Monday, April 30, 2018

Sustainable Procurement

The New Zealand Government faces a number of challenges at any given time. More and more it turns to technology as the solution to these challenges. Unfortunately, when an organisation has an immediate problem not too much thought is often given to macro level concerns of how the procurement of a solution affects the market and the vendors in it. Given that NZ Government expenditure with third party suppliers equals 19% of GDP, its procurement policies have a massive effect on what types of businesses will succeed and how fast they can grow. Significantly more effort needs to be given to procuring in a way that works for New Zealand in the long term. A successful procurement policy should have the following outcomes:

  • Encourage participation in the market by a broad range of vendors.

  • Support the growth of new vendors by making it economically feasible to bid for work as an SME.

  • Have some consideration of social and environmental implications of procurement.

  • Identify and take advantage of opportunities to produce additional value either to the organisation or New Zealand.

  • Establish best value for money where value is not just direct benefits but also indirect benefits.

Australia is ahead of us in a number of these areas. The Commonwealth procurement rules already require that any contract over $4M must consider the total economic benefit to Australia and the Department of Foreign Affairs and Trade (DFAT) is starting to roll this out on smaller procurements as well. DFAT has also set requirements within procurement to include a set proportion of Indigenous Australian suppliers and subcontractors on their procurement. In both cases they’re leveraging the procurement framework to deliver on a broader set of policy goals. 

Making it easy for small organisations is critical in having a steady supply of new thinking and problem solving that suits New Zealand. If New Zealand doesn’t produce its own ecosystem of smaller suppliers, our only options will be large foreign players - the economics of remoteness rarely make sense for smaller foreign businesses. The problem with that is that many of our problems are simply uneconomically small when it comes to the costs of large suppliers. For example, New Zealand has a problem with rheumatic fever but there are fewer than 200 cases per year. At this small scale there is no international provider for whom it makes economic sense to travel here, learn about the environment and people, and then deliver a useful solution. However, local providers can deliver useful solutions affordably because they already have proximity and context. For those local providers to exist they must be consistently winning enough work to meet payroll every week and develop their staff over time. 

In many ways, if you procure from local businesses you get the triple bottom line (economic, environmental, and social) for free. New Zealand’s businesses are close to our society and our environment; the vast majority of them care deeply about the future of New Zealand on both a social and environmental level. Most technology businesses in particular are reliant on New Zealand being a great place to live in order to keep our skilled staff; most of the best of them could move to a number of places in the world that would pay them far more without much effort.

One of the biggest areas of opportunity for government procurement is in better supporting the creation of new IP and the productization of that. New Zealand has had a number of successes over the years where local companies have leveraged systems built for government into complete products that are sold around the world, ranging from Orion Health’s broad healthcare capabilities to Foster Moore’s niche but successful registry tools. These successes have had economic benefits orders of magnitude larger than what was expected from the original projects. While not every project will produce great IP like this, we should make sure the opportunities happen more often rather than less. Imagine for instance if the IRD rebuild was going to lead to some New Zealand companies owning a platform to deliver modern tax capabilities to other small to medium sized countries - we wouldn’t have to sell many billion dollar tax systems to materially affect our economy.

Some of this might sound scary but it shouldn’t. Australia is already heading down this path in some areas, the GCDO already encourages government departments to let providers keep IP unless they have a good reason otherwise, and we already have many procurement documents asking about social outcomes. What seems to be lacking is a change in mindset across government. There are little pockets of each of these practices, but most of the time when someone procures something they’re under pressure to deliver a particular outcome. For a change in procurement to happen everyone needs to understand the long term benefits to New Zealand. Business cases need to support long term investment across New Zealand with funds available to take advantage of opportunities or spend a little bit more if it will have better outcomes for New Zealand. If an individual under pressure has to choose between their immediate goals or New Zealand’s goals then New Zealand will never win.