Government considers future of Westpac's key 21 year-old banking deal

By Alex Tarrant

The Government is considering making changes to its master banking arrangement with Westpac, although it is unclear whether it will tender the contract, even parts of it, thought to be the biggest single banking contract in the country.

A spokesman for Finance Minister Bill English told interest.co.nz the Government was committed to a "future procurement process", with decisions on the nature and scope of the process to be determined following consultation with government departments and the banking industry.

This week, in a response to a written parliamentary question from Green Party co-leader Russel Norman, English said the Government intended to "run a procurement process for government banking designed to achieve value for money for the Crown".

"Given the complexity of banking arrangements for key departments, we are currently consulting with these departments on the timing, nature and scope for this process," English said.

Treasury regularly consulted with key departments over pricing and service levels relating to the contract, including the possibility of conducting a future tender of the Crown's banking arrangements, a spokesman for English told interest.co.nz.

The master banking contract has been Westpac's for 21 years without being tendered. It covers all government departments, but not Crown entities or State Owned Enterprises.

English's spokesman said the contract had not been re-tendered to date because the costs of doing so outweighed the expected benefits, "given the complexity of arrangements with departments and the price reductions negotiated under the existing contract".

"Departments do, however, tender for a range of supplementary banking services not covered by the master banking agreement with Westpac," the spokesman said.

"A new master agreement (with Westpac) was signed in November 2004 and, since 2005, the Crown has negotiated ongoing contractual price reductions for contract services," he said.

Greens want Kiwibank in the running

The Greens last month attacked the arrangement, suggesting Kiwibank should be built up to be able to handle the Government's banking contract.

“The Government’s master banking contract with Westpac covers all Government departments but successive governments have run this contract as a comfortable closed shop,” Norman said last month.

“There hasn’t been an open tender process since David Lange was Prime Minister," Norman said.

“How do we know that we are getting value for money from the Government’s favourite banker without a competitive tender process?” he said.

A spokesman for Bill English sent this statement to interest.co.nz:

• In the late 1980s, Treasury undertook an open tender to select one bank to provide the Crown's domestic banking services. Westpac was selected to provide these services and a deed entered into in January 1989.
• A new master agreement was signed in November 2004 and, since 2005, the Crown has negotiated ongoing contractual price reductions for contract services.
• The contract covers only the core banking services associated with operating Government departments’ bank accounts for processing domestic receipt and payment transaction banking business in New Zealand.
• An increasing array of banking services have developed over time that are not covered by the master banking agreement with Westpac. Banking services that are not covered by the contract are regularly tendered by the departments concerned.
• The contract applies only to Government departments, not Crown Entities or SOEs.
• The Treasury regularly consults with key departments over pricing and service levels relating to the contract, including the possibility of conducting a future tender of the Crown's banking arrangements.
• The contract has not been re-tendered to date because the costs of doing so outweigh the expected benefits given the complexity of arrangements with departments and the price reductions negotiated under the existing contract.  Departments do, however, tender for a range of supplementary banking services not covered by the master banking agreement with Westpac.
• The fee arrangements between the Crown and Westpac are commercially sensitive and are not made public.

Here is the latest written question and answer exchange between Norman and English:

Dr Russel Norman to the Minister of Finance (18 Nov 2010): Does the Government intend to run a public tender process for the master banking contract; if so, when?

Hon Bill English (Minister of Finance) replied: The Government intends to run a procurement process for government banking designed to achieve value for money for the Crown. Given the complexity of banking arrangements for key departments, we are currently consulting with these departments on the timing, nature and scope for this process.