Foreign Affairs

Millions in APEC contracts approved through flawed process

Millions of dollars of spending on New Zealand's hosting of APEC in 2021 was signed off through deficient processes, an internal review shows.

Eighty percent of the initial contracts signed for New Zealand’s hosting of a major international summit failed to meet the Government's own procurement guidelines, a review has revealed.

While officials believe their processes are now fit for purpose, the National Party says the hosting process must be above reproach if we are to avoid embarrassment on the world stage.

New Zealand will host the Asia-Pacific Economic Cooperation (APEC) forum in 2021, with the centrepiece APEC Leaders’ Week expected to attract around 13,000 delegates and media to Auckland in November that year.

It will cost the Government up to $330 million to host the event - but over $8 million of early spending from the Ministry of Foreign Affairs and Trade (MFAT) was called into question by the Auditor-General’s office earlier this year, after it found problems with one of the first contracts it signed.

A review carried out by the ministry at the Auditor-General’s request, and released to Newsroom under the Official Information Act, has shown the problematic contract it identified was just the tip of the iceberg.

"Key issues [were a] lack of key procurement documentation, lack of evidence of adequate evaluation of proposals and conflict of interest declarations not being completed."

In a memo to MFAT chief executive Chris Seed, the ministry’s APEC 2021 lead Andrea Smith said 80 percent of the 22 procurements carried out in the 2017/18 financial year (worth $3m of the overall contract values) failed to meet good practice expectations.

“The shortcomings were similar to those identified by Audit NZ, with key issues being lack of key procurement documentation, lack of evidence of adequate evaluation of proposals and conflict of interest declarations not being completed,” Smith said.

Some of the factors behind the procurement shortcomings included the lack of certainty around budget and staffing during the APEC21 startup phase, as well as a lack of procurement expertise within the APEC programme team.

Key members of the team during its early days were not familiar with MFAT’s procurement policies and procedures, including the need for specific documentation, while the ministry had no system for briefing or training staff carrying out procurement work in specific policy groups.

“The former Procurement Division did not regard itself as responsible for providing training to staff,” Smith said.

However, she said the team carrying out the procurements intended to conduct the process fairly, and consistently sought guidance from the ministry's procurement division.

National's foreign affairs spokesman Gerry Brownlee there cannot be "a hint of a sniff" for financial impropriety with New Zealand's hosting of APEC, given its importance to the country's reputation. Photo: Lynn Grieveson.

After the problems were identified, all APEC21 staff involved in procurement had received training, while every staff member received a briefing about procurement and conflicts of interest upon joining the programme.

The APEC21 team had employed a dedicated commercial manager about a year ago, while the appointment of a new head of MFAT’s commercial division had been “a game-changer” as he provided oversight, support and training to the APEC team.

National’s foreign affairs spokesman Gerry Brownlee told Newsroom the procurement problems were a sign of an insufficiently rigorous approach from MFAT, despite the importance of the summit to a small trading nation like New Zealand.

“It doesn’t surprise me that they’ve gone down this track: it’s the sort of thing that happens when a group of people are in a sitting room sipping tea and nibbling on their cucumber sandwiches, wondering how they might do something.

The process here is clearly very much in-house and I think that’s a big problem.”

“There can’t be a hint or a sniff of inappropriate procurement around it - this is going to be hundreds of millions of dollars of Government expenditure.”

While the initial contracts were for relatively small amounts, those figures would increase as 2021 grew closer and the ministry had to ensure it followed all Government rules for procurement.

“There can’t be a hint or a sniff of inappropriate procurement around it - this is going to be hundreds of millions of dollars of Government expenditure.”

Foreign Affairs Minister Winston Peters said the procurement problems pre-dated the current Government, and he was confident that officials had taken all necessary steps to fix the flaws.

In a statement, Smith said MFAT’s APEC21 team acknowledged the shortcomings identified in the review and had made a number of changes to make sure its procurement processes were robust and met both MFAT’s and Government standards.

The ministry had also commissioned an independent audit of its 2018/19 procurements, which proved positive in showing that correct procedures were being followed.

“We are confident that the issues identified in the 2017/18 review have been properly addressed and requirements are now being met,” Smith said.

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