as stated in the Government Procurement Rules) to 10 days. The RFP closed on 26 March 2021.

One of the main requirements of the RFP was that the successful supplier would be able to fully begin saliva testing by mid-April 2021. The Ministry told us that it had anticipated that the requisite policy work, and sector engagement necessary to support implementation of saliva testing, could take place at the same time as the RFP process.

The Ministry established a five-member panel to consider the responses and make a final recommendation of preferred supplier/s to the Ministry’s leadership team. To carry out this consideration, the RFP provided formal evaluation criteria to assess the suppliers’ end-to-end service delivery model (weighted at 40%), track record (40%), and technical requirements (20%). We saw evidence that the panel assessed all suppliers against these criteria and provided debriefs to unsuccessful suppliers (where they requested them) explaining their final scores.

The Ministry told us it took longer than expected to assess the responses it received because of their size and detail. There were also delays in getting appropriate internal approval to proceed. On 21 April 2021, the Ministry announced that it had chosen a preferred supplier. On 26 May 2021, a government media announcement confirmed that Asia Pacific Healthcare Group (APHG) was the successful tenderer. The Ministry told us that it ensured that APHG had the necessary IANZ accreditation before it entered into the contract.

The internal assurance review

After the procurement was completed, the Ministry carried out an internal assurance review. On 10 June 2021, it issued a report to the Director-General of Health and the Deputy Director-General Corporate Services outlining the findings of the review. The review highlighted opportunities for improvements in the Ministry’s procurement practice, including having:

a clearly documented conflict of interest management plan for all actual and perceived conflicts of interest;
more proactive and timely communication with respondents when providing updates towards the end of the procurement process; and
consideration of the impact on respondents by providing updates to all parties on issues, particularly where time frames have changed.

We note these recommendations were endorsed by the Deputy Director-General Corporate Services.

Our comments on the procurement

We have some additional comments on the aspects of the procurement we reviewed.

Absence of a procurement plan

There was no procurement plan for this procurement. Ministry staff told us this was because the Ministry considered the procurement was urgent, the RFP was simple, and the policy work and sector engagement that would underpin the procurement could happen alongside the RFP process.

Ministry staff also told us that the information that would have been in a procurement plan was included in either the internal exemption memorandum or the RFP document, or was discussed verbally.

The Government Procurement Rules (to which the Ministry is subject) require agencies to conduct appropriate planning based on the size, risk and complexity of each procurement. The rules include guidance about preparing a procurement plan and set out that the plan should cover what you intend to procure, how and why you intend to approach the market, how you will evaluate bids and how you intend to contract. A typical procurement plan should include:

A clear business objective and benefits, and how you plan to achieve them
An outline of what is being procured
How you will engage with the market and supply market analysis
Governance arrangements and approval processes (and timeframes)
Risk assessment/management
Demand analysis
Key stakeholders and how you will engage with them
A realistic step-by-step timetable for the procurement process
Evaluation methodology and criteria
Contractual arrangements, including a description of the contract that will be used, how the contract will be delivered, its completion date and how the contract will be managed during delivery.

A procurement plan is not required for every procurement, and, in some instances, it makes sense to combine the planning information into other documents. In this case, some of the key information was included in the Ministry’s internal exemption memorandum. We also acknowledge the Ministry considered there was a need to act quickly, and that policy settings and the practicalities for implementation may have still been evolving.

However, we would have expected a procurement plan to be prepared for a contract worth more than $50 million and for an important subject such as this. As we have said in other work,¹ policy considerations and the principles of good procurement are not mutually exclusive. A firm policy footing and good planning are important parts of good procurement process. Done early in the process, they inform the market engagement and formal procurement of the services or product that follow. In our view, despite the urgency the Ministry considered it was operating under, it would have been possible (and represented best practice) to have documented a procurement plan without undue delay to the process.

A procurement plan that considered the potential policy or technical issues that could have delayed implementation might have helped the Ministry provide a more realistic time frame to the public and suppliers. It might have also reduced its need for urgency when matters were still unresolved. Good procurement planning might have also helped the Ministry to sufficiently understand the size and detail of the tenders it might receive and more accurately anticipate the time frames for internal sign-off. It is also likely that suppliers incurred cost and resources because of that urgency which may have been unnecessary.

Given the RFP requirement for operationally ready suppliers, we asked Ministry staff why there had been a delay in implementing saliva testing following the decision about the successful party. We were told that seeking a policy decision on saliva testing took significantly longer than anticipated, and that some industry sectors were also reluctant to implement a new testing regime once the Ministry engaged with them.

Ministry staff also told us that saliva testing is a highly specialised field of work, with professionals in demand and often working across different organisations in the same field. On that basis, a procurement plan might also have anticipated potential conflicts of interest and how to manage them (including whether to seek independent probity advice or engage an independent probity auditor). We discuss the management of conflicts of interest later in this letter.

Independent probity auditor/advice

The Ministry of Business, Innovation and Employment (MBIE)’s website notes that “for major, complex or high-risk projects, a public organisation may consider appointing an independent probity auditor at the outset of the procurement project.” The Ministry did not appoint an independent probity auditor for this procurement process. Instead, it determined that its internal procurement function was sufficiently independent of the internal business group procuring saliva testing to provide appropriate probity advice.

We do not agree with the Ministry’s suggestion that the procurement function was independent of the transaction. The Ministry’s procurement function was managing the procurement process and it is unlikely that the market would view the Ministry’s procurement function as independent of the procurement or the Ministry’s internal business group.

After the panel’s completion of the evaluations of tenders for the procurement in late March 2021, the Ministry approached the Specialist Audit and Assurance Team at Audit New Zealand in early April 2021 for an informal discussion about the management of conflicts of interest. The Ministry described this discussion to us (and in an Official Information Act response) as advice from an independent probity auditor. However, in our view, that description could not be said to reasonably reflect the situation. We understand that Audit New Zealand’s Specialist Audit and Assurance team:

was not formally engaged for advice;
was not made aware that the informal discussion was being used as advice on the procurement;
was not briefed on the procurement processes;
was not provided with any specific information about the nature of the conflicts of interest across the five panel members;
does not recall seeing any of the management plans prepared for each of the declared conflicts; and
was not asked to review any of the management plans.

The discussion was not documented by the Ministry and was held after the panel had been formed and had evaluated the tenders. Therefore, Audit New Zealand was unable to support or suggest changes to the process that had already occurred.

In our view, it is difficult to reconcile the view that independent probity advice has been obtained on the transaction. No one was formally engaged, informal advice was sought on limited information, the auditor was not aware the discussion was about a major procurement, and the advice was sought after the panel had evaluated the tenders.

Appointing an independent probity advisor might have helped the Ministry ensure that sufficient procurement planning for a transaction of this scale had been done, and to better manage potential conflicts of interest in a way that aligned with best practice.

Conflict of interest management

The declared conflicts

The Ministry’s panel for the procurement included members with a range of internal and external expertise. However, four out of the five members indicated that their knowledge or roles might give rise to perceived conflicts of interest. Those interests included some panel members having:

extensive experience reviewing different saliva testing methods and with their own opinion about different approaches;
experience, as an IANZ accreditation assessor, auditing several of the organisations involved in the proposals;
regular professional contact with staff/organisations that might be responding to, or affiliated with, tenders, including laboratories currently providing Covid-19 testing services; and
past and current employment relationships with staff from potential respondents or associated laboratories.

The individual management plans

The Ministry took some steps to manage the conflicts of interest that had been identified. That included recording some mitigation steps in a management plan for each individual where a conflict was declared, such as:

trying to the best of one’s ability not to take any previous experience with any of the respondents into consideration;
not disclosing material relating to the tender with any of the respondents;
adhering to the All of Government probity principles; and
being part of a five-person panel will moderate any particular views.

Controls to manage conflicts need to be specific and able to work in practice. In our view, the steps in this case were not enough to mitigate the perception or actual risk that the tender process is not impartial or influenced by the conflicts. Using the examples above:

Although a panel member should not let their previous experience with a respondent dictate their view about the supplier information under consideration, that person’s experience might be the reason why they are on the panel and that experience should not be put aside.
Agreeing not to disclose material to any of the respondents and following the basic principles of probity are general expectations of anyone involved in a procurement process, regardless of any conflict, and are not specific mitigations to specific conflicts.
Although a multi-person panel can serve to minimise the possible impact any individual bias could have on the process (or perceptions of it), the actions in the conflict of interest management plans did not serve to effectively restrict the panel members in any way.

The management plans were also generic and similar to each other. Even if a public organisation considers declared conflicts are similar to each other and could be managed in a similar way, it is important that it properly considers the uniqueness of each conflict when they arise and what specific mitigation is required in those situations.

The Ministry could also have considered the overall effect of the conflicts it had identified. Although none of the conflicts declared were deemed by the Ministry to be serious enough to warrant excluding a member from the panel, four of the five members were potentially conflicted. Therefore, there was a risk that their conflicts, taken together, would undermine confidence in the panel as a whole. The Ministry said to us that there were a number of non-conflicted advisers to the panel which would have mitigated the risk of bias on the panel and increased confidence in the panel’s decision making. However, we note that even with the presence of non-conflicted advisers, the majority of the decision makers – the panel – had actual or perceived conflicts of interest and the perception risk remains. The Ministry could have considered including more unconflicted members on the panel to mitigate the risk of confidence in the panel being undermined.

Ministry staff also told us that conflicts were managed “as per the Ministry’s standard procurement process”. We sought a copy of the Ministry’s relevant policy and process documents and were provided with a copy of the Ministry’s Procurement business controls guidelines for conflict of interest. These controls are brief and provide minimal, if any, direction on how to manage conflicts of interest in practical terms. We recommend that the Ministry makes improvements to how it documents and communicates expectations for conflict management to ensure consistency in practice.

Although conflict of interest declarations were ultimately signed by all panel members, some members had signed multiple forms over time (such as a form declaring no conflicts being later replaced by a form declaring perceived conflicts). As identified by the Ministry in its assurance review, this process could have been better managed. For example, an initial briefing to prospective members could have been clearer to minimise risks of non-disclosure and to avoid additional work in ensuring that disclosures were accurate and complete, including consideration of existing interests. We recommend that the Ministry consider whether any additional training is required.

Overall, because of the way conflicts of interest were managed, the Ministry left itself open to a perception of bias. This could lead to a loss of trust and confidence in the Ministry by those in the market. As we say in our guide on managing conflicts of interest,² in any situation where activities are paid for out of public funds or carried out in the public interest, the public needs to be confident that decisions are made for the right reasons and are not influenced by personal interests or ulterior motives. The risk with having a conflict of interest – at least, one that is not properly managed – is that you will be seen to be advancing your own interests or the interests of others you feel a sense of loyalty or obligation to, rather than the interests of your role as a public servant. Even if you have no intention of acting improperly and are confident that you can think and act impartially, if it looks like you might be influenced by personal interests or ulterior motives when making a decision, you risk undermining public confidence in the integrity of that decision.

Improving conflict of interest management

Looking ahead, the Ministry could consider, the following types of questions when it is carrying out a procurement process involving technical or specialist subject matters:

What expertise does the Ministry need, and where can it access this specialist knowledge?
Having identified potential subject matter experts, what is the specific nature of an individual’s other role(s), relationships, knowledge, capability etc. that could lead to an actual or perceived conflict of interest? It is important to consider this from a potential supplier’s perspective.
Has the Ministry struck the right balance of risk? Is the risk to probity, fairness, trust and confidence from the possible conflict less than the risk of not having the conflicted individual’s expertise as part of the decision-making?
Are the core components of that expertise readily available in other individuals who do not have the same potential conflict? Alternatively, are there opportunities to use that individual’s expertise in another way outside of formal decision-making?
If the individual’s expertise is such that the Ministry considers it fundamental to have that individual in a decision-making role, what actions can the Ministry take to mitigate the risk of bias or perception of bias? These actions might include: having more members on a panel who do not have a conflict; seeking the consent of all tendering parties for the inclusion of that individual; and limiting the scope of the individual’s role or influence (such as excluding them from specific components of discussions or decisions).

In addition, opening a process to scrutiny from a probity auditor or assurance provider can support the rigour of the process and give confidence to market participants that someone independent is overseeing the process.

Concluding comments

As set out above, we have not undertaken a full inquiry into this procurement. We have however identified serious concerns based on the discussions we had with the Ministry, particularly in relation to the planning stages, the lack of transparency around process and time frames and the management of conflicts of interest.

The Ministry has outlined some of the actions it is taking to improve procurement practice based on the lessons learned from this procurement. These include:

better incorporating approval time frames into procurement plans and improving communication with respondents, particularly in the event of delays;
engaging with Ministry directorates and providing training sessions on key parts of the procurement process; and
engaging with the MBIE to deploy a conflict of interest tool, if compatible with the Ministry’s systems.

The Ministry continues to carry out significant procurement, particularly in relation to ongoing work to support the public health response to Covid-19. This includes further procurement on testing. It is important to ensure that it implements the lessons learned from this procurement process in order to maintain the trust and confidence of the public.

Thank you for the assistance we received from you and your staff in completing our review. Because this letter raises matters that are of public interest, we intend to publish it on our website.

Nāku noa, nā

Signature - JR

John Ryan
Controller and Auditor-General

1: Letter to the Ministry of Transport about the Auckland light rail City Centre to Māngere project (November 2020)

2: Managing conflicts of interest: A guide for the public sector — Office of the Auditor-General New Zealand (oag.parliament.nz)