'CIPS' Strategic Procurement Forum opening address

Hon Lianne Dalziel
Minister of Commerce, Minister for Small Business,
Minister of Women’s Affairs, MP for Christchurch East

14 June 2007 Speech Notes

'CIPS' Strategic Procurement Forum opening address

SkyCity Convention Centre
Auckland
9.30am

Good morning. It is a pleasure as Minister of Commerce to welcome everyone to this, the first New Zealand Chartered Institute of Purchasing and Supply ‘CIPS’ Conference.

I accepted the invitation to do so, in order to say how pleased I am that New Zealand now has its own branch of CIPS, and how important that is to the government's agenda – both in terms of procurement generally and in terms of sustainability in particular. Linking New Zealand procurement practitioners into a global community of over 42,000 members in 120 countries has got to be good for the profession.

I have an interest in procurement from several perspectives. As Minister of Commerce I am responsible for government procurement policy. However in addition to that specific role I have a broad responsibility for maintaining a business-friendly regulatory environment that fosters competition, along with the efficient and effective operation of markets.

As Minister for Small Business, my interest is in a business environment that helps realise the potential of the small and medium enterprises (SME) sector as a productive and competitive supply base for both the private corporate sector and the government itself.

There are two other reasons why I accepted the invitation this morning.

The first is that it gives me the opportunity to explain why we need good procurement capability within government now more than ever.

The second is to give you a quick overview of the Labour-led government’s sustainability agenda and what this means for government procurement practitioners.

It is fitting that this conference is designated a “Strategic Procurement Forum”.

Procurement is too important to be treated as a technical, administrative activity that sits somewhere in the finance or corporate services section with little senior management interest and attention. It is the government's view that it is time to raise the profile of the profession.

The reality is that good procurement is essential to the government’s ability to achieve its wider policy objectives. Procurement is a strategic delivery tool and therefore requires a strategic approach.

It is important to remember that the government is a significant purchaser of goods and services. In particular sectors, such as ICT, the government is the single largest customer in the domestic market.

The total size of the government procurement market is difficult to estimate, but OECD averages suggest that government procurement expenditure in New Zealand is in the range of $14 - $20 billion per annum.

The potential for government procurement to contribute to the achievement of broader economic, environmental and social objectives is obvious.

For example, by promoting sustainability in the government's own operations and in business development New Zealand firms can lead the market for goods and services that are sustainable.

I believe that these economic transformation and sustainability goals are best achieved within a broader government procurement framework that lifts the quality and standards of procurement practice across the state sector as a whole.

The Government Procurement Development Group was established within the Ministry of Economic Development in July last year as one of the first activities of the Buy Kiwi Made programme that the government is implementing together with the Green Party. This group is tasked with leading a new strategic approach to procurement policy and the improvement of practice across government. The group’s manager, Phil Weir, is here today to outline a number of the initiatives that Cabinet approved for inclusion in the group’s work programme last month.

Key priorities for the group this year include incorporating sustainability principles into the government procurement policy and extending the scope of this policy beyond core departments.

The current government procurement policy is mandated to 36 agencies (core public service departments, NZ Police and NZ Defence). If government is to harness its purchasing power, it makes sense to extend the reach of a single procurement policy to agencies such as Crown entities and State Owned Enterprises, which are some of the largest purchasing agencies in a sector comprising over 200 agencies, excluding local authorities.

I should note at this stage that, while greater consistency of procurement practice is certainly advantageous, (especially in a country the size of New Zealand where scale and scope is hard to achieve), a one-size-fits-all approach should not be pursued at all costs. In some cases, there are valid reasons for variations in procurement practices and the government's procurement policy should be sufficiently flexible to accommodate these.

To guide the application of sustainability principles, a national sustainable procurement framework leveraging off best-practice initiatives overseas is being developed. This framework will help provide consistency across government and guide the implementation of initiatives that relate to sustainable procurement.

Sustainable procurement is one of a package of six projects developed in the context of the government’s aim to make New Zealand the first truly sustainable nation, and the need for long term sustainability strategies to meet the challenges New Zealand faces in the 21st century.

The Prime Minister announced the key aspects of the six projects in her Statement to Parliament in February this year, as well as other closely related matters such as changes to the Ministerial fleet, the biofuels sales obligation and work on energy policy. The projects are:

- Sustainable households – a project led by the Ministry for the Environment to encourage a wider section of the community to participate in sustainable action and support local leaders as key change agents.

- Business partnerships for sustainability – led by the Ministry of Economic Development, and involves providing marketing and market access support for sustainable businesses, developing sector specific sustainability strategies and actions plans, and working with industry groups to enhance existing business sustainability programmes.

- The Waste minimisation and management project – led by the Ministry for the Environment. It aims to provide more recycling facilities in public places and encourage better product stewardship to minimise environmental impacts.

In terms of government efforts to "walk the talk", the Ministry for the Environment is taking the lead in moving the public service towards carbon neutrality.
This year, six government departments will commit to achieving carbon neutrality by 2012, and next year all other departments will begin to follow in their footsteps.

As well as identifying standards to help determine sustainability performance targets, the Ministry of Economic Development’s eco-verification project will develop practical tools to make it easier for procurement practitioners to make sense of the current proliferation of eco-standards and eco-labels. This work will also help businesses comply with international and domestic requirements for environmental sustainability.

And finally, the project that will be of particular interest is enhanced sustainable procurement. This is again led by the Ministry of Economic Development. It builds on progress made by the Ministry for the Environment’s Govt3 programme in achieving the necessary “cultural change” within the public sector to recognise and embed sustainability factors in procurement decisions.

As well as integrating sustainability into a single government procurement policy and implementing a national framework for sustainable procurement, this project involves setting standards for sustainable procurement; developing sustainability performance indicators, targets and reporting mechanisms; and implementing a carbon costing methodology for procurement decisions.

By September this year specific standards will be mandated across public service departments. These include: paper (including recycled content and default duplexing); timber and wood products (to ensure they are legally sourced); travel (for motor vehicles and air travel versus video conferencing); and light fittings (for energy efficiency). These will be rolled out to the wider state sector over longer timeframes. A wider range of sustainability standards will be developed over time targeting areas of greatest impact, such as buildings, ICT equipment, white goods, textiles, uniforms and cleaning products.

The Ministry of Economic Development will work closely with the Ministry for the Environment, the State Services Commission, and the Treasury to develop sustainable procurement key performance indicators and targets for inclusion in agency performance agreements.

These measures will be consistent with the government’s carbon neutral public service initiative and the ongoing work of the Govt3 programme.

Officials are currently working on a methodology, which will incorporate a ‘price of carbon’ into procurement decisions. This will contribute to achieving carbon neutrality by encouraging use of low-carbon alternatives.

Sustainability is just one of a number of different aspects that are required to be considered in the assessment of the costs and benefits of competing suppliers’ bids. Achieving value for money requires the ability to balance short-term against long-term value.

Whole-of-life value for money cannot and does not simply equate to the lowest price. Procurement practitioners know this, but it may not seem so obvious to others. The challenge is not to retreat to the lowest price solution, because it appears at first sight to be the most easily defensible. Although there is a responsibility to be careful with public funds, it is not in the public interest that we are so risk adverse that we do not back any local innovation. A successful local bid, has the double advantage of not only meeting the particular tender requirements, but also providing a high-level local track record for a local company to market their product or service internationally. I am not making the case for local preferment – I am simply highlighting the additional benefits that arise when home-grown innovation can foot it on the home ground as a stepping stone to the world stage.

As I have said, procurement decisions should be based on best value for the taxpayers' dollar over whole-of-life and this will demand careful judgements by procurement practitioners over a range of factors that will inevitably include price, origin of supply and more. But the government is looking at ways of ensuring tenders by New Zealand firms get full and fair consideration. One option is to require that departments provide an assurance of their compliance with the government procurement policy in any documents relating to tender short-lists and contract award decisions.

This would include a justification of why they rejected any New Zealand tender, signed off at an appropriate senior management level, depending on the size or importance of the contract.

As procurement practitioners, you have major challenges ahead of you. Not only will you need to come to grips with new methodologies to ensure environmental considerations are taken into account in your purchasing decisions, but you will also need to think about value for money from a whole-of-life perspective and not just a dollar amount. This means thinking outside the square and it sometimes means going to bat for the not so safe option of a local innovation rather retreating to the safety of a known international brand and missing out on the wider benefits.

The Budget included a total of $32 million over the next four years for sustainability initiatives. Higher up-front purchase costs resulting from the mandatory standards should balance out over the longer term through increasing the supply in a competitive market (for example, recycled paper) and whole-of-life savings (such as with energy-efficient light bulbs). But, the reality is that most agencies will need to absorb the costs of change in the short term.

The silver lining to this challenge is that it presents you with the perfect opportunity to demonstrate the value of the procurement profession. Smarter procurement practice can free up the resources your organisation needs to move up the sustainability ladder without compromising service delivery.
Balancing these competing demands and working smarter takes considerable professional skill.

We need to develop a pool of procurement professionals equipped with the skills and knowledge to facilitate change and fully realise the sustainable economic development potential of government procurement.

We know that building capability is critical for the successful implementation of the new single procurement policy and creating a shared understanding of sustainable procurement across the wider state sector. Adoption of the existing government procurement policy has not been as fast as we would like, and adherence to it has been somewhat patchy, largely as a result of the variation in procurement practice and capability amongst departments.

The Government Procurement Development Group understands the need to attract and retain procurement professionals and raise their professional status. The Group is working closely with CIPS as the peak procurement professional body for New Zealand procurement practitioners and professionals. It also endorses the MCIPS International Standard as a certification level that procurement practitioners will be encouraged to aspire to.

All arms of government need to recognise the importance of procurement and need to take a planned approach to investing in procurement capability and capacity if they are to meet the expectations being placed on them.

Of course, ultimately, you as practitioners need to recognise the importance of developing and maintaining your professional procurement skills. Your attendance here today tells me that you do. But we also need to get this message to those who are not here. The Labour-led government is looking to the procurement professional community as a whole to help achieve our sustainable development goals.

Thank you once more for the opportunity to reinforce how important you are to the government's ambition for New Zealand.

I hope you get a lot out of today's forum and I look forward to seeing the results of your determination to lift the bar when it comes to sustainable government procurement.

ENDS