Bulk buying: the pros and cons of Government procurement reforms

December 2012


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The introduction of all-of-Government contracts have been a significant part of the Government Procurement Reform Programme, aimed at improving procurement and achieving greater cost efficiencies. Yet, despite the savings, most schools opt out. Why?

Improving procurement practice and policy has been on the Government’s ‘to do’ list for many years. The Government Procurement Reform Programme has seen many steps taken to achieving this goal since the programme’s inception in 2009; the latest step being the release of the Principles of Government Procurement in early October.

The reform of State sector procurement policy and practice is ultimately aiming to boost procurement capability and capacity and achieve cost savings; it is also looking to enhance business participation and improve governance, oversight and accountability.

The negotiation of the first All-of-Government contracts has been a significant aspect of the reform. Such contracts establish a single supply agreement between the Crown and approved suppliers for the supply of selected common goods and services purchased across government. The thinking behind the contracts is that they will save the participating agencies money, boost productivity for the suppliers involved in the agreement, and ultimately, save the Government and taxpayers money. Current contracts range from things like computers, travel, and vehicles, with more underway.

Public service departments and state service agencies are expected to use these contracts. However, according to the Government’s procurement website (another reform initiative), organisations in the wider state sector, including school boards of trustees, are “encouraged to do so”.

On closer inspection, however, it appears this encouragement has been fairly minimal. Mark Richards, chief of procurement for the Ministry of Education, says a programme has been running for the past year to get schools more involved, but admits it has been “fairly low key”.

Unsurprisingly, the rate of take-up has been low. To take the All-of-Government contract for computers as an example, of the 2,500 state and state-integrated schools in New Zealand, just around 100 have opted to purchase from the suppliers party to the agreement.

Why so few? Graham Prentice, chief executive of Cyclone Computers (one of the suppliers in the computers contract alongside the household names of Toshiba, Acer, Dell, and others), is baffled as to why more schools are not keen to take advantage of the significantly lower prices offered via the AoG contracts.

“The rate applied to a major bulk purchase by an institution like the University of Auckland, for example, is the same rate available to a remote three-teacher school,” he says, by way of illustration.

Perhaps it is the feeling of being ‘locked in’ to a contract that deters schools. Access to the preferential government rates comes with some special conditions, including a non-disclosure agreement to view the catalogues and a commitment to purchase only from the panel of suppliers for the duration of the contract. Schools must also agree to purchase items that are only for the classroom and running of the school and not to be on-sold to students.

Prentice also suspects ignorance may play a part within the school sector. He believes some schools may fear losing their freedom and their ability to support their local vendor.

This is a valid concern. In the wider context of the Government’s procurement reform initiatives, many have expressed fears for the local, smaller vendors, which could potentially struggle to compete with the big names featuring in the AoG contracts.

The release of the new principles brought about a fresh wave of concern due to its scanty mention of New Zealand suppliers, stating merely that they have a far opportunity to compete. Among those angered was Robert Reid, FIRST Union general secretary, who says the Government has significant purchasing power with the potential to support local industry, yet has passed up the opportunity to offer this support in favour of “saving a few dollars for the government”.

It could be the Government’s focus on money that is to blame for selected AoG contract suppliers failing to promote the contracts to schools. Prentice points out that vendors are unlikely to be advocating schools to opt into the All-of-Government contracts, as purchases made under these contracts are subject to a Government administrative fee. This ‘clip of the ticket’ could be seen as a disincentive for encouraging schools to opt in.

Richards says schools are currently dealing with a “mammoth amount of change” and thinking about whether to opt-in to the AoG agreements could be yet another thing to think about, which perhaps explains why the Government has taken a ‘softly, softly’ approach.

Until now, that is. Richards confirms recruitment is underway for a new role based with the Ministry of Business, Innovation and Employment that will be dedicated to assisting schools with opting in to the AoG contracts. It is hoped this will achieve a better rate of buy-in from the school sector and provide some good exemplars of how it can work well for schools.

There are no plans to make opting in mandatory for schools, however. Richards is emphatic on this point, and stresses the importance of schools being able to choose how they wish to operate.

So it seems while the drive for more cost-effective state sector procurement is about to be taken up a notch for schools, it remains up to schools whether they wish to take advantage of the cost savings or keep their options open.