Auditor-General John Ryan has said the decision to give $24 million in public funding to the mental health charity I Am Hope, was made without an open, transparent and competitive procurement process.
His comments came in a letter to Health director-general Diana Sarfati for the Ministry of Health.
The $6 million a year over three years funding for Mike King’s Gumboot Friday/I am Hope charity was part of the coalition agreement between National and NZ First.
The auditor general was made aware of this commitment at the same time as this public announcement over the coalition deals in late 2023.
Ryan emphasised the letter was not intended to question the importance or desire to fund early support for young people with mental health concerns, or whether ‘I Am Hope’ was the right supplier or on the quality of its services.
He also said the letter wasn’t intended to examine the development or content of the coalition agreement.
Ryan recognised the ministry considered it had been directed to engage the supplier by virtue of the coalition agreement.
The report notes in the background section that some concerns were raised by other youth mental health providers during negotiations to supply funding to I am Hope/Gumboot Friday.
Concern also swirled around why the contract was not being openly advertised like a traditional government contract.
The Health Ministry used the “opt-out” provision and negotiated directly with I Am Hope, on the basis the delivery of healthcare services qualified.
But the Auditor-General wasn’t satisfied with this answer, saying, “public money must be spent prudently and with due attention to transparency, integrity and value for money”.
For public procurement (purchases by governments and state-owned enterprises of goods, services and works), Ryan said there should be a clear and documented reason why services are needed, why the provider was the best placed or only provider able to deliver and why the amount was appropriate.
He explained these principles were to help maintain public trust and ensure New Zealanders got the best outcome and value for money.
Unusual and inconsistent with principles
There were several aspects of the process Ryan deemed unusual and inconsistent with the principles.
The selection of Gumboot Friday/I Am Hope as the provider wasn’t decided with an open and transparent process to assess:
- which type of service would best meet the policy objective;
- which providers might be able to able to deliver that service; or
- the appropriate amount to pay.
He said there was no opportunity for a fair, open or competitive procurement process. The government budget outlined the funding for the new initiative as specifically for the supplier rather than having a broad policy initiative or to achieve a policy outcome.
Ryan said the limited analysis of whether it was appropriate to directly contract the supplier, or if the supplier was best placed for the policy objective, was only done after the decision had been made.
Finally, Ryan said the decision to opt out of the rules took place after the decision to engage the supplier and without clear justification for why an opt-out was appropriate in this case.
Advice for incoming ministers
The cabinet had endorsed the commitment to buy services from the supplier and Ryan said the ministry needed to provide advice to ministers on implementing the commitment.
Ideally, he said, there should have been evidence the ministry advised ministers that the procurement departed from established practice and that they raised the risks 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.
Efforts ensuring value for money
Despite the concerns raised, Ryan noted the ministry included terms in the contract with Gumboot Friday/I Am Hope that would help ensure value for money:
- The contract is one year, and so with discretion, the ministry could choose to renew contract for the maximum of three years.
- The funds specified counselling services and not expenses or daily allowances.
- It set requirements for how the counselling services would be delivered.
- The supplier is required to report key deliverables at regular intervals to help the ministry and Health New Zealand monitor performance.
- It allowed Health New Zealand to conduct regular, random and risk-based auditing services.
He also understood the Ministry and Health New Zealand would hold quarterly reviews to ensure, if issues arose, they’d be identified quickly and resolved.
“I also have concerns that this situation created challenges for public officials, and for transparency, value for money, and accountability for public spending more generally,” Ryan said.
The ministry had told Ryan it intended to raise this procurement as a potential case study with the Public Service Commission and the Ministry of Business, Innovation and Employment, which Ryan supported and said he looked forward to the results.
He said he will monitor the progress of the initiative, including whether the contract is appropriately managed and delivers value for money.
The auditor-general stated in the letter he would publish it on his website due to the matter being of public interest.