New Zealand cleaning companies claim unfair exclusion from government contracts worth millions

The syndicated contracts were tendered in 2013 and both were extended twice without market testing; they expire in 2028.

Campbell objects to the length of the contracts, which he says protect incumbent suppliers from competition, and questions whether the reviews have been sufficiently rigorous.

He also claims the contracts hamper a government procurement strategy known as “broader outcomes,” which was intended to add economic, social, environmental and cultural objectives as criteria to guide procurement. These explicitly include increasing New Zealand businesses’ access to government contracting opportunities (including Māori and Pasifika-owned businesses).

“We are Kiwi businesses and we have been trying to cut through the bureaucracy in this area for years without success. We’re talking about 15-year contracts that lock out local competition, and these (public) bodies simply don’t care that there are rules that say they have to bring Kiwis in and let them compete; instead, they continue to transfer government (cleaning) contracts to these foreign providers,” says Campbells.

In 2018, the First Labor NZ Government introduced the strategy of “broader results” into the government’s purchasing machine, worth more than $50 billion a year. And the following year, the Ministry of Business, Innovation and Employment (MBIE), which is responsible for government procurement, added specific new rules to its rulebook to implement the targets.

The problem, Campbell argues, is that nothing has changed – at least not for cleaners.

Syndicated contracts

Each of the syndicated contracts is anchored by a single public agency, but they are open for all other public agencies to join, and agencies are also free to leave the syndicated contract.

Both were established through a tender process by the NZ Police in 2013, but NZ Post, which had joined the Spotless contract in 2014, took over management of that contract the following year (the NZ Police had no use for it made).

An NZ Post spokeswoman said the state-owned company conducted an internal review of the Spotless contract in 2018 and took into account factors such as finances, performance and areas for improvement. This resulted in innovation.

NZ Post repeated the process in 2022/23 and decided against renewal – a spokesperson declined to give the reason; It then put out a tender for a new supplier and signed a contract with a New Zealand company (NZ Cleaning Co-op submitted a bid but was unsuccessful).

At that point, the Ministry of Justice (MJ), which previously used the Spotless contract as a participating agency, took over.

The Herald asked the Ministry of Justice whether it had assessed the contract at that time and to provide the assessments or list the criteria used therein.

Kelvin Watson, Assistant Secretary for Business Services, did not respond directly to the question, but he said the ministry “continually monitors and manages supplier performance” and that the right to extend the Spotless contract was exercised “in consultation” with NZ Post.

He also said the ministry reports biannually on the broader results of its cleaning service providers, including ensuring that Spotless workers in government buildings are paid a living wage.

Watson did not provide any reviews on the contract.

The New Zealand Police was asked to provide reviews of the OCS contract, or otherwise provide the criteria it used in reviews. A spokesperson declined to answer any questions Herald’s inquiries except under the provisions of the Official Information Act (OIA); a response is still pending.

The MBIE spokeswoman said that in 2013, when the syndicated cleanup contracts were signed, the agency’s role was only an “advisory function” to the lead agency.

For new syndicated contracts, MBIE is now required to conduct a three-stage review from the planning stage through to approval of the final agreement.

Defining value

The value of the two syndicated contracts is difficult to determine. It is understood they are used by many of the largest public sector spenders on cleaning, including: Health NZ, which includes public hospitals and clinics; the Ministry of Education, including schools; Corrections, including non-prison locations; the Department of Justice, including more than 100 courthouses and other locations; the Ministry of Conservation; and NZ Police. However, most agencies do not exclusively use syndicated contracts.

The Department of Justice, which is responsible for the Spotless contract, confirmed that nine government agencies used that contract in the last fiscal year and that it was used to purchase cleaning services worth between $15 million and $20 million.

The NZ Police, responsible for the OCS contract, have not yet responded to queries.

An MBIE spokeswoman noted that only 77 of the approximately 2,500 public sector entities currently use the syndicated cleanup contracts (she was unable to provide a dollar value comparison of syndicated and non-syndicated contracts).

She also pointed out that some 172 tenders relating to cleaning services with ‘contract awarded’ status have been issued through the Government Electronic Tender Service over the past decade, the majority of which were awarded to incorporated companies in New Zealand.

Minister of Economic Development Melissa Lee, who is responsible for government procurement, said Herald it has been reassured by MBIE that the agencies involved did not breach procurement rules by joining the syndicated contracts.

Flexibility and competing priorities

Because they relate to helping Kiwi businesses compete, the ‘broader outcomes’ rules have significant flexibility (with the exception of a handful of cases where Cabinet or designated ministers have identified a specific priority outcome).

“Each agency must consider broader outcomes when purchasing goods, services or works and integrate them where appropriate,” the rules say.

In addition, agencies must balance the ‘broader results’ guidance against a rulebook that also stipulates that agencies must “treat suppliers from another country no less favorably than suppliers from New Zealand”.

An MBIE spokeswoman also noted that there are very significant benefits from syndicated contracts (also known as “secondary purchasing”).

These include: better prices through aggregated demand from multiple agencies; lower administrative burdens and less duplication of effort as agencies benefit from conditions that have already been negotiated; and consistency.

However, the Herald spoke to six parties involved in government procurement or deliveries to the public sector (they were not authorized by their organizations to speak publicly). All of the 15-year contracts mentioned for a service such as cleaning – which do not require a significant capital investment by the supplier – are extraordinary, even taking into account the two extension provisions.

Several parties believed that such long periods could lead to “price hikes,” which could protect incumbent suppliers (albeit imperfectly) from competition and therefore be inclined to raise prices.

Other calls for change

Earlier this month, business interest and lobby groups BusinessNZ and Buy NZ Made wrote an open letter to Minister Lee.

Like Campbell, they would like to see the government do more to use public procurement to achieve broader outcomes, especially to deliver broader economic benefits for Kiwi businesses.

While the groups acknowledged that the government’s procurement rules “contain language that we have been advocating for”, they suggested that getting purchasing managers across New Zealand to put the rules into practice is “a much more difficult task”.

Director of Advocacy at BusinessNZ Catherine Beard told the story Herald the groups are now recommending more changes to procurement rules. They favor simplification, and perhaps incompatible, they also suggest that tender assessors could be required to assign a weighting to domestic bidders (or bids with domestic components) for specific criteria such as local offices, employment of New Zealanders and paying taxes. in New Zealand, the definition of a local business should be broad, both because of the terms set out in the trade agreement and to capture the benefits of competition.

Minister Lee said she is reviewing procurement rules with a view to “optimizing public sector spending and boosting economic growth.” She expects to provide an update early next year.

Kate MacNamara is a South Island journalist with a focus on policy, government spending and investigations. She spent ten years at the Canadian Broadcasting Corporation before moving to New Zealand. She joined the Herald in 2020.