NZOSS response to MBIE proposal to extend Government Procurement rules.

Posted on: November 22, 2020 - 19:46 By: carl

We have taken the opportunity to respond to MBIEs discussion document on ‘Extending the Government Procurement Rules to government entities in the New Zealand public sector’. At present the Government Procurement rules are mandatory for around 135 entities in the Government and State Services and are recommended for the rest of the State and Public Sector including around 2,400 School boards and all of the district and regional councils plus a lot of other sundry organisations.

Our response is NO, this is not a good idea as the Procurement Rules for IT have not had the desired effect and have limited competition and innovation to a small number of players bound primarily to a single overseas vendor. We have proposed that the Rules remain as recommended guidance and that more attention is paid to ensuring that the desired better outcomes for Māori, Pasifika,regional businesses, and social enterprises mentioned in the document actually occurs.

NZOSS Response to the MBIE discussion paper. The questions are from the response document followed by our answers.

1. In general, do you agree with extending the Government Procurement Rules to more government entities in the New Zealand public sector?

In short the answer is no, the Government Procurement rules SHOULD NOT be extended into the State and Public Sector as mandatory in their current form.

In general we agree with the current Rules intended to create a level playing field for both local and overseas businesses to bid for and operate Government services. The Five Principles of Government Procurement and the Government Procurement Charter that preface the Rules clearly set the tone for the document. The Rules themselves aim for integrity, fairness, and value both for the Government and citizens as well as the businesses that supply the services and even have a mechanism to prevent avoidance of these values.  

We feel, however, that there have been some undesirable outcomes under the current process, particularly in the IT sector, that are hindering our efforts to build an innovative and sustainable IT industry.  

The rules state that all agencies must use an AoG contract if there is one (Rule 58). They also state the a Common Capability contract must be used if there is one (Rule 60).  

One specific concern we have is that there appears to be confusion over the scope and use of the Microsoft Cloud Software and Services Agreement (MSCCA). The Procurement website (https://www.procurement.govt.nz/contracts) lists the MSCCA as being an IT Common Capability agreement. That means it is not an AoG contract but implies that it is Common Capability contract. The description at https://www.digital.govt.nz/products-and-services/products-and-services… uses the words "all-of-government" implying that it IS an AoG offering and therefore mandatory under rule 58 and then states that it is not a “common capability” contract despite the implied association on the Procurement website.  

The description then goes on to say that the licensing benefits from the agreement are only available through 6 designated License Solution Partners (LSPs) and identifies them as either overseas entities or very large New Zealand companies, thereby excluding ‘Māori, Pasifika, and regional businesses, as well as social enterprises as described in the desired broader outcomes section of the procurement rules.

To add further confusion, the Government Chief Digital Officer is ‘working to make it simpler and easier’ for agencies to purchase IT services and https://www.digital.govt.nz/products-and-services/products-and-services… lists 24 purported IT Common Capabilities but https://www.procurement.govt.nz/contracts only lists 9.

The current outcome of the above is that agencies are using MSCCA incorrectly, believing it to be mandatory, and bypassing the procurement process. As a direct result, very few New Zealand businesses are getting an opportunity to bid with, for example, viable open source solutions.

If this is extended to smaller entities such as the 2,416 School Trustees who are already supported by entities in the broader outcomes arena then there is a real risk of destroying the very thing that the change is trying to achieve.

2. What do you think are the benefits or opportunities?

Unfortunately the the apparent misapplication of a single contract in the IT sector, the MSCCA, has led to a very undesirable situation where Government agencies are able to avoid having to go out to procurement for some software and services. In addition there are only 6 LSPs named in the contract meaning the majority of suppliers cannot compete on services covered under the agreement.  

While the MSCCA at its core looks to be delivering value for money it is in fact stifling competition, limiting opportunities, and actively depressing NZ’s IT industry. In order to realise the true benefits and create better opportunities and outcomes for Māori, Pasifika, regional businesses, and social enterprises as desired, at minimum the MSCCA should:

  1. be clearly identified as a cross-government capability, not an AoG one. - This will ensure that Government Agencies go out to market for all of the software and services covered under the agreement rather than just defaulting to ones owned by a single company to avoid procurement overhead.  
  2. allow all businesses that provide services to Government the ability to obtain licenses at the negotiated rates. - Restricting the ability to obtain licenses at reduced rates to 6 companies means that every other business with a proposal is already at a financial disadvantage compared to the designated 6. That is clearly not the intent of the Procurement Rules as noted previously.

There should also be a focus on the proper application of Rules 27 and 28 that state:

  1. agencies must not apply technical specifications or conformance requirements that hinder suppliers from bidding.
  2. technical specifications must be based on performance and functional requirements or international/New Zealand standards or regulations as appropriate.
  3. agencies must not refer to a particular trade name, service, or supplier.
  4. any pre-conditions must be limited to legal, financial, commercial, or operational capacity or appropriate relevant technical skills, expertise, or experience.

If this is done correctly, significant savings potential can be realised by companies developing and implementing open source solutions that also adhere to international open standards and agreements. There is almost no barrier to entry for anyone including Māori, Pasifika, regional businesses, and social enterprises in starting to develop, support and deliver open source solutions.  

3. What do you think are the impacts?

In addition to the examples presented in the discussion paper we believe that, from an IT perspective, the confusion around the Rules is having the opposite effect than the one desired. We believe that while the Rules may continue to be used as a guide for the State and Public Sector they should not be made mandatory. It would be preferable to stress the Procurement Principles and Charter as the key guidance with the Rules as best practice.  

An example of what may be lost if the one-size-fits-all approach is applied to smaller agencies is the development and use of the Koha Library Management System (LMS). This project was started in 1999 by the Horowhenua Library Trust supported by the Horowhenua District Council to create a cost-effective alternative to their current LMS that had a major Y2K issue.  

Because of its community-based development it has seen huge uptake around the world and is now used in thousands of public, medical, corporate, and private libraries  with many millions of books, supporting millions of users making it one of the most widely used LMSs anywhere. Its development has enabled local businesses the world over to provide profitable but affordable Koha support and maintenance services including companies such as Catalyst IT here in New Zealand. Catalyst, in fact, run a cloud based service using Koha to maintain the libraries of a number of New Zealand Government departments including the Department of Internal Affairs, Ministry of Social Development, and Ministry of Education, but not, we note, the Ministry of Business, Innovation, and Employment.  

If these proposed rules had been applied to the Horowhenua District Council it is unlikely that any innovation would have occurred at all: the compliance process around the rules would have made that too difficult, just as we have seen happening in the Public and State Services that are currently covered.  
 
4. Do you think the mandatory application of the Rules by all government entities in New Zealand's public sector would lead to more consistency in procurement practices?

Mandatory application could possibly achieve more consistency, but, as we have already noted, consistency in procurement practice in the IT sector has not led to the degree of innovation and capability for New Zealand businesses that the Rules are supposed to drive. There are a select few businesses that are benefiting to the detriment of the wider industry including Māori, Pasifika, and regional businesses that we want to support.   

5. Do you think the mandatory application of the Rules by all government entities in New Zealand's public sector would reduce the cost and effort of doing business with government?

No. In fact the costs are likely to increase because of the confusion around the AoG/Common Capability definitions and the restrictions that would be placed on the Public Sector agencies. Combine this with the reduction in the number of businesses that would be able to compete without access to the MSCCA licensing model and competition is likely to reduce, resulting in less pricing pressure on the remaining suppliers.  

6. Do you think the mandatory application of the Rules by all government entities in New Zealand's public sector would lead to more accountability for their procurement decisions?

No. The New Zealand Public Sector is accountable to the Government already through other Rules, Regulations, and Acts of Parliament. In addition to this all of the agencies are, in the end, accountable to the New Zealand public through local and general elections.     

7. What would be the benefits, opportunities, and other impacts for Māori businesses if the Rules applied to all government entities in New Zealand's public sector?

From an IT perspective, there are no benefits. As outlined earlier the Rules are currently not delivering the expected outcomes and have raised the bar to participation to an artificially high level. Focussing on the Principles, the Charter, and ensuring that the bar is lowered by ensuring that competitive open source solutions are evaluated on an equal footing would be of greater benefit.   

8. What would be the benefits, opportunities and other impacts for Pasifika businesses if the Rules applied to all government entities in New Zealand's public sector?

See answer to Q.7

9. What would be the benefits, opportunities and other impacts for regional businesses if the Rules applied to all government entities in New Zealand's public sector?

See answer to Q.7

10. What would be the benefits, opportunities and other impacts for social enterprises if the Rules applied to all government entities in New Zealand's public sector?

See answer to Q.7
 
11. What would be the benefits and opportunities if all government entities in the New Zealand public sector were required to purchase common goods and services from the All-of-Government contracts?

There would be very few realisable benefits as the AoG contracts are geared towards the major centres. Digital or online services that could cost-effectively be delivered countrywide would be of the greatest benefit however there are issues around some of those as well, as noted previously.

The NZOSS would recommend allowing all government agencies access to the AoG services but not to make it mandatory. That way the agencies could choose those services that best suit their local environment. In addition the Government Marketplace initiative should be restructured to show actual capability rather than generic service channels. There should also be the ability to search by region so that the distributed agencies could select IT implementation and support services from registered local suppliers. Open source solutions in the Marketplace would provide Māori, Pasifika, regional businesses, and social enterprises a significant opportunity to develop, support and deliver these solutions and achieve the outcomes described in the Government Rules Principles and Charter.

12. What would be the cost implications or other impacts if all government entities in the New Zealand public sector were required to purchase common goods and services from the All-of-Government contracts?

We would expect the cost of services to go up in general as those supplying AoG services would need to broaden their coverage areas into remote rural locations. Again, services and support that could be delivered via digital or online services would be less affected however it is also likely that the local businesses currently supplying local IT services would be displaced due to the limited number of suppliers in the AoG catalogue.

The recommendation would be to allow all government agencies access to the AoG services but not to make it mandatory. That way the agencies could choose those services that best suit their local environment while aligning with the Government Rules Principles and Charter.