'Unusual and inconsistent' process to justify $24m 'Gumboot Friday' contract, auditor-general finds

The Auditor-general has criticised the government's "unusual and inconsistent" procurement process in giving $24 million to Mike King's Gumboot Friday initiative.

The government announced in May that the 'I Am Hope' foundation would receive $6m a year for four years to provide counselling services to 5-to-25-year olds. The funding was pledged as part of the coalition agreement last year and would provide access to free mental health counselling services for more than 15,000 young New Zealanders per year.

RNZ revealed in July that Ministry of Health officials had struggled to find a way to make the contract compliant with public procurement rules, and ended up invoking a special 'opt-out' clause designed for specialist health services.

Minister for mental health Matt Doocey has repeatedly maintained the opt-out rule was "used in compliance".

Now, the auditor-general John Ryan disagrees.

In a six-page letter to Director-General of Health Dr Diana Sarfati published this afternoon, Ryan raised multiple concerns about several aspects of the procurement process, including that there was no "clear justification" for invoking the opt-out clause.

"Several aspects of the process are unusual and inconsistent with good practice," he writes.

Ministry of Health officials were "put in a difficult position" by the coalition agreement to fund 'I Am Hope', but they should have provided better advice on the rules to the minister, he said.

"The analysis appeared designed to retrospectively justify an outcome that had already been decided."

Established conventions generally discouraged ministers from directing the public service in making contractual decisions, said Ryan.

"It is for Ministers to make overarching policy (such as an intention to fund counselling services for young people), but it is for the public service to ensure robust, fair and transparent spending of public money - including selecting a supplier and ensuring value for money."

The situation "created challenges for public officials, and for transparency, value for money, and accountability for public spending more generally."

He found several aspects of the procurement process were inconsistent with good public procurement, including:

• The selection of the supplier and the amount of funding was decided without an open and transparent process
• There was no opportunity for a fair, open or competitive procurement process
• The funding for the new initiative was specific to a supplier, rather than to a broad policy initiative or to achieve a policy outcome
• The limited analysis on whether it was appropriate to directly contract the supplier or whether the supplier was best placed to deliver the policy objective was done only after the decision to provide funding to the supplier had been made
• The decision to opt-out of the rules took place after the decision to engage the supplier and without clear justification of why an opt-out was appropriate

While the government's commitment to fund 'I Am Hope' was a political matter, the "usual rules and conventions" when making decisions on the use of public money still "ought to have been followed," said Ryan.

The ministry should have provided more thorough advice on this, he said.

"Ideally, we would have seen evidence that the ministry had advised ministers that the procurement departed from established practice and raised the risks inherent in the decision to spend public money without a fair, transparent, and competitive procurement process.

"Although the Budget bid discussed some risks, the documents I have seen do not reassure me that the full range of risks associated with the procurement were communicated to ministers."

In his letter, Ryan said Doocey had told him he had, throughout the process "sought, and received, assurances that the implementation option chosen by the ministry complied with the rules."

Ryan did not agree with that conclusion, however.

"Although the advice to the director-general noted that an exemption from open advertising would be inappropriate, it did not discuss why the opt-out provision was appropriate, nor any specific risks involved in using an opt-out.

"In my view, the lack of analysis on these points, and the timing of the decision to use the opt-out, means the analysis appeared designed to retrospectively justify an outcome that had already been decided, rather than provide a balanced assessment of the procurement process."

Ministry takes the blame

Doocey was not available to be interviewed but in a statement a spokesperson said any faults with the procurement process lay with the Ministry of Health.

"While the decision to fund Gumboot Friday was a decision made by the government, how this commitment was implemented was a decision for the Ministry of Health.

"Throughout the process, the minister has sought, and received assurance from officials that the implementation option chosen by the Ministry of Health is compliant with government procurement rules," the spokesperson said.

Sarfati was also not available to be interviewed, but in a statement deputy-director-general of clinical community and mental health Geoff Short accepted it fell short.

"The ministry accepts that documenting of the decision; identification of risks and timing of decisions were done at pace and with hindsight could have been improved.

"The ministry notes that Gumboot Friday / I am Hope was in a strong position to quickly scale up its operation - and also notes that the organisation is currently meeting its contractual requirements.

"The Office of the Auditor-General commented on the strengthened reporting provisions in place with Gumboot Friday / I am Hope to provide assurances around funding and monitoring. The ministry will ensure the OAG findings are used to strengthen future procurement processes for both the ministry and other government agencies," Short said.

The procurement of the 'I Am Hope' contract would be raised as a "potential case study" with the Public Service Commission and the Ministry for Business, Innovation and Employment, which oversees public procurement rules, which Ryan said he supported.

"I also intend to monitor the progress of this initiative, including whether the contract is appropriately managed and delivers value for money."

Labour's mental health spokeswoman Ingrid Leary said the "damning" letter showed the government had "bent all sorts of rules" to fund Gumboot Friday in order to keep a coalition agreement commitment "rather than doing what's best for New Zealanders".

"The National government's contempt for following the rules in the health sector first with decisions that favour big tobacco, and now mental health, is costing our health and our democracy," she said.

"The government talks a big game about spending public money wisely, yet used a loop hole to get Gumboot Friday funding across the line without a fair and transparent process.

"By pre-cooking the outcome and picking a winner the National government forced officials to use a legal loophole they know was never intended for this type of procurement, as they desperately tried to fit a square peg into a round hole."