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Rising to the Challenge:
How to Purchase Innovation
A workshop on public sector procurement
Rising to the Challenge:
How to Purchase Innovation
A workshop on public sector procurement
Pre-reading pack for the workshop
Table of Contents
Agenda
4
NZRise Procurement Principles
6
Mandatory Rules for Procurement by Departments
8
Realising benefits from six public sector IT projects
23
The benefits of local IT procurement 84
NZRise
Ministry of Business, Innovation and Education
Auditor General
Economics NZ
nzrise.org.nz
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Rising to the Challenge:
How to Purchase Innovation
A workshop on public sector procurement
Friday, August 17 08:00-13:00
NZRise and the Ministry of Business, Innovation and Employment (MBIE) are holding a half-day
session in Wellington on Friday August 17 to explore how the Ministry’s current procurement
reform agenda can include the opportunities and economic benefits that New Zealand owned
and operated businesses bring to the table.
In addition to officials from MBIE and NZRise members, there will be representatives from
the Department of Internal Affairs, Local Government organisations, HealthAlliance, the
Communications Agencies Association, the legal profession and other local businesses.
The agenda will be a series of short presentations followed by small group discussions
comprising representatives of each of the organisations or groups present and reports back to
the larger group. The focus will be on airing concerns and moving to constructive solutions to
the ensure that MBIE officials are provided with high quality input to the procurement reform
process.
This will be a unique opportunity to engage with officials and your peers around public sector
procurement and to have your voice heard. In order to ensure that we have an effective
representation at each of the tables, numbers will be limited and reservations essential.
For more details, visit the NZRise website and register to attend:
http://nzrise.org.nz/procurement-seminar
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Agenda
08:00 Coffee and muffins
08:25
Welcome
NZRise
08:30 Intro and scene setting
Chris Browne, MBIE.
08:40 4 x 5 min Ignite presentations representing various views:
• NZRise
•DIA
•CAANZ
• Legal / Human Resources
09:00 Break Out #1
Barriers and challenges: what’s currently working well and what are
the challenges?
Table discussions based on NZRise Procurement Principles:
• Inclusion: procurement should be based on inclusion rather
than exclusion
• Engagement: early engagement in the process breeds success
• Transparency: full disclosure
• Expertise: the value of local knowledge over project life
• Disaggregation: smaller, more agile initiatives reduces risk and increases
competition
• Impact: consider economic, social and environmental impacts
• Innovation: diverse approaches, including agile and open source
• Open: procurement should be open to all suppliers
09:50 Report back
Summaries from each working group
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10:10 Morning tea
10:30 Tim Conway - Keynote speech
Mind the Gap: Avoiding the Pitfalls between Purchasers and Providers
11:00 Break Out #2
Solutions
Table discussions
• Same topics, focussing on the outcomes from the first session and
solutions and actions
11:50 Working groups report back
12:20 End notes
Tim Conway and MBIE
12:40 Wrap and next steps
NZRise
13:00Close
Tim Conway is principal and director of C-Metrics Pty Ltd.
He has degrees in commerce and law, and
has completed post university courses in resource economics, quality management and business re-engineering. A
former ministerial advisor, resource economist, Deputy CEO of the Australian Information Industry Association (AIIA),
and Policy Director for Intellect, the UK ICT lobby, Tim has more than 25 years’ experience working with policy-makers,
purchasers and providers in Australia, the UK and Europe, especially in the public sector, and particularly engaged in
large strategic ICT-enabled projects. Most recently, he was Head of Research with Intermedium, leading Australian
public sector ICT analysts.
While working in the UK between 1998 and 2002 with Intellect, he played a key role in promoting cooperative and
collaborative relationships between government agencies and ICT vendors, and participated in the joint development
of best practices in government procurement and ICT projects with the UK Office of Government Commerce (OGC).
It was this experience that ultimately led Tim to establish C-Metrics, the central aim of which is to measure and
improve the performance and reputation of all organisations by providing objective metrics and key performance
indicators based on open standards of quality, capability maturity, commercial viability, risk management expertise
and experience in handling similar projects.
Tim’s passion, which is reflected in the mission of C-Metrics, is to ensure better project outcomes by helping purchasers
and providers —
regardless of size, segment or structure — identify, understand and combine their strengths too
vercome their weaknesses.
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NZRise Procurement Principles
A set of principles developed by the members of NZRise.
NZRise Procurement Principles
Version 1.0
We consider these principles will encourage the growth and creative potential of New
Zealand-owned and operated digital technology companies, and will help to create a strong
and dynamic local economy.
DIVERSITY
TRANSPARENT
A strong and diverse local digital technology
sector encourages creative innovation and
effective competition.
Procurement processes must operate in a
transparent manner with full disclosure.
EQUALITY
EXPERTISE
All suppliers must be treated consistently
in a fair and impartial manner.
It is important to recognise the value
and importance of local knowledge and
experience.
INCLUSIVE
IMPACT
Procurement practices must be based on
inclusion rather than exclusion, with any
supplier that meets criteria which are
consistent with these principles being able
to provide products and services.
All procurement practices must
specifically take into account the impact
on the local economy over the lifecycle
of any initiative, and must always seek to
minimise the impact of responding to any
procurement request.
ENGAGEMENT
DISAGGREGATION
Early engagement improves the
understanding of all parties and
increases the likelihood of delivering
successful outcomes.
Breaking up large-scale initiatives into
smaller, more manageable components
helps to increase competition and reduce
risk.
OPEN
Procurement processes must be open and
accessible to all suppliers.
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Mandatory Rules for Procurement
by Departments
Developed by the Ministry of Business, Innovation and Education’s procurement policy team and
signed off by the Government. Public Service departments, New Zealand Police and New Zealand
Defence Force are subject to the Mandatory Rules of Procurement for Departments. These Rules
set out minimum requirements for certain types of procurements and must be followed.
(Endorsed by Cabinet 18/04/06)
MANDATORY RULES FOR PROCUREMENT BY
DEPARTMENTS
Introduction
1.
These Rules set out mandatory standards and procedural requirements
for the conduct of procurement by government departments (defined for
this purpose as the “public service departments” listed in the Schedule to
the State Sector Act 1988, plus NZ Defence Force and NZ Police). The
Rules reflect and reinforce New Zealand’s established policy of
openness and transparency in government procurement. They are
based on, but not limited to, the treaty obligations of New Zealand under
Chapter 11 of the Trans-Pacific Strategic Economic Partnership
Agreement with Brunei, Chile and Singapore (TPSEPA, also known as
the P4 Free Trade Agreement).
The Rules are to be applied by
departments in their procurement globally to facilitate competitive
participation by domestic and foreign suppliers in New Zealand’s
government procurement market.
Pre-existing commitments to Australia and Singapore
2.
The Australia New Zealand Government Procurement Agreement
(ANZGPA) establishes a single ANZ market for government
procurement, without limitation by value threshold. While these Rules
have general application, they must not be interpreted as reducing the
scope of departments’ wider obligation under the ANZGPA to accord
Australian suppliers non-discriminatory treatment and equal opportunity
to compete, on a value for money basis in their procurement generally.
3.
New Zealand has similar non-discriminatory obligations to Singapore
under the existing bilateral Closer Economic Partnership Agreement
(CEP). In this case however, a value threshold applies, as under these
Rules. Departments conducting their procurement within the existing
policy and good practice framework (see paragraph 4 below) and
applying these Rules will generally meet our CEP obligations to
Singapore. Should any conflict arise in practice, advice should be
sought from the Ministry of Economic Development.
Continuing policy and good practice framework
4.
1
The Government continues to expect its departments to conduct all their
procurement within the framework of the policy principles1 set out in the
“Policy Guide for Purchasers” issued by the Ministry of Economic
Including the principles of: best value for money over whole of life; open and effective
competition; and full and fair opportunity for domestic suppliers.
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Development , and the good practice guidelines set out in “Procurement:
a Statement of Good Practice” issued by the Office of the AuditorGeneral. For construction procurement, departments should note that
the Auditor-General also encourages use of the document “Principles of
Best Practice: Construction Procurement in New Zealand”, issued by the
New Zealand Construction Industry Council.
5.
Although these Rules are more prescriptive, they are designed to be
generally consistent with the policy and good practice principles
mentioned above. Should any points of conflict arise, however, the
Rules must prevail.
6.
Departments are also reminded that in all their procurement activities
they continue to be accountable for observing the relevant minimum
standards of behaviour (e.g. in relation to integrity and confidentiality of
information) required by law or government direction (e.g. the Code of
Conduct issued by the State Services Commissioner).
Mandatory Coverage of these Rules
7.
These Rules must be applied by government departments, as listed in
the Schedule to the State Sector Act 1988, plus NZ Police and NZ
Defence Force, to procurement:
a. by any contractual means, including purchase and rental or lease,
with or without an option to buy, build-operate-transfer contracts,
public works concessions contracts, and contracts accessed via
third party commercial supply brokerage arrangements.
b. with contract values at or above the following thresholds:
i. Goods and services: NZ$100,0002;
NZ$10 million, except that a
ii. Construction services3:
NZ$100,000 threshold applies for the purposes of paragraph
48 (GETS post-award notice) and paragraph 51 (Annual
Procurement Plans).
8.
Notwithstanding the higher threshold for mandatory application of these
Rules to construction services procurement, departments are reminded
that the Government expects them to conduct all their construction
services procurement within the policy and good practice framework as
stated in paragraph 4 above.
9.
Mandatory coverage of these Rules is further defined and limited by the
Exclusions and Exceptions listed in Appendix 1.
2
All references to value thresholds are to be read as excluding GST.
As defined in WTO document MTN.GNS/W/120 (1991) under the sector heading “Construction and
Related Engineering Services”, covering the following groups in the UN Provisional Central Product
Classification system (1991): CPC 511-518.
3
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10. Notwithstanding the fact that only the entities referred to in paragraph 7
above are required to apply these Rules, the Government encourages
their application in the wider public sector as appropriate.
Valuation of contracts
11. In determining whether contract values are at or above the thresholds,
departments must base the contract valuation on the maximum total
estimated value of the procurement over its entire duration, including
optional purchases, premiums, fees, commissions, interest and revenue
streams or other forms of remuneration provided for in the contract. All
forms of remuneration, including payments to an agent or supply broker,
must be declared in the contract.
Non-avoidance
12. Departments must not prepare, design or otherwise structure or divide at
any stage any procurement in order to avoid the application of these
Rules.
Procurement managed by a third party
13. Use of a third party as an agent or consultant (not being the prime
contractor) to advise on, arrange or manage a procurement process
does not remove from departments the requirement to comply with these
Rules, where applicable.
Integrity in Procurement Practices
14. Departments must have in place policies and procedures to eliminate
any potential conflict of interest on the part of those engaged in or having
influence over a procurement.
Non-Disclosure of Confidential Information
15. Departments must not, except to the extent required by law4, disclose
confidential information that would prejudice legitimate commercial
interests of a particular supplier or might prejudice fair competition
between suppliers, without the written authorisation of the supplier that
provided the information.
Non-discrimination5
16. Departments must accord all potential suppliers equal opportunity and
equitable treatment on the basis of their financial, technical and
commercial capacity.
4
Departments will be aware that information not disclosed according to these Rules will
nevertheless be subject to the Official Information Act 1982 on an ongoing basis.
5
Departments are reminded that under the ANZGPA the non-discrimination obligation applies
to procurement in the ANZ “single government procurement market” without limitation by
value threshold.
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17. Departments must make procurement decisions on the basis of value for
money of goods and services to be supplied, and not on the basis of
their place of origin or the degree of foreign ownership or affiliation of the
supplier.
Offsets
18. Departments must not consider, seek or impose offsets at any stage of a
procurement.6
Technical Specifications 7
19. Departments must not prepare, adopt or apply any technical specification
with the purpose or effect of creating unnecessary obstacles to
international trade or domestic supply.
20. Technical specifications prescribed by a department must, where
appropriate:
a. be specified in terms of performance and functional requirements,
rather than design or descriptive characteristics; and
b. be based on international standards, where applicable, or otherwise
on national technical regulations, recognised national standards, or
building codes.
21. Departments must not prescribe technical specifications that require or
refer to a particular trademark or trade name, patent, design or type,
specific origin or producer or supplier, unless there is no sufficiently
precise or intelligible way of describing the procurement requirements
and provided that, in such cases, words such as “or equivalent” are
included in the tender documentation.
22. Departments must not seek or accept advice to be used in the
preparation or adoption of any technical specification for a particular
procurement from a person that may have an interest in that
procurement, if to do so would prejudice fair competition.
6
Offsets are conditions or undertakings relating to domestic content, licensing of technology,
investment, counter-trade or similar requirements to encourage local development or improve
the balance of payments accounts.
7
Technical specification means a tendering requirement that:
(a) sets out the characteristics of:
(i)
goods to be procured, such as quality, performance, safety and
dimensions, or the process and methods for their production; or
(ii)
services to be procured, or the processes or methods for their provision,
including any applicable administrative provisions;
(b) addresses terminology, symbols, packaging, marking or labeling requirements, as
they apply to a good or service; or
(c) sets out conformity assessment procedures prescribed by a department.
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Tendering Procedures 8
Open tendering to be the “default” method
23. Procurement covered by these Rules is normally9 to be conducted by
way of open tendering procedures in the course of which any interested
supplier may submit a tender or apply to meet conditions for
participation10 in a procurement process.
Notice of intended procurement to be published on GETS 11
24. Departments must publish on GETS a notice inviting interested suppliers
to submit a tender or apply to meet conditions of participation in the
procurement process. The notice must be accessible on GETS during
the entire period established for tendering or submission of an
application (whether or not also published in other print or electronic
media).
Content of notices of intended procurement
25. The information in notices of intended procurement must include:
a. a description of the intended procurement;
b. any conditions that suppliers must fulfil to participate in the
procurement process;
c. the time limits for submission of tenders or applications to
participate; and
d. contact details for obtaining of all relevant documents.
Time limits
26. Departments must publish notices of intended procurement on GETS
sufficiently in advance to provide all interested suppliers with a
reasonable period of time, in light of the nature, circumstances and
8
Departments choosing to make procurements under a "syndicated” contract containing a
common use provision (CUP) (which provides that goods and services will be available to
other government agencies on the same terms and conditions as the original contract) will be
considered to have met the requirements of the Tendering Procedures section (paragraphs
23 -46), provided the syndicated contract has been awarded by a department or departments
consistently with these Rules, including Valuation of Contracts (paragraph 11 above) and has
been reviewed and endorsed by the Syndicated Contracts Review Board. Departments
choosing to use a syndicated contract option must take steps to satisfy themselves that this
represents the best value for money for their particular needs in the current market
circumstances.
9
For a list of the circumstances in which open tendering need not be used, see Appendix 2:
Exceptions to Open Tendering Requirement.
10
Conditions for participation means any registration, qualification or other pre-requisites that
interested suppliers must meet in order to participate in a procurement process i.e. to be
invited to tender or to have submissions considered.
11
Government Electronic Tenders Service http://www.gets.govt.nz
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complexity of the procurement, to obtain the full tender documentation
and to prepare and submit responsive tenders by the closing date, or to
apply to participate in the procurement process, where applicable.
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27. The time provided between the date of publication of the notice on GETS
and the final date for submission of tenders or applications to participate
must in no case be less than 10 working days. (N.B. – this is to be
regarded as the absolute minimum, not the norm).
Tender documentation
28. The tender documentation must contain all information necessary for
suppliers to prepare and submit responsive tenders, including the
essential requirements and evaluation criteria for the award of the
procurement contract.
29. Departments must either:
a. offer direct access to the entire tender documents and any
supporting documents by electronic means; or
b. promptly make the tender documentation available at the request of
a supplier who is invited to submit a tender.
Further information
30. Departments must endeavour to reply promptly to any reasonable
request for explanation or relevant information made by a supplier,
provided that such information does not give that supplier an advantage
over its competitors in the procedure for the award of the contract. The
explanation or information provided to a supplier may be provided to all
suppliers that are invited to tender.
Modifications
31. Where a department, during the course of a procurement, modifies the
essential requirements and evaluation criteria of the tender
documentation, it must publish such modifications on GETS or transmit
them in writing to all suppliers who have requested tender documentation
at the time the criteria are modified, in the same manner the original
information was transmitted, and in adequate time to allow such
suppliers to modify and resubmit their tenders, as appropriate.
Conditions for Participation in a Procurement Process
32. Publication on GETS of a notice inviting suppliers to apply to satisfy
conditions for participation in an intended procurement process, must be
sufficiently in advance for interested suppliers to prepare and submit
responsive applications, and for the department to evaluate and make its
determinations based on such applications.
33. Departments must consider for a particular procurement process those
suppliers that request to participate and are not yet registered or
qualified, provided there is sufficient time to complete the registration or
qualification procedures before the award of the contract.
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34. Departments must limit any conditions for participation, including
financial guarantees, technical qualifications and information necessary
for establishing the financial, commercial and technical capacity of
suppliers, as well as the verification of qualifications, to those which are
essential to ensure the firm’s capability to fulfil the contract in question.
35. Departments must judge the financial, commercial and technical capacity
of a supplier on the basis of both that supplier’s global business activity
and its activity in New Zealand, taking due account of the legal
relationship between the supply organisations (e.g. in assessing
resources available to the supplier).
36. Nothing in this section of the Rules precludes a department from
excluding a supplier from a procurement on grounds such as bankruptcy,
liquidation or insolvency, false declarations relating to a procurement, or
significant deficiency in the performance of any obligation under a prior
contract.
Lists of Registered or Qualified Suppliers (“Preferred Supplier Lists”)
37. A department may establish for continuing use a list of suppliers
registered or qualified to participate in a procurement process.12
38. A department using such a list must:
a. make the current updated list of registered or qualified suppliers
publicly available;
b. ensure that suppliers may apply to join the list at any time; and
c. include all qualifying applicants within a reasonable period of time,
taking into account the conditions for participation and the need for
verification.
39. Where a department requires suppliers to qualify for such a list before
being permitted to participate in a particular procurement process, and a
supplier that has not previously qualified submits an application, the
department must promptly start the registration or qualification
procedures and must allow such supplier to participate in the
procurement process, provided there is sufficient time to complete the
procedures within the time period established for the award.
40. The department must make available continuously on GETS a notice
inviting interested suppliers to apply for inclusion on the list. The notice
must include:
12
NB: use of such a list does not remove the requirement to publish a notice of intended
procurement inviting interested suppliers not already listed to apply to meet conditions of
participation in the procurement process, as in paragraph 24 above.
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a. a description of the goods and services for which the list of
suppliers may be used; and
b. the conditions to be satisfied by suppliers for inclusion on the list of
registered or qualified suppliers.
41. Departments must notify registered or qualified suppliers of the
termination of, or of their removal from the list, and state the reason for
this action.
Panel Contracts
42. A department may establish, by means of a contract awarded according
to these Rules, a panel of alternative suppliers from any of whom the
department may at its option purchase, as and when required, identified
goods or services meeting minimum requirements, including indicative or
set prices or rates as appropriate, specified for provision of the goods or
services over the term of the contract.
Awarding of Contracts
43. Departments must receive, open and evaluate all tenders under
procedures that guarantee the fairness and impartiality of the
procurement process.
44. Departments must consider for award only those tenders which, at the
time of opening, conform to the essential requirements of the notice of
intended procurement or tender documentation and are submitted by a
supplier who complies with the conditions for participation.
45. Unless the department determines that it is not in the public interest to
award a contract, it must award the contract to the supplier that has been
determined to be fully capable of undertaking the contract and whose
tender is determined to offer the best value for money in terms of the
essential requirements and evaluation criteria set forth in the tender
documentation.
46. A department must not cancel a procurement or terminate or modify an
awarded contract in order to circumvent these Rules.
Post-Award Information and Supplier Debriefing
47. Departments must:
a. promptly publish or inform suppliers that have submitted a tender of
the contract award decision; and
b. on request from an unsuccessful supplier, promptly provide
pertinent information concerning reasons for the rejection of its
tender or the relative advantages of the tender that was accepted.
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GETS post-award notice
48. Departments must, promptly after the award of a contract (whether
or not the procurement was by open tendering), publish on GETS a
notice containing at least the following information:
a. the name and address of the successful supplier;
b. a description of the goods or services supplied;
c. the term of the contract; and
d. the value of the contract award (determined in accordance with
paragraph 11 above).
Supplier Complaints
49. Departments must be open to, and accord impartial and timely
consideration to any complaints from suppliers regarding an alleged
breach of these Rules arising in the context of a procurement in which
they have or have had an interest.
50. Departments must make records documenting the procurement process
and reasons for decisions available to any authorities competent to hear
or review supplier complaints of alleged breaches of these Rules, and
cooperate fully in such hearings or reviews.
Annual Procurement Plans
51. Departments must publish on GETS, by 1 July each year, a rolling
Annual Procurement Plan (APP) which is to be updated no less
frequently than every 6 months.
52. The APP is to contain a short strategic procurement outlook for the
department supported by details of any planned procurement, including
the estimated date of the publication of a notice of intended procurement
on GETS as in paragraph 24 above (where applicable). [Departments
will be provided with an electronic template for APPs]
Audit Requirements
53. Departments must keep records documenting all their procurement
which are readily accessible for the purposes of audit of compliance with
these Rules. [Departments will be given further advice on minimum
information required for audit].
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APPENDIX 1
EXCLUSIONS AND EXCEPTIONS
Exclusions from Mandatory Coverage of these Rules
1.
In exercising their discretion not to apply these Rules to the following
categories of procurement, departments must still, where appropriate
and to the extent possible, have regard to the principles of the
government procurement policy and good practice framework (paragraph
4 above).
2.
Departments are not required to apply these Rules to:
a. the purchase or acquisition of goods and services by a department
from another department, except where tenders are called, in which
case these Rules shall apply;
b. non-contractual agreements, or any form of assistance to persons
or governmental authorities, including foreign assistance, grants,
loans, equity infusions, fiscal incentives, subsidies, guarantees,
cooperative
agreements,
sponsorship
arrangements
and
governmental provision of goods and services;
c. purchases funded by international grants, loans or other assistance,
where the provision of such assistance is subject to conditions
inconsistent with these Rules;
d. procurement of goods and services (including construction) outside
the territory of New Zealand, for consumption outside the territory of
New Zealand;
e. acquisition of fiscal agency or depository management services,
liquidation and management services for regulated financial
institutions, and sale and distribution services for government debt;
f. hiring of government employees;
g. any procurement in respect of contracts for
refurbishment or furnishing of chanceries abroad; or
construction,
h. procurement of public health, education and welfare services.13
13
Refers to procurement, for provision to the public, of services classified in WTO document
MTN.GNS/W/120 under the sector headings “Educational Services”, “Health Related and
Social Services” , and CPC 913 (Compulsory social security services).
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General Exceptions
Security
3.
Nothing in these Rules is to be construed as preventing the New Zealand
Government from taking any action or not disclosing any information
which it considers necessary for the protection of its essential security
interests relating to the procurement of arms, ammunition or war
materials, or to procurement indispensable for national security or for
national defence purposes.
Other
4.
Subject to the requirement that such measures14 are not applied in a
manner that would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a
disguised restriction on trade between countries, nothing in these Rules
is to be construed to prevent the New Zealand Government from
adopting or maintaining measures:
a. necessary to protect public morals, order or safety;
b. necessary to protect human, animal or plant life or health (including
environmental measures necessary to protect human, animal or
plant life or health);
c. necessary to protect intellectual property; or
d. relating to goods or services of handicapped persons, of
philanthropic or not for profit institutions, or of prison labour.
5. Nothing in these Rules is to be construed as requiring departments to
disclose confidential information the disclosure of which would impede law
enforcement or otherwise be contrary to the public interest.
14
measure includes any law, regulation, procedure, requirement or practice
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APPENDIX 2
EXCEPTIONS TO OPEN TENDERING REQUIREMENT
1.
Provided that the procedure is not used to avoid competition15, protect
domestic suppliers or discriminate against any domestic or foreign
supplier, departments may award contracts by means other than open
tendering procedures in any of the following circumstances16:
a. where, in response to a prior notice, invitation to participate, or
invitation to tender under open tendering procedures
i. no tenders were submitted,
ii. no tenders were submitted that conform to the essential
requirements in the tender documentation, or
iii. no suppliers satisfied the conditions for participation, and
the department does not substantially modify the essential
requirements of the procurement in the contract as awarded;
b. where, for works of art, or for reasons connected with the protection
of exclusive rights, such as patents or copyrights, or where there is
an absence of competition for technical reasons, the goods or
services can be supplied only by a particular supplier and no
reasonable alternative or substitute exists;
c. for additional deliveries by the original supplier which are intended
either as replacement parts, extensions or continuing services for or
upgrades of existing equipment, software, services or installations,
where a change of supplier would compel the procuring department
to procure goods or services not meeting requirements of
interchangeability with existing equipment, software, services or
installations, or conditions under original supplier warranties;
d. for goods purchased on a commodity market;17
15
While it is recognised that competition may not be appropriate in the circumstances listed,
departments must use competition-limiting methods only where necessary and justified in
accordance with paragraph 2 below)
16
In exercising their discretion not to use open tendering procedures in these circumstances,
departments must still, to the extent possible, have regard to the principles of the government
procurement policy and good practice framework.
17
Commodity market means a market in which commodities are bought and sold for future
delivery at a specific price through an exchange.
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e. when a department procures a prototype or a first good or service
that is developed at its request in the course of, and for, a particular
contract for research, experiment, study or original development.
When such contracts have been fulfilled, subsequent procurements
of such goods or services shall be subject to the principles and
procedures laid down in these Rules;
f. when additional construction services which were not included in
the initial contract but which were within the objectives of the
original tender documentation have, due to unforeseeable
circumstances, become necessary to complete the construction
services described therein, provided that the total value of contracts
awarded for additional construction services does not exceed 50
percent of the amount of the main contract;
g. in so far as it is strictly necessary where, for reasons of extreme
urgency brought about by events unforeseeable by the department,
the goods or services could not be obtained in time by means of an
open tendering procedure, and the use of such procedure would
result in serious injury to the department, the department's
programme responsibilities or the New Zealand Government. For
purposes of this subparagraph, lack of advance planning by a
department or its concerns relating to the amount of funds available
to it do not constitute unforeseeable events;
h. for purchases made under exceptionally advantageous conditions
that only arise in the very short term, including public auction or
unusual disposals, such as those resulting from liquidation,
bankruptcy or receivership. This provision is not intended to cover
routine purchases from regular suppliers; or
i. in the case of a contract awarded to the winner of a design contest
provided that the contest has been organised in a manner which is
consistent with the principles of these Rules and that the contest is
judged by an independent jury with a view to a design contract
being awarded to the winner.
2.
561266
Whenever it is necessary for departments to resort to a procedure other
than open tendering procedures based on the circumstances set forth in
Paragraph 1, the departments must maintain a record or prepare a
written report providing specific justification for the contract.
Page 2
Realising benefits from six public
sector IT projects
Paper by the New Zealand Auditor General that looks at six public sector
ICT-enabled projects that range in cost from a few hundred thousand
dollars to tens of millions of dollars. It highlights some of the features
of the projects’ management that have led them to realise benefits
successfully.
Discussion paper
Realising beneﬁts
from six public
sector technology
projects
Oﬃce of the Auditor-General
PO Box 3928, Wellington 6140
Telephone: (04) 917 1500
Facsimile: (04) 917 1549
Email: [email protected]
Website: www.oag.govt.nz
Realising beneﬁts
from six public
sector technology
projects
Presented to the House of
Representatives under section 20 of
the Public Audit Act 2001
June 2012
ISBN 978-0-478-38374-4 (print)
ISBN 978-0-478-38375-1 (online)
Contents
3
Glossary
4
Auditor-General’s overview
5
1 – Introduction
7
Using technology to deliver public services
Realising beneﬁts
How we did our work
7
7
8
2 – The projects that we looked at
11
3 – Financial support in Christchurch after the February 2011 earthquake
13
4 – Providing real-time travel information
19
5 – Processing passengers faster at airports
25
6 – Portal access to Student Loan account information
31
7 – Managing land title records electronically
37
8 – The 111 text service for the deaf
43
9 – Lessons from the six projects
49
Figures
1 – The projects and their main direct beneﬁts and lessons
2 – Using information and communication technology to realise beneﬁts
11
50
4
Glossary
Beneﬁts realisation is the active managing of, planning for, and delivery of results
through information and communication technology-enabled projects. It involves
continuously planning, reviewing, reporting, and updating the beneﬁts being and
to be realised.
A direct beneﬁt is a business outcome that delivers value to the organisation.
Direct beneﬁts are beneﬁts that have been planned and achieved, and involve
both ﬁnancial and non-ﬁnancial business outcomes.
An indirect beneﬁt is a planned and achieved business outcome that delivers
value to stakeholders in the ICT-enabled public sector project.
An unplanned and/or unexpected beneﬁt is a positive business outcome that was
not foreseen in beneﬁts realisation planning.
An intangible beneﬁt is a non-quantiﬁable, positive business outcome.
Auditor-General’s overview
During the past 25 years, information and communication technology (ICT) has
become integral to how we work, enjoy leisure activities, and receive services.
Partly because of advances in ICT, people who use public services expect them to be
delivered faster, cheaper, and more conveniently. ICT can help public service providers
to meet these expectations and has become essential for delivering many of these
services, such as tax collection, paying beneﬁts, and recording land titles.
Furthermore, as part of the better public services agenda, the Government wants
public entities to use technology and digital channels more, so that people can
access government services more easily.
It’s important to note that introducing new technology doesn’t automatically
bring better results. We see better results when technology gives people the
power to do things diﬀerently, as it’s people who get better results, using ICT.
You could be forgiven if you thought that ICT-enabled projects are costly and don’t
achieve what they were meant to. We usually hear about the failures, but many
public sector ICT-enabled projects have successfully realised beneﬁts.
In this paper, we look at six public sector ICT-enabled projects that range in cost
from a few hundred thousand dollars to tens of millions of dollars. We highlight
some of the features of the projects’ management that have led them to realise
beneﬁts successfully.
Above all, the projects show the need to manage beneﬁts realisation dynamically.
This need continues beyond the formal life of the project.
In my view, this paper identiﬁes practical and useful factors that should be
considered carefully when planning to realise beneﬁts through ICT. I hope that, by
sharing these factors, we can help other public entities to better realise beneﬁts
and achieve better results.
I thank the public entities whose projects are featured in this paper for their cooperation and help. I also thank Dr Miriam Lips, Professor of e-Government, School
of Government, Victoria University of Wellington, and her team for their advice
and help.
Lyn Provost
Controller and Auditor-General
22 June 2012
5
Part 1
Introduction
Using technology to deliver public services
1.1
Technology is playing an increasing role in our lives and in delivering public
services. During the past 25 years, information and communications technology
(ICT) has become integral to how we work, enjoy leisure activities and receive
services.
1.2
The Government has signalled a focus on increasing the use of ICT to reduce the
cost of services to the public and improve their quality.
1.3
ICT can help to achieve better value for money. The November 2011 Better Public
Services Advisory Group Report states that “value-for-money means less cost, time
and eﬀort are taken to generate the same – or a better – result”.
1.4
Making the most of available technology and ICT-enabled ways of engaging, such
as via social media, can reduce costs and help meet what people and businesses
expect in their dealings with government.
1.5
The Government has set 10 high-level results for the public sector to achieve
during the next three to five years. Two of these results aimed at improving
interaction with government are:
t that businesses have a one-stop online shop for all the advice and support
from government that they need; and
t that people can easily complete their transactions with the Government in a
digital environment.1
1.6
In this paper, we identify practices that have helped or are helping six public
entities to deliver beneﬁts eﬀectively using ICT-enabled projects.
1.7
We have taken this approach, in contrast to auditing all the aspects of projects,
because, in our view, achieving beneﬁts eﬀectively is what makes an ICT-enabled
project successful.
1.8
The practices we identify are not all new or spectacular. However, they are not yet
a consistent feature of public entities’ ICT-enabled projects.
Realising beneﬁts
1.9
It is vital that ICT-enabled projects focus on the beneﬁts for users and the
organisation that provides the services. Inevitably, not all projects go to plan.
This can lead to intended beneﬁts of ICT-enabled projects not being realised
and, in extreme cases, organisations performing worse and using public money
ineﬀectively.
1
Our proposed 2012/13 work programme includes exploring how public entities use social media and identifying
what conditions are critical for success. We will look at how eﬀective and eﬃcient investments in social media
are. We plan further work in 2013/14 on delivering technology-enabled services.
7
Part 1
Introduction
8
1.10
To deliver ICT-enabled projects successfully, it is essential that the projects’
managers, governors, and sponsors focus effectively on realising benefits. They
should:
t understand clearly what the intended beneﬁts are and how they can be
achieved;
t be agile enough to ensure that beneﬁts can be maximised and enhanced; and
t be able to adapt the project, if required, to realise the required beneﬁts.
How we did our work
The purpose of our work
1.11
There is no set way to maximise ICT-enabled projects’ beneﬁts, but some practices
have helped public sector projects to successfully realise beneﬁts. We want to
pass on knowledge of these practices.
1.12
We compiled a list of 15 projects for possible inclusion in this discussion paper. We
then met people in the organisations responsible for those projects and reduced
the list to six projects. The critical feature that we looked for was a clear direct
beneﬁt for the end user.
1.13
To ensure that we had an appropriate set of projects, we approached:
t the Oﬃce of the Government Chief Information Oﬃcer at the Department of
Internal Aﬀairs, which oversees the Government’s ICT strategy and provides
relevant high-level advice;
t the State Services Commission ICT monitoring unit, which monitors
government ICT projects; and
t the Treasury, which has an interest in capital investment proposals, including
those for ICT projects.
1.14
To identify the practices that made each project successful, we:
t interviewed project managers and others involved with the projects;
t asked an informed contractor, Dr Miriam Lips, Professor of e-Government,
School of Government, Victoria University of Wellington, to:
– analyse in depth each project by reviewing documents and interviewing
those involved; and
– identify the beneﬁts that each project delivered, but not to audit all aspects
of each project; and
t identiﬁed common themes from the projects.
Part 1
Introduction
9
What we did not cover
1.15
Public entities already get much advice, scrutiny, and guidance about the more
traditional project management aspects of ICT-enabled projects. This includes
guidance available from our Oﬃce2 and other organisations on managing ICT
projects successfully. Our focus for this discussion paper was instead on realising
beneﬁts.
Structure of this paper
1.16
In Part 2, we list the six projects we looked at and their main direct beneﬁts and
lessons.
1.17
In Parts 3-8, we discuss each of the projects in turn.
1.18
In Part 9, we discuss lessons from the six projects that may be relevant for other
ICT-enabled projects throughout the public sector.
2
Controller and Auditor-General (2000), Governance and Oversight of Large Information Technology Projects.
Part 2
The projects that we looked at
2.1
Figure 1 shows the six ICT-enabled projects, public entities, main direct beneﬁts,
scale, and main lesson learned. Collectively, the total public investment in the
projects has been more than $200 million (excluding ongoing operating costs).3
Figure 1
The projects and their main direct beneﬁts and lessons
Project
Entity
Main direct beneﬁts and lessons
Supporting
jobs in
Christchurch
after the
February 2011
earthquake
Ministry
of Social
Development
Main direct beneﬁt
Immediate ﬁnancial support was available to people
who experienced an income loss as a result of the 22
February 2011 Christchurch earthquake.
Scale
$53 million in payments were made in the ﬁrst week the
system was in place. By 30 June 2011, the system had
been used to pay $202 million to 20,000 employers and
50,000 employees.
Main lesson
Results can be delivered very quickly if an appropriately
agile approach is taken.
Providing realtime travel
information
services
New Zealand
Transport
Agency
Main direct beneﬁt
NZTA data sets are freely available to third parties to
prepare real-time travel information services. These
services help the public to make informed decisions
before and during travel.
Scale
As of May 2012, about 300 third-party providers have
access to NZTA data sets.
Main lesson
Involving third parties in aspects of a project that are
not the entity’s core business can lead to more eﬀective
beneﬁts being delivered at no cost to the entity.
Faster
passenger
processing at
airports
New Zealand
Customs
Service
Main direct beneﬁt
People travelling between New Zealand and Australia
enjoy more accurate, cheaper, and faster passenger
processing at the airport border.
Scale
About 3 million passengers have used SmartGate to
date.
Main lesson
Strong leadership and support from main stakeholders
can be critical to eﬀective results being delivered quickly.
3
Figure 1 is based on information that the public entities involved gave us. We have not audited this information.
Similarly, we have not audited ﬁnancial and other information provided in Figure 1 and in the case studies.
11
Part 2
The projects that we looked at
12
Project
Entity
Main direct beneﬁts and lessons
Portal access
to Student
Loan account
information
Inland
Revenue
Department
Main direct beneﬁt
Consolidated student loan balance information is
available at a single information portal, helping people
to manage their loan balance and repayments.
Scale
About 700,000 people have student loans, with the total
value of the loans being about $13 billion.
Main lesson
Going back to the drawing board when necessary can be
critical to success.
Managing
land title
records
electronically
Land
Information
New Zealand
Main direct beneﬁt
Users can access an online, more eﬃcient, land property
title system with better quality data.
Scale
More than 70% of land title transactions are now
registered instantaneously, making reporting for lawyers,
local authorities, and surveyors easier.
Main lesson
Having a main business purpose, and involving people
with specialist business knowledge, are critical to
realising beneﬁts.
111 text
service for the
deaf
New Zealand
Police
Main direct beneﬁt
Faster emergency service responses to the deaf
community. The community describes the service as
creating “self-determination” and achieving “a tangible
advancement in human rights”.
Scale
About 240,000 people in New Zealand have impaired
hearing. Of these, about 9000 are described as “culturally
deaf”.*
Main lesson
It is important to work with users to realise eﬀective
beneﬁts for them.
* Culturally deaf people communicate mainly using visual language, especially New Zealand Sign Language.
Part 3
Financial support in Christchurch after the
February 2011 earthquake
What the project was about
3.1
In response to the 22 February 2011 Christchurch earthquake, the Government,
through the Ministry of Social Development (the Ministry), created the
Christchurch Earthquake Support Package to provide ﬁnancial support to aﬀected
employers and employees. The Government’s main concern was to remove
uncertainty about jobs and businesses in Christchurch and help people to pay the
bills.
3.2
The six-week package was made up of two components:
t the Earthquake Support Subsidy – a subsidy to help companies to operate
while keeping their staﬀ and pay their wages. The companies would get $3,000
gross to pay an employee for six weeks ($500 gross a week) or $1,800 gross to
pay a part-time employee for six weeks ($300 a week); and
t Earthquake Job Loss Cover – a subsidy for those who were unable to contact
their employer or whose employer had closed permanently. The subsidy
involved a $400 in-the-hand weekly payment for six weeks for full-time
employees and $240 a week in the hand for part-time employees.
3.3
Because the Government anticipated that it would receive many applications and
that, potentially, it would be diﬃcult to telephone Work and Income, people were
strongly encouraged to apply online. Applicants could call a 24/7 government
helpline or visit one of seven Work and Income oﬃces in Christchurch.
3.4
Ministry staﬀ designed and built the online Earthquake Employment Support
System during a weekend, using rapid development methodologies for system
development (the Kanban method and the Ruby on Rails open-source web
development framework). The Ministry operated the system in partnership
with the Inland Revenue Department (Inland Revenue) and Westpac and
allowed employers and employees to apply for ﬁnancial help by providing basic
information using a secure online form.
3.5
Employees had to provide their personal details, including an email address, their
cellphone number, their IRD number, and a bank account number. Employers had
to provide their business IRD number, business bank account number, details of
staﬀ requiring the subsidy (employee names, date of birth and IRD numbers), and
contact details, including an email address and cellphone number.
3.6
A combined team of Ministry and Inland Revenue staﬀ looked at all the rejected
applications and telephoned people where necessary. Before paying approved
applicants through the bank, Inland Revenue had to match the information
13
Part 3
Financial support in Christchurch after the February 2011 earthquake
14
provided with their records. Successful applicants received an email or text telling
them when the payment was made.
3.7
The system began to operate six days after the earthquake, with $53 million
paid in the ﬁrst week. By the end of June 2011, 20,000 employers and 50,000
employees had received a combined total of $202 million.
3.8
The total costs for developing the system were estimated to be about $250,000.
Rapid development methodologies kept ongoing costs low.
Beneﬁts
3.9
A direct beneﬁt of the system was that it provided immediate ﬁnancial support to
people who lost income as a result of the earthquake.
3.10
An indirect beneﬁt was that using online services improved eﬃciency. Providing
online services was much cheaper than having face-to-face meetings or
telephoning.
3.11
Unexpected and/or unplanned benefits included:
t better online services as a result of less bureaucracy and minimum veriﬁcation;
t more people using online services;
t few rejected applications and instances of fraud;
t much lower overhead costs for following common procedures (such as
specifying system requirements, preparing a business case, and meeting
oﬃcial guidelines); and
t having a re-usable online tool for managing diﬃcult conditions after natural
disasters.
The dynamic nature of realising beneﬁts
3.12
As the new online system proved to be successful (measured by the number and
amount of daily payments, the number of ﬁnancially supported employers, and
the number of employees paid), the realised beneﬁts became more apparent.
Practices that helped achieve beneﬁts
3.13
Senior project leaders were directly involved in designing and developing the
system, and the project’s “deliverable” was clear.
3.14
The Ministry’s leaders strongly supported the scheme but did not oﬃcially
monitor beneﬁts realisation. Senior project leaders reported project results to the
Ministry’s leaders every day.
Part 3
Financial support in Christchurch after the February 2011 earthquake
15
3.15
Politicians were strong supporters. This created strong pressures for senior project
leaders to deliver the benefits that people expected. Every day, project leaders had
to tell the Minister:
t how many employers had received payments;
t how many employees had received payments; and
t how much money had been paid out.
3.16
The reports had to be focused and accurate, as they directly aﬀected what the
Minister said to the media every day.
3.17
Strong Ministerial and departmental sponsorship of the project meant tight
control ‒ decisions were made almost immediately.
3.18
Working outside “normal conditions”, including having to bypass routine
procedures for government information technology (IT) projects, encouraged
innovation. For example, the project started with no:
t speciﬁc system requirements;
t business case;
t system for planning, monitoring, and reporting beneﬁts; or
t oﬃcial evaluation of outcomes.
3.19
This meant that the scheme’s paperwork overheads cost only 10% of those of
routine procedures for government IT projects.
3.20
Designing a new online application system was imperative because of the
special circumstances in Christchurch, where systems were not functioning
(with restricted or no access to Christchurch oﬃces and an expected overﬂow of
telephone calls) and the bureaucracy that those using the Ministry’s application
system would face (a traditional application for a beneﬁt took about 45 minutes,
whereas the new online system took a few minutes).
3.21
Teams collaborated well and were committed. Staﬀ were co-located.
3.22
Special privacy legislation allowed the Ministry and Inland Revenue to share
information. Especially important was Cabinet allowing the IRD number to be
used. This unique sharing of information between organisations helped the
Ministry to learn how to provide services diﬀerently.
3.23
Using rapid development methodologies (particularly the Kanban method and Ruby
on Rails framework) helped to run the system more cheaply. In general, the chosen
ﬂexibility allowed the IT division to deliver the project “on the ﬂy”. Changes to the
system could be made easily, although some start-up decisions needed revision. The
chosen approach led to some mistakes but these did not damage the project.
Part 3
Financial support in Christchurch after the February 2011 earthquake
16
3.24
Project leaders managed politicians’ expectations. Politicians had wanted
payments to start from day 1. However, this was not feasible. The senior project
leaders were able to convince the politicians that it would take a few days before
payments could start.
3.25
Westpac activated a business continuity plan so that daily payments could be
made during the weekend.
Practices that aﬀected the outcome
3.26
Because of a late political decision to have a second round of financial support,
the system was adjusted and used until late June 2011. For this second round, the
criteria for financial support were tightened and fewer people received payments.
In the second round, applicants had to provide more information for verification
and were paid less money. After minimal verification of applicants during the first
round, the critical questions for the Ministry in the second round were:
t Who do we not pay after six weeks?
t How do we assess ongoing needs?
3.27
Working with fewer rules than staﬀ were used to challenged the team.
3.28
At ﬁrst, Inland Revenue staﬀ were more focused on preventing beneﬁt fraud than
paying beneﬁts. At times, this created tension. It took time for the co-located
Ministry and Inland Revenue team to understand that their shared goal was to
pay beneﬁts.
Lessons for other projects
3.29
Enormous time and political pressures, such as reporting daily to the Minister and
then the Minister reporting daily to the media, helped the team to plan, monitor,
and report sharply.
3.30
Strong support from political and senior leaders was critical and led to extremely
tight control, with decisions made almost immediately.
3.31
Senior project leaders eﬀectively managed political expectations about ICTenabled beneﬁts realisation. Politicians did not know how long it would take to
set up the main technical requirements for delivering the planned beneﬁts.
3.32
The extreme and special circumstances allowed the Ministry to rethink its
business, such as thinking about how to better provide services and the
opportunities and implications of minimal verifying.
3.33
The extreme and special circumstances allowed the Ministry to reﬂect on the
high costs that are common in routine procedures in government IT projects.
Part 3
Financial support in Christchurch after the February 2011 earthquake
17
They learned that documents needed for routine procedures in government IT
projects quickly become old and potentially less relevant because of fast-changing
technical and business conditions. They should help to predict things but can ﬁt
awkwardly with changing and/or changed business conditions.
3.34
Strong team collaboration and great team commitment were critical in realising
beneﬁts quickly.
3.35
Co-locating staﬀ helped to overcome cultural diﬀerences between agencies that
had to work together.
3.36
Using rapid development methodologies allowed ﬂexible innovation and reduced
risks and cost. Being ﬂexible meant the project team could deliver “on the ﬂy”,
with relatively easy changes to the system when needed.
3.37
Special privacy legislation has created opportunities for public entities to better
share information. This has allowed innovation in providing online services.
Good practices
3.38
The good practices from this project that we refer to in the discussion in Part 9
are:
t understanding the environment and making the most of the circumstances,
the:
– impetus of limited time;
– extreme and special circumstances; and
– supportive special legislation or change to legislation;
t having strong support from leaders, including strong political support;
t working eﬀectively with the right people, including end users;
– strong team collaboration and commitment; and
t using the right technological tools and rapid development methodologies.
Part 4
Providing real-time travel information
The project
4.1
In 2008, the New Zealand Transport Agency (NZTA) began to release real-time
travel information for free to developers and third parties. Developers and third
parties could republish and repackage NZTA’s traffic and road data in innovative
ways. This project, called InfoConnect, aimed to provide accurate, timely, and
relevant traffic information that:
t tells road users about the condition of state highways ‒ in particular, in the
areas where they plan to go;
t builds conﬁdence in the usefulness of the information and its supplier(s); and
t provides options for road users to consider in their travel plans.
4.2
After a successful pilot, NZTA set up a web portal where a broad range of
developers and other third-party users could access and read about the available
Application Programming Interfaces (APIs) and view a gallery that showed what
other users created. This quickly attracted interested IT businesses and developers.
Six months after InfoConnect was set up, 141 users were registered and 15 of
them had asked for access to the APIs to start work on new applications.
4.3
In 2010, phase 2 of the InfoConnect initiative was released successfully. Phase 2
included requirements for:
t signiﬁcantly increasing consumer demand;
t redeveloping the technical solution architecture;
t implementing new feeds; and
t developing and implementing monitoring and reporting tools.
4.4
At May 2012, about 300 users had registered. Developers and other thirdparty users can be categorised as normal or high-priority users. Examples of
applications that use NZTA data are:
t an interactive online map created by the New Zealand Automobile Association;
t a Yahoo New Zealand website service that uses NZTA webcams in Auckland,
Wellington, and Christchurch; and
t iPhone and iPad applications.
4.5
The total investment for the phase 1 pilot and phase 2 was $250,000.
4.6
In 2009, NZTA commissioned a study to assess InfoConnect’s economic beneﬁts.
This study calculated an estimated net beneﬁt from the InfoConnect project of
between $6 million and $60 million a year.4
4
Opus International Consultants Limited (2009), The Economic Beneﬁts of InfoConnect.
19
Part 4
Providing real-time travel information
20
Realised beneﬁts
4.7
Direct benefits of the project included being:
t more eﬀective through allowing road users to make informed decisions
by having access to a variety of information channels on real-time traﬃc
conditions before and during their travel; and
t cheaper and more eﬃcient through using third parties to provide information
services for road users.
4.8
Indirect benefits included:
t developers and third parties having free access to NZTA data;
t new value-added traveller information services being provided to the public;
t more eﬃcient transport;
t shorter travel times;
t more certain and reliable estimates of travel times; and
t better choice of routes.
4.9
Intangible benefits included:
t innovation allowing new business opportunities;
t potential to provide signiﬁcant economic beneﬁt to the country;
t more commercial and national productivity;
t less pollution;
t safer roads through improving information for road users;
t NZTA building a reputation as an organisation with an innovative approach to
disseminating information;
t users having a better experience of the road system; and
t less fuel wastage.
4.10
Unexpected and/or unplanned benefits included:
t users collaborating and sharing information, experiences, and expertise
through an online forum set up by NZTA;
t the new market for road information services creating interest among new
participants (such as Google), particularly in large urban areas; and
t feedback from users helping to improve data quality.
The dynamic nature of realising beneﬁts
4.11
The beneﬁts of changing NZTA’s business model and information services to road
users are diﬃcult to plan, measure, and quantify.
Part 4
Providing real-time travel information
21
4.12
There was no formal in-house monitoring of beneﬁts for the InfoConnect
project, which was only a small initiative for NZTA. However, the project team
regularly reported about the project’s success through the use of statistics (such
as how many visits its website got). Users (such as http://transportblog.co.nz/)
independently reviewed the InfoConnect initiative and reported the main trends
and developments.
Practices that helped achieve beneﬁts
4.13
Since it began, InfoConnect has been business-led, not technology-led.
4.14
After observing international technological developments and a fast-moving
industry, and observing development options, NZTA decided to stick to its core
business and collaborate with third parties. This meant it could share risks and
costs with third parties.
4.15
NZTA minimised risks and cost by using a pilot.
4.16
IT businesses, developers, and other third-party users took a strong interest in the
project from the beginning. However, the process to get to a shared and common
understanding with developers was long and repetitive, with each party using lots
of technical words and phrases with many meanings.
4.17
All users had to register with NZTA. This allowed them to access the structured
data feeds and ensured that the developers knew who used the data and what for.
NZTA provided free information to registered developers and third parties under
Terms of Use. It could monitor uptake and see who delivered the best products,
allowing it to cut oﬀ access to a party that breached the terms of use.
4.18
Innovation involves learning as you go, continually building knowledge and skills,
and learning about new technology and architecture. The iterative, learning
nature of testing and deployment meant that much depended on individuals.
4.19
Ensuring that road system data was accurate and of a high quality helped
InfoConnect to succeed. Feedback from users about data accuracy and quality
helped, as did having a pragmatic and committed team focused on solutions.
4.20
Open-source tools and developers’ support for them helped NZTA to save money.
Practices that aﬀected the outcome
4.21
Many unknown factors – such as technology, usage, and requirements – led to
NZTA underestimating how many resources InfoConnect would need.
Part 4
Providing real-time travel information
22
4.22
At ﬁrst, technical architecture provided by an external party was used but this was
changed during the project ‒ continuity in the technical architecture would have
been better.
4.23
At ﬁrst, NZTA did not tap into the web developer community (such as through
Google groups). Later, it asked web developers for feedback and what they saw as
best or common practice.
Lessons for other projects
4.24
NZTA looked at distributing traveller information services or data directly to
customers and through a variety of channels. However, it rejected this option
because it believed that it would be inappropriate to use resources for this
distributing if the private sector could do it better.
4.25
After scanning the international environment, NZTA:
t acknowledged that deciding about investment was diﬃcult because of fast
technological changes and a fast-moving industry;
t decided to stick to its core business ‒ to provide traﬃc information to the
public for free and collaborate with others who have the time, funding, and
expertise to ﬁnd innovative and eﬀective ways to oﬀer technology-enabled
traveller information services to meet the demands of road users; and
t decided to share risks and costs with others.
4.26
NZTA minimised risks and cost by ﬁrst running a pilot before working out the
business case. Understanding better how users’ responded and what they
wanted and required helped NZTA to prepare the business case and technical
infrastructure requirements for InfoConnect.
4.27
Throughout the project, business objectives and technical system requirements
were in line. From the start, InfoConnect was treated as a business-led, not a
technology-led, project.
4.28
From an early stage, there was strong support and commitment from IT
businesses and developers. Using a pilot helped NZTA to understand what users
wanted and required.
4.29
Innovating means learning. It is important to secure resources for innovating
(such as research and discovery, new technology and architecture, and a pilot).
4.30
Registering users meant NZTA:
t controlled who accessed and used the data and what they used it for; and
t could disable access when a user breached the terms of use.
Part 4
Providing real-time travel information
23
Good practices
4.31
The good practices from this project that we refer to in the discussion in Part 9
are:
t being business-led, ﬂexible, and agile:
– looking at what is happening nationally and/or internationally before
starting the work, to reduce the risks of duplication and investing in new
information service applications;
– being business-led rather than technology-led; and
– using a pilot;
t using the right technology tools;
– having registered access to open information; and
– using open-source tools; and
t working eﬀectively with the right people, including end users:
– collaborating successfully with third parties who have the expertise, time,
and funding to provide eﬀective solutions.
Part 5
Processing passengers faster at airports
What the project was about
5.1
SmartGate is an automated passenger clearance system that is available to
eligible Australian and New Zealand passport holders arriving at and leaving
major international airports in New Zealand and arriving at Australia’s eight
international airports. SmartGate is a response to the Government’s wish to
provide a better, smoother experience for travellers and is seen as helping in the
drive to make processing international travellers at the border more eﬀective and
eﬃcient.
5.2
New Zealand Customs Service (Customs), the agency responsible for SmartGate, is
the Government’s agent at the border, where it carries out activities on behalf of
many other agencies. SmartGate’s introduction had immediate and downstream
implications for some or all of these agencies.
5.3
At special kiosks, SmartGate reads a microchip embedded in passports and uses
stored biometric data and photo-matching technology to validate passports
and travellers to provide accurate and fast automated clearance. In March 2009,
Cabinet endorsed Customs’ plan to build SmartGate. In December 2009, the ﬁrst
SmartGate went into service in Auckland. SmartGate was progressively installed
in the arrival and departure halls of Auckland, Wellington, and Christchurch
airports. In August 2011, SmartGate was fully operational in the three airports. By
May 2012, Customs was using 22 gates and 54 kiosks continuously.
5.4
The decision to build SmartGate came after:
t the Prime Ministers of New Zealand and Australia agreed to make the
movement of their compatriots between their countries more eﬃcient and
easier; and
t the awarding of the hosting rights to the 2011 Rugby World Cup to New
Zealand meant that more people were expected to visit the country.
5.5
Several factors helped Customs to design and roll out the ﬁrst SmartGate so
quickly. One was the political and organisational priority that SmartGate got.
5.6
Because the Prime Minister and Cabinet had prioritised SmartGate, it was also a
priority for the chief executive and Customs. The project team was able to rely on
Customs giving it the resources it needed to complete the job on time. The project
benefited from:
t organisational commitment;
t being in line with whole-of-organisation strategy;
t organisation-wide planning;
25
Part 5
Processing passengers faster at airports
26
t sound project management methodology; and
t choosing the best people to do the job ‒ the project manager saw this as the
most important factor in the project’s success.
5.7
A second factor allowing Customs to design and roll out SmartGate effectively
and on time was Customs’ close relationship with the Australian Customs and
Border Protection Service (ACBPS) and interest in the latter’s SmartGate. Built by
international company Morpho, the ACBPS SmartGate:
t reads biometric information on a microchip in the passenger’s passport;
t checks for alerts in ACBPS’ main database PACE; and
t takes a photo, which is matched with the biometric information to open the
automatic electronic gate and let the traveller through.
5.8
Customs accepted ACBPS’ offer to lend it a SmartGate device so that it could
explore how well SmartGate would work:
t in New Zealand; and
t with Customs’ CusMod database, which was conﬁgured diﬀerently from its
Australian equivalent.
5.9
Customs was able to benefit from Australia’s investment in SmartGate’s
development and design. Customs used the borrowed SmartGate to create a test
environment to more fully explore the potential of SmartGate. This experience led
Customs to advise the Government to buy SmartGate and meant that Customs:
t had a head start on introducing SmartGate and integrating it with CusMod;
and
t was able to design and use SmartGate faster and more cheaply.
5.10
Customs’ close collaboration with business partners within government (for
whom Customs carries out some aspect of business), with non-government
partners such as the airlines and airports, and Morpho allowed Customs to design
and roll out SmartGate eﬀectively and on time. Working in this way, Customs
had better relationships with the organisations and commitments from them to
prepare business improvement strategies to make the most of SmartGate.
5.11
More travellers used SmartGate than had been expected. In the ﬁrst year of
operation, more than 500,000 passengers used SmartGate. By April 2011,
more than a million had used SmartGate. By December 2011, 2 million had.
The 3 millionth passenger used SmartGate successfully in May 2012. By 2012,
SmartGate was fully integrated with CusMod, and more than half of eligible transTasman airline travellers were choosing to use SmartGate at Auckland, Wellington
and Christchurch airports and airports in Australia.
Part 5
Processing passengers faster at airports
27
5.12
Customs believes that the speed of SmartGate’s introduction and the resulting
more eﬀective and eﬃcient processing of travellers has enhanced its reputation
with the public, airlines, airports, and other important stakeholders. SmartGate
created conﬁdence that Customs would do what it said it would do. In the 2012
Randstad awards, Customs was rated as top public sector organisation (and ranked
third overall).5 Customs was asked to demonstrate SmartGate to the United States
Secretary of Homeland Security during her May 2012 visit to New Zealand.
5.13
SmartGate’s capital cost was $15.9 million. Its operating cost is $7.4 million a year.
Realised beneﬁts
5.14
Direct benefits of the SmartGate project have included:
t more eﬀectiveness and eﬃciency – SmartGate delivered on the Government’s
vision for an improved experience for trans-Tasman travellers in line with
Australia’s automated border processes, a vital step towards the vision of a
“domestic-like” travel experience between Australia and New Zealand; and
t quantitative and qualitative improvements that help to process eligible
passengers more eﬀectively and eﬃciently.
5.15
From the perspective of Customs, the Government, and, ultimately, taxpayers:
t primary processing (of passengers at airports) is more accurate;
t the cost of primary processing of arriving passengers has fallen, freeing up
resources for assessing more complex risks;
t more arriving passengers are using SmartGate – at May 2012, more than 60%
of eligible passengers were using SmartGate;
t more passengers have been processed with no need for extra staﬃng or space;
and
t automating passenger processing to make it faster, more accurate, and more
cost-eﬃcient has allowed Customs to focus staﬀ on managing risks at airports
and other high-risk border protection areas.
5.16
Indirect benefits of SmartGate for passengers included:
t more eﬀectiveness – in 2010, more than 84% of users reported that they would
probably use SmartGate again; in March 2012, 55% of eligible passengers who
used SmartGate were repeat users; and
t more eﬃciency – processing is faster (an average of 16 minutes from aircraft
arrival at air-bridge to clearing Customs for SmartGate, compared with 20
minutes for non-SmartGate passengers in March 2012), so queues and waiting
times are shorter.
5
The Randstad Award is presented each year to the most attractive employer in various countries around the
world. A representative sample of 7000 employees and job-seekers in each of the participating countries are
surveyed. The winners are chosen based on the appeal of their employer brand.
Part 5
Processing passengers faster at airports
28
5.17
Intangible beneﬁts included Customs’ enhanced reputation among the public,
airlines, airports, and other stakeholders.
5.18
Unexpected and/or unplanned beneﬁts included new opportunities to rethink
transformative beneﬁts, such as providing arrival and departure information and
allowing a wider group of passengers to use SmartGate when leaving the country.
The dynamic nature of beneﬁts realisation
5.19
SmartGate’s success was a catalyst for Customs to think further about how
to exploit its capability, uptake, and performance to do things diﬀerently. The
SmartGate project programme manager said: “We picked a strategy and now we
are aiming to derive the fullest value from it.”
5.20
From the start, Customs focused on monitoring SmartGate’s performance and
making changes to bring about more beneﬁts, such as allowing 16-year-olds and
17-year-olds to use SmartGate. A Beneﬁts Realisation plan stretches to 2015, well
beyond the formal life of the project.
5.21
Customs sees the SmartGate technology as a platform to build its next phase of
business changes on and continues to invest to get the best performance possible
out of it.
5.22
Since Customs decided to learn from how Australia processed electronic passports
and passenger validation, it has progressively realised beneﬁts from SmartGate.
During the next three years, Customs plans to identify ways to be more productive
and make travellers’ experiences of arriving in and leaving the country better.
Practices that helped to realise beneﬁts
5.23
Customs’ strategic planning indicated that passenger volumes would increase.
To process more passengers in the traditional way would require more space
at airports, with added costs for Customs, airports, and airlines. Customs sees
SmartGate as a technological solution that helped to:
t achieve a business goal of enhanced customer experience;
t better manage risks, and
t manage the costs of processing more passengers.
5.24
Before rolling out SmartGate, Customs knew much about SmartGate’s capabilities
and the problems it would have to solve. In particular, five practices helped
Customs to understand and solve problems. These were:
t organisation-wide planning, good project management methodology, and
good people;
Part 5
Processing passengers faster at airports
29
t drawing on and using the experience of other countries – in particular, the
ACBPS;
t testing an ACBPS device that allowed Customs to work out if and how best to
use SmartGate;
t working closely with other government agencies (such as Immigration, the
Ministry of Agriculture and Fisheries, the Courts, and the Ministry of Social
Development) for which Customs carries out border transactions; and
t working closely with private companies (such as Morpho, airport operators,
and airlines), which each shared some of Customs’ problems and contributed
resources and knowledge to solutions. Customs was able to:
– learn from Air New Zealand’s experience in moving to automated check-in
devices because they shared the common goal of passengers having better
experiences and being processed faster;
– work with the airports to position the SmartGate kiosks to maximise the
likelihood of eligible passengers using them and minimise the extra space
required to process more passengers; and
– work concurrently with the Department of Internal Aﬀairs on the e-passport
and with Immigration on plans to use biometrics.
5.25
Focused on goals and solutions, Customs considered that it had to roll out
SmartGate successfully to uphold its reputation.
5.26
The New Zealand and Australian Prime Ministers’ commitment to SmartGate
helped to motivate other agencies to work with Customs to achieve a solution
that worked for them within the time that Government set. This minimised
development time and project costs.
5.27
Political priority meant organisational priority. Customs’ chief executive gave the
project his full support and the whole organisation prioritised the project as a
matter of:
t organisational trust; and
t reputational trust – the Customs brand.
Lessons for other projects
5.28
Throughout the project, Customs sought opportunities that could help achieve
organisational goals. The beneﬁts of SmartGate stem from its strategic ﬁt and
Customs’ being determined to maximise the beneﬁts from its deployment.
5.29
A test setup using a device borrowed from Australia allowed Customs to work out
if and how best to deploy SmartGate.
Part 5
Processing passengers faster at airports
30
5.30
Political and organisational support and commitment to the SmartGate project
boosted energy and commitment in staﬀ responsible for designing and delivering
on the beneﬁts and their conﬁdence that they would be supported, which in turn
helped them to achieve results (mutual reinforcement).
5.31
Good relationships with vendors and others needed to help realise beneﬁts were
a powerful contributor to success. The indirect and intangible beneﬁts of these
collaborations extend beyond the life of the project. After the design and rollout of
SmartGate, Customs had better relationships and commitments to keep working
on business improvement strategies to make the most of SmartGate.
5.32
Customs’ regard for its reputation and keeping the trust of others led to an
organisation-wide commitment to getting the job done.
5.33
Customs was pragmatic enough to avoid obstacles, learn as it went, and take
advantage of what it learned. Introducing SmartGate in steps helped learning and
kept project management costs down.
5.34
Customs prepared well, picked a strategy, then planned and managed risks to
make the strategy work. Customs continues to try to make SmartGate do as much
as possible for its business transformation, and uses it as a platform for further
business change.
Good practices
5.35
The good practices from this project that we refer to in the discussion in Part 9
are:
t understanding the environment and making the most of the circumstances,
including identifying increasing or future demand for services as an impetus
for change;
t being business-led, ﬂexible and agile:
– looking at what is happening nationally and/or internationally before
starting the work, to reduce risks of duplication;
– being business-led rather than technology-led; and
– using learning iteratively; and
t having strong support from leaders and senior managers.
Part 6
Portal access to Student Loan account
information
What the project was about
6.1
Three government departments share responsibility for the Student Loan Scheme
(the scheme):
t the Ministry of Education – policy and reporting;
t the Ministry of Social Development/StudyLink – loan agreements and
payments to students; and
t the Inland Revenue Department (Inland Revenue) – assessing debt and
collection of repayments.
6.2
Student loan borrowers – more than 700,000 and steadily increasing – form a
large proportion of Inland Revenue’s customers. With a nominal value of about
$13 billion, the scheme is a signiﬁcant Crown asset. The Student Loan System
(the System) allows this asset to be eﬀectively and eﬃciently managed and, in
particular, allows borrowers to repay loans more quickly.
6.3
The project aimed to create a new customer interface at Inland Revenue, as part
of a wider re-design project. It allowed an individual student loan borrower’s
information from Studylink and Inland Revenue to be integrated and made a
consolidated, up-to-date account visible to the borrower through a single portal.
In April 2012, the ﬁrst phase of the System was completed, in time to meet new
legislative requirements. Phase 2, still in design, is due to be implemented in 2013.
6.4
In 2006/07, a two-phase business case to redesign the System was prepared. In
2009/10, funding for it was approved. The business case analysis identified two
types of benefits:
t a student loan information system more fully integrated with Inland Revenue
tax systems and more access for loan borrowers to real-time and integrated
information; and
t transforming and redesigning how Inland Revenue did business to make it:
– more adaptable to changes in policy;
– eﬀect change faster; and
– increase the use of automated and e-channels for customer access.
6.5
In 2009, the Government made further signiﬁcant changes to student loans
policy. Inland Revenue believed that the complexity of the student loan policy
design and the rule changes that had been implemented since the policy began
in 1992, and the interdependencies with other parts of the tax system (such as
income tax and PAYE) made delivery of the redesign in the time available almost
impossible.
31
Part 6
Portal access to Student Loan account information
32
6.6
Ministers agreed that Inland Revenue should focus on changes needed to meet
the requirements of the Student Loan Scheme Act 2011 promptly and costeffectively. This decision reduced the aims of the system redesign to:
t enhancing the borrower experience, providing services that encourage
repaying and allow borrowers to manage their loan;
t provide information about student loans that is accurate and complete and
presents a consolidated view of the loan balance;
t automating business processes except where human interaction adds value
and is eﬀective, repeatable, and eﬃcient;
t transitioning borrowers to using online services and ensuring that enhanced
online services and tools available through the borrower portal are userfriendly, reducing compliance and administrative costs;
t allowing more collaboration between Inland Revenue and Studylink to
streamline functions, processes, information transfer, and delivery channels;
t allowing ﬂexible, accurate, and reliable reporting to meet operational,
management, and Crown needs and the requirements of external agencies;
t ensuring that business processes accurately reﬂect as much as is practicable
the Government’s policy intent and support best practice in managing loans;
and
t complying with Inland Revenue’s architectural principles and standards and
being scalable and ﬂexible enough to meet future business needs.
6.7
After Cabinet’s agreement that the focus should be the policy changes, the
business case was no longer the primary “driving force” for the design, but the
thinking and planning behind the business case remained influential. Some of the
achieved benefits helped to transform Inland Revenue’s systems. These benefits
included:
t customers having better access to account information in an integrated state;
t more use of e-channels; and
t greater ﬂexibility in the system.
6.8
The redesigned project was divided into two phases. In April 2012, the ﬁrst phase,
which included changes needed to meet the requirements of the Student Loan
Scheme Act 2011, went live. As a result, all student loan borrowers can access a
consolidated, up-to-date loan account through a single portal.
6.9
This consolidated account includes new borrowing through Studylink, repayments
through PAYE and other means, and information about total debt and how it can
be repaid. This information is refreshed with daily updates of loan draw-downs
Part 6
Portal access to Student Loan account information
33
from the Studylink system and Inland Revenue’s employer tax and loan payments
modules. As a result, for the ﬁrst time, borrowers can have an integrated, up-todate view of the true position of their loan, through the Inland Revenue portal.
6.10
Inland Revenue estimates that Phase 1 delivered 40%-50% of the project scope of
the redesigned project, including some new business process capabilities. These
are expected to provide Inland Revenue with greater flexibility to manage policy
changes and faster design time so that changes happen faster and more cheaply.
Inland Revenue has taken a significant step towards its corporate goals of:
t more people using the e-channel;
t more people managing their loan balance and repayments; and
t more eﬃcient and timelier collecting, with revenue beneﬁts for the Crown.
6.11
The capital costs of the project were estimated as up to $35.9 million. The
operating costs were $13.3 million during the four years of the project and $3.2
million a year after that.
Realised beneﬁts
Direct beneﬁts
6.12
The project delivered on the specific changes required by the Student Loan
Scheme Act 2011 and increased effectiveness and efficiency by introducing:
t an enhanced single information portal for borrowers;
t a consolidated loan balance available to borrowers;
t automated processes for transferring up-to-date information from Studylink;
t automated processes for verifying and updating identity information; and
t automated processes for tracking workﬂow between Inland Revenue and
Studylink.
6.13
Ninety percent of people using the new channel services (telephone or web) use
the online web portal. This is a signiﬁcant step towards achieving Inland Revenue’s
corporate goals.
Indirect beneﬁts
6.14
To achieve the single portal view for the borrower, Inland Revenue had to work
closely with Studylink to understand the system’s processes end-to-end. As a
result, Inland Revenue has a much closer relationship with Studylink and each
better understands the other’s role in managing student loans.
Part 6
Portal access to Student Loan account information
34
Unexpected and/or unplanned beneﬁts
6.15
The business-to-business interface has wider potential than just student loans.
Practices that contributed to realising beneﬁts
6.16
Inland Revenue reduced the scale of its original project to deliver on time the
functionality that legislation required.
6.17
To provide a portal for those with student loans, Inland Revenue had to work
closely with Studylink to achieve a more sophisticated understanding of student
loans. It needed to ensure that the respective responsibilities of Studylink and
Inland Revenue were unchanged and that it managed information ﬂows to
support this arrangement. In the ﬁrst phase of the new system, the business
process changed from one transfer of 165,000 records once a year to about 6
million records exchanged, throughout the year. The process had to be automated,
exceptions requiring manual intervention had to be minimised, and workﬂows
between the agencies on any exceptions had to be managed. The new System
automated this workﬂow management.
6.18
Inland Revenue has begun to think of the system as the forerunner of new ways
of interfacing with other agencies and integrating various systems to provide
customers with one integrated single portal. Student Loans is one of several
government products that Inland Revenue manages in partnership with another
government department. The potential of the new business-to-business interface
and the lessons learned from working closely with Studylink have led to Inland
Revenue thinking of applications elsewhere.
6.19
About 25% of the project team’s analysts and functional designers were subject
matter experts from business teams. This meant that those working on the
changes understood the operational requirements and the desired changes to the
borrower experience and how the Student Loan redesign needed to interface with
other Inland Revenue business processes and systems. Inland Revenue believes
that good people with knowledge of the business understand the changes that
they are making and, therefore, deliver good results.
6.20
Changing the system was put in the context of overall corporate direction about
transforming the way Inland Revenue works, including:
t being more focused on customers;
t being more adaptive;
t eﬃciently capturing the data Inland Revenue needed;
t providing customers with the information they needed and reducing as much
as possible customers’ need to call or write for further information; and
t increasing compliance through early intervention, faster rulings, and fewer
disputes.
Part 6
Portal access to Student Loan account information
35
6.21
Interdependencies were appreciated, linkages made across projects and trade-oﬀs
managed strategically by ongoing strategic overview through project reporting to
a Corporate Programme Oﬃce and the Corporate Governance Board.
6.22
Project reporting included reporting on beneﬁts realisation. The Corporate
Governance Board monitors this.
Lessons for other projects
6.23
Inland Revenue treated the system redesign project as a business project, as well
as a technology project. There was a clear sense of the project’s interdependencies
with corporate strategic goals and business transformation strategies, such as:
t an integrated end-to-end view of the business process across organisational
boundaries;
t attractive and easy-to-use interfaces with the customer that promote use of
the e-channel and reduce reliance on face-to-face or telephone services; and
t close to real-time information to encourage customers to manage their
accounts.
6.24
To deliver a consolidated customer-facing interface to student loans, Inland
Revenue worked closely with Studylink to understand student loans more
comprehensively.
6.25
Inland Revenue has begun to think of the system as the forerunner of new ways of
working with other public entities and integrating systems to provide customers
with one integrated single portal.
6.26
There was strong and continuing strategic-level overview of the project through
a Corporate Programme Oﬃce and a Corporate Governance Board. This allowed
links between this project and other projects and managing trade-oﬀs on
corporate resources, time, or other priorities where necessary.
6.27
All involved understood the beneﬁts that the project would bring.
6.28
Project monitoring at a programme level focused on beneﬁts realisation.
6.29
There was effective managing of unknowns through flexible innovation within
the framework of required policy changes. The Programme Manager at Inland
Revenue said:
While we started with a particular design in mind, it wasn’t until we got into
the project that we fully realised the complexity of the Student Loan System, the
rule changes that had been implemented over the years since policy inception in
1992, and their interdependency with other parts of the system.
Part 6
Portal access to Student Loan account information
36
6.30
Inland Revenue was prepared to go back to the drawing board when necessary.
6.31
A tight timeline and “must do” delivery list to meet the legislation requirements
helped focus corporate and project priorities.
6.32
Pragmatism (getting the job done to meet legislated requirements) within a
strategic framework of business change resulted in more rather than fewer
beneﬁts, because those involved in the project understood what Inland Revenue
wanted to achieve in the longer term.
6.33
Good people with knowledge of the business understand the changes they are
making and, therefore, deliver good results: people with specialist business
knowledge appropriate to the business processes being redesigned understand
the system that they are designing as well as the bigger business picture.
Therefore, they delivered more than just the bottom-line result.
Good practices
6.34
The main good practice learning is that going back to the “drawing board” when
necessary can be critical to success. Having a clear business purpose was also a
feature of the project.
Part 7
Managing land title records electronically
What the project was about
7.1
Land Information New Zealand (LINZ) was formed in 1996 following the merger
of the Department of Survey and Land Information and the Department of Justice
Land Titles Office. LINZ was created to provide government, civil, and military
survey mapping and core land information services. Core business functions of
LINZ are:
t providing information;
t automating the lodgement process, data acquisition, and land title and survey
data storage; and
t processing information.
7.2
In November 1997, the Government decided to develop an electronic titles
register and cadastre called Landonline. It was originally planned to be a twophase project but a third phase was added post the original project. From 2006 to
2010, Landonline Phase 3 was carried out as the concluding project to the larger
Landonline project. The three phases for the entire Landonline project were:
t Phase 1 – a $40 million project to develop an electronic titles register and
survey cadastre to replace the paper titles register and mature mainframe
indexes and non-survey accurate information. This allowed all paper title
transactions and survey plans to be imaged on receipt at LINZ and processed
in the new electronic register and cadastre. Solicitors and surveyors could now
search any records in Landonline anywhere in the country. In parallel, a further
$100 million project captured the historical information residing in titles,
documents, plans, data, and images.
t Phase 2 – Landonline functionality was added to allow surveyors to lodge their
survey plans directly into Landonline by capturing all the data as well as the
image. Solicitors could now lodge routine transactions, which make up to 75%
of the transaction volumes, directly into Landonline.
t Phase 3 – a $28 million project to develop the remainder of the title transaction
functionality. This would then enable LINZ to remove the paper lodgement
option that was operating in parallel with the electronic lodgement process.
The beneﬁts of this phase were predicated on achieving 100% electronic
lodgement uptake of land title instruments by lawyers. Without 100%
e-lodgement, the need for a paper delivery service would remain, negating
much of the business justiﬁcation for the new system. For the project to
succeed, nearly all the functions that required manual intervention from
service staﬀ had to disappear to achieve the beneﬁts of reducing staﬀ and
facilities.
37
Part 7
Managing land title records electronically
38
7.3
In Phase 3, ﬁve consecutive releases of Landonline were needed to achieve the
100% e-lodgement (of titles) and automation components. The business rules
for all ways of processing land titles had to be fully encoded for e-lodgement to
work. This resulted in the staﬀed service counters shutting by February 2009 and
complete closure of a further three processing centres by 2010. Only about 1% of
title transactions are still lodged manually.
7.4
Phase 3 of the project was delivered on a ﬁxed price, ﬁxed term, with IBM as
prime vendor and developer. Phase 3 development was built on top of the single
application developed in phases 1 and 2. This application was built on systems run
by EDS for the existing infrastructure developed as part of phases 1 and 2.
7.5
Most users of Landonline are land professionals such as conveyancers (for
example, lawyers), surveyors, or local authorities who transact, deﬁne and manage
land.
7.6
Before Landonline, land transfer legislation meant the paper record was the
legal record. To preserve that record, the statutory register required growing and
costly specialist storing and managing. LINZ could have stopped at Phase 1, and
accepted the partial step of imaging paper records. Instead, with support from
politicians, LINZ wanted the e-record to become the record of authority for land
transactions, and for land professionals to have the ability to transact directly on
the register. Now, more than 70% of title transactions are registered immediately,
making land conveyancing and ﬁnancial reporting for solicitors and lending
institutions easier.
7.7
Having the country’s historical and current land title data in an electronically
searchable medium means that they can be used or reported on in ways not
previously possible. In the past, information was stored as static data or images of
paper transactions.
Realised beneﬁts
Direct beneﬁts
7.8
There was more eﬃciency and cost savings. Automating and transferring
data capture to source practitioners while introducing the mandatory 100%
e-lodgement phase of Landonline dramatically reduced manual processing and
storing and repeated handling of paper records, reducing staﬀ numbers, closing
branches, and eliminating storage costs for LINZ.
7.9
The transaction costs for preparing and qualifying data before entry were
transferred to users. LINZ eliminated handling costs and steps to transform data,
saving money and making operations more eﬃcient.
Part 7
Managing land title records electronically
39
7.10
More eﬃciency came from addressing the situation of demand growing faster
than resources. By moving to e-lodgement and automating land transfer records,
LINZ averted a looming logistical crisis in processing, storing, and retrieving land
information documents. For some time, the number of transactions had been
increasing. In an environment of manual processing, the only answer to this
growth was to add more staﬀ and physical storage.
7.11
LINZ beneﬁted from improved data quality by transferring the capturing of data
in an electronic form to as close as possible to the originators of the data (lawyers,
surveyors, and local authorities). This eliminated double handling and the data
conversion errors that happened when ﬁlling in paper forms, vetting, and then
typing in data. Also, having data in digital format allows proactive data cleansing
and improvement activities.
Indirect beneﬁts
7.12
There were new business opportunities for LINZ and external partners. When the
land information data was available in an electronic and consistent format, LINZ
and commercial partners were able to create new information-centred products
(such as geographical information system data for spatial analysis products).
7.13
The main ﬁnancial beneﬁciaries of Landonline are legal service providers and
surveyors who do conveyancing work. In many instances, the time required for
land title processing was reduced from hours to minutes. However, LINZ could not
directly aﬀect whether the legal service providers and surveyors would pass on
savings to their customers.
7.14
LINZ created an opportunity for legal service providers and surveyors to become
more eﬃcient internally, because of simpliﬁed procedures and more ﬂexibility.
However, LINZ could not inﬂuence whether those practitioners took the
opportunity to work more eﬃciently.
7.15
The time taken to complete a land transfer transaction was reduced dramatically.
This provides LINZ with near real-time activity and means that land title
information is available to surveyors and legal practitioners almost as soon as a
lawyer or surveyor enters it. It used to take days or weeks for some records to be
updated and become available.
7.16
Compared to those in manual delivery, fees to practitioners are mostly lower. This
results in savings to stakeholders. However, fees are still linked to the volume of
land transactions. When there is a boom in house sales, transaction costs reduce
but, when fewer houses are sold, transaction costs rise. Fees are legislated, so
there is a lag in the change in transaction fees.
Part 7
Managing land title records electronically
40
Intangible beneﬁts
7.17
By building a mutual trust relationship with legal service providers and surveyors,
LINZ has an enhanced reputation as an eﬀective innovator.
7.18
New legislation has been introduced. Working with the Government to revise and
update legislation to say that the document of record was an electronic register,
not a paper register, helped make back-oﬃce work more eﬃcient and created the
opportunity to better interact with customers.
The dynamic nature of beneﬁts realisation
7.19
After delivering the programme, the project teams and programme oﬃce were
disbanded. Beneﬁts monitoring and reporting that had been strong all through
the project were neither documented in a formal sense nor transferred to an IT
governance board or similar.
7.20
When Landonline was being phased in, LINZ staﬀ considered it to be multiple
major systems. Now they consider it a single business-as-usual (BAU) system. As
BAU, projects to maintain and enhance systems (typically in the $20,000-$50,000
range) do not follow formal project and business case processes in the same way
as a major project would. There is no long-term scrutiny of beneﬁts realisation for
Landonline.
Practices that helped to achieve beneﬁts
7.21
Setting up a properly resourced project oﬃce helped Landonline to succeed.
The oﬃce provided a dedicated focal point for making decisions and managing
ﬁnances and schedules. Mandating the oﬃce to identify and review beneﬁts
realisation ensured that it eﬀectively monitored and controlled project outcomes.
As a result, it set about identifying more beneﬁts and prepared reporting cycles for
Landonline’s systems.
7.22
Beneﬁts monitoring was built into project practices at LINZ. For Landonline,
LINZ had a strong focus on project methodology and emphasised managing
programmes (the Projects In Controlled Environments toolkit for managing
successful programmes). The Project Management Institute’s Project
Management, Body of Knowledge methodology was used for project schedule
and reporting control. Mixing these methods created challenges for conﬁguring
the project oﬃce, where diﬀerent methodologies had inconsistent language and
expectations. To address this, elements of beneﬁts realisation approaches were
pragmatically “cherry picked” from the toolkits. This was a pragmatic use of formal
governance, programme, and project methodologies to establish clear project
mandate, accountability, and change management structures that helped project
communications to be eﬀective at a whole-of-organisation level.
Part 7
Managing land title records electronically
41
7.23
Although the programme team did not continuously monitor for beneﬁts
realisation, it was never far from sight and was triggered through stakeholders,
reference groups, and similar mechanisms. The 100% e-lodgement imperative and
the full automation capstone for Landonline incrementally built on the lessons
learned during the previous phases.
7.24
Phasing the programme sensibly into achievable stages and embedding the
learning resulting from those stages of Landonline during the paper-based
automation (Phase 1) and the back capture of paper records (Phase 2) meant that
there was the capability maturity and depth of knowledge to achieve Phase 3.
7.25
Strongly committed and involved stakeholders, especially the law societies
and surveyors’ professional bodies, helped in understanding more deeply and
in more detail what Landonline was required to do. Landonline project teams
included paid stakeholder representatives in the project oﬃce. Stakeholders have
supported ongoing work to improve the automatic systems.
7.26
Using technically skilled LINZ staﬀ who know a lot about the business when
setting up systems meant that new capability was linked to established practice.
Landonline project teams used subject matter experts seconded from BAU teams,
and business needs were made known quickly within the project, without speciﬁc
consultation.
7.27
LINZ set up control practices to manage relationships with the main vendors in
Landonline projects. Where vendor contracts were in place with organisations
such as IBM, EDS, and Gen-i, the project used norms and standard practices so
that new systems could be set up alongside old ones.
7.28
Having engaged and active sponsorship from the chief executive ensured that
project success was in line with organisational success.
7.29
The full attention of business and technical leaders ensured that decisions about
the project were made decisively.
7.30
The external advisory board that represented stakeholder interests at a
governance level provided invaluable support to the project team’s success and
ability to set and maintain focus on priorities by helping to prioritise project areas
and to resolve conﬂicting purposes.
7.31
LINZ is an organisation of subject-matter experts. That expertise was essential
for the programme, creating a need to plan successions and a way of keeping and
managing tacit and explicit knowledge, especially when there had to be long-term
monitoring and review of beneﬁts.
Part 7
Managing land title records electronically
42
Lessons for other projects
7.32
Beneﬁts realisation, especially monitoring, reporting, and governance, needs to
be managed beyond the project. Once Landonline was in place, the project teams
and oﬃce were disbanded.
7.33
Having stakeholder groups strongly committed and involved from early in the
project was carried out by using embedded stakeholder subject-matter experts
(such as from the New Zealand Law Society) in the project environment.
7.34
Stakeholders were represented at the project’s governance level.
7.35
The Landonline project oﬃce’s strong communications culture reinforced good
practice. Stakeholder maps and analysis were reviewed often and used to monitor
and plan change management actions to keep the project focused on outcomes
and beneﬁts. For example, a weekly communications brieﬁng kept level three
managers at LINZ informed and there were weekly email updates.
7.36
When setting up Landonline, LINZ did not set baseline data to make before and
after comparisons. Since then, LINZ has learned that setting baseline data is good
practice and data capture projects now use such data when reporting.
7.37
LINZ set up control practices to eﬀectively manage relationships with main
vendors in the Landonline projects.
Good practices
7.38
The good practices from this case study that we refer to in Part 9 are:
t understanding the environment and making the most of circumstances,
including identifying increasing or future demand for services as an impetus
for change;
t being business-led, ﬂexible, and agile, including involving people with good
knowledge of the business;
t having strong support from senior leaders;
t working eﬀectively with the right people, including end users;
– having external stakeholders’ strong support and involvement; and
t clearly stating, monitoring, and understanding the desired beneﬁts.
Part 8
The 111 text service for the deaf
What the project was about
8.1
Since the 1960s, deaf people have interacted with the New Zealand Police (the
Police) through technology such as ﬁxed-base computers and fax machines.
However, these technologies were characterised by their ﬁxed location and
slowness compared to voice equivalents.
8.2
Because it was diﬃcult to access appropriate technology, deaf people had to rely
on family, friends, or neighbours to access emergency services. The emergency
services considered this unsatisfactory.
8.3
In 2007, the death of deaf woman Emma Agnew and the subsequent homicide
inquiry brought to the attention of police communications specialists the extent
to which deaf people communicate eﬀectively using the cellphone short message
service (SMS).
8.4
An international check found no other jurisdictions with suitable solutions, and
international advice was that SMS was not designed or suitable for high-reliability
communications. However, police operations are traditional users and experts in
radio communications and understand telecommunications as part of their core
operations. Because of this, and an understanding of the risks involved, the Police
felt that the SMS text service, while not perfect, was the best alternative available.
8.5
Motivated to explore and analyse further, the Police ﬁrst talked with the
9000-strong group of “culturally deaf” people that Deaf Aotearoa New Zealand
(DANZ) represents. Culturally deaf people communicate mainly using visual
language (especially New Zealand Sign Language). If the Police could address the
needs of this group, then other variations on the concept should be comparatively
straightforward.
8.6
After developing the capability to meet the needs of the culturally deaf, the Police
extended the service to meet the needs of the wider hearing-impaired community
(such as citizens with signiﬁcant age or accident-related hearing loss) who use
both voice and visual communications. This includes about 240,000 people the
National Foundation for the Deaf represents.
8.7
The Police’s experience with the 111 service suggested that opening up a text-forall 111 service to the public would mean operations centres would have to deal
with many hoax calls. Therefore, the Police decided to design an SMS emergency
response system based on closed subscriptions. The system’s speciﬁcations
were prepared by closely consulting members of the deaf community through
community meetings and stakeholders helping to design the new system. For
43
Part 8
The 111 text service for the deaf
44
example, as a result of DANZ feedback, the website interface was simpliﬁed and
made suitable for visual communicators by using video.
8.8
The resulting system allows subscribers to send a 111 text message from
their mobile devices and communicate with ﬁrst-responder contacts using
text messages. This has meant that, for the ﬁrst time, deaf people can access
emergency support directly while away from their home , with access to support
at a comparable speed to those who can speak on telephones.
8.9
During the design, the website used in signing up for the system emerged as a
critically important part of the 111 Deaf Text Service. This is the interface that
potential users of the system use to learn what the system is, how it can help
them, and how to subscribe. Designing an online experience suitable for deaf
people was a main success factor.
8.10
There was a $290,000 investment required. It cost about $20,000 a year to
run the website and for licences, and there are fees for each transaction to
telecommunications providers.
Realised beneﬁts
Direct beneﬁts
8.11
The Police communicate more eﬀectively as a result of addressing equity-ofaccess issues for a particular group. The 111 Deaf Text Service has met the speciﬁc
needs of the culturally deaf community that were identiﬁed and addressed in
consultation with those involved. The stakeholders have described the service as
creating “self-determination” and as a “tangible advance in human rights”.
8.12
The Police have made their communications more eﬃcient. Emergency centres
manage 111 messages from deaf subscribers directly, avoiding the delays and
miscommunications introduced by third parties that characterised the previous
options. As a result, response times for emergency services to the deaf community
are on a par with what the wider public expects of the 111 service.
8.13
Emergency call communications have been reported to be more accurate.
Emergency response staﬀ are able to exchange text messages with a distressed
deaf person without excessive time delays. This has led to better operational
decisions throughout the emergency response.
Indirect beneﬁts
8.14
The Police have reported better understanding customers’ needs by being more
aware of what cultural deafness means. This has led to better understanding
of a speciﬁc community’s needs and has resulted in operational practices being
adjusted to suit.
Part 8
The 111 text service for the deaf
45
Intangible beneﬁts
8.15
The Police’s reputation among a culturally distinct minority has improved.
8.16
The Police have achieved new organisational knowledge about how to eﬀectively
communicate with culturally deaf people face-to-face and using other channels.
8.17
Better Police understanding of one minority group has training and culturalawareness beneﬁts for similar Police activities with other groups that have
speciﬁc communications challenges.
Unexpected and/or unplanned beneﬁts
8.18
The ﬂexible Whispir technology platform for deaf 111 systems has provided the
Police with a new core communications capability that goes far beyond the 111
text service. When the ﬁrst deaf text service was being set up, the Police did
not try to identify how the new capability would be used in other applications.
Instead, it saw the new capability as something to be used when the need arose.
The Police did not have to wait long to use it again ‒ Whispir was deployed
overnight in response to the September 2010 and February 2011 Canterbury
earthquakes for communications between the Police, international emergency
personnel, and others.
8.19
The system was used again during the 2011 Rugby World cup events in Auckland,
where it was used to maintain text-based communications with the Police and
other personnel managing crowds by being able to send the same message to
many people at the same time. The crowded stadium environment, a diﬃcult
noisy environment for traditional phone communications, was managed
eﬀectively using Whispir.
8.20
Another example came from Counties-Manukau Police, where targeted text
communications from the Police to shopping mall security staﬀ have been used
to improve crime detection and apprehend criminals in the event of reported
crimes such as shoplifting or bag snatches. Using Whispir, the whole security
infrastructure at a particular site can be alerted promptly.
8.21
The learning from engaging with the culturally deaf led to the Police making
informed design decisions when it came to extending the scope of the deaf text
system to the wider hearing-impaired community.
8.22
On top of this, other groups with communications challenges are able to beneﬁt
from the Police’s deeper understanding of how to use SMS. For example, the Police
are planning to use the Whispir platform to address the needs of those with
physical disabilities that inhibit asynchronous voice communications, such as
members of the community with cerebral palsy or similar conditions.
Part 8
The 111 text service for the deaf
46
Dynamic nature of beneﬁts realisation
8.23
Realising beneﬁts is seen as an ongoing part of the ”business-as-usual” operation
of this system. However, the generic system’s wider capability means beneﬁts that
go beyond the scope of the initial project are being sought. For example, while
engaging with deaf people, the Police learned the essential diﬀerence between
the culturally deaf community and the hearing-impaired deaf community and
the need to address the needs of groups within that community of stakeholders
diﬀerently.
8.24
In choosing Whispir, the Police looked beyond the initial beneﬁts of the deaf text
application and instead sought to understand the potential beneﬁts of using the
technology in their wider communications. Taking the wider view helped them to
choose a system that could address emerging needs and spread Whispir’s ongoing
operational costs.
8.25
Identifying multiple uses for the generic capability gave the Police a way to
scale the learning beneﬁts of training staﬀ and developing skills to use deaf
text services. Training for the 111 Deaf Text Service was more than just using
the technology. It helped create more cultural awareness among operational
responders within the Police.
Practices that helped achieve beneﬁts
8.26
Reﬂective practice led to the Police recruiting non-police staﬀ and police oﬃcers
with special skills to engage with the community. For example, the practice
of sending a police oﬃcer and an ambulance oﬃcer ﬂuent in New Zealand
Sign Language to community consultation meetings increased engagement
signiﬁcantly.
8.27
The Police have a strong capability maturity in telecommunications and IT
through being long-term users and early adopters of ICT. In the 111 Deaf Text
Service project, the Police were able to put these core capabilities in line with
operational policing needs. This means that the technology is well understood
and is being used for more than originally intended.
8.28
The Police analysed the project’s requirements and chose the technology platform
so that the system could be integrated easily into the wider police communication
infrastructure.
8.29
At the same time as the Police addressed the speciﬁc needs of the project at
hand, they stayed aware of the possible future uses of the technology. Being so
aware has paid oﬀ. By taking this platform-orientated architecture approach, the
Police have used the Whispir platform to design and set up a successful generic
capability for a registration-based SMS gateway.
Part 8
The 111 text service for the deaf
47
8.30
The deaf text project team responded quickly to feedback about website usability
in the registration process and adapted the site to meeting users’ needs. This was
seen as a critical factor in achieving ongoing conﬁdence and uptake among users.
This was especially true when dealing with a community that had traditionally
felt disenfranchised.
8.31
The project took a holistic approach to working with many agencies to understand
and develop the 111 Deaf Text Service and the Whispir platform. This ﬂexible and
innovative thinking carried out in consultation with the Police and the ﬁre and
ambulance services built on a history of shared services and common capability
and led to successful collaboration between agencies.
Lessons for other projects
8.32
Checking for available solutions in use around the world can help to make better
decisions about what beneﬁts are achievable and what is needed to eﬀectively
design and set up a similar ICT-enabled project in a diﬀerent institutional setting.
If international good practice is not available, assess further local experience and
risks.
8.33
Build upon internal expertise and look for solutions from outside the organisation.
The Police’s depth of knowledge about telecommunications practices allowed
them to rightly reject conventional wisdom.
8.34
Using reﬂective practices, recruiting non-police expertise when needed, and
building on talents in the police community (such as identifying oﬃcers who
knew New Zealand Sign Language) helped to engage the community enough to
contribute directly to the project’s success.
8.35
From as early as the design phase, the Police organised ongoing engagement
with a representative group of target customers and invested in methods and
resources to improve that engagement and further build understanding of
the speciﬁc needs of customers. For example, the practice of sending a police
oﬃcer and ambulance oﬃcer who were ﬂuent in New Zealand Sign Language to
community consultation meetings made a big diﬀerence to engagement. Another
example is the quick response from the deaf text project team to feedback about
how usable the website was for registration, leading to quickly adapting the site
to the needs of users. This was a critical factor in attracting users to the service.
8.36
Start small when setting up an ICT-enabled innovation initiative to reduce
complexity and potential risks. Use local knowledge and expertise.
8.37
Pay attention to the design of what online users see to ensure that it is targeted at
the intended audience with enough information but not too much.
Part 8
The 111 text service for the deaf
48
8.38
Being ﬂexibly innovative helped in designing and setting up the technical solution
and to identify more uses for the capability in police communications. This will
help to deliver other solutions targeted at diﬀerent customer groups and other
problems.
Good practices
8.39
The good practices from this project that we refer to in the discussion in Part 9
are:
t being business-led, ﬂexible, and agile:
– looking at what is being used nationally and/or internationally before
starting the project to reduce risks of duplication; and
– learning iteratively; and
t working eﬀectively with stakeholders, including end users, and paying a lot of
attention to users’ experiences.
Part 9
Lessons from the six projects
9.1
In this Part, we discuss lessons from the six projects that may be relevant for other
ICT-enabled projects in the public sector.
Good beneﬁts realisation in practice
9.2
We researched models of managing beneﬁts realisation. We then created our own
model, drawing, in particular, on the work of the New South Wales Department
of Finance and Services. Our contractor then reviewed and amended this model.
The amended model is shown in Figure 2. We used the model in Figure 2 to help
us identify elements of good practice in the six projects and to develop the six
themes that we discuss in this Part.
9.3
A critical feature of the model is the continuous process of planning, reviewing,
reporting, and updating of the beneﬁts being and to be realised.
9.4
We have identified six themes and lessons from the projects:
t understanding the environment and making the most of circumstances;
t using a business-led, ﬂexible, and agile approach;
t having strong support from leaders and senior managers;
t working eﬀectively with the right people, including end users;
t using the right technology tools; and
t monitoring and understanding the beneﬁts.
9.5
It is important to consider four things when looking at the common themes and
lessons:
t having elements of good beneﬁts realisation practice should not be interpreted
as meaning all aspects of a project were best practice – none of the projects
showed good practice in all respects;
t good beneﬁts realisation practice for a given case study was good practice in
the context of that case study, but may not be good practice in all contexts
– good practice cannot necessarily be “cut and paste” from one project to
another;
t good beneﬁts realisation practice should not come at the expense of other
aspects of managing successful projects, such as working within the available
time and resources – good practice is not good practice when delivered at all
cost; and
t some of the good beneﬁts realisation practice is closely linked to wider good
management practices and may not be speciﬁc to the technology.
49
Part 9
Lessons from the six projects
50
Figure 2
Using information and communication technology to realise beneﬁts
Start
Can needs
be met
using ICT?
Develop ICT
Benefits
Realisation
management
strategy
YES
NO
Develop
Business
Case
Stop
ICT Benefits
planning
ICT Benefits
Plan
UPDATE
ICT Benefits
and other
outcomes
monitoring
ICT Benefits
Review
ICT Benefits
and other
outcomes
reporting
ICT Benefits
Report
NO
ICT
Benefits
realised?
YES
KEY
Document
Add to ICT
Benefits
Register
Continuous process
Source: School of Government, Victoria University of Wellington.
ICT Benefits
Register
Part 9
Lessons from the six projects
51
Understand the environment and make the most of circumstances
9.6
From the six projects we have drawn two factors that show an understanding of
the environment and making the most of the circumstances. These are:
t identifying increasing or future demand for services as an impetus for change; and
t recognising extreme or special circumstances of a given situation, including the
impetus of limited time.
9.7
These factors relate to the beneﬁts realisation management strategy stage of the
process outlined in Figure 2.
9.8
Acting strategically is about an organisation ﬁtting its services to the environment
in which it works and the changes forecast to that environment. Fitting with
the environment and being able to capitalise on the opportunities that the
environment presents were a feature of some of the six projects.
9.9
Fitting with the environment included using limited time as an opportunity, not a
constraint. This was particularly a feature of the Christchurch Earthquake Support
System, where services had to be delivered within a few days of the 22 February
2011 earthquake.
9.10
Another feature of the Christchurch earthquake project was the unique
circumstances leading to Cabinet agreeing to special privacy legislation. This
legislation was a strong enabler of the project, and might not have happened in
other circumstances. The Ministry of Social Development’s identifying the need
for special cross-agency information sharing arrangements, and getting these put
in place, were important contributors to realising beneﬁts.
9.11
In SmartGate and Landonline, Customs and LINZ foresaw large increases in
demand for their services. These increases could not be met if the services
continued to be delivered in the same way. Both public entities understood that
the changing nature of the demand for their services would make their services
unsustainable. This led to a clear business purpose and pre-emptive action, using
ICT as an enabler, to prevent a crisis.
Be business-led, ﬂexible, and agile
9.12
The six projects show that a business-led, flexible and agile approach:
t has a focused business purpose;
t has people with detailed knowledge of the business involved;
t does not try to solve everything at the same time;
t follows an iterative or pilot approach; and
t uses current technology where it makes sense to and does not reinvent
solutions.
Part 9
Lessons from the six projects
52
9.13
These factors relate to the beneﬁts realisation management strategy and beneﬁt
planning stages outlined in Figure 2.
9.14
Technology is not an end in itself. To eﬀectively realise beneﬁts using ICT, it is
important that a clear business purpose guides how we use technology. Often,
this business purpose may mean that people do things diﬀerently.
9.15
A clear business purpose was a notable practice in three of the projects:
t InfoConnect’s clear business purpose was to give road users accurate, timely,
and relevant traﬃc information. Giving third parties access to the information
to distribute it has achieved this. This has meant that the purpose was
achieved without NZTA having to get into non-core business (developing
software applications) and having to directly manage all the risks that would
entail.
t SmartGate’s clear business purpose was to give eﬀect to the Australian and
New Zealand Prime Ministers’ commitment to make the border between their
countries more eﬃcient and make it easier for Australians and New Zealanders
to move between the two countries.
t The business purpose of the Student Loan System was complex. The ﬁrst
purpose was to make more real-time integrated information available to
borrowers, speciﬁcally the current balance of their loan. A second, and more
transformational purpose, was to redesign Inland Revenue’s systems. This was
to make them more adaptable to policy changes, able to incorporate changes
more quickly, and be more automated for customers. This second purpose is yet
to be met.
9.16
Because ICT-enabled projects have a business focus, it is important to involve
people who know a lot about the business. This involvement was notable in the
Student Loan System and Landonline projects. These projects covered complex
business practices that required specialised business knowledge, including
detailed knowledge of the history of business practices. In the case of Landonline,
subject matter experts were seconded to the project teams. This reduced the time
needed to consult with other parts of the business.
9.17
Having a ﬂexible and agile approach is perhaps the most critical aspect of good
practice that we saw. This is because it is at the heart of the continuous nature of
managing beneﬁts realisation shown in Figure 2. This is the dynamic process of
planning, reviewing, reporting, and updating the beneﬁts being and to be realised.
At the heart of this are the business beneﬁts being sought.
9.18
There is no need to solve everything at once. Often, this is important because of
the long time that some of the projects can take to set up, given their complexity,
and the changes to technology and the demands on the project that can happen
Part 9
Lessons from the six projects
53
during that time. In certain situations, taking a ﬂexible and iterative approach
can be good way to manage risks, reducing the amount of unnecessary work and
rework that might otherwise result.
9.19
Elements of a flexible and iterative approach to the work were a notable feature of
three of the projects:
t The InfoConnect initiative was piloted before being rolled out and the work
was phased.
t In eﬀect, SmartGate was piloted. Customs borrowed a SmartGate device
from Australia before committing to the technology. This allowed Customs to
test and investigate the device, and allowed Customs to use the SmartGate
technology quickly. There were only nine months between Cabinet’s
endorsement of Customs’ SmartGate plans and the ﬁrst SmartGate device
going into use in Auckland.
t The approach used for the 111 Deaf Text Service has given the Police a
technology platform that can be used for mass text communication with a
deﬁned community. For example, the platform was used to communicate with
the Police and emergency service staﬀ in Christchurch after the 22 February
2011 earthquake. In eﬀect, the 111 Deaf Text Service piloted the technology,
ﬁrst with the culturally deaf community and then with the wider hearingimpaired community.
9.20
Working on new technology or solving technology problems already solved by
someone else is not always cost-eﬀective and can result in unnecessary risks.
9.21
The InfoConnect, SmartGate, and 111 Deaf Text Service projects involved entities
performing a national and/or international scan of how other entities had
addressed the service challenges that they faced. With SmartGate, this resulted in
adopting “oﬀ the shelf” technology. With the 111 Deaf Text Service, it meant using
a technology that other police forces had not used for this purpose.
Have strong leadership and senior support
9.22
Strong leadership and support from main stakeholders, such as Ministers and
senior managers:
t are critical to eﬀectively realise beneﬁts in ICT-enabled projects;
t can help to accelerate critical decisions, resolve resource blockages, set and
manage realistic expectations, and add impetus to a project; and
t are particularly important for the reporting stages, when information about
the project is given to people outside the project for them to make decisions
‒ this includes the business case and beneﬁts planning and reporting stages
outlined in Figure 2.
Part 9
Lessons from the six projects
54
9.23
Some of the projects had strong support from politicians. With the Christchurch
Earthquake Employment Support System, the Minister of Social Development
reported daily to the media how many employers and employees had received
payments. This gave the Minister a direct stake in the project.
9.24
The New Zealand and Australian Prime Ministers made a commitment to
SmartGate. Because the Prime Minister and Cabinet prioritised SmartGate, it
was a priority for the chief executive and Customs. The project team could rely on
having the resources they needed from the organisation to complete the project
on time.
9.25
With Landonline, the chief executive’s active and engaged sponsorship was
important for communicating the importance of the project.
Work eﬀectively with the right people, including end users
9.26
The six projects show that successful project teams work effectively with the right
people. In particular, they:
t pay a lot of attention to users’ experiences; and
t have strong and collaborative relationships within the project team, with
vendors, and with principal stakeholders, including other public entities
involved.
9.27
These factors relate to all the stages of the beneﬁts realisation process outlined in
Figure 2.
9.28
The complexities of the environments in which public entities work mean that
many parties may have an interest in their business. This includes end users, the
providers of technology, and politicians. Achieving beneﬁts through technology
can depend on all of these people.
9.29
In planning and setting up the 111 Deaf Text System, the Police worked closely
with the culturally deaf community. This means that the Police better understand
what cultural deafness means in a practical sense. They have adjusted operational
practices, not just the provision of 111 services, to the needs of this speciﬁc
community.
9.30
Strong support from external stakeholders was a feature of the Landonline
project. Strongly committed stakeholder groups, including law societies and
surveyors, contributed to understanding better what users required. Landonline
project teams included paid stakeholder representatives.
9.31
Because business benefits are derived when people, enabled by technology,
do things differently, having strong collaboration and commitment among
Part 9
Lessons from the six projects
55
those involved within a public entity is important. Strong collaboration and
commitment were notable in:
t the Christchurch Earthquake Employment Support System, with staﬀ being colocated and doing the initial design for the system during a weekend; and
t InfoConnect, where NZTA collaborated successfully with third parties that had
the expertise, time, and funding to provide eﬀective solutions.
Use the right technology tools
9.32
These six projects show that it is important to use the right technology tools for a
given set of circumstances. The tools we have highlighted are:
t agile methodologies;
t making information open; and
t open-source technology tools.
9.33
These factors primarily relate to the beneﬁts realisation management strategy
and beneﬁts planning stages outlined in Figure 2.
9.34
Many agencies and individuals faced extreme challenges after the large
Canterbury earthquakes. This included the Ministry of Social Development,
which the Government wanted to distribute ﬁnancial support to employers and
employees immediately after the 22 February 2011 Christchurch earthquake.
The purpose of providing this support was to reduce uncertainty about jobs and
businesses in Christchurch, and to help people to pay their bills. Therefore, haste
was important.
9.35
In response to this challenge, Ministry of Social Development staﬀ designed and
built the online Earthquake Employment Support System over a weekend. This
was possible because of their choice of rapid development methodologies for
system development. The Kanban method and the Ruby on Rails open-source web
development framework were used and $53 million in payments were made in
the ﬁrst week of the system being in place.
9.36
The InfoConnect initiative used open-source software tools. This kept costs
down and brought support from application developers. Having the support
of application developers was critical, as these developers were relied on to
distribute NZTA’s information.
9.37
NZTA made its road user data largely open. It was freely available to application
developers who registered with NZTA. Registration gave the agency some control
over misuse of the data. But it did not stop developers adding further value to the
data. Making data available in this way had the added beneﬁt of improving data
quality through feedback from users.
Part 9
Lessons from the six projects
56
Monitor and understand the beneﬁts
9.38
The factors we have drawn from the six projects that demonstrate effective
monitoring and understanding of the benefits are:
t clear articulation of the beneﬁts; and
t routine monitoring of the beneﬁts being realised.
9.39
These factors primarily relate to the beneﬁts planning and beneﬁts monitoring
stages outlined in Figure 2.
9.40
Documentation that speciﬁcally planned, reported, or catalogued the beneﬁts
being realised was not a strong feature in the projects. We consider such
documentation to be good beneﬁts realisation practice because it is a critical part
of monitoring and evaluating the beneﬁts of a given project.
9.41
Four projects did not follow the beneﬁts realisation cycle outlined in Figure 2 in
terms of the continuous process of documentation and review of beneﬁts. This is
clearly an area for improvement in managing beneﬁts realisation in public sector
ICT-enabled projects.
9.42
Inland Revenue clearly stated the beneﬁts to be achieved as part of its Student
Loan System project and monitoring of the project at a programme level focused
on beneﬁts realisation. This helped to identify that the initial project would not
realise the intended beneﬁts and an informed decision was made to redesign the
project to deliver a more realistic set of outcomes. Inland Revenue’s decision to
redesign the project was sensible in the context of the beneﬁts yet to be realised
and resources used.
9.43
Monitoring of beneﬁts was a feature of Landonline. In practice, this was achieved
by picking elements of beneﬁts realisation management from the methodologies
used in the project. A pragmatic approach was required because of inconsistent
language and expectations.
Consider the themes identiﬁed
9.44
The themes that we have identiﬁed should not be considered as allencompassing, mutually exclusive, or unique to the process of realising beneﬁts.
9.45
In our view, the themes are practical and useful and should be considered
carefully when planning to realise beneﬁts using ICT.
Publications by the Auditor-General
Other publications issued by the Auditor-General recently have been:
t
t
t
t
t
t
t
t
t
t
t
t
t
t
t
t
t
t
t
Annual Plan 2012/13
Fraud awareness, prevention, and detection in the public sector
Institutional arrangements for training, registering, and appraising teachers
New Zealand Qualiﬁcations Authority: Assuring the consistency and quality of internal
assessment for NCEA
Statement of Intent 2012–2015
Public entities’ progress in implementing the Auditor-General’s recommendations 2012
Draft annual plan 2012/13
Local government: Results of the 2010/11 audits
Severance payments: A guide for the public sector
Health sector: Results of the 2010/11 audits
Central government: Results of the 2010/11 audits (Volume 2)
New Zealand Blood Service: Managing the safety and supply of blood products
Central government: Results of the 2010/11 audits (Volume 1)
Education sector: Results of the 2010/11 audits
Managing the implications of public private partnerships
Cleanest public sector in the world: Keeping fraud at bay
Annual Report 2010/11
Transpower New Zealand Limited: Managing risks to transmission assets
The Treasury: Implementing and managing the Crown Retail Deposit Guarantee Scheme
Website
All these reports, and many of our earlier reports, are available in HTML and PDF format on
our website – www.oag.govt.nz. Most of them can also be obtained in hard copy on request
– [email protected].
Notiﬁcation of new reports
We oﬀer facilities on our website for people to be notiﬁed when new reports and public
statements are added to the website. The home page has links to our RSS feed, Twitter
account, Facebook page, and email subscribers service.
Sustainable publishing
The Oﬃce of the Auditor-General has a policy of sustainable publishing practices. This
report is printed on environmentally responsible paper stocks manufactured under the
environmental management system standard AS/NZS ISO 14001:2004 using Elemental
Chlorine Free (ECF) pulp sourced from sustainable well-managed forests. Processes for
manufacture include use of vegetable-based inks and water-based sealants, with disposal
and/or recycling of waste materials according to best business practices.
Oﬃce of the Auditor-General
PO Box 3928, Wellington 6140
Telephone: (04) 917 1500
Facsimile: (04) 917 1549
Email: [email protected]
Website: www.oag.govt.nz
The benefits of local IT
procurement
A paper written by Economics New Zealand for Catalyst IT that examines
the economic benefits of procuring IT services from New Zealand
suppliers.
The benefits of local IT procurement
A report prepared for Catalyst IT Ltd by Economics New Zealand Ltd
November 2011
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The local ICT sector, with further support, has good prospects of being a successful
‘cluster’ (as was identified as far back as 20 years ago)
If the ICT sector were to grow to the same relative size as Australia’s, it would be a $4
billion industry rather than a $3 billion one
The government, with a $2 billion annual spend, can play a key role in the industry’s
development
Local IT companies are cost effective, with a 25-35% cost advantage over Australian
companies and larger cost advantages compared to the US or UK
The multiplier and tax revenue effects of local procurement substantially reduce the net
cost to the government of local contracts. As an example, the net cost of a $115K (GST
inclusive) contract reduces to around $67K
Local suppliers have untapped export potential and can also reduce our import bills. We
already spend over half a billion dollars a year on imports of computing services, and
another $235 million on computing royalties and licence fees
Open procurement the way to go
It is worth saying upfront that the aims of public procurement will be best served by the commissioning public
agency seeking the best value for public money, irrespective of the locality of the supplier. It would be
inefficient to award contracts to domestic suppliers who cannot deliver the goods and services required to the
requisite quality and at the least cost. In addition, New Zealand has international obligations to hold nondiscriminatory government procurement policies, and irrespective of any legal obligations New Zealand public
sector purchasers benefit from the expanded range of options that an open procurement process provides:
there is also a reciprocity issue, as New Zealand would expect to benefit from other countries’ similarly open
procurement purchases.
All that said, where public sector purchasers are considering otherwise well-matched bids for business, there
are a range of benefits from choosing a locally-based supplier that benefit either the national economy as a
whole or the government’s accounts, and which should be taken into account in assessing the overall outcome
of the procurement decision. The main benefits are listed below: they are the efficiency benefits of local
suppliers, the value of building a specialist cluster of companies that can be internationally competitive, the
fiscal benefits from choosing New Zealand suppliers, the multiplier effect of local suppliers, and the impact on
the balance of payments. Comparisons in some instances with an alternative outcome of awarding a contract
to an Australian firm are illustrative: the points made are of general application.
Efficiency – more ‘bang per buck’
A procurement contract given to a New Zealand IT firm is likely to buy considerably more in way of
programming or other resource hours, as industry incomes are substantially lower than overseas whereas
industry skills are on a par with those overseas. The skills point is particularly relevant in the open source
software space, as by definition there is ‘level playing field’ access to it and users anywhere can capitalise on
the leading edge innovations of others.
The difference in costs has been quantified below by comparison with Australia: this is likely to be a
conservative assessment, as comparison with countries in Europe or North America which have higher
incomes than Australia’s, would have widened the gap between New Zealand cost levels and those overseas.
These comparisons are also necessarily approximate, as different organisations use different definitions of
both the ICT sector and of roles and sub-sectors within it, but a consistent picture emerges of significantly
lower NZ costs.
According to the latest information from PayScale Inc, a US company that provides global online compensation
1
data and whose coverage includes both Australia and New Zealand, the total pay for IT Consultant jobs in
Australia ranges from A$43,747 to A$137,413 (NZ$57,250 to NZ$179,850 at NZ$ = .764A$). In New Zealand the
same range is from NZ$47,754 to NZ$146,591. Comparing the means of these ranges, the local NZ total pay is
NZ$97,352 whereas the Australian total pay is NZ$118,550 – which means that New Zealand costs are 17.9%
lower than in Australia.
The gap is likely larger than this, as while PayScale’s Australian sample is of reasonable size (653 positions), its
New Zealand coverage is distinctly limited (53 positions), and certainly an average IT sector salary package of
over NZ$97,000 looks intuitively to be on the high side. The much more comprehensive AbsoluteIT Salary
2
report , which says that it has had 20,500 ICT employees enter their data anonymously since 2008, shows that
3
the median NZ ICT total pay is NZ$77,500. Another source , the Average Salary Survey, reports that the
“average income of [a] senior software engineer/developer is around 82,000 NZD”, which is in the same region
as the AbsoluteIT estimate. Data provided by Catalyst showed that their average annual remuneration was a
little over $80,000. A reasonable estimate of the typical IT salary in New Zealand would therefore be
(combining the AbsoluteIT, Average Salary Survey and Catalyst data) around NZ$80,000. This means that New
Zealand costs are 32.5% below those in Australia when using the PayScale numbers (NZ$118,550) as the basis
of comparison.
There is a potential cross-check on this comparison. Hudson, a global recruitment and HR consulting firm with
operations in both New Zealand and Australia, produces annual salary guides for the ICT sectors in both
4
countries . The data are not easy to compare, as they are at a very detailed functional level and are not
summarised by Hudson as overall industry or sub-sector averages. It is however possible to aggregate the
numbers to give some meaningful cross-country comparisons. From the NZ survey, if you take the mid-point of
the Auckland salaries for the 18 kinds of jobs listed in the ‘Infrastructure’ category, and average them, you get
an average annual salary of NZ$81,111. From the Australian survey, if you do the same exercise for salaries in
Sydney for the 10 jobs listed in the ‘Infrastructure/network’ category , you get an average annual salary of
A$114,250, or NZ$149,500 at the current exchange rate. This suggests that Auckland costs are some 45%
lower than Sydney’s. If you repeat the exercise with the 32 kinds of ‘Systems development’ jobs in Auckland
compared to the 10 kinds of ‘Development’ jobs in Sydney, you find the average Auckland salary to be
NZ$78,750 and the average Sydney salary to be A$88,000, or NZ$115,200. In this category NZ salaries work out
to be 31.6% lower. Incidentally, both of these exercises produce NZ salary levels of around the NZ$80,000
mark, suggesting that the earlier AbsoluteIT/Absolute Salary/Catalyst numbers for New Zealand are roughly
right.
1
http://www.payscale.com/research/AU/Job=Information_Technology_(IT)_Consultant/Salary and
http://www.payscale.com/research/NZ/Job=Information_Technology_(IT)_Consultant/Salary
2
http://www.itsalaries.co.nz/content/IT%20Salary%20Report_Aug-2011.pdf
3
http://www.averagesalarysurvey.com/article/average-salary-in-new-zealand/07163011/income.aspx
4
http://nz.hudson.com/documents/EmpNZ_SalaryGuide_ICT.pdf for New Zealand and
http://jobs.au.hudson.com/documents/EmpAu_SalaryGuide_ICT.pdf for Australia
These comparisons are necessarily a ‘broad brush’ exercise, but they agree with other, more detailed analysis.
5
In 2007, for example, Investment New Zealand, an arm of New Zealand Trade and Enterprise, published a
sophisticated analysis, based on BearingPoint research, of the costs of setting up a 50-person software
development centre in New Zealand as opposed to setting it up in Australia, the US, the UK, South Africa, India
or Slovakia. A New Zealand operation cost about a quarter less than an Australian one, and about half the cost
of an American or British one. Costs in the developing economies were lower than in New Zealand, very
substantially so in the case of India in particular, but the developing economy cost benefits would need to be
balanced against coordination and logistical costs and potential differences in productivity.
A reasonable and robust overall conclusion is that IT sector labour costs look to be about a quarter to a third
lower in New Zealand than in Australia, and the local cost advantage is wider again when compared with other
developed economies. This cost gap in New Zealand’s favour is wider than any likely difference in productivity
6
levels. For example, recent work from the NZ Institute of Economic Research has shown that there is an
overall productivity gap between the New Zealand and Australia: New Zealand’s labour productivity in the
most recent period studied (2001-06) was 83% of Australia’s. Even if the same was true of the ICT sector (and
the NZIER’s data do not give enough sectoral detail to tell us) it would still pay to employ New Zealand ICT
professionals, given that the cost gap is some 25-35% whereas the productivity gap is 17%. But in any event it
is unlikely that the productivity gap in the ICT sector is as wide as the national productivity gap, given the
highly mobile labour markets between New Zealand and Australia and the global industry standards that
prevail in IT, both of which are likely to equalise expertise levels in the two countries. In sum, purchasers of
New Zealand IT services are highly likely to be getting very good value for money, in terms of the quantum of
hours and skills bought per dollar of spend, compared with what they would get from overseas suppliers.
This efficiency argument is becoming more relevant as fiscal constraints are becoming tighter. The total annual
7
government spend on ICT was officially estimated at $1.94 billion in the year ended June 2008 ($1.36 billion in
opex, $578 million in capex), and appears to be running at around the same level currently: the chair of the
government’s ICT Council, Sam Knowles, referred this month to an annual spend of $2 billion. Efficient
stewardship of a $2 billion spend would be important anytime, but is even more so in an environment of fiscal
austerity.
Support the opportunities in a strategic and high growth sector
The IT industry is increasingly becoming central to the operation of a high-income economy, which is (for
example) one of the main reasons that the Government has initiated the national Ultra Fast Broadband
project. Industries as diverse as healthcare, education and the media are increasingly going to be dependent
on efficient IT underpinnings, while the IT sector itself will be an increasingly important potential source of
employment, value add, and exports.
At first blush, it appears that the New Zealand IT sector is progressing reasonably well. We may have an image
of Australia, for example, as being a somewhat more advanced economy, but the reality is that the sizes of the
ICT sectors in Australia and New Zealand are broadly similar relative to the size of their economies. Statistics
New Zealand’s Information and Communication Technology in New Zealand and Australia (November 2009)
showed that the broadly defined ICT sector amounted to 9.9% of New Zealand’s GDP (sales of NZ$17.5 billion)
and 9.3% of Australia’s (sales of A$96.7 billion).
This overall comparison is somewhat misleading, however. As noted earlier, there is no universally accepted
definition of what is counted in ICT, and it can be a mixture of ‘old economy’ and ‘new economy’ sectors. In
5
Investment New Zealand, New Zealand Software Development Industry, June 2007
http://nzier.org.nz/publications/industry-productivity-and-the-australia-new-zealand-income-gap-nzierworking-paper-2011
7
State Services Commission, Report: Government Use of ICT 2008, April 2009
6
fact, the relatively good showing by New Zealand on this comparison has a distinctly ‘old economy’ feel. The
slightly larger ICT sector in New Zealand in terms of share of GDP is more than fully explained by a relatively
large distribution sector involved in the wholesaling of TVs, radios, MP3 players and the like (1.5% of the
economy in New Zealand, only 0.6% in Australia), which while formally within the ICT sector is not the sort of
leading-edge and IP-rich activity normally associated with the ICT sector. In the more sophisticated ‘computer
8
system design and related services’ activities, which is what people would tend to have in mind when they are
thinking about ‘the ICT industry’, New Zealand lags behind Australia. In 2008 it was a NZ$3 billion industry,
1.7% of our GDP, compared to A$24.5 billion, 2.3% of theirs. If it had grown to the relative size of Australia’s
modern IT industry, it would have been a $4 billion industry rather than a $3 billion one. We have made a
start, and shown that we can create a viable domestic IT industry, but it is still on a relatively modest scale.
Statistics New Zealand’s 2008 results have been updated in their 2011 publication, Information and
Communication Technology Supply Survey: 2009/10. The data are not fully comparable with the 2008
publication, but as at 2010 the ‘new economy’ IT sectors (IT technical support services; IT design, consulting,
and development services; Hosting and IT infrastructure provisioning services) had total sales of $3.39 billion
and export sales of $337 million. These export sales of $337 million, while not insignificant, show that the IT
sector is still an embryonic form of what it could become. Its current annual exports are less than our exports
of plastics ($493 million) or vegetables ($459 million) and on a par with exports of ‘other animal originated
products’ ($359 million) – a self-evidently small level when you compare the scale and potential of the global
IT industry with that of plastics or ‘other animal originated products’.
One way of realising the still mostly untapped potential of the domestic IT industry would be to encourage the
development of clusters. Domestic procurement could help assist local suppliers to move to greater
economies of scale, and to create a pool of local companies with greater depth of experience. There is already
quite a large group of companies active in the IT space – Statistics New Zealand counted 1,377 in its 2010
update, the bulk of them (1,152) in the relatively sophisticated ‘Computer system design and related services’
sector. This is a promising base of existing involvement on which to build a genuine cluster of local competitive
9
advantage. As the Porter project twenty years ago , “National advantage resides as much in clusters as in
individual industries. Outside of the agricultural sector, New Zealand has not been able to create competitive
clusters of industries…Central and local governments should encourage investments that develop, or attract,
specialist suppliers and industries related to our current areas of success”. And it seems to have been
forgotten that the New Zealand software industry was actually one of the industry studies highlighted in the
Porter project as being a good base to work from and develop export sales: “The software industry…illustrates
that New Zealand firms can compete in rapidly changing technology intensive industries, despite relatively
10
unfavourable conditions” .
The Porter research team estimated that New Zealand’s software exports in 1990 were some $100 million. On
the plus side, the fact that exports have more than tripled in twenty years suggests that the sector does indeed
(as the Porter team suspected) have the potential for substantial growth, and banking a compound growth
rate of exports of 6-6.5% a year over two decades is a worthwhile achievement. But as the comparison with
some of our other traditional export categories suggests, there is still a lot of room to raise our game.
Developing local clusters could be assisted without compromising either proper procurement processes or the
vigour of local competition. Procurement, where there are evenly balanced potential suppliers, can however
8
“Units mainly engaged in providing expertise in the field of information technologies, such as
writing, modifying, testing, or supporting software to meet the needs of a particular consumer; or
planning and designing computer systems that integrate computer hardware, software, and
communication technologies” on Statistics New Zealand’s definition.
9
Graham Crocombe, Michael Enright, Michael Porter, Upgrading New Zealand’s Competitive Advantage,
Oxford University Press, 1991, p176
10
Crocombe et al, p58
properly recognise the value of helping to grow a more experienced group of local suppliers which can
produce the well-known ‘virtuous cycle’ of increasingly adept companies learning off off each other’s success
while simultaneously being incentivised to invest and innovate from the presence of strong local competitors.
Balance of payments benefits
Spending on local IT suppliers is beneficial from the point of view of the national balance of payments.
Contracts awarded to overseas suppliers show up in the balance of payments as a debit item, ‘imports of
services’. This is already a substantial bill to pay: in the year to June 2011, imports of ‘computer and
information services’ cost the country NZ$553 million. Nearly all of this cost ($522 million, according to data
supplied by Statistics NZ) relates to computing services: IT technical consulting and support services ($230
million), IT design and development services ($97 million), hosting and IT infrastructure provision ($88 million),
IT infrastructure and network management ($68 million), database information services ($20 million), and
‘other’ data processing ($19 million). It is also a cost which has been rising rapidly in recent years: it has
increased by 39.3% in the past five years.
There is a further cost to the balance of payments. Suppliers (either domestic or overseas) using proprietary
software developed by overseas companies incur ongoing licencing fees. These too now amount to a
substantial cost to the country: in the year to June 2011 royalties and licence fees paid to overseas companies
for computer services amounted to $235 million. Again, this is a cost which has been rising sharply, having
increased by 38.2% in five years.
In comparison, projects run by domestic companies avoid almost all of these costs. On the basis of analysis of
Catalyst’s detailed accounts, for example, it is evident that virtually all of its spending occurs within New
Zealand: less than 2% of its spending goes on imports of goods and services (1.9%, estimated as 100% of the
spending on purchases of hardware and licences, computer consumables, equipment under $500, and
licensing fees; and 50% of the spending on subscriptions, training and seminars, and travel expenses). This is
likely to be true of many other domestic IT companies as well, though the import component will be especially
low for companies operating in the open source software space, as this avoids import costs that would
otherwise be spent overseas on royalties and licencing of proprietary software.
Domestic fiscal and multiplier effects
Awarding an IT contract to a domestic supplier sets in train a chain of positive fiscal and multiplier effects
which do not occur (or only on a much lower scale) when the contract is awarded to an overseas supplier.
A notional example (again based on the structure of Catalyst’s latest accounts, but also likely to be true more
generally) illustrates the chain of events, using a contract worth $100,000 pre-GST or $115,000 inclusive of
GST.
The first impact is a net payment of GST to the government of $11,700, being the GST due from the domestic
supplier ($15,000) less the GST already paid by the domestic supplier ($3,300 assumed in this example).
Of the $100,000 ex-GST cost of the contract, $72,000 will be spent on domestic wages and salaries, $25,500
will be spent on purchase of goods and services (nearly all of it, $21,000, domestically), and $2,500 will be paid
in company tax.
Looking first at the impact of domestic wages and salaries, the $72,000 in local wages generates $15,800 in
11
PAYE tax (at an average 22% tax rate , reflecting higher than average salary levels in the IT sector), leaving
$56,200 in disposable employee income. Not all of this will be spent domestically. It is assumed,
11
This and the other PAYE calculations are based on the PAYE calculator available on the IRD’s website
conservatively, that 5% of this is saved (a conservative estimate as the national household savings rate is
arguably negative), that 25% is used for debt-servicing (again, conservatively assuming that everyone has a
mortgage, that mortgage payments are substantial but within a bank’s normal lending limits, and that
mortgage payments have no multiplier effects), and that 28% is spent on imports (the share of imports of
goods and services in the overall economy). These channels eat up $32,600 of disposable income. The
remainder, $23,600, will be on-spent in the domestic economy, generating further domestic income,
employment, and tax revenue. This is the well-known ‘multiplier’ effect of an increase in government
spending.
12
This domestic spending, plus the GST on the spending on imports, generates further GST revenue of $5,131 .
As the domestic spending becomes domestic recipients’ incomes, it generates further PAYE of $3,284 (at an
average tax rate of 16%, the rate applying to an average-level income of $50,000, applied to the ex-GST
spending of $20,522). And the chain continues. The $23,600 spent in the domestic economy will create a
further round of domestic spending and local income, worth $9,912, with a further round of GST revenue
($1,293) and PAYE (16% of the ex-GST amount of $8,619, which comes to $1,379). There are further, smaller
rounds of induced spending and tax that are not pursued further, nor are payments of smaller items of tax
(such as ACC and FBT).
Summing up these effects of the local company’s wage bill, local incomes rise by $105,512 ($72,000 plus
$23,600 plus $9,912), and the associated tax returned to the government is $17,624 by way of GST ($11,200
plus $5,131 plus $1,293) and $20,463 by way of PAYE ($15,800 plus $3,284 plus $1,379), making a total tax
inflow of $38,945.
Looking next at local purchases of goods and services by the domestic company awarded the contract, these
also generate rounds of local income and tax flows in exactly the same way. The $21,000 spent on local goods
and services generates additional GST amounting to $2,739 and PAYE amounting to $2,922 (at 16% of the exGST spending of $18,261), while the $4,500 spent on imports generates GST of $587, making a total tax intake
of $6,248.
Adding up all these impacts produces a total tax take of $47,693 – $38,945 from following through the impact
of the local company’s wage bill, $6,248 from following through the impact of the local company’s purchases
of goods and services, and $2,500 from the local company’s payment of corporate income tax.
There are several conclusions which follow from this analysis.
One is that the net cost to the public sector of any project awarded to a domestic supplier, with domestic
employees and high levels of domestic purchases of goods and services, is very much reduced by the tax
inflows from the domestic income and spending generated. On these estimates, the gross cost of a $115,000
project is reduced to a net cost of some $67,300. The exact size of the net cost will vary from contract to
contract, and different assumptions could be made about tax rates or about consumer behaviour, but they
would not change the overall thrust of the conclusion, which is that awarding government procurement
contracts domestically sets in train further rounds of spending that boost local incomes, generate further tax
flows, and return revenues to the government that offset the initial cost.
Another conclusion is that this wider benefit to the fiscal accounts is invisible from the perspective of any
single agency awarding a contract. An agency commissioning an individual piece of project work will, naturally
and correctly, be concerned about value for money from spending its own budget, but it does not observe, nor
directly benefit from, the revenues its domestic procurement is generating for the government as a whole.
“Whole of government” ICT purchasing initiatives have the potential, in theory, to look at the bigger picture,
though again they tend to be more about the efficiencies to be gained from a single project purchase (on
12
GST is calculated by dividing GST-inclusive amounts by 7.666
behalf of multiple users) than about the net cost of a domestic procurement once consequent income and tax
flows are allowed for.
A final point is that this reduction in costs only applies to the extent that a domestic contractor is expanding
the domestic tax base by hiring people locally and by purchasing local goods and services. The tax situation of
overseas firms doing business in New Zealand can be complex, but they will almost certainly not generate
similar levels of tax to effectively offset the cost of the contract to a public sector buyer. Their workforce will
largely be overseas (outside New Zealand’s income tax regime), their purchasing will largely be overseas
(outside New Zealand GST regime), their corporate profits will not be subject to New Zealand company tax,
and the bulk of any ‘multiplier’ effects on incomes will also take place overseas in their own economies.