Anyone who thinks government procurement isn’t sexy – or important – should look at the numbers. Our political leaders spent $51.5 billion of our taxpayer dollars on buying things last year.
That’s up from $42 billion in 2020.
Spent wisely and strategically, this money could, to use the Government’s own words “directly contribute to [its] priority to build a productive, sustainable and inclusive economy”.
Indirectly it can do even more, government says. It could “accelerate our economic and social recovery, lay the foundations for a better future through reducing inequality and addressing child poverty, and reducing carbon emissions”.
Maybe sexy, certainly critical.
It’s been five years since the government made its intentions totally clear: procurement was a “unique opportunity to achieve broader cultural, economic, environmental and social outcomes for New Zealand”, it said in 2018.
A year later it wrote “broader outcomes” into its procurement rule book, and in 2020 introduced its first specific targets: Māori businesses should make up 5 percent of total government procurement contracts.
That target was increased to 8 percent earlier this year, because, as Māori development Minister Willie Jackson said, we were already there – 6 percent in the 2021/22 financial year.
“More than 3200 contracts were awarded to Māori businesses across the public sector, worth a total value of about $930 million,” Jackson said. “We know our collective [government] buying power can deliver better value for people and communities. Getting agencies to consider benefits other than just price, is making a positive social impact and boosting the Māori economy.”
Same old, same old
Given this, Newsroom was a little surprised to receive a press release from the Ministry of Business Innovation and Employment (MBIE) announcing changes to one of the government’s most significant procurement relationships, with its bankers, without any mention of broader outcomes, or of social or environmental impact, or the Māori supply chain.
The upgraded procurement panel arrangement, which will go right through to 2027, or potentially 2029, offers government agencies “a range of benefits including value for money, flexible service and pricing models, robust and transparent commercial contracts, clear, consistent service levels, and high-quality support”, said Laurence Pidcock, general manager of MBIE’s NZ Government Procurement department.
But not the option to promote social and environmental goals through putting pressure on some of the most powerful – and profitable – companies in the land.
It was disappointing, says Anna-Jane Edwards, general manager of Amotai, the biggest organisation in the country connecting Māori and Pasifika-owned businesses with government and corporate organisations wanting to purchase goods, services and works.
There are significant opportunities for smaller, more diverse businesses to provide services to the banks, Edwards says. And openly baking broader outcomes into supply agreements with a massive client like the government can be crucial.
“We have 1700 companies with Amotai, and many could be providing services to banks.”
Nicola Nation is chief executive of the Ākina Foundation, a social enterprise working to increase the clout and capability of the social enterprise sector, including through procurement.
Nation says she was surprised not to see any mention of wider objectives in the decision, and she also wondered why there were no locally-owned banks on the list of preferred suppliers, with the government instead choosing Westpac, ANZ and Citibank, with the potential to add ASB Bank into the mix at a later stage.
Kiwibank and the Co-operative Bank are not only NZ-owned, but both have B Corp status, a certification that benchmarks companies against high standards of social and environmental performance, accountability, and transparency, Nation says.
Given the decision locks the government in to the panel for up to six years “it does seem like an omission”, she says.
Pidcock told Newsroom that to be part of the new All-of-Government banking contract, banks had to provide information on programmes or initiatives they operate that support broader outcomes. Government Procurement would provide this information to agencies which can then factor it into their decision-making when considering which bank or banks to use.
“Broadly speaking, examples the banks provided included initiatives in areas such as environmental sustainability, low-carbon transition, increasing access for New Zealand businesses, improving conditions for New Zealand workers, and sustainable financing,” Pidcock said.
He didn’t mention any proactive encouragement for banks to use a more diverse range of suppliers in order to be included on the banking panel.
In terms of the government’s wider procurement programme, Pidcock said broader outcomes continued to be a “key priority” and there were a number of initiatives in place. These include publishing the government vehicle fleet dashboard, which charts emissions reductions and the transition to electric vehicles, as well as the Māori business targets.
At Amotai, Anna-Jane Edwards is in favour of targets – “they put a line in the sand and show it’s important”.
But that 5 percent (now 8 percent) Māori number looks more game-changing than it actually is, she says, because it’s a volume, not a value target.
That means a big government organisation could have 5 percent of their contracts with Māori businesses, but at the same time be spending a miniscule amount (say $5,000) of its multi-million-dollar budget with those business.
“We really pushed for [the central government procurement target] to be a value target, because that’s how you get meaningful step change. But there wasn’t an appetite for it.”
– Anna-Jane Edwards, Amotai
Even worse, a big government contractor might include a number of potential Māori suppliers in a tender document, count them in the 5 percent number, but then not use them at all in the actual work. And unless a government procurement official checks up (which they often don’t, Edwards says), no one knows the Māori business spent time and money on the tender process, but missed out on any revenue or profit.
She calls it “price checking”, and says it’s common in construction. “The businesses never hear from them again.”
Building supplier capability
Even doing the maths on the official (and possibly optimistic) central government figures – $930 million awarded to Māori businesses out of a total spend of $51.5 billion – the value spend comes out at less than 2 percent.
It doesn’t have to be like that; a group of Auckland organisations are more ambitious and are using value not volume targets. Auckland Council, for example, is aiming to have 5 percent of the value of all direct contracts awarded to diverse suppliers – Māori and/or Pasifika-owned business or social enterprises.
Auckland Transport’s target is to have 2 percent of the value of procurement spend with Māori-owned businesses by the end of this year. And Watercare aims for 5 percent of total spend to be with Māori businesses by the end of the 2025 financial year.
“We really pushed for [the central government procurement target] to be a value target, because that’s how you get meaningful step change,” Edwards says, “but there wasn’t an appetite for it.”
Part of that reluctance was a worry about whether enough Māori businesses have the size and experience to take on big contracts, she says. The trouble is that without value targets she worries there’s no incentive for a government department (or a major supplier on a big contract with a government department) to help build capability within smaller, diverse businesses which will later use that experience to take on other contracts.
Nicola Nation at Ākina says more focus is needed within government on lifting the size and capability of Māori companies and other social enterprises, so they can scale, compete for government contracts, and thereby make a bigger difference.
In Australia, the government committed $A8 million between 2018 and 2023 to a programme that helps start-up social enterprises get to a stage where investors are willing to put money in.
In New Zealand, government has consistently refused to consider funding a similar programme, Nation says.
“There is a massive problem of a pipeline of financial institutions wanting to get involved in impact investing, but not able to find initiatives to invest in,” Nation says.
Ākina’s impact investment readiness programme has been running for six years, providing up to $30,000 for 11 social enterprises in 2022. It received $300,000 from the Tindall Foundation and Foundation North, but nothing from the government.
“We can’t get them to the table, and that’s immensely frustrating. MBIE, Te Puni Kōkiri, Ministry for the Environment – all people interested in social and environmental initiatives which will grow the economy. I’m asking them for less than half the dollars the Australians are getting, but they say it doesn’t fit their objectives.”
Te Puni Kōkiri’s progressive procurement lead Kellee Koia says the organisation has a three-layered approach to supporting Māori businesses through what is a complex and fragmented government procurement process. The process combines regional advisors, one-on-one support and online tools, she says.
“We continue to be impressed with the early successes from these pathways of support and the outcomes that have been achieved for Māori businesess.
Don’t blame the businesses
Meanwhile Edwards says she’s frustrated that the blame is often placed with the Māori business for not being ready to take on big jobs, when actually the biggest opportunity is in government buyers shifting their thinking around how they purchase and who they buy from.
Edwards says there are pockets of good practice within government but overall procurement departments tend to be looking for a mix of low price and minimum risk – and that’s not going to see broader outcomes at the top of the list.
“Buyers hold the key and unless you build their capability nothing is going to change.
“Our position is buyers should be supporting businesses into the supply chain, and there are advantages for them in that, including diversity and resilience.”
A damning report
It’s not just Edwards concerned about the quality and skills of the government’s procurement officials.
Every year or so, government runs a Procurement Business Survey, where they ask their supplier how they are doing. The first time Newsroom wrote about the survey, in 2021, we discovered what we thought of as a shocking level of dissatisfaction with the government as a customer. Then when the next survey came out, in 2022, it was worse on pretty much every measure.
Asked about their initial engagement with government, a quarter (24 percent) of businesses rated their experience as poor or very poor, up from 22 percent in 2018. The number rating it good or very good fell slightly (from 41 percent to 40 percent).
Asked about the government procurement people they dealt with, only 31 percent of suppliers rated them as innovative, down from 46 percent in 2018. Just 41 percent thought they were good at communication or timing; only 34 percent were impressed with their decision making.
Perhaps most shocking of all, only half of businesses rated their contract manager as “professional” – competent to do their job.
Pidcock knows the challenges he faces, and has set 2030 as a realistic timeframe for change.
“It’s so hard to get an entire profession to work in a different way,” he told Newsroom. “Behavioural change is never easy. Attracting the right people is also hard, as is training them, encouraging innovation, and getting people to think about the broader outcomes that could see procurement become a game-changer for the economy and social issues.”
On the positive side “my optimism comes from the fact everybody I talk to wants the same thing. Procurement people are frustrated, suppliers are frustrated, ministers are frustrated”.
Broader ‘broader outcomes’
At the Ākina Foundation, Nicola Nation understands it’s hard but says the government is still moving too slowly. Both she and Edwards say the Māori business targets are a good start, but ‘broader outcomes’ need to cover a wider range of social and environmental problems,
Pidcock says that’s already happening, particularly around the environment. Rule 20 of the government procurement rules states agencies should “support the procurement of low-emissions and low-waste goods, services and works; and encourage innovation to significantly reduce emissions and waste impacts from goods and services.”
“Good procurement people understand they are change managers and change agents. But most are focused on compliance and probity and risk avoidance. And that’s not changed in the last decade.”
– Nicola Nation, Ākina
Critics would like to see numerical targets beyond those for Māori business.
Improving the bureaucracy is another urgent issue, Nation says. There are still far too many poorly-worded and unnecessarily-complicated tender documents coming from government agencies and this is stopping smaller, impact-focused companies – companies without teams of people with the time and knowledge to wade through 30-page tenders – from even applying for, let alone winning, government contracts.
“We’re still expected to respond to tenders which don’t make sense, or where the back end doesn’t match the front end,” Nation says. “It’s a huge problem.”
“Good procurement people understand they are change managers and change agents. But most are focused on compliance and probity and risk-avoidance. And that’s not changed in the last decade.”
It’s a similar message from Caroline Boot, a procurement specialist, founder of the NZ Procurement Institute and director of Clever Buying, a training provider for people working in government and local authorities.
“The procurement process is often risk-averse, lawyer-controlled, too onerous, and too complicated for the sorts of small and medium-sized businesses which would be able to deliver broader outcomes.
“The process and paperwork required to get on an all-of-government [pre-selection] panel, for example is not something that smaller businesses, businesses focused on delivering, can be bothered with.”
New Zealand has a history of “bravery in small businesses”, but the government has historically not been good at providing “right-sized opportunities for companies of all sizes”, Boot says, although she says it is improving.
“What has happened is the onerous requirements for those businesses to engage with government means they choose not to.”
An MBIE report published in August 2022 said improving the capability of public procurement practitioners was both a concern and a priority for government in terms of the delivery of broader outcomes.
“This year, the Te Whānau Manaaki programme for government staff involved in the procurement and management of social services has been established,” the report said. “The programme is planned to deliver 56 training workshops on social service procurement to approximately 700 government staff by the end of 2022.”
MBIE was not able to confirm whether these targets had been met, and what if anything was happening this year. But Boot says her experience is capability is improving very slowly, and is not always targeted at the practical skills needed to make a difference.
The training programme run by Clever Buying has unintentionally been caught up in the government’s restructure of vocational training and the withdrawal of previous government funding.
“Hundreds of former public sector procurement professionals have had to withdraw from procurement training,” Boot says. And that’s a problem.
“If you don’t have people trained in procurement, you don’t procure wisely.”