Implementing Cabinet decisions on Sustainable Government Procurement

You will be aware that the Prime Minister in her 13 February Statement to Parliament announced the government's intention to introduce a single government procurement policy integrating sustainability criteria. Cabinet has followed up by deciding to adopt a range of specific initiatives designed to embed sustainability in agency procurement policies and practice, and also to assist the growth of New Zealand firms, including SMEs.

Sustainable procurement will not only contribute to the government achieving carbon neutrality by encouraging the purchase of low-carbon alternatives, but it will also provide for efficiency and cost savings.

I am writing as Minister with responsibility for government procurement policy, to draw your attention to the new measures and related actions that need to be taken in your agency resulting from the recent Cabinet decisions.¹ These measures apply to all core government departments.

Highlights of these new measures for sustainable procurement will be publicly announced this week, and details will be available on www.procurement.govt.nz after announcements.

As discussed below, the new initiatives with most immediate impact on departments' procurement practice concern mandatory standards for certain goods and services; documented consideration of New Zealand tenders; and review of syndicated contracts.

Other decisions involve further development work by officials over the medium and long term and we will be seeking the cooperation of departments in progressing these.

I would also like to take this opportunity to remind you of policies and practices that should already be being followed in your department, as required by the Mandatory Rules for Procurement by Departments that were endorsed by Cabinet in 2006.

The work programme to implement Cabinet's decisions is being led by the Government Procurement Development Group (GPDG) in the Ministry of Economic Development.² This programme includes a number of initiatives for the short, medium and long term, as set out in the Cabinet paper.

Sustainable procurement framework

Cabinet directed officials to develop a national sustainable procurement framework to provide a set of principles and examples of best practice activities to guide government agencies in implementing sustainable procurement. There has been fruitful collaboration with Australia on this, and I am pleased to be able to announce that a joint Australian and New Zealand Government Framework for Sustainable Procurement has now been completed. This will be formally launched at a meeting of the Australian Procurement and Construction Ministerial Council which I will attend in Melbourne on 14 September.

In particular, I want to draw your attention to the following new measures which require more immediate change in your department's procurement policies and practice.

Mandatory adoption of standards and targets for the following categories

1. Paper (a 3-star minimum rating)
2. Timber and wood products (legally sourced)
3. Travel (motor vehicles, air travel/video conferencing)
4. Light fittings (standards derived from EECA's work).

Note: Legal sourcing of timber and wood products is already a mandatory requirement for departments, and some departments among the 47 agencies participating in the Govt³ programme on a voluntary basis may already be applying the relevant standards in other areas above.

The need for a transition period is recognised to avoid disruption of any procurement process already underway without specification of the relevant standards and criteria. Departments are expected, however, to ensure that all new requests for tender, requests for proposals, calls for registration of interest, or other similar approaches to the market, specify the relevant standard and criteria at the outset of a procurement in any of the above categories.

The GPDG has developed guidance and tools for procurement practitioners for the application of the mandatory standards and targets. These will be available at www.procurement.govt.nz. These tools will help departments to easily report on sustainability issues.

The GPDG is hosting lunchtime workshops as a platform for informing departmental practitioners of the details of the mandate and standards on 31 August and 10 September. I urge you to ensure attendance by the relevant personnel in your department. Please see the attached invitation, which has also been sent by email to representatives in each department.

Consideration of New Zealand tenders

Cabinet agreed that the policy of full and fair opportunity for domestic suppliers needs strengthening. Accordingly, departments are now required to ensure that their internal documentation of tender short-listing and contract award decisions (for contracts at or above $100,000) includes assurance of compliance with the government procurement policy, including justification for the rejection of any New Zealand tender, signed off at appropriate senior management level.³

The intention of this measure is to not to mandate short-listing of New Zealand tenders in every case but to ensure full and fair consideration (in accordance with existing policy). Documentation is to include basic reasons for rejecting any New Zealand tender, after consideration of all relevant whole-of-life criteria, including any value-for-money benefits associated with local supply. Guidance on potential value-for-money advantages of local supply is given in the MED publication "Government Procurement in New Zealand: Policy Guide for Purchasers".⁴ Sign-off should be at chief executive level for the most significant contracts.

This requirement confirms existing policy, and departments are expected to apply it immediately (where contracts have not already been awarded).

Syndicated Procurement Review

Syndicated procurement is a well-established method of procurement collaboration. It involves agencies consolidating their procurement requirements to achieve improved outcomes through greater purchasing power and reduce tendering costs for market participants. When entering into syndicated procurement arrangements, agencies need to consider carefully the effect that this will have on the market. In response to stakeholder concerns that agencies are increasingly inserting Common Use Provisions "CUP" into contracts (which enable other agencies to subsequently join the contract without going to market), and to protect the value of the CUP syndicated procurement model, a process for reviewing and endorsing CUP arrangements has been introduced. Conditions for using CUP clauses and contracts have also been clarified. Note that agencies are still expected to follow good practice when using other models of syndicated or collaborative procurement.

With immediate effect, all proposed CUP arrangements must be reviewed and approved before the market is approached. The Procurement Advisory Group, in consultation with MED, is responsible for undertaking reviews. MED's Government Procurement Development Group will co-ordinate the process and requests for review should be sent to procurement@med.govt.nz.

Except as provided for under transition arrangements, departments may join only those CUP contracts that have been subject to review and have achieved endorsement. A list of endorsed CUP contracts will be maintained on www.procurement.govt.nz.

Other elements of the sustainable procurement work programme (medium/long term)

Additional mandatory standards

As directed by Cabinet, the Ministry of Economic Development, in consultation with the Ministry for the Environment, will identify additional priority areas for mandatory standards, and report to the Cabinet Economic Development Committee (EDC) by December 2007. Candidate areas include building standards; ICT; white goods; textiles and uniforms; and cleaning products.

Carbon costing

The Ministry of Economic Development, in consultation with the Ministry for the Environment and the Treasury, will develop a methodology and policy on incorporating the cost of carbon into procurement decisions, pilot these in selected departments by December 2007, and implement them in all departments by July 2008.

Best practice tools

The burden of information requirements has been identified as a deterrent to some firms tendering for government contracts. Accordingly, the Ministry of Economic Development will undertake further work to increase standardisation and alignment of procurement policies and documentation requirements between departments, through greater use of prequalification of firms; better tailoring of information requirements to contract values; and greater use of e-tendering systems. Development of best practice tools in these areas is to be completed by December 2007 and they will be available on www.procurement.govt.nz.

Agency capability review

With a view to raising standards of procurement practice in agencies, the Ministry of Economic Development (GPDG) will lead the development of a rolling cycle of agency procurement capability reviews. These reviews will include assessment of performance against sustainability KPIs and targets which the Ministry is to develop in close collaboration with the Govt³ programme and the government's Carbon Neutral Public Service initiative, and the Treasury's new capital asset management framework. Departments will also be required to report annually on their procurement activities. The Ministry is to report back to EDC on the design and implementation of the review programme by December 2007.

Local industry participation policy

Cabinet considered the merits of introducing a local industry participation policy to improve opportunities for participation by New Zealand firms in major procurement projects. The aim would be to ensure that project owners and developers did not overlook relevant competitive capabilities of local firms, including SMEs, as partners or subcontractors. Cabinet directed officials to undertake further work on the feasibility, design and implementation of such a policy, reporting to EDC by November 2007. The Ministry will consult agencies, including selected departments, and the Industry Capability Network (ICN).

Compliance with existing requirements under the Mandatory Rules for Procurement by Departments

I am advised by the GPDG that compliance with the open tendering and other requirements of the Mandatory Rules has improved since their introduction in May 2006, but is still patchy in some respects. In particular, relatively few departments are yet complying with the requirement to post Annual Procurement Plans on the Government Electronic Tenders Service (GETS).

Annual Procurement Plans, including a statement of the department's strategic procurement outlook, are intended to give industry early information of the department's future requirements, even if only on an indicative basis, and to improve integration of the department's procurement planning with its wider business planning. A more strategic approach to procurement by government agencies, with earlier engagement with industry on possible solutions to prospective needs, has been identified as important for realising the potential of government procurement to promote innovation.

To ensure effective opportunity it is also important that departments observe the requirement under the Mandatory Rules to allow a reasonable time for suppliers to submit responsive tenders, and in no case less than ten working days. Departments should also ensure that they are posting contract award notices on GETS, as this can be an important source of market information for industry.

I urge you to remind your staff of the need to comply with these and the other requirements of the Mandatory Rules. The Ministry's agency capability reviews, and the new requirement for annual reporting of procurement activities, will include a focus on compliance.

I would appreciate your bringing this letter to the attention of relevant staff in your department, with the instruction that they take steps to incorporate the new initiatives into the department's procurement policy and practice. In the first instance, this involves complying with the new measures relating to mandatory standards, consideration of New Zealand tenders and syndicated procurement review, as well as existing requirements under the Mandatory Rules for Procurement by Departments .

I am copying this letter to departments' responsible Ministers for their information. It will also be published on the Ministry of Economic Development website at www.procurement.govt.nz.

If you have any questions, please do not hesitate to contact MED's Government Procurement Development Group Manager Phil Weir on (04) 474 2916 or email phil.weir@med.govt.nz.

Thank you in anticipation of your support for this important tool to ensure that government procurement practices are able to contribute to sustainable economic growth and objectives.

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