Source: https://oag.govt.nz/2013/skycity/part4.htm
Timestamp: 2020-01-17 16:10:59
Document Index: 105816192

Matched Legal Cases: ['art 4', 'art 4', 'art 2', 'art 3', 'art 5', 'art 6', 'art 7', 'art 4', 'art4', 'art 2']

Part 4: Calling for expressions of interest — Office of the Auditor-General New Zealand
Inquiry into the Government’s decision to negotiate with SkyCity Entertainment Group Limited for an international convention centre
Part 4: Calling for expressions of interest
Part 2: Establishing the feasibility of an international convention centre
Part 3: Discussions between the Government and SkyCity in 2009 and 2010
Part 5: Evaluating the proposals received
Part 6: Detailed discussions with SkyCity about its proposal
Part 7: Other matters
Appendix 2: Text of the document requesting expressions of interest
Appendix 3: Evaluation criteria for expressions of interest
Part 4: Calling for expressions of interest Inquiry into the Government’s decision to negotiate with SkyCity Entertainment Group Limited for an international convention centre. https://oag.govt.nz/2013/skycity/part4.htm https://oag.govt.nz/@@site-logo/logo.png
Inquiry into the Government’s decision to negotiate with SkyCity Entertainment Group Limited for an international convention centre.
the decision to run an EOI process;
what an EOI process is;
how the EOI document was prepared;
the content of the final EOI document issued to the market; and
our comment on the process and document.
The decision to call for expressions of interest
The decision by Ministers
Ministry officials told us that Mr Brownlee saw the international convention centre project as part of a broader government strategy to attract major business events. The Government wanted to seek ideas from the business and convention centre sector on how to do this. The Minister was also interested in the concept of a network of convention centres throughout the country, because some larger conventions start in one centre and then break into smaller interest groups and move to other venues. Mr Brownlee emphasised to us that this was part of the Government’s efforts to help the New Zealand economy after the global financial crisis.
On 1 March 2010, Mr Brownlee directed Wellington-based Ministry officials to prepare a paper seeking Cabinet’s approval to:
seek comments from the convention centre sector about a network of convention centres and any barriers to attracting business events to New Zealand;
obtain a logo for the proposed convention centre; and
design an “EOI/request for proposals” process to gather alternative Auckland-based proposals.
Later that day, Mr Brownlee and Ministry officials met with the Prime Minister and discussed the convention centre project. Notes from that meeting record that the Prime Minister said that SkyCity had a good proposal. He also agreed that an open process would be a good way to get all the ideas out so that the public could see and assess the merits of potential sites. The Prime Minister noted that the public would be likely to have mixed views on the regulatory reform aspect of the SkyCity option when that became known. Mr Brownlee referred to “too many people talking to SkyCity”, and the Prime Minister’s Chief of Staff said he was happy to step back. Mr Brownlee also mentioned the need for an “open process” with “no holds barred”.
The Cabinet decision
Mr Brownlee submitted a paper to the Cabinet Economic Growth and Infrastructure Committee meeting on 24 March 2010. The paper noted that:
A joint group of MED, Ministry of Tourism and Auckland City Council officials have been looking at the feasibility of building a new, large … international-standard convention centre in Auckland …
Work on a proposal is proceeding, with a proposition likely to be presented to the government around the end of March [2010].
In my view that process needs to be broadened. We need to see what other possibilities there might be. We need to decide how best to promote New Zealand as a business events/conference destination – selling the advantages of not only building a new, international-standard convention and exhibition centre but also of enhancing the way we tell the world about all the business events centres and venues available throughout New Zealand.
On 29 March 2010, Cabinet confirmed the Committee’s direction that the Ministry:
... develop, by 31 March 2010, a request for high-level expressions of interest that could be publicised and sent to relevant territorial authorities and private sector organisations, seeking creative and innovative ideas about the construction and funding of an international-standard convention centre, and the development of an enhanced national network of convention centres (of which a new large international-standard convention centre would be a part).
Cabinet confirmed that the Minister for Economic Development would have a series of meetings with major convention centre owners and managers, to set expectations for the EOI exercise and to promote a partnership approach with the private sector for enhancing New Zealand’s potential as a business events and conference destination. Cabinet also confirmed that officials should reserve naming rights for the convention centre for the Crown through trademarks.
The paper was explicit that this new government-led process meant an end to the previous process with Auckland City Council, under which the feasibility study had been commissioned and under which it had been suggested proceeding to a business case and establishment plan. Auckland City Council was now free to submit a proposal into this government-led process.
What is an expressions of interest process?
An EOI process is a procurement approach used to explore a market. It is primarily used to identify suppliers interested in, and capable of, delivering required goods or services. The term EOI is used because suppliers are invited to provide an “expression of interest” in providing the goods or services. An EOI process can also be used to draw on the expertise of potential submitters and to see what ideas they might have for achieving the desired goal.
The request for expressions of interest is usually formulated in reasonably general terms, and the responses are equally broad-brush. EOI processes do not usually involve any detailed consideration of cost, because the ideas are still too high-level for costs to be meaningful.
For these reasons, an EOI process is usually the first stage of a multi-stage procurement process. Once expressions of interest have been received and assessed, the top few submitters are often asked to provide more fully developed proposals through a “request for proposal” process, with full information on such matters as design, capability to do the work, expected costs, and funding options. This enables competitive tension to be maintained while exploring options in more detail.
Good practice expectations for an EOI process
The main principles governing an EOI process are set out in paragraph 3.39. In particular, the principles of openness, fairness, and integrity create a set of procedural expectations and obligations. In summary, participants in an EOI process can expect:
Good information on what is being sought and how the process will work: The organisation running the process should provide the market with as much information as is available on the background to the request, what is being sought, and the process that will be followed to assess responses and make decisions. The more information that is provided, the better the quality of responses is likely to be.
Equal access to information: The organisation should do its best to ensure that all potential participants have equal access to information from it about the EOI while they prepare their responses.
Equal treatment: The organisation should be careful to ensure that all participants are treated equally throughout the process of preparing, receiving, assessing, and deciding on the proposals. This does not mean identical treatment, but all participants should have the same broad opportunities to receive and provide information.
The need to ensure equal treatment and full and equal information generally means that the organisation needs to manage the process carefully. Our guidance and that produced by the Ministry emphasise the importance of thorough planning at the outset. Essentially, the advice is to work backwards from the outcome being sought to develop the basis for evaluating whether a proposal will help achieve that outcome, what information needs to be sought to enable that evaluation, and what process will be followed to get the information, assess it properly, and make decisions.
It is usual at this planning stage for the organisation to work out how it will manage the overall process internally, including deciding on roles, responsibilities, governance and decision-making processes, and how communications with the market and submitters will be managed. It is also standard for the organisation to systematically identify any possible risks and document how it will manage those risks.
A common risk is that there will be a challenge to the procedural fairness of the process, for example because submitters have not been provided with equal opportunities or consistent treatment. This risk is usually reduced by careful planning to ensure that the process will be even-handed (and seen to be so), and by ensuring that all communication with potential participants is carefully controlled and that good records are kept.
This type of planning helps ensure that there is good alignment between the information being asked for and the basis on which proposals will be evaluated, and that this reflects what the organisation is trying to achieve from the process. It also enables the organisation to make sure that potential participants understand the overall process and the steps that will be followed. If anything changes in the process, or new information becomes available, then the organisation will usually have a clear process for communicating that to all potential participants.
The level of detail involved in such planning will obviously vary depending on the nature of the process being followed. A full commercial tender for a high-value project will usually involve comprehensive project planning. A simpler approach can be taken for an early and exploratory EOI process such as this one. However, the same basic points need to be considered. The nature of the issues may also affect the level of risk and, therefore, the amount of planning and risk management that is appropriate.
Preparing the expressions of interest document
Discussions about the draft document
During April and May 2010, Ministry officials worked to prepare an EOI document. The official leading the work sought advice from project and legal colleagues and the Ministry’s procurement advisor. Officials also met Mr Brownlee’s Senior Advisor to understand the Minister’s expectations.
The proposed document was in three parts:
Part A sought “views on generally what needs to be done to increase the number of business events held in New Zealand”;
Part B sought “to identify sites of suitable size in an appropriate location that could be developed into an international-standard convention and [national] exhibition centre”; and
Part C sought to “identify other locations in New Zealand that have existing centres with expansion plans that might be considering seeking government support (financial or otherwise)”.
Part A did not seek expressions of interest but asked that people respond with ideas about increasing business events and strengthening existing events networks. Part A was effectively a consultation exercise, with the stated purpose of providing information to contribute to the first stage of a national business events strategy. The EOI document noted that the Ministry would consult more broadly with the convention and tourism industry during the ongoing development of the strategy.
Parts B and C sought expressions of interest from parties who wished to propose a site for an international convention centre (Part B) or from parties who already had plans to expand an existing convention centre and who might be considering seeking government support – financial or otherwise (Part C).
At first, the draft EOI document contained a section on who could respond to the part seeking proposals for an international convention centre – those owning a convention centre that could be expanded or a suitable piece of land that could be developed, or those (for example, councils) wishing to promote a particular site as suitable for a convention centre. This section was deleted because Mr Brownlee wanted the process to be open to anyone who wanted to give their views or opinion on possible sites.
The procurement and legal advisors questioned whether the mixed purposes of the EOI document were confusing – it sought consultation in one part and expressions of interest in two other parts. Suggestions included separating the Parts into different documents with different processes for each or reworking the document as a Request for Information (RFI), which is a tool for researching the market rather than seeking and selecting specific proposals. There was also concern that having to answer the consultation questions might put people off expressing interest in the other parts. Some changes were made as a result of these and other comments, and the relevant advisors accepted that these concerns were not major ones.
The officials considered what the EOI document should say about funding. A draft version asked for suggestions on how the convention centre could be funded, and said “because central government does not intend to be more than a partner in this project”. One official noted that this wording was unclear and advised that, if central government did not intend to provide any funding, then this should be stated. However, the lead official responded that it was not clear at that time what funding would be available and so they could not clarify the wording.
The final version of the EOI document asked submitters to address “alternative and creative funding options” for the development and operation of an international convention centre, and asked submitters to consider funding options of central government, local government, and the private sector.
Although an EOI is usually followed by a tender process, in this instance officials were clear that they were proceeding one step at a time. The EOI would provide information on whether there were any viable options. The Government might not go to the next stage of a Request for Tenders or Request for Proposals (RFP). The next stage would depend on what responses were received.
Meetings with the sector
Before the EOI process began in 2010, the Prime Minister met other parties, in addition to SkyCity, interested in providing an international convention centre.
On 15 April 2010, the Minister for Economic Development wrote to a wide range of stakeholders (more than 20 organisations) including SkyCity, inviting them to informal meetings in Christchurch (30 April), Auckland (7 May), or Wellington (11 May). The purpose of the meetings was to hear stakeholders’ views and ideas for action on how New Zealand could become a destination of choice for significant conventions, conferences, and business events. The Minister’s letter noted that:
The government recognises that to become a destination of choice for business events, New Zealand requires a well-coordinated strategy to attract more and larger events, and an enhanced national network of business events facilities. An international-standard convention and exhibition centre is also required.
The speaking notes prepared by the Ministry for the Minister’s meetings included material alerting participants to the forthcoming EOI document:
In order to fully explore the best location for a convention and exhibition centre, we are going to release an “expression of interest” in mid May. This will request suggestions for the best location for an international convention and exhibition centre.
On the topic of funding, the speaking notes said:
In addition to location we are very interested in receiving ideas on how the construction and operation of a new large centre could be funded. At most the government would be a partner in any funding arrangement.
The speaking notes also contained a section of possible questions and suggested answers. The questions and suggested answers relevant to funding were:
What’s next after the EOI?
The Government will wait for this process to play out before deciding if there is a role for it in taking the concept forward. We want to see the private sector take the lead and will look at providing support if it is appropriate and necessary.
Will government put money into the building of a convention centre?
This will depend on ideas that come through the EOI process. Government could only play a partnering role in any case. For a new convention centre to be developed other partners would need to be found.
How much money is the government prepared to invest?
It is too early to say how much money the government might invest. At this stage we are concerned with identifying the best location for a national convention and exhibition centre and exploring the various funding models that could be used to build and manage a centre.
The notes from the Minister’s meeting with convention sector stakeholders in Auckland record the Minister promoting the network of convention centres concept and the logic of having an international convention centre in Auckland. On the topic of funding, the notes of the meeting are not comprehensive but record the Minister as saying:
“cash strapped and constrained”;
“put proposals forward so Government can decide what to do – know local government can’t just find the money”;
“cost constrained as Auckland Council”; and
“want others to pour money in as Government does”.
The final expressions of interest document
The Ministry issued the EOI document, Request for Expressions of Interest for growing New Zealand’s share of the International Business Events Market and Strengthening the National Network of Convention Venues, on 19 May 2010. The closing date for providing expressions of interest was 18 June 2010. We set out the content of the EOI document in Appendix 2.
The document was available on the Government’s electronic tenders site, was posted to major stakeholders12 (with a copy of the 2009 feasibility study), and was publicised with a media statement issued by the Minister for Economic Development. The Minister’s press release restated the benefits identified in the earlier feasibility study (that is, 22,000 extra international visitors generating an estimated $85 million each year in tourism spending). The EOI document was also advertised in nine major newspapers.
Parts A and C of the EOI process were handled as follows:
The Ministry’s major events team used the Part A responses to inform the development of the July 2011 publication, Growing New Zealand’s share of the International Business Events Market.
Part C responses – concerning expansion of existing convention and exhibition centres – have largely been put on hold until the international convention centre work is completed.
Part B is the part of the EOI process that is directly relevant to our inquiry. In background information for respondents, Part B summarised the major findings of the feasibility work that we described in Part 2. This included the importance of being close to hotels of an appropriate standard and therefore that a CBD location was the most likely option. The report that summarised the 2009 feasibility study and contained the additional research by officials was issued with the EOI document.
The EOI document said that the Ministry would compile a shortlist of respondents to Parts B and C from whom further information (such as an RFP) might be sought. The EOI document said that those not shortlisted would be advised of that fact.
The EOI document also reserved the right for the Ministry to enter into direct negotiations with a respondent to Part B (or one or more respondents to Part C) based solely on the information provided in responses to the EOI document.
Information was requested in Part B on the city involved, the convention centre size and building attributes, the convention centre site, legal, regulatory, or land ownership issues, funding of the convention centre, and the role the convention centre would play in the wider network of existing New Zealand convention centres.
Part B also asked for any cost-benefit analysis relevant to establishing an international-standard convention and exhibition centre.
The EOI document made reference to a centre capable of hosting conferences of 3500-5000 delegates, and, if not initially catering for 5000 participants, the ability to increase capacity at a later stage to this number.
The EOI document did not say how responses to Part B or C would be assessed. One of the five organisations that made a proposal in response to Part B of the EOI document commented that this was unusual.
Our comments on the preparation of the EOI document
The need to think through and plan the overall process
In our view, it was a good idea to test the market at that point, to see what options there might be for achieving an international convention centre. Some solid analysis of the potential market and elements of the business case had been done through the feasibility work, and the Government knew that there were several potential suppliers interested, including SkyCity. From a good practice perspective, an EOI process was a sensible next step to find out which suppliers, if any, were interested enough to put together an outline proposal. It was also a way of satisfying the obligation in the Mandatory Rules to establish whether there were genuinely competitive providers or whether it would be justifiable to begin direct negotiations with one party.
Earlier in this Part, we summarised the main good practice requirements for preparing and running an EOI process. Based on these, we expected the decision to proceed to an EOI process to be accompanied by systematic planning so that there was clarity about possible next steps, roles and responsibilities in the process, and what needed to be done to manage risks. The earlier feasibility work had covered much of the same ground as a business case, but no planning had been done about the detail of how to manage an interaction with the market.
We do not suggest that the entire process should have been mapped out through to a tender process and final decisions to construct a convention centre. It was reasonable for the Government to proceed one step at a time, and not commit to a full multi-stage process at this point. However, the Ministry still needed to think through the options for next steps so that it could be sure that the EOI process would properly support any later decision-making.
Once the EOI document had been issued, normal practice would be for the Government to evaluate the responses received, make a decision about next steps, inform the participants and the market about that decision, and implement it. There were three main options for the next steps, once the responses had been evaluated:
Decide that there were no proposals worth exploring and stop the process. The Government would then advise all the participants of this decision and end this particular initiative.
Decide that there was only one proposal that justified any further exploration and that it was best explored through a direct procurement process. As already noted, good practice and the Mandatory Rules require clear documentation of the reasons for a decision to proceed to a direct procurement, as well as the ways in which basic principles such as value for money will be secured in the absence of the competitive tension that is usually provided by a tender process. If this was the decision, those who responded to the EOI should be notified of the decision to proceed directly to discussions with a possible preferred provider.
Decide that there was at least one proposal worth exploring and that it was still important to maintain competition. In this situation, the next step should be to proceed to a request for proposals with a selected shortlist of participants. Those who responded to the EOI would be notified, and the shortlisted proposals would be developed and explored further through a structured competitive process. This would require more detailed planning, detailed specifications, clarification of the budget and funding options, a full tender process, selection of a preferred provider, and contract negotiations.
We did not see any evidence of formal discussions or decisions on the evaluation process and criteria, or mapping out of the basic options for what might happen next, or advice to Ministers on how the process would be managed and their involvement in it. We do not regard this as adequate for a project of this potential scale, complexity, and risk.
The EOI document
We agree with the officials who initially advised that the EOI document was confusing. It was not helpful to have a single document, called an EOI, which was, in fact, trying to achieve a number of different purposes through different processes. In our view, it would have been better to run separate processes for the public consultation and procurement matters.
Other minor weaknesses in the final EOI document were that:
it did not set out the evaluation process or any explicit evaluation criteria, but left responders to infer the evaluation criteria from the information being sought; and
it included a clause reserving the right for the Government to decide to negotiate directly with one submitter but no explanation of the process that would sit behind such a decision.
Managing communication with potential submitters
We also had some procedural concerns about the steps taken after officials and senior Ministers had agreed to move to an EOI process on 1 March 2010. From this point on, we would have expected officials to be clear, and to be providing clear advice to Ministers, on the importance of managing communication with potential submitters. We saw no such advice, and note that ministerial office staff were still meeting and talking separately with SkyCity later that month about its proposed development plans and what it might ask in return.
In our view, these meetings were not appropriate. From the point at which a formal approach to the market was likely, communication with potential submitters needed to be managed carefully. Unequal access to information is one of the main risks in any procurement process, and the recognised way of managing that risk is to ensure that all communications are carefully controlled through a single channel. The Government should have told SkyCity that it was likely to be calling for expressions of interest and any discussions about its proposal would now have to be carried out through that process.
It was put to us that it is not realistic for politicians to insulate themselves from contact with people in this way: they cannot avoid encountering people in the course of carrying out their duties. We understand this point, but it is important that all those involved in a commercial process understand the risk that communication outside the formal process can lead to allegations of advantage, and therefore manage any such encounters to minimise this risk. The usual response would be to make clear to potential submitters that a market process is beginning, so it would not be appropriate to discuss that particular matter and to document any meetings that did take place.
Information on funding possibilities
When going to the market, the Government must do its best to ensure that all potential submitters have the same, full information on the Government’s requirements. It was well known among officials that SkyCity had met with various senior Ministers in the previous months. In our view, there was an obvious risk that SkyCity would have a better understanding of the Government’s thoughts than other participants. This was a risk that needed to be actively managed. We consider that the officials working on the EOI process should have taken steps to ensure that they knew what had been discussed with SkyCity by Ministers and their staff, and that the same information was provided to the rest of the market in the EOI document.
This risk eventuated in relation to the question of government funding. The EOI document was vague and asked for “creative ideas and suggestions on how the construction and operation of an international-standard convention centre could be funded. Options can include central government, local government and private sector funding options.” The main background information accompanying the EOI document was a copy of the 2009 feasibility study, which included a conclusion that central government would need to meet some or all of the capital costs. This context, combined with the fact that the Government was using a procurement process to approach the market, all supported an impression that government funding was likely to be part of the eventual solution.
Yet SkyCity knew, from its earlier meetings with other Ministers, that the Government did not want to fund the construction of a convention centre at all and would look at alternative ways of making a centre viable, including regulatory reform to provide a potential provider with an enhanced revenue stream. Although the Prime Minister met with other business leaders and potential providers in the months before the EOI process, we have seen no evidence that this kind of discussion took place with any other potential submitter.
We note that a Ministry official did comment that the document was not clear enough about funding. However, we are concerned that the response from the lead officials was that the government position was unclear and therefore it was necessary to use general language that left the matter open. In our view, the lead officials should have worked with relevant government agencies and Ministers to establish a clearer government position on funding that could be explained to the market in the EOI document.
We are not suggesting that the EOI document should have specified a budget or particular figure, or provided information that would have prevented the competitive process from managing price effectively. Rather, the document could have made explicit that:
the government had no firm view yet on the funding it might contribute;
it wanted to minimise central government’s contribution to the capital costs of construction, given the economic situation; and
it was looking for creative ways of funding the convention centre.
The Ministry put to us that it was self-evident that the Government would want the least cost option, given the state of the economy by 2010, and that Ministers made clear in meetings that central government was constrained in what it could contribute. We have carefully considered all of the information and meeting notes associated with the release of the EOI document and remain of the view that it needed to be clearer.
In our view, the overall message conveyed was that the need for some type of government support to construct the centre was understood, but that the Government was financially constrained and wanted to minimise its contribution. However, SkyCity had been told that the Government would not contribute any funds to the capital cost but would be willing to consider lateral solutions such as regulatory changes.
SkyCity told us that it regarded the EOI process as competitive and put considerable effort into its proposal. SkyCity also told us that it considered that the Government’s comments about funding were partly “positioning” statements and, at the time of responding to the EOI document, it remained hopeful of a PPP funding model. Its EOI response said that it could contribute significant funding to the project on agreement of suitable terms, but would welcome the chance to consider other potential funding structures.
In our view, the result was that one potential submitter had a clearer understanding of the actual position on a critical issue – that the Government did not want to fund any capital costs – than any other potential submitters. Although this is a flaw in the process, it might not have had significant consequences. The other submitters still understood that the Government’s finances were constrained, and became more so as 2010 progressed. No other submitter appears to have been likely to be able to adapt their proposal to enable them to fund the full construction costs. We accept that it is unlikely that this flaw made a material difference to the outcome. However, we have spent some time discussing it because we regard it as symptomatic of the lack of attention to procedural risks, and therefore to the fairness and credibility of the process.
Our overall assessment of the preparation for the EOI process
Overall, we have concluded that the preparation for the EOI process and the EOI document, fell short of good practice in a number of respects. Insufficient attention was given to planning and management of the process as a whole, so that risks were not being identified and properly addressed. However, the practical consequences of the flaws at this stage remained relatively minor.
12: Twenty-four organisations, including those that had attended meetings with the Minister in April and May 2010 (see paragraph 4.28).
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