Thursday, September 25, 2014

Paula Bennett's microfinance scheme violated procurement rules

Back in August, in an effort to appear caring before the election, Paula Bennett announced a pilot microfinance scheme to drive loan-sharks out of business. BNZ would put up $10 million of capital, which would be loaned out by the government's providers, Good Shepherd New Zealand and the Salvation Army, interest-free. Its a great idea, and one which deserves to succeed. But there's a problem: documents released under the Official Information Act show that government procurement rules were not followed.

As the documents make clear, the government chose its partner bank through direct negotiations. That's not really a problem - no government money was being spent, and the scheme requires a bank to put up capital essentially out of goodwill. The problem is with the NGO partners, where Good Shepherd and the Salvation Army have been chosen seemingly out of the blue, without any discernible process. The most the documents say is that Good Shepherd is "BNZ's preferred NGO partner". But the government had already decided to give them a grant of $120,000 to fund establishment costs for the scheme, and is proposing followup funding of $872,500 over the next three years to fund its management (most of which will be explicitly subcontracted to the Salvation Army).

The Government Rules of Sourcing require a public tender process for any services contract costing more than $100,000. Those rules appear to have been ignored.

There may be a good reason for this (though its difficult to see one under the opt-out rules). But MSD refuses to release communications with its outside providers because its just too much work. Which invites the question: what are they hiding?

We have procurement rules to ensure that government contracting is accountable, non-discriminatory, and delivers value-for-money. In this case, we can't guarantee that. The Minister needs to explain why she ignored the rules here, and what the public benefit was from doing so. Otherwise, it simply looks like she and her department are simply delivering pork to favoured suppliers.