Frequently Asked Questions
[ Last Updated 7 August 2009 ]
Questions about the Government Procurement Reform
Questions about syndicated contracting
Questions about rules for procurers
Government Procurement Reform
Scope and Rationale
What does the term ‘procurement’ refer to?
‘Procurement’ includes business processes spanning the whole cycle from the identification of needs to the end of a service contract or the end of the useful life and subsequent disposal of an asset.
‘Purchasing’ or ‘buying’ (the process of requesting or ‘requisitioning’ a good or service, placing an order, and paying the supplier) is just part of a procurement cycle that extends to pre-contract activities such as analysing expenditure and market trends, post-contract activities such as supplier performance and relationship management, and general activities such as risk management.
How much does the government spend through procurement?
The government’s procurement spend is approximately $30 billion per year.
Procurement expenditure includes all externally sourced goods, services and works that agencies need to do business. In a broad sense, this is all non-pay expenditure.
Why has the government decided to undertake procurement reform?
The government is facing ever-increasing demands to:
- Improve efficiency in this time of fiscal restraint;
- Free up resources to fund government priorities;
- Find more innovative and cost-effective ways of delivering public services, and
- Make it easier to do business with government. (The need to reform government procurement practice was identified as a priority initiative at the Job Summit in February 2009)
These demands will not be met by continuing with the status quo. Some fundamental changes are needed to unlock the potential of government procurement to deliver better, smarter, public services and improve value for money from taxpayer funds.
Government procurement needs to become a strategic activity to focus on outcomes, rather than the traditional focus on process compliance. To do this, the government has decided to embark on a comprehensive programme of government procurement reform.
Which agencies are included in the Government Procurement Reform?
Broadly speaking, all government agencies except local authorities are included within the scope of procurement reform.
Public Service Departments are expected to participate in reform activities and use all-of-government contracts, as are State Services agencies (including NZ Police, NZ Defence Force, District Health Boards, and Crown Research Institutes).
Agencies in the wider State sector (including State Owned Enterprises and Tertiary Education Institutes) are encouraged to participate in reform activities, but use of all-of-government contracts is optional.
Complete listings of agencies falling within the classifications above are available on the State Services Commission’s website.
Reform Work Programme
What will the Government Procurement Reform programme focus on?
The Government Procurement Reform Agenda has four major work streams:
- achieving cost savings;
- building procurement capability and capacity;
- enhancing New Zealand business participation; and
- improving governance, oversight, and accountability.
Work stream 1: Cost Savings
Ministers have a strong focus on the cost benefits achievable through better co-ordination and aggregation of government procurement expenditure. Few opportunities have been taken to date to collaborate on or standardise the approach to government procurement and there are significant variations in procurement practice across government.
Work under this theme includes looking for opportunities to make productivity savings by developing and encouraging government agencies to use common procurement tools and templates and make better use of shared services opportunities. Centres of Expertise hosted by selected lead agencies will be provided with additional resources to negotiate and manage all-of-government contracts in order to achieve cost savings in a small number of tactical (low risk/high value) areas where agencies are currently duplicating efforts.
Work stream 2: Procurement Capability and Capacity
It is important that, as well as driving cost savings, simultaneous actions are taken to assess agency procurement capability, with training provided to fill any skills shortfall. Experience in Australia has shown that the bigger savings potential actually lies in the reform of procurement practice in agencies, ensuring that projects are properly risk managed to deliver best total value for the public.
The procurement profession in New Zealand is in the early stages of development and still suffers from a lack of awareness at senior levels of the value professional procurement practice can bring, as well as a legacy of underinvestment in procurement capacity and capability building. The reform programme will initiate a programme of agency procurement capability assessments to provide a systematic method of gathering information at an agency level on current procurement performance and identify opportunities for improvement. Initially, the focus will be on procurement in those agencies with high value/high risk procurement expenditure.
Until recently, little in the way of procurement education was available to procurement personnel in New Zealand. Few procurers are professionally qualified. The reform programme includes a range of actions to address both the general skills shortage in New Zealand and raise procurement skill levels across the State sector including: setting common procurement competency standards for government procurers; fast tracking selected personnel through to professional status; offering subsidised training and education; and establishing a graduate programme to expand the talent pool. Cabinet has set the expectation that chief executives play their part too, by encouraging and supporting their staff to participate in procurement training, education and capability-building activities organised as part of the reform programme.
Work stream 3: Business Participation
There is some perception in the business community that current government procurement practice is placing significant barriers to New Zealand business participation in supplying government. Actions under the business participation theme of the Government Procurement Reform Agenda are focused on making it easier for New Zealand firms, and SMEs in particular, to do business with government.
Underlying these calls is a recognition that government is a procurer of significant scale, and in some areas will have needs for cutting edge and complex products. This presents an opportunity to encourage industry investment in labour, equipment, research and development, leading to more innovative products being produced and greater opportunities in export markets.
Activities include research to identify specific areas of concern and options for reducing bidding costs/red tape and improving government procurement policy, practice, capability and tools/systems. Importantly, policies affecting government procurement will be reviewed from the perspective of increasing business opportunities, in a manner consistent with New Zealand’s international trade commitments.
A number of the activities under this theme stem from the Job Summit held in February this year, where business leaders highlighted New Zealand business frustration with government procurement. The Ministry of Economic Development is working in consultation with business representatives Rod Carr and Laila Harre to explore ways that government procurement processes could support New Zealand firms and identify ways of improving access for SMEs by:
- reducing bias against SMEs by prime contractors;
- raising the capability of government procurers;
- increasing information flow from agencies to industry;
- reducing the complexities and compliance costs of tendering by SMEs; and
- helping SMEs bid for business now while also growing their capability for the future.
Work stream 4: Governance, Oversight and Accountability
Greater co-ordination and regular monitoring of agencies’ procurement activities and performance from an all-of-government perspective will be key to informing procurement reform decisions, achieving better and more consistent practice across the State sector, and enhancing business participation in supplying to government.
A governance structure for the procurement reform programme and all-of-government contracting activities will be established. Action will be taken to ensure procurement is positioned and resourced appropriately within agencies to deliver the procurement reform programme and, as there are currently no requirements for government agencies to do so, a common methodology for measuring and reporting procurement savings and performance will be introduced.
Using feedback gathered through (reform theme 3) business participation activities, policies affecting government procurement will be reviewed to ensure there are no conflicts that may hinder procurement reform and to make it easier to do business with government.
How was the Government Procurement Reform Agenda developed?
Ministers directed MED to develop a reform agenda based on overseas experience, coupled with current knowledge of the New Zealand situation. Accordingly, the Government Procurement Reform Agenda builds on good practice already evident in agencies, and draws on the procurement reform experiences of other jurisdictions (Australia, Canada, Scotland and England).
What are the priorities in the first year of the reform?
The reform team will gather and analyse agencies’ procurement expenditure to identify opportunities to generate cost savings through better co-ordination and aggregation of government procurement spend. In other jurisdictions, savings achieved through an all-of-government approach to contracting have contributed a large proportion of the total savings generated by procurement reform.
Another imperative is to respond to feedback from industry and calls from business leaders attending the Job Summit to reduce the complexity and costs of bidding for government contracts. The project team implementing actions under the business participation theme will be working with the business community early on in the reform programme to identify key areas of concern and develop recommendations on where and how improvements could be made.
A detailed list of all actions included in the procurement reform agenda is included as Appendix 3 of the Cabinet paper.
How can I provide feedback and input into the reform?
If you have comments or questions about aspects of the reform, or procurement in general, you can find more information on www.procurement.govt.nz or you can e-mail the Government Procurement Development Group at procurement@med.govt.nz.
Savings and Benefits
What savings could be achieved through Government Procurement Reform?
As there is no current analysis of total government procurement expenditure, it is not yet possible to estimate potential savings with any accuracy. In the United Kingdom, savings generated through better procurement accounted for 40% (NZ$20 billion) of the wider efficiency programme target of NZ$50 billion a year savings by April 2008. Western Australia has reported cumulative savings and benefits of an estimated AU$310 million, against implementation costs of AU$27 million (benefit to cost ratio of 11:1), with a net saving of AU$283 million from 2004 to mid 2007. Approximately AU$257 million of those savings have been reallocated to other government priorities.
In New Zealand, initiatives such as the procurement improvement programme championed by chief executives of District Health Boards have demonstrated on a small scale the potential to achieve greater efficiencies and cost savings across government through spend aggregation, standardisation and improved procurement practice. The negotiation of all-of-government contracts in other jurisdictions typically yields on average 5 - 10% cost savings and it is expected that similar results will be achieved here.
Other benefits of the reform for the government, and wider economy, are:
- Productivity gains;
- More projects delivered to time and budget;
- Reduced commercial risk exposure;
- More innovative ideas coming from the government’s supply chains;
- Less red tape and expense in doing business with government;
- Greater opportunities for small and local suppliers;
and ultimately, better, smarter services for the public.
How will the savings achieved be spent?
How savings are used is at the discretion of Ministers. The treament of fiscal savings will be finalised in June 2010 once the first proposed contracts have been awarded and savings are evident.
Costs and Funding
How much will it cost to implement procurement reform?
The full reform programme could require a total commitment of up to $20 million over four years. In 2009/10, $3 million is required to implement year one reform actions. Future funding requirements, estimated to be up to $6 million per annum, will be confirmed in year one.
As has been the experience of other jurisdictions, the savings resulting from procurement reform actions are expected to cover the cost of implementing reform and generate a positive return on investment in the medium- to long-term (Procurement reform in Western Australia, for example, delivered a cost/benefit to cost ratio of 1:11).
How will procurement reform be funded?
The government is making an upfront investment in procurement reform to achieve savings and other benefits in the medium- to long-term.
An investment of $3 million is required to implement year one reform actions, which will be centrally funded.
The out-years can then be funded from a proportion of the savings delivered from July 2010 onwards. The treatment of these fiscal savings will be finalised in June 2010 once the first proposed contracts have been awarded and savings are evident.
Progress and Timeframes
Where can I find progress updates?
Once the foundations for the programme are in place, regular progress updates will be published on www.procurement.govt.nz
If you would like to be automatically notified when key updates are published on this website, register and subscribe to the Government Electronic Tenders Service (www.gets.govt.nz) which will be used to send alerts to all subscribers.
When will the first set of all-of-government contracts be available?
Centres of Expertise are responsible for ensuring all-of-government contracts in year one spend areas (IT equipment, passenger vehicles, and stationery) are in place by 30 June 2010. Agencies are expected to transition from existing arrangements to all-of-government contracts as soon as is practicable without incurring an early contract termination charge.
When is the central reform team due to report back to Cabinet?
The Ministry of Economic Development will report progress, agency participation and any barriers to implementation to Cabinet’s Expenditure Control Committee (ECC) by the following due dates:
- 30 August 2009
- 30 November 2009
- 28 February 2010
- 30 June 2010
How long will the reform take?
The Government Procurement Reform Agenda sets the direction for a four-year programme. However, Ministers expect tangible results to be demonstrated at the end of year one before committing increased long term funding to support on-going reform of procurement activities.
When did the procurement reform programme start?
Cabinet approved the reform agenda in May and implementation started in June 2009.
Centres of Expertise
What will Centres of Expertise do?
The role of a Centre of Expertise is to:
- manage key areas of tactical (low risk/high value) spend across government;
- develop a strategy to gain maximum efficiency for given all-of-government/sector specific spend areas;
- establish and manage linkages with suppliers in the supply chain;
- implement agreed actions on behalf of Government to improve efficiency (this may include letting/managing an all-of-government/sector specific contract);
- measure and report savings/efficiencies delivered through any all-of-government/sector specific approaches;
- manage all-of-government/sector specific contracts awarded to deliver improved outcomes; and
- work effectively with key businesses in relevant sectors.
The Ministry of Economic Development will oversee and is ultimately responsible for the reform actions being implemented by Centres of Expertise.
While host agencies will bear some additional costs relating to management time and administrative support services, the Ministry of Economic Development will provide the additional procurement resources needed to fulfil this role. Host agencies will also be prioritised for capability building initiatives, such as training for procurement personnel.
Which agencies will host a centre of expertise?
The year one host agencies - Department of Internal Affairs and the Ministry of Economic Development - have been selected on the basis that they have senior level support, relevant procurement expertise, and the ability to mobilise resources quickly to ensure timeframes for delivery are met.
- The Department of Internal Affairs will host the Centre of Expertise responsible for negotiating and managing all-of-government contracts for IT equipment (laptops and desktops) and multi-functional devices (copier, printer, scanner and fax combined).
- The Ministry of Economic Development will establish the Centre of Expertise responsible for negotiating the all-of-government contracts for passenger vehicles and stationery.
If the Centres of Expertise approach proves successful in year one, more centres will be established in years 2-4 of the reform. The expectation is that around ten Centres of Expertise could be established. Selection criteria will be developed to enable agencies to apply to host these. Agencies can register their interest by contacting the Ministry of Economic Development’s Government Procurement Development Group (procurement@med.govt.nz).
Can a private sector organisation host a Centre of Expertise?
No. Centres of Expertise will be hosted by selected government agencies. Procurement expertise will, however, be needed from the private sector to support Centres of Expertise.
All-of-government Contracts
What is an all-of-government contract?
All-of-government contracts will be established in selected areas of spend by Centres of Expertise on behalf of the State sector. These contracts will enable State sector agencies to purchase common items directly from approved suppliers.
All-of-government contracting is an approach designed to achieve greater efficiencies in the way common goods and services are procured across government. They will streamline the purchasing process for agencies and eliminate the need for suppliers to respond to multiple tenders.
Does the introduction of all-of-government contracting signal a return to centralised purchasing by a single entity?
No, this is absolutely not a return to centralised purchasing. There will, however, be greater governance and oversight of government procurement from the centre.
In keeping with New Zealand’s devolved public management system, lead agencies will be empowered and resourced to host Centres of Expertise to negotiate a small number of government contracts in low risk/high spend common areas of spend. Government agencies will continue to manage their specific procurement needs, which make up the majority of their spend. Capability and capacity raising activities being implemented by the procurement reform programme are intended to help them do this more effectively.
What savings are expected to be generated through all-of-government contracts?
As there is no current analysis of total government procurement expenditure, it is not yet possible to estimate potential savings with any accuracy. In other jurisdictions, the negotiation of all-of-government contracts alone typically yields on average 5 - 10% cost savings and it is expected that similar results will be achieved here.
Cabinet has challenged officials to demonstrate tangible cost savings in year one of the reform. As well as tangible cost savings, all-of-government contracts will give individual agencies more time to support their sector specific, geographic focused or agency unique areas of strategic spend.
Who will lead the negotiation of all-of-government contracts?
The Centres of Expertise led by Department of Internal Affairs (for IT equipment) and the Ministry of Economic Development (passenger vehicles and stationery) will negotiate and manage contracts on behalf of government. The Centres of Expertise will be overseen and supported by the Ministry of Economic Development.
Can a private sector organisation establish all-of-government contracts for agencies to use?
No. All-of-government contracts will be established by Centres of Expertise hosted by selected government agencies. State services agencies will be required and wider State sector agencies will be encouraged to use these contracts. Private sector organisations currently offering contracts in target spend areas will have the opportunity to bid for all-of-government contracts in an open, competitive and transparent process with other suppliers.
In spend areas not covered by all-of-government contracts, individual agencies can use contracts negotiated by private sector organisations, provided these have been established in accordance with Government Procurement Policy Principles and the Mandatory Rules for Procurement by Departments, where these apply.
When will the first all-of-government contracts be negotiated?
It is anticipated that negotiations will begin at the end of this calendar year (2009) to meet the expectation that the first all-of-government contracts will be available by 30 June 2010.
Which areas of spend will be targeted first?
The areas of spend areas where all-of-government contracts will be negotiated in year one of the Government Procurement Reform programme are expected to be:
- IT equipment
- desktops;
- laptops; and
- multi-functional devices (ie printer, copier, scanner, fax combined)
- passenger vehicles; and
- stationery.
These spend areas have been targeted on the basis that:
- they are not strategic;
- they are amenable to greater aggregation and standardisation across government because agencies are buying broadly the same items from the same national or international suppliers (i.e. agency needs are not unique);
- any supply problems in these areas are easily resolved; and
- there is good evidence from other jurisdictions that cost savings are achievable in these areas through an all-of-government approach.
Which areas of spend could be targeted in the future?
All-of-government contracts will be negotiated in those areas of expenditure considered suitable for a national approach, i.e. high value/low risk goods and services commonly needed across government.
As there is no current analysis of total government procurement expenditure, it’s not yet possible to identify all-of-government or sector specific contracts for year two of the reform programme and beyond. The Cabinet paper lists some possibilities (including telecommunications; energy; air travel; banking; temporary staff; and facilities management). MED expects to be able to confirm spend areas to be targeted in year two of the reform by December 2009, once data on agencies’ needs and expenditure has been collated and analysed.
Will all-of-government contracts be awarded to one or multiple suppliers?
This depends on the market. It is expected that in most instances a panel of suppliers will be needed to cater for a variety of agency needs and maintain competition in the market in the long term.
Will an all-of-government approach reduce competition in the market?
Consolidating government agencies’ procurement expenditure does not automatically imply that contracts will be awarded to one supplier or that the market will be distorted. In developing an all-of-government approach, a thorough assessment of market dynamics will be undertaken within each specific category of spend to ensure appropriate arrangements are established.
How will an all-of-government approach affect SMEs?
The effect on small and medium sized enterprises (SMEs) depends on the nature of the supply market. The spend areas being targeted for all-of-government contracts are typically dominated by large multi-national suppliers (eg there are no passenger vehicle or volume business computer manufacturers in New Zealand). The reform team will look for opportunities for SMEs to support delivery by these large suppliers and to operate as the resellers/service providers to government (eg car dealerships).
What length of time will all-of-government contracts be awarded for?
Centres of Expertise will undertake market analysis to determine an appropriate term for each individual all-of-government contract. Contracts in these areas of spend are unlikely to be awarded for more than a five year term.
Who is responsible for managing all-of-government contracts once they are negotiated?
The intention is to provide on-going support for each all-of-government contract. Centres of Expertise will therefore be resourced to carry out contract management activities on behalf of government over the life of the contract.
Which agencies will be required to use all-of-government contracts?
All State Services agencies will be required to use all-of-government contracts. This includes Public Service Departments, NZ Police, NZ Defence Force, District Health Boards, and Crown Research Institutes.
Use of all-of-government contracts by agencies in the wider State sector (including State Owned Enterprises and Tertiary Education Institutes) will be encouraged, but is ultimately optional.
The contracts are unlikely to extend to local government, even at an optional level.
Lists of agencies falling within the classifications above are available on the State Services Commission’s website.
When will agencies transition to all-of-government contracts?
Not all agencies will be in a position to begin using all-of-government contracts from day one. Agencies are, however, expected to transition as soon as is practicable and, for contracts established by 30 June 2010, and preferably no later than 30 June 2012.
Each agency will agree to a specific transition date that corresponds with their business needs and existing contractual arrangements for each contract with the relevant Centre of Expertise.
Read the transition guide, which sets out transition options and will help you plan accordingly.
How do all-of-government contracts differ from syndicated contracts?
Syndicated contracts are typically structured to meet a particular lead agency’s needs. Agencies with similar needs can voluntarily participate or ‘piggy back’ and use the same terms and conditions. In contrast, all-of-government contracts are negotiated on the basis that the government as a whole is the client, not the lead agency(s). As agencies will be required to use all-of-government contracts, the approach to specification and client engagement is far more critical.
Will syndicated contracting continue?
Yes, there is a place for both all-of-government and syndicated contracting. However, future syndicated contracts will focus on areas where collaboration on an all-of-government basis is not appropriate (ie to cater for sector specific and specialist requirements).
Suppliers questions
What level of importance will a supplier’s level of sustainability play?
Sustainability is one of the principles embedded in the government procurement policy. Whilst the Govt3 programme is no longer in place, sustainability remains a Government priority.
The three category reviews (timber, wood products and paper; travel; and light fittings) first issued by MED in August 2007 – which provide standards, guidelines and targets for the core public service departments - are still applicable.
Sustainability is an important component of whole of life costs, and whole of life costs should play a major role in a procurer’s decision making.
How important is it to the Government when procuring that the product or service is NZ made or sourced?
Government purchasers must show that they have provided full and fair opportunity to domestic suppliers to compete when tendering for goods or services. The Government recognises that it will often make good business sense in terms of value for money and a reliable supply base, that goods and services are sourced from local suppliers.
At the same time, however, the government’s procurement market is open and competitive and no preference or weighting is given to local content itself. Government agencies should buy from the best source available according to their own assessment of costs and benefits.
The Government recognises that there are currently a number of barriers to firms trying to do business with Government. Part of the reform programme is looking at what these barriers are and what steps can be taken to mitigate against them. As part of this work we have been interviewing a number of firms – and in particular have interviewed small and medium sized NZ firms.
GETS (Government Electronic Tenders Service)
What is GETS?
GETS (the Government Electronic Tender System) is the official publication mechanism for New Zealand government procurement opportunities.
GETS promotes open and fair competition in the New Zealand government market and helps the Government meet its international trade agreement commitments by providing publicly accessible online information about New Zealand government business opportunities (www.gets.govt.nz).
Individuals can register and subscribe free of charge to be automatically notified by email of opportunities that come up in their areas of interest.
Who can post tenders on GETS?
All New Zealand public sector agencies, including local authorities, are encouraged to publish information on GETS. New Zealand Public Service Departments, New Zealand Defence Force and New Zealand Police are required (by the Mandatory Rules for Procurement by Departments) to use GETS for the publication of all opportunities above minimum thresholds and related information such as contract award notices.
GETS is not designed to be used for private or voluntary sector tendering and privately owned tender portals exist to cater for these needs.
How do I access GETS?
GETS is managed on behalf of the New Zealand Government by the Ministry of Economic Development. Visit www.gets.govt.nz to view current tenders and related information. You can register free of charge to download detailed tender information and subscribe to be notified by email of opportunities in your areas of interest and updates on government procurement reform.
Will the procurement reform affect GETS?
Yes. GETS is an essential part of the wider IT framework needed to support reform activities, particularly those designed to increase information flows to industry and provide greater transparency of opportunities for New Zealand business.
In establishing this framework, the results of the independent review of GETS released earlier this year will be taken into account, as will the findings of the technical audit currently underway to determine whether the existing system is capable of supporting improvements to functionality (eg electronic tender box, electronic tender evaluation tool etc) suggested by stakeholders who participated in the review.
What is being done in response to the independent review recommendations?
The Ministry of Economic Development is currently investigating the cost and impact of incremental improvements on the existing system to determine what is technically feasible. These findings will help the Ministry determine which development path for GETS would offer best value for money. In that sense, the technical audit is the final piece of the GETS Review.
The best possible scenario is that the existing system can be enhanced to meet, say, 80-90 % of what stakeholders need at minimal cost. If that is the case, the Ministry could fund development costs from existing resources and park the remaining 10-20% of things on stakeholders’ wish-list until the economic climate improves.
On the other hand, the technical audit may show that the existing system is running at maximum capacity and that it is not possible to make changes needed to address even the most minimal of stakeholder requirements. The Ministry would then need to build on the options analysis undertaken as part of the Review to decide whether to build, purchase/license, or outsource a new system. It’s all about finding a solution that balances value for money considerations with the opportunity to provide improved system functionality to better meet stakeholders’ needs.
In the meantime work on developing the ‘comprehensive procurement and tendering reference intellectual property’ (a support library of guidance, templates and tools that permit efficiency and compliance with good practice) is underway. This work is now being carried out in the context of procurement reform to ensure it is consistent with the implementation of actions stemming from the Job Summit to cut red tape, increase tender opportunities, and make it easier for small and medium sized enterprises in particular to bid for government business.
Read the full report on the independent review of GETS.
Will the policies behind GETS be changed?
GETS is merely a tool to make the market aware of all government tender opportunities. GETS does not set the policies and rules that guide the procurement activities of government agencies, though these do influence what information is required to be published on GETS and who has access to it.
In response to feedback from industry and business leaders attending the Job Summit, actions have been included in the Government Procurement Reform Agenda to critically review procurement related policies and investigate how the complexities and compliance costs of doing business with government could be reduced. A detailed list of reform actions is included as Appendix 3 of the Cabinet paper.
Back to Top