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Auditor-General extends Housing NZ $2.3m procurement probe

Friday 29th April 2016

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The Office of the Auditor-General is extending its probe into Housing New Zealand's procurement processes after finding "significant weaknesses" in the way it managed conflicts of interest and shortcomings when contracting Auckland investment banker Andrew Body to advise on social housing policy between 2011 and 2013.

Body advised the government on social housing reforms that involve selling state houses to social housing enterprises. At the same time, his company, Andrew Body Ltd, was representing a UK-based investment fund, John Laing, that "may seek to become involved in the provision of social housing". Body disclosed that as part of his process of appointment to a ministerial advisory panel in 2011 but not to HNZ.

The state-owned social housing provider contracted ABL for work worth $2.3 million over five financial years to 2016, with the highest cost in one year hitting $1.4 million.

Labour's shadow housing minister Phil Twyford last year raised lack of "an open competitive process, ... poor use of public money ... and the poor management of two potential conflicts of interest" in ABL's engagement, as described by the OA in a response to Twyford published on its website today.

It "recommended to HNZ that it apply more scrutiny when considering a closed tender process, to confirm it is the only appropriate approach in the circumstances."

It also acknowledged HNZ's "changes in procurement arrangements to address...shortcomings. However, given the risks, we are extending our audit work in 2015/16 on Housing New Zealand’s procurement," said deputy controller and auditor-general Greg Schollum in a letter that also took a flick at the Treasury's Transactions Unit.

Among the HNZ changes the auditor is "satisfied" are being acted on, was the need to explicitly manage conflicts of interest.

"We would also expect the social housing procurement process that is being managed by the Transactions Unit of the Treasury to take any potential conflicts of interest into account. We have been assured by the Transactions Unit that it does so."

The New Zealand Herald reported an HNZ spokesperson last September saying "the work Andrew Body Ltd carried out for Housing New Zealand was separate to [the work on the advisory panel] and therefore no conflict of interest was required to be declared."

ABL's client, John Laing, had already invested in New Zealand social policy provision contracts as a party to the privately run Wiri prison, in Auckland, the Herald reported.

In Housing NZ's 10 contracts with ABL, six were valued at over $100,000 and none went to open tender, despite the agency's policy from 2009 to go to market for contracts worth more than $100,000. The auditor understood this was because the work required particular expertise which HNZ believed ABL had, it was required in a short time, it could not be specified highly, and it required a provider capable of working with some level of uncertainty. 

However, HNZ could not provide the auditor with documentation from the first contract it signed with ABL in 2009, which was worth $20,200 and covered work under its Tamaki redevelopment project. In one instance, Housing NZ made a case to its executive team to use ABL as a preferred supplier, but could not provide evidence for that selection process either. 

"HNZ believes in hindsight that engaging with the open market would have been difficult in the ABL procurements and that an 'invitation-only' request for proposal to suitably pre-qualified entities should probably have been the appropriate approach under its policy at the time."

ABL had been closely managed by HNZ staff but for some procurement there was no evidence that value for money, including overall costs, had been properly considered. Other cost-limiting measures such as a capped daily fee, time estimate or limit and work review existed in about half the contracts.

HNZ's records of its conflict of interest management also had "significant weaknesses," the auditor said, and it has recommended the agency be explicit about its management of such issues in future.

The government agency has had its own central procurement team as of 2013, though the auditor noted contracts can still be let without going through that team. 

"We expect HoNZ to ensure that this does not compromise the integrity of its procurement processes," it said.

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