The approach of foreign affairs officials to one offshore aid project was “inappropriate and potentially unfair”, the country’s chief auditor says, with broader problems also raised

The Auditor-General has raised concerns with purchasing processes for overseas aid projects, with potential conflicts of interest not being properly managed and one contract growing almost five times in value just weeks after it was signed.

In its most recent audit report to the Ministry of Foreign Affairs and Trade – obtained by Newsroom under the Official Information Act – the Auditor-General’s office said it had found “a number of significant matters which were not in line with MFAT’s policy or good practice” regarding the official development assistance programme.

For three of the five projects it tested, not everyone involved in the procurement process had completed a conflict of interest declaration.

Where possible conflicts had been declared, the plan to manage them had not been agreed by the person affected, while there was no register kept of those involved in the procurements and whether they had completed a declaration.

“As a result, documentation indicates that risks from conflict of interest, whilst declared, may have gone unmanaged,” the Auditor-General’s office said.

One of the projects, providing Covid-19 aviation support to the Pacific, had an initial cost estimate of $30,000 which was used to justify skipping a wider procurement – but within weeks of the contract being signed, that figure increased to $147,000, above the threshold at which open competition is expected.

Another project, to provide scrap metal collection for Kiribati, did not have a business case prepared until after a request for proposals was published, with problems with the planned approach only identified when the responses were reviewed.

There was also a limited risk assessment given the almost $2 million value of the contract, demonstrated by the changes in scope during the procurement process.

“In our view a business case should be the starting point for a procurement, followed by a procurement plan and subsequently the tender documents,” the Auditor-General’s office said.

‘Inappropriate and potentially unfair’

Each of the three open procurement projects had “material inconsistencies” between the documented process and the one that was actually used, leading to a risk of complaint or challenge from unsuccessful tenderers.

The Kiribati procurement plan changed materially after the ministry evaluated the initial responses it had received, but a further request for proposals was sent only to those it had shortlisted from the original process. 

“In our view this was inappropriate and potentially unfair,” the Auditor-General’s office said, suggesting the best practice approach would have been to cancel the existing process and start afresh.

Two other projects, for the management of a New Zealand scholarship scheme and for science e-learning in the Pacific, used evaluation weightings to determine a shortlist which differed from those in the procurement plan and the request for proposals.

The Auditor-General’s office said respondents were likely to put more effort into the areas flagged as being most important in the weightings provided to them.

“To evaluate on some other basis is therefore unfair, as it removes the potential for respondents to tailor their proposal to the actual weightings. Furthermore, changing weightings late in the process … opens the risk that this was done (or could be perceived to have been done) to benefit a particular supplier.”

Concerns about the ministry’s procurement processes are not new: in 2019, Newsroom revealed that 80 percent of its initial contracts for the hosting of APEC had failed to meet the Government’s own procurement guidelines.

The Auditor-General’s most recent report found reason for concern with a more recent APEC contract, for a software testing consultancy, which had an initial budget of $560,000 as part of the original APEC business case.

A 2019 procurement plan found that figure was excessive and suggested $300,000 was a more likely estimate – but the total cost ended up being $1.89m, “which suggests that insufficient market research and planning was conducted and that whole of life cost estimation could be improved”.

“They need to be able to explain any exceptions to standard procedure in the expenditure of public money – an explanation that says we only had a low level of confidence in the figure is not an explanation.”

In its response to the audit, the ministry said the additional costs for the Pacific aviation project had not been due to contracted services, but unforeseen flights required to provide necessary support.

The ministry also defended itself over the Kiribati scrap metal contract, saying the change in requirements had been driven by the shortlisted suppliers’ observations during a weeklong fact-finding mission.

“Given the lack of interest with which the initial [request] had been received by the market, and the difficulty of flying suppliers to Kiribati to scope out the work, we made a decision not to retender the work but to progress with the three shortlisted suppliers. We stand by that decision as a pragmatic and sensible solution.”

Discussing the APEC contract, it said the whole-of-life cost estimate for the programme budget had been established with a 50 percent confidence interval.

National foreign affairs spokesman Gerry Brownlee told Newsroom he was concerned about the shortcomings raised by the Auditor-General’s office and could seek to explore the matter through Parliament’s foreign affairs, defence and trade committee.

“They need to be able to explain any exceptions to standard procedure in the expenditure of public money – an explanation that says we only had a low level of confidence in the figure [as with the APEC contract] is not an explanation.”

An MFAT spokeswoman told Newsroom the ministry was working to strengthen its processes in the areas identified by the audit, but was confident overall in its understanding and application of government procurement rules.

The ministry’s commercial and overseas aid teams were working together on guidance to standardise and streamline procurement policy and processes, the spokeswoman said.

Sam Sachdeva is Newsroom's national affairs editor, covering foreign affairs and trade, housing, and other issues of national significance.

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