In June something happened, unannounced, that will eventually affect nearly every business wanting government contract. And it could affect the outcome of bids for government contracts worth between $14 and $20 billion year.
In few years it could also spread further within regional and local councils and affect another $5.6 billion year worth of contracts. It could also result in savings to the Government of more than $1.6 billion year – enough to fund another round of tax cuts. At the same time it will result in social and environmental improvements.
The big deal?
An affirmation by the Ministry of Economic Development, following the November to June National-led Government review of state sector procurement policies, that sustainable procurement will now become “business as usual” for the New Zealand state.
The major savings could result if the Government extends its practice of buying goods and services based on their actual whole-of-life cost, not just day-one price which might initially be cheaper. In other countries savings of between eight and 50 percent have been achieved when buying on whole-of-life value, rather than day-one price.
Already about 200 government employees have been on sustainable procurement training. Centres of excellence, being established to let the first all-of-government contracts, will be required to identify and implement sustainability criteria in the contracts.
The top 10 agencies by risk and value (including those acting as centre of excellence) will be independently assessed on their procurement approach, skills, and outcomes. This assessment will explicitly include sustainability performance.
The Police, Ministry for the Environment and North Shore and Waitakere City Councils have been among leaders in implementing whole-of-life value buying.
New Zealanders also strongly back the sustainable procurement policy: 67 percent support it, while only 19 percent say government agencies should buy on best day-one value for money (price at the time of purchase).
A ShapeNZ survey of 3300 New Zealanders, commissioned by the New Zealand Business Council for Sustainable Development, also shows the majority (75 percent) believe whole-of-life value buying should be extended to regional and local government (eight percent oppose, 16 percent don’t know).
Senior business decision makers, senior government officials, National and Act voters strongly support sustainable procurement and support extending it to local government.
For example, 88 percent of Act voters support this extension, along with 79 percent each of National and Labour voters and 89 percent of Green voters; 85 percent of business managers and executives support it – as do 76 percent of business proprietors, self employed, professionals and senior government officials.
Of those with the highest purchasing power on behalf of their organisations, most support the extension: 87 percent of those with purchasing authority of $50,000 to $100,000, and 79 percent of those with authority $100,000+.
On-the-ground decision making has way to go to catch up with what people want.
While support is strong for whole-of-life value buying, day-one lowest price purchasing is practised by 33 percent of organisations and whole-of-life cost purchasing by 21 percent.
The manufacturing sector (22 percent) is most likely to buy on day-one price only.
The transport or storage sector has the greatest number (15 percent) buying solely on whole-of-life cost basis.
Among those buying mostly on whole-of-life cost basis, business managers and executives predominate (30 percent), followed by business proprietors and self employed (24 percent) and professionals and senior government officials (21 percent).
There’s major shift happening here and internationally. The Business Council has launched new report, “Sustainable Procurement in Government: New Opportunities for Business”, to help organisations understand the new trend. It includes sample contract criteria.
Companies which can’t satisfy requests for information about the whole-of-life costs of their goods and services, and can’t report on their environmental and social impacts, are putting themselves seriously at risk.
Can you afford to ignore to rule yourself out of the running for 21 percent of the current market, and growing future share of it?
Peter Neilson is chief executive of the New Zealand Business Council for Sustainable Development. The new guide and market research on sustainable procurement is available at www.nzbcsd.org.n
