The impact of Government Procurement exemptions

The New Zealand Government has been saying all of the right things in terms of stimulating the local with campaigns like “buy local” and supporting messaging. The harsh reality in the Digital Technology sector is Government procurement behaviour  is to buy more from incumbent multinational suppliers via COVID exemption loopholes in the Procurement Rules.

We acknowledge the government has been grappling with the context of rapid decision making in response to a changing COVID landscape. However it seems the use of Exceptions to the Procurement Rules which completely forgo Rule 16’s broader outcomes which are designed to give New Zealand, Māori and Pasifika companies improved access to government contracts, have taken precedence in these times.

We expressed our frustration recently in the media, commenting on one of the many procurement decisions to deploy key government processes on multi-national platforms hosted offshore – “Govt’s behind-schedule vaccination register ‘just putting money into a Silicon Valley billionaire’s pocket‘”.

 This post examines the data published by the Government via their own platform GETS. Thank you to Laurence Miller of Transparency International for undertaking this analysis.

 All Government procurement in 2020

Current government policy is documented in the Government Rules for Procurement 4th edition which require agencies to:

• seek opportunities to include NZ businesses and promote inclusive economic development within New Zealand (Rules 16 & 17)
• openly advertise on the Government Electronic Tenders Service (GETS) any procurement over $100,000 (Rule 35)
• publish a Contract Award Notice on GETS within 30 days of contract award, including the expected spend under the contract (Rule 48)
• publish award notices for emergency procurement on GETS (Rule 14 and MBIE guide to Emergency Procurement)

These rules are in line with global best practice, but the level of compliance by government agencies is low. The total published value of contracts awarded in 2020 was $1.016 bn, or 2.5% of government expenditure.

The rules include exemptions for certain types of procurement, where an agency:

• has established a panel of suppliers (Rule 57)
• is purchasing under an All-of-Government contract (Rule 58)
• is purchasing under a Syndicated Contract (Rule 59)
• is purchasing under a Common Capability Contract (Rule 60).

The government should be taking steps to include all procurement within the rules, and these exemptions should be phased out.

COVID emergency procurement in 2020

The COVID-19 pandemic has required quick decisions to procure goods and services, but the rules still require that they are publicly notified. Across all government services, only 26 award notices relating to COVID-19 emergency procurement were published in 2020, and only five contained information on the value of the contract.

It is completely unacceptable that there is no transparency of government COVID-19 expenditure. Government agencies have been making unprecedented levels of emergency expenditure without complying with
the procurement rules approved by Cabinet.
Four of these awards notices for COVID-19 emergency procurement were for Digital Technology or IT services, all by DIA; they were published with no contract value information.

Digital Technology (IT) sector in 2020

For the Digital Technology Sector, 144 contract award notices were published in 2020, and the total published value of contracts awarded in 2020 was $64.5m million. Annual government IT expenditure is estimated at around $3 billion, so the published data is also only 2% of total government expenditure.

Published data[1] for the IT sector in the 2020 calendar year

Key conclusions for the Digital Technology (IT) sector

1. More than 97% of IT contract awards are not published
2. Almost 70% of published award notices do not specify the contract value
3. Awards to NZ owned companies are for small contracts with foreign owned companies securing the larger contracts.

NZRise recommends

We have previously published the Call for Improved Transparency in Government Procurement, this request still stands especially, as of publishing this post, no material improvements have been made.

At a really basic level if the Government could implement the following 5 recommendations which will go a long way towards meeting their own stated Broader Outcomes, providing improved transparency and access to government contracts for New Zealand, Māori and Pasifika owned businesses:

1. Removal of all exemptions from procurement rules.
2. Publishing of contract value with all award notices (already required in the rules).
3. Publishing on GETS of contracts awarded and their value on the Marketplace
4. Publishing on GETS of individual contracts and their value for panel contracts.
5. Removal of closed procurement panels in favour of open (and more transparent) panels such as All of Government (AoG) and The Marketplace.

Please share these recommendations and if you would like to join our mahi then do get in touch.

For NZRise, Victoria MacLennan, Co-Chair

[1] A business that originated in New Zealand (not being a New Zealand subsidiary of an offshore business), is majority owned or controlled by New Zealanders, and has its principal place of business in New Zealand (MBIE).

[2] This figure includes $11m for Marae Digital Connectivity awarded by Crown Infrastructure Partners Limited

[3] Information is published as Open Data on the MBIE website every quarter.  Data for the period to 31 March 2021 has been published and is currently being analysed.  No significant differences are expected from the information in this paper.