A co-op of New Zealand cleaning businesses want better access to tens of millions of dollars worth of Government cleaning contracts. Photo / Andrey Popov
A New Zealand cleaning services co-operative is crying foul over the Government’s procurement rules, arguing that local firms are frequently shut out of bidding in the multimillion-dollar market.
Glenn Campbell heads Otago-based commercial cleaning firm House of Hygiene and is part of the larger consortium of domestic firms, NZ Cleaning Co-op.
”A lot of the Government’s cleaning work doesn’t go out to tender, and that means that Kiwi cleaning businesses don’t have a fair chance at doing the work,” Campbell says.
That’s because tens of millions of dollars worth of public cleaning work flows through just two contracts with multi-national companies: UK-based OCS and Australia-based Downer Group, which owns Spotless.
Both companies have 15-year open syndicated contracts (with two five-year renewal provisions) with the Government.
The syndicated contracts were put to tender in 2013, and both have been renewed twice without a market test; they’re set to expire in 2028.
Campbell objects to the length of the contracts, which he says shield the incumbent suppliers from competition, and questions whether reviews have been sufficiently rigorous.
He also contends that the contracts impede a strategy in Government procurement known as “broader outcomes”, which was intended to add economic, social, environmental and cultural aims as criteria to guide purchasing. These expressly include increasing New Zealand business access to Government contract opportunities, (including Māori and Pasifika-owned businesses).
”We’re Kiwi businesses and we’ve been trying to cut through the bureaucracy on this for years without success. We’re talking about 15-year contracts that shut out local competition, and these [public] agencies just don’t care that there are rules that say they must bring in Kiwis and let them compete; instead they keep on transferring Government [cleaning] contracts to these foreign providers,” Campbells says.
In 2018, the Labour-NZ First Government introduced the “broader outcomes” strategy to the Government purchasing machine worth more than $50 billion a year. And the following year the Ministry of Business, Innovation and Employment’s (MBIE), which has responsibility for Government procurement, added specific new rules to its rule book to give effect to the goals.
The problem, Campbell maintains, is that nothing changed – at least not for cleaners.
Each of the syndicated contracts is anchored by a single public agency, but they are open to any other public agencies to join, and agencies are also free to leave the syndicated contract.
Both were established through a tender process by the NZ Police in 2013, but NZ Post, which joined the Spotless contract in 2014, took over as lead agency for that contract the following year (NZ Police had not been using it).
A spokeswoman for NZ Post said the state-owned enterprise conducted an internal review of the Spotless contract in 2018, and considered factors including financials, performance and areas for improvement. This resulted in renewal.
NZ Post repeated the process in 2022/23, and decided against renewal – a spokesperson declined to provide the reason; it subsequently tendered for a new supplier and contracted a New Zealand business (NZ Cleaning Co-op submitted a bid but was not successful).
At that point, the Ministry of Justice (MoJ), which previously used the Spotless contract as a participating agency, took over as lead.
The Herald asked the MoJ if it reviewed the contract at that juncture, and to provide the reviews or to list the criteria used in them.
Kelvin Watson, deputy secretary corporate services, didn’t respond directly to the question, but he said the ministry “monitors and manages supplier performance on an ongoing basis” and that the right of renewal on the Spotless contract was exercised “in consultation” with NZ Post.
He also said the ministry reports on its cleaning services suppliers’ broader outcomes biannually, including ensuring that the Spotless workforce on Government premises is paid the living wage.
Watson did not provide any reviews on the contract.
The NZ Police was asked for its reviews of the OCS contract, or otherwise to provide the criteria it used in reviews. A spokesman declined to answer any of the Herald’s questions except under the provisions of the Official Information Act (OIA); a response is still pending.
The MBIE spokeswoman said that in 2013, when the syndicated cleaning contracts were signed, the agency’s role was to act only in an “advisory capacity” to the lead agency.
For new syndicated contracts, MBIE is now required to conduct a three-stage review from the planning stage through to approval of the final agreement.
The value of the two syndicated contracts is hard to pinpoint. It’s clear they are used by many of the public sector’s biggest spenders on cleaning, including: Health NZ, which covers public hospitals and clinics; the Ministry of Education, including schools; Corrections, including its non-prison sites; the Ministry of Justice, including more than 100 courthouses and other sites; the Department of Conservation; and NZ Police. However, most agencies don’t use the syndicated contracts exclusively.
The Ministry of Justice, responsible for the Spotless contract, confirmed that nine public agencies used that contract in the past financial year, and it was used to buy cleaning services worth between $15m and $20m.
NZ Police, responsible for the OCS contract, has yet to respond to questions.
An MBIE spokeswoman noted that only 77 of some 2500 public sector entities currently use the syndicated cleaning contracts (she was not able to provide a dollar value comparison of syndicated and non-syndicated contracts).
She also pointed out in the past decade some 172 tenders related to cleaning services with “contract awarded” status were issued on the Government Electronic Tender Service, the majority of which were awarded to New Zealand-incorporated companies.
Minister for Economic Development Melissa Lee, who has responsibility for Government procurement, told the Herald she has been reassured by MBIE that the agencies in question have breached no procurement rules by joining the syndicated contracts.
As they relate to helping Kiwi businesses to compete, the “broader outcomes” rules have considerable flexibility (with the exception of a handful of instances where either the Cabinet or designated ministers have identified a specific priority outcome).
“Each agency must consider, and incorporate where appropriate, broader outcomes when purchasing goods, services or works,” the rules say.
In addition, agencies must balance the “broader outcomes” directive against a rule book that also stipulates that agencies “must treat suppliers from another country no less favourably than New Zealand suppliers”.
An MBIE spokeswoman also noted that very significant benefits flow from syndicated contracting (also called “secondary procurement”).
These include: better prices through the aggregate demand of multiple agencies; lower administrative burden and reduced duplication as agencies piggyback on terms already negotiated; and consistency.
However, the Herald spoke to half a dozen parties involved in either Government procurement or public sector supply (they were not authorised by their organisations to speak publicly). All said 15-year contracts for a service like cleaning – which does not entail considerable capital investment by the supplier – is extraordinary, even allowing for the two renewal provisions.
Several expressed the view that such lengthy terms could result in “price creep”, whereby incumbent suppliers might be shielded (albeit imperfectly) from competition, and might therefore be inclined to raise prices.
Earlier this month the business interest and lobby groups BusinessNZ and Buy NZ Made penned an open letter to Minister Lee.
Like Campbell, they too would like the Government to do more to use public procurement to better achieve broader outcomes, specifically to achieve wider economic benefits for Kiwi businesses.
While the groups acknowledged the Government’s procurement rules “contain language we have advocated for”, they suggested the “far harder task is getting procurement managers all around New Zealand to put the rules into action”.
Director of advocacy at BusinessNZ Catherine Beard told the Herald the groups now recommend more change to the procurement rules. They’re in favour of simplification, and perhaps incompatibly, they also suggest procurement evaluators could be required to assign a weighting to domestic bidders (or bids with domestic components) for specific criteria such as local offices, the employment of New Zealanders and paying tax in New Zealand – the definition of a local business would need to be broad, both because of terms stipulated in trade agreement and to achieve the benefits of competition.
Minister Lee said she is reviewing the procurement rules with an eye to “optimising public sector spend and driving economic growth”. She expects to provide an update early next year.
Kate MacNamara is a South Island-based journalist with a focus on policy, public spending and investigations. She spent a decade at the Canadian Broadcasting Corporation before moving to New Zealand. She joined the Herald in 2020.
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