18 December 2015

Hon Peter Dunne
Minister of Internal Affairs Private Bag 18888 Parliament Buildings Wellington 6160

Dear Minister,

This is an open letter due to the timing of the issue it raises.

We write on behalf of of NZRise members and the wider New Zealand ICT sector.

Many of our members have read with concern the RFP recently issued by the Department of Internal Affairs, RFP 17048035, ‘Procurement for ICT Professional Services Panel’.

This document has triggered significant alarm by NZRise members and others in our sector. In a number of key areas it cuts across the messaging and understanding that we thought we had built up in regular engagements with you and your officials over the last two years.

The document in both content and tone so starkly contradicts what you and your fellow Ministers have been telling the New Zealand digital sector that we feel compelled to register our strong sense of disappointment and urge you to ask your officials to reconsider both the approach and the way that it is communicated.

Our specific objections to the RFP are as follows:

Panel use

Given the new GCIO Strategy signals an intention to move away from using panels in government procurement processes, it is surprising to see DIA calling for a new panel to cover the time period before the new system is implemented. Our members experience with the current panels have been less than satisfactory. For example, the skewed market created by IaaS (where agencies are charged up to three times the market rate for a third of the functionality) has been acknowledged by senior DIA officials as a failure that will not be repeated. Even panels considered a success by the department, like the Common Web Platform, had only provided work for less than fifty percent of participating companies after the first two years.

Pricing

DIA’s attempts to dictate a market rate are, put bluntly, outrageous. From the RFP:

• “All rates are to be specified in hourly rate, no daily rate or job rate. Such rates to be at least $10 less than the corresponding hourly rate provided on the Respondent’s current rate card offered to customers in New Zealand.”

From the proposed Master Services Agreement:

• The successful supplier cannot price up work using rates higher than its RFP ratecard rates
• “[Supplier’s Fees must be] no higher than pricing the Service Provider offers its most preferred customers for services the same or similar to the Services proposed to be provided to the Department.”
• “[W]here the Service Provider wishes to use Personnel that have been in their position(s) or been engaged by the Service Provider for less than 6 months, the Service Provider shall advise the Department of this fact prior to entering into any Statement of Work and will charge out that Personnel at at least $5 less than the corresponding standard Capped Hourly Rate for that Personnel for the first three months.”
• “The Department may, from time to time, but not more than twice in each calendar year, carry out an audit for the purpose of reviewing the Service Provider’s compliance with, and/or ability to perform, any of its obligations under, or in connection with, this Agreement and/or any or all Statements of Work; or confirming the accuracy of any invoice rendered by the Service Provider to any Department.”
• The Intellectual Property Rights in the MSA are inconsistent with previously stated Government policy. These guidelines are readily available on the DIA ICT website and have been confirmed as current in out meetings with yourself and your GCIO leadership team See

  https://www.ict.govt.nz/guidance-and-resources/open-government/procurement- advice/guidelines-for-the-treatment-of-intellectual-property-rights-in-ict-contracts/

• It also does not satisfactorily address the issue of third party Intellectual Property Rights.

  Given the size of the market here, all of our members have longstanding relationships with government agencies, in may cases our rates have remained stagnant in recognition of the longevity of the contracts and the concomitant consistency of work. Undercutting these rates with no commensurate guarantee of work would be asking our companies to work at a potential loss. Is this the sort of vibrant digital economy that you see for the future of New Zealand technology businesses? The lack of any commercial acumen in this demand is nothing short of insulting. Our sector provides significant value to government; in both the successful IT projects that we deliver and the taxes our companies and employees pay. We ask nothing more than to be fairly remunerated for that contribution.

  The threat of including audit clauses to check that sub-market rates are being complied with just adds insult to injury. This is no way to win the trust and goodwill of New Zealand IT companies, and certainly will not result in ongoing productive working relationships between our members and DIA.

  Pre-conditions

  The RFP stipulates that, “The Respondent must hold insurance of:

  • Professional Indemnity: NZ$ 5 million
  • Public Liability: NZ$ 5 million
  • Property Damage: NZ$ 10 million.”

These requirements do not reflect the actual nature of the work covered by this proposed panel and, without specific context, are further evidence of either a mistaken cut and paste from another procurement document or cloistered thinking completely detached from the reality of IT delivery. Further, DIA gives no reason for this sudden sharp increase in insurance coverage requirements.

No guarantee of work

All of this is in the context of no commitment by DIA to placing any work with the relevant respondent once on the panel. Given the extraordinary requirements of the RFP, this is further evidence of the department’s detachment from commercial reality.

Timing

Finally, issuing an RFP requiring such a significant time commitment to respond to just as government is winding up operations for the Christmas and New Year period, is another reminder of the disconnect between officials and commercial entities. Any company wishing to respond to this RFP will need to ensure sufficient staff resources are available to complete a response, at a time when many staff are on annual leave.

In terms of process, the inclusion of a clause (7.2) clearly intended to suppress any criticism of the proposed approach, where we “must not make any public statements to any third party in
relation to any aspect of this RFP process,” is so risible it requires no further comment. It has, however, succeeded in intimidating some of our members into not publicly commenting on Government policy and this issue in particular.

In conclusion, given the close working relationship that NZRise has developed with you and your predecessor, I would hope that you and your colleagues would request that officials rethink this approach and to engage with the sector more effectively before ploughing ahead with this ill- advised proposal. This would lead to procurement arrangements that deliver the outcomes that your government seeks, without continuing to use panels to distort the market and hamstring New Zealand’s digital sector.

Yours on behalf of the NZRise membership.

Victoria MacLennan – Co-chair NZRise, CEO OptimalBI Don Christie – Co-chair NZRise, Director Catalyst
Neil Butler – Executive Chairman, Optimation Ltd.
Paul Ramsay – Director Equinox Ltd.

Miki Szikszai – CEO Snapper Services Ltd.
Carl Penwarden – Managing Director Abeltech Ltd. Breccan McLeod-Lundy – CEO Rabid Technologies Ltd. Andrew McEwen Mason – The Knowledge Group Ltd. Laurence Millar – GVG Ltd.
Ian Apperley – Cloud Consultant
Daniel Reurich – Centurion Ltd.
Nicolas Erdody – Open Parallel Ltd.

cc: Hon Bill English, Hon Steven Joyce