Good morning and thank you Jonathan for inviting me to open today’s proceedings.

I fully support the Chartered Institute of Purchasing & Supply’s endeavours to establish procurement as a profession in New Zealand.

With procurement expenditure typically ranging from 30% to more than 50% of total expenditure, this Government recognises that procurement has a major impact on delivering value-for-money public services and on New Zealand’s economic performance overall. 

Good progress has been made in recent years in professionalising government procurement practice. The fact that the public sector is well represented here today is testament to that. 

But the incremental improvements and savings being made are not enough to meet the challenges of the current economic climate. 

And we know from examples set in private sector and by governments elsewhere that we have yet to unlock the full potential of government procurement. 

That's why I believe we need to take a fresh look at how government procurement is managed, and in that regard I am pleased to announce today that the National Government will be embarking on a major programme to reform government procurement.

There are three key drivers for this change:

• The current economic climate – which has brought the importance of procurement to the fore.


• This Government’s plan to boost New Zealand's economic performance – which relies on procurers playing their part in delivering better, smarter public services for the same or less cost, and …


• The Job Summit – which highlighted the frustration experienced by New Zealand businesses in dealing with an often process-driven and highly variable approach to procurement across the public sector.

Getting the best value for money is vital in the current economic climate, as you are no doubt acutely aware, given your responsibility for managing external spend.

When National was campaigning in October 2008, the Government’s books were in surplus. 

Things are very different now, with a reducing tax take and increasing outgoings in the form of unemployment benefits and borrowing costs. 

And the gap between what the Government is earning and what it's spending is continuing to grow. 

Clearly, this is not sustainable. 

We have made some tough decisions to get New Zealand's borrowing costs under control and make sure we can continue to fund public services that New Zealanders have a right to expect. 

Effective management of government expenditure is a key factor in the wider economic equation. 

The Government’s plan for boosting New Zealand's economic performance is focused on three key objectives:

•              Reforming or removing government regulations that are roadblocks to economic growth.


•              Investing in productive infrastructure to help lift our economic performance, and …


•              Improving the business of government by providing better, smarter public services.

With the State sector alone comprising some 30% of our economy and the Government being the largest single purchaser in a number of our domestic markets, procurement-driven improvements have the potential to make a significant contribution to making this plan a reality.

I have to concede, however, that the public sector doesn’t have the best track record in providing innovative procurement solutions.  Rather, we often tend to be viewed as overly compliance-focused and process-driven.

The freedom that government agencies have to determine their own procurement procedures has resulted in a wide variety of approaches across central and local government. 

A number of suppliers have relayed to me how frustratingly difficult this makes it to do business with the government, and the cost this adds to servicing the government as a client.   

Earlier in the year, this culminated in a call from business leaders attending the Job Summit to “rapidly reform government procurement processes” in order to:

• Cut red tape.


• Increase tender opportunities, and …


• Make it easier for small and medium sized enterprises in particular to bid for government business.

Underlying this call for reform is recognition of the government’s contribution to national output. 

As a procurer of significant scale that often requires cutting-edge and complex products, the government has the ability to create sufficient demand to justify business investment in labour, equipment, and research & development.

This, in turn, can create opportunities for New Zealand businesses to develop more innovative products both for the domestic market and for export. 

As you can see, we face ever-increasing demands to:

• Improve efficiency in this time of fiscal restraint.


• Free up resources to fund government priorities.


• Find more innovative and cost-effective ways of delivering public services, and …


• Make it easier to do business with government.

We will not be able to meet these demands by continuing with the status quo.

Nor will incremental improvements over time increase performance at the rate or extent needed at this time. 

In my view, we have to make some fundamental changes to the way government procurement is managed.

In short, we need government procurement reform.

Cabinet recognises that the upfront investment required to implement reform has the potential to deliver significantly more benefits in return.

That's why Cabinet has agreed in principle to a Government Procurement Reform Agenda which, provided tangible cost savings can be demonstrated within one year, will form the basis of a four-year change programme.

Typically, procurement reform involves creating a large centralised procurement unit.

I’m not convinced that this approach is warranted or appropriate for New Zealand.

Though the reform agenda has drawn on what has been done elsewhere, the model that I proposed New Zealand adopt is more consistent with our devolved public management system. 

Centralised governance and oversight will be balanced by devolved responsibility for implementing specific reform agenda actions to a small number of Centres of Expertise hosted within procuring agencies.

I won’t attempt to list all the actions included in the reform agenda. Rather, I’ll give you a flavour of what is planned under each of the four broad themes of the reform agenda, namely:

• Achieving cost savings.


• Building procurement capability and capacity.


• Enhancing business participation, and …


• Improving governance, oversight and accountability.

Cost savings

Given the context within which procurement reform is being undertaken, the priority in year 1 is to take the sharp edges off the recession by generating additional procurement savings. 

Lead agencies selected to host Centres of Expertise will be provided with additional resources to lead the negotiation of all-of-government contracts in tactical categories of spend where agencies are currently duplicating efforts.  As well as maximising savings, this approach will ensure that agencies have more time to focus on meeting sector and agency-specific needs. 

Other actions under this theme will focus on generating productivity savings by encouraging government agencies to use common tools and templates and make better use of shared services opportunities.

Building capability and capacity

The second theme is building government procurement capability and capacity, which I acknowledge has suffered from a lack of investment for many years. 

If procurement is to drive the fundamental changes we are looking for, it’s vital that we gain a better understanding of what our existing level of government procurement capability and capacity is. 

Accordingly, we will be introducing a programme of agency procurement capability assessments to provide a systematic method of gathering information at agency level on procurement performance and identifying opportunities for improvement.  Initially, the focus will be on procurement in those agencies with high value/high risk procurement expenditure. 

Cabinet has set the expectation that chief executives play their part too, by encouraging and supporting their staff to attend procurement training, education, and capability-building activities organised as part of the reform programme.

Enhancing business participation

The third theme of the reform agenda is enhancing business participation.

A number of the activities under this theme stem from the Job Summit. 

In the first year we will find ways of making it easier to do business with government.  This involves:

• Improving access to government contracts through sub-contracting opportunities.


• Increasing the information flow to industry.


• Reducing the complexities and compliance costs of tendering, and …


• Helping small and medium sized enterprises bid for business. 

Improving governance, oversight and accountability

The final theme is improving governance, oversight and accountability.

As an indication of just how important I believe procurement reform to be, I have invited the Cabinet Expenditure Control Committee to provide oversight of the reform programme. 

This committee is chaired by the Minister of Finance and includes the Prime Minister and Ministers of State Services and Economic Development.  Having the support of such highly influential Ministers will be invaluable in facilitating change and driving this reform forward.

Procurement now has more visibility and support at senior levels within government than ever before.  But rallying this support hasn’t been easy.

As there are currently no requirements for government agencies to centrally provide procurement spend-and-performance information, countering scepticism about what good procurement is capable of delivering has been difficult.  This must change. 

We need to be better able to demonstrate the benefits of investment in government procurement in the future. 

As well as tangible cost savings, I want to show that good procurement can generate other benefits for the government and wider economy, such as:

• Productivity gains.


• More projects delivered to time and budget.


• Reduced commercial risk exposure.


• More innovative ideas coming from the government’s supply chains.


• Less red tape and expense in doing business with government.


• Greater opportunities for small and local suppliers, and …


• Ultimately, better, smarter services for the public.

In summary, this Government is making a big investment in procurement.

And I propose that an even bigger investment be made in the future.

But first you need to demonstrate to my Cabinet colleagues and I that you can work together as a community to deliver the cost benefits we so urgently need to boost our economic performance.

I look forward to the journey ahead and to congratulating public sector procurement professionals on their achievements in a year’s time.