Tuesday , February 19 2019
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Procurement

Summary:
Government should seek value for money in its procurement policies. Using procurement as a way of forcing or encouraging other ends is generally going to be a bad idea: You get a worse deal on what you're trying to purchase, and there are likely going to be more cost-effective ways of encouraging whatever goal you're after.Or to put it another way, does it seem generally likely that the most cost-effective way of encouraging X is by paying more for goods and services produced by companies committing to X?And so the cabinet paper on procurement is a bit of a worry. It's from October; I hadn't noticed it at the time. The paper starts off well, reminding us of the decent procurement framework we already have, and contrasting it with the messes elsewhere: The government procurement policy

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Government should seek value for money in its procurement policies. Using procurement as a way of forcing or encouraging other ends is generally going to be a bad idea: You get a worse deal on what you're trying to purchase, and there are likely going to be more cost-effective ways of encouraging whatever goal you're after.

Or to put it another way, does it seem generally likely that the most cost-effective way of encouraging X is by paying more for goods and services produced by companies committing to X?

And so the cabinet paper on procurement is a bit of a worry. It's from October; I hadn't noticed it at the time. 

The paper starts off well, reminding us of the decent procurement framework we already have, and contrasting it with the messes elsewhere:

The government procurement policy framework in New Zealand consists of a combination of principles, rules and good practice guidance. It aims to support and encourage procurement practice that delivers good commercial outcomes. In contrast, some other international frameworks, such as in the European Union, have very prescriptive rules which result in procurement practices that are more compliance-driven.
...New Zealand is generally internationally perceived as having an exemplary government procurement framework and as being open, fair and transparent. In the World Bank’s Benchmarking Public Procurement 2017 report, New Zealand scored highly on the quality of its tender processes and is highlighted as having effective and efficient payment and complaints systems.
That approach is not universally loved - it's good to be hated for the right reasons:
Businesses can be, and often are, critical about government procurement. They have been most vocal about large contracts being awarded to offshore suppliers – such as the Christchurch Convention Centre contract, which was awarded to an Australian-based supplier that then engaged its own supply chain, rather than hiring local firms, to do the sub-contracting work. Some New Zealand businesses would like to see New Zealand take the Buy Australian, Hire Australian approach of some Australian states and territories.
I have no clue about the merits of various bids, but I would lean heavily against Buy NZ approaches. It would risk the rather nice outcomes we've been able to achieve:
Overall, New Zealand’s government procurement policy framework is effective. It treats businesses fairly, is open and transparent, and encourages good procurement practice. It promotes the use of simplified processes and documentation, early engagement with the supply market, and early notice of opportunities. It supports New Zealand’s exporters as tender responses are assessed on the basis of merit rather than country of origin. This enables New Zealand businesses to compete for government contracts in our trade partner countries on the same basis. I note that the Ministry will continue to work with agencies to improve procurement practices.
The Cabinet Paper starts going a bit ... off ... after that. It's making the best fist it can of a conflicting mess of coalition and agency objectives around procurement, where the different parties want to use procurement policy to push a pile of other barrows. The paper suggests four outcome priorities be bundled into procurement:

  1. "Increasing New Zealand businesses' access to government procurement" - basically, support helping non-traditional suppliers to navigate the GETS system.
  2. "Increase the size and skill level of the domestic construction sector workforce". I read this one as prioritising construction bids by firms committing to take on apprentices and the like.
  3. "Improve conditions for workers and future-proof the ability of New Zealand business to trade. Agencies would require suppliers in targeted industries to ensure their business, sub-contractors and domestic suppliers comply with employment standards and demonstrate good health and safety practice. This priority aims to protect workers from unfair and unsafe behaviour, and incentivise well-performing firms while ensuring they are not undercut by firms who have reduced costs through adopting poor labour practices." - I expect that unionised firms would wind up getting preferential treatment in contracting through this one. 
  4. "Support the transition to a net zero emissions economy and assist the Government to meet its goal of significant reduction in waste by 2020." This one makes little sense for contracting in sectors covered by the Emissions Trading Scheme. There's also mention in here of prioritising timber: "This would include consideration of the life cycle environmental benefits of timber reflecting the Think Timber policy currently being developed by the Ministry for Primary Industries." 
The first priority seems a non-crazy way of dealing with New Zealand's First's insistence on prioritising New Zealand suppliers - which would risk breaking international trade agreements from which NZ suppliers benefit when hoping for fair treatment in bidding for government contracts abroad. 

The second one could prove costly where construction projects start trying to achieve employment goals rather than just building stuff. From the document:
This priority has been agreed to by Cabinet as part of the Construction Skills Action Plan 68(DEV-18-MIN-0187). Its intent is to use Government procurement as a lever to encourage suppliers to invest in workforce development and training. Agencies will be required to give consideration and a weighting to skills development and training in the tender process of construction projects valued over $10 million. Other initiatives of the Action Plan will also support employment opportunities for targeted groups (e.g. NEETs, women, Māori, Pacific people) within those government construction projects.
The third one risks being a de facto way of skewing contracts towards union shops.

And the fourth one is guaranteed to be a more expensive way of mitigating carbon dioxide emissions than by contracting with the most efficient provider and using the savings to buy back and retire ETS credits. Some of it seems a sop to NZ First's timber interests.

But it could have been rather worse had they listened to all the stakeholders.

98. A number of agencies noted that leveraging broader outcomes is likely to add cost to contracts and complexity to procurement processes and operationalising the approach would need to minimise those costs. This has been covered in the implications discussion.

99. Several agencies have asked for additional outcomes or targeted areas to be prioritised;

99.1 The Ministry for Primary Industries proposes alignment of this proposal’s priority outcomes with the Think Timber policy currently being developed by the Ministry for Primary Industries. In response, the Think Timber proposed policy has been added to the list of potential areas for priority four.

99.2 The Treasury proposes that government suppliers be encouraged to adopt diversity and inclusion workforce policies and for those firms with boards – policies that support diversity of board members. The Ministry for Women have proposed that a gendered expectation of a minimum percentage investment across-government be included in all contracts.

99.3 Te Puni Kōkiri proposes the paper explores the possibility of preferential purchasing to support Māori firms or other demand side options within free trade rules and explain how the Government’s progressive trade agenda may lead to changes to the way New Zealand considers how procurement is dealt with in free trade agreements in the future.

99.4 The Government Communications Security Bureau and New Zealand Security Intelligence Service propose that security must be a guiding principle for government procurement decisions. In response, it is already planned that the next iteration of the Rules will have a reference to protective security requirements and protocols.

It's always particularly disappointing when Treasury is among the agencies pushing to skew policy.

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