February 01, 2019

How the wellbeing approach will change government procurement

One of the first decisions by the Hon Grant Robertson, when he was appointed to his position as Minister of Finance, was to re-enshrine the Living Standards Framework (LSF) as an essential guide to the formulation of government policy decisions.  Central to the Framework is the notion that the country’s wellbeing needs to be considered in broader terms than simply financial measures, such as GDP.  

A new version of the LSF has been created by the Treasury, to replace an older version that had failed to gain much traction.  At the heart of the new LSF is the proposition that Intergenerational wellbeing relies on the growth, distribution and sustainability of Four Capitals: Physical and financial; Natural; Human; and Social.

Truth be told, it has been difficult for the Treasury to develop the new version of the LSF into a fully functioning tool for policy development and decision making, but the importance of wellbeing, broadly defined, is now firmly established across government.  New Zealand will have its first Wellbeing Budget this year.  And the requirement for local authorities to promote the social, economic, environmental, and cultural wellbeing of communities is likely to be restored as part of revisions to the Local Government Act.

Logically, the wellbeing approach should influence all aspects of government operations, so it is interesting to note that MBIE has published a draft set of new procurement rules that are likely to be compulsory for government departments, and expected or encouraged for other government agencies.

The draft rules direct that procurement decisions should be made so as to achieve public value. Public value encompasses not only good quality and good price, but also good outcomes.

The existing procurement rules state that good procurement means better public value.   They don’t provide a clear definition of public value, but they say it’s about applying sound commercial judgement to achieve the best value for money (which isn’t always the cheapest price) and to drive innovation and performance. 

The new draft rules also direct that procurement decisions should be made so as to achieve public value.  But they specify that it encompasses not only good quality and good price, but also good outcomes.  Good outcomes are specified as being: Economic (Market /supplier/ skills development); Environmental (Fewer negative/ more positive impacts); Social (Benefits to disadvantaged groups); and Cultural (Alignment with Maori values).

BERL is aware of concern amongst some businesses that procurement decisions are currently driven by a narrow focus on price, which can encourage predatory and harmful business practices.  On the other hand, there are likely to be fears that changing the rules will lead to government ministries and agencies paying too high a price for the goods and services they need.

It is good, therefore, that MBIE is conducting a consultation process on the proposed rules.  Anyone potentially interested in making a submission needs to be aware, however, that the timeframe for process is relatively short.

More information on the draft rules and the consultation process can be found here.

The deadline for submissions to MBIE is 5 March 2019.