01 August 2022

A departmental agency is an operationally autonomous agency hosted by a Public Service department. It is legally considered part of its host department.

Defining departmental agencies

A departmental agency is headed by its own chief executive who is directly responsible to an appropriate minister for its clearly identified, ring-fenced activities and performance.

A departmental agency chief executive has the same general responsibilities as a departmental chief executive under section 52 of the Public Service Act 2020. A departmental chief executive also has the same powers to carry out their responsibilities and functions as a departmental chief executive under Schedule 6 of the Act (see section 5 of the Public Service Act 2020, which defines a Public Service chief executive, or chief executive as including a departmental agency chief executive).

Section 52, Public Service Act 2020 — New Zealand Legislation

Schedule 6, Public Service Act 2020 — New Zealand Legislation

Section 5, Public Service Act 2020 — New Zealand Legislation

A departmental agency and its host department may, or may not, have the same minister — this will depend on the relevant ministerial portfolios, which are determined by the prime minister.

Figure 1: Structure of a departmental agency

A large box called 'Department' is in the middle of the image.  Two boxes to the left have arrows leading to Department.  The top box reads: A departmental agency is hosted by a public service department. The host department is decided on a case-by-case basis. The box underneath reads: A departmental agency is operationally autonomous within the host department by default.  Above the Department box, are 2 identical sets of boxes, representing CEs and ministers. The lower CE box has a line leading to the upper minister box. This line shows the relationship between CEs and ministers. Between the 2 CE boxes is a dotted line. This shows the relationships between CEs. One set of CE and minister boxes is on the left-hand side of the Department box, so their left-hand sides align – this represents the CE and minister being part of the Department. The other set sits on and to the side of the Department box, so a third sits on nothing. To the right of this second lot of CE and Min boxes are 2 additional boxes. One relates to the minister box, reading: A departmental agency is responsible to its own minister. The other relates to the CE box, reading: A departmental agency is headed by its own chief executive.

Background and objectives

The departmental agency concept in Aotearoa New Zealand is based on the United Kingdom’s model of executive agencies, but with some substantive modifications to fit New Zealand’s Public Service framework.

In the United Kingdom, executive agencies are used to improve performance through greater clarity of purpose, responsibility for results and freedom from unnecessary uniform rules. In the New Zealand system, departmental agencies are used to reduce fragmentation and cost in the public sector. They are also used to improve system coherence and consolidation.

When to use a departmental agency

The activities best suited to the departmental agency model tend to be regulatory, service delivery or other ring-fenced operations that do not need to be carried out by an entity separate from the legal Crown and that can be accountable directly to a minister (rather than come under the authority of a governance board). A policy role that is clearly identifiable and separately accountable can also fit in the departmental agency model.

Such functions:

  • are readily identifiable and measurable, and therefore lend themselves to ring-fenced, transparent funding and reporting arrangements
  • are cohesive and/or fall within a clearly defined area
  • have relatively stable policy settings
  • have low levels of operational connection with other functions of the host department
  • have clearly identifiable staff (employees or secondees) who come within the employer responsibilities of the departmental agency chief executive.

As there are a wide variety of functions that can fit within the scope of the departmental agency model, the legislative changes allow the model to be tailored to a much wider range of functions than it could previously. However, it remains important to consider whether the relative size (employees and/or revenue), and/or the nature of the substantive functions warrant the creation of a new entity and appointment of a public service chief executive.

Flexible arrangements enabled by the Public Service Act 2020

The standard model for a departmental agency is an operationally autonomous agency within a host department, headed by its own chief executive who is directly responsible to the departmental agency’s minister.

However, section 24(2) of the Public Service Act 2020 provides for 2 variations of the model, which Cabinet can apply to the departmental agency. These allow for more flexibility in how a departmental agency can be used. These variations are:

  • allowing the departmental agency to operate within its own strategic and policy framework (instead of within its host department’s framework)
  • allowing a department agency to manage assets and liabilities (instead of relying on a department doing so on its behalf).

‘Departmental agency models’ details the how these variations are given effect through the Public Service Act 2020 and Public Finance Act 1989.

In addition, section 24(5) of the Public Service Act 2020 now requires a departmental agency to receive corporate services (for example, HR, IT, ministerial services) from its host department. Exceptions to this can be agreed between both chief executives.

Section 24, Public Service Act 2020 — New Zealand Legislation

Ministerial responsibilities

The relationship between a departmental agency chief executive and their minister operates in the same way as the relationship between a departmental chief executive and their minister. The departmental agency chief executive is responsible for the day-to-day functions of the departmental agency and owes their responsibilities to the appropriate minister, who is answerable in the House.

Chief executives’ responsibilities

The chief executive of a host department and a departmental agency both have the same general responsibilities as chief executives in the Public Service. For example, improving ways of working across the Public Service and the operation and carrying out of the functions of their agency.

Section 52(1)(a),(c), Public Service Act 2020 — New Zealand Legislation

The chief executive of a departmental agency is only responsible for carrying out the functions of the departmental agency, and not any functions of the host department. Similarly, the chief executive of the host department is not responsible for carrying out the functions of the departmental agency.

Section 52(2),(3), Public Service Act 2020 — New Zealand Legislation

However, the host department chief executive does retain some responsibility as the departmental agency is considered part of the host department. This responsibility will vary depending on whether any of the departmental agency model variations set out at section 24(2) of the Public Service Act 2020 are used. ‘Departmental agency models’ details these responsibilities depending on the model chosen.

Departmental agency models (PDF, 167 KB)

The other working arrangements that are agreed between the host department and departmental agency chief executives can set out how each chief executive will meet their responsibilities under the Public Service Act 2020 and other legislation.

Section 24(4), Public Service Act 2020 — New Zealand Legislation

Responsibility for employees

Under section 68 of the Public Service Act 2020, the chief executive of a departmental agency is responsible for the employees of the departmental agency through deemed delegation. However, the host department remains the employing entity.

Section 68, Public Service Act 2020 — New Zealand Legislation

The chief executive of the departmental agency is responsible for the decisions in relation to individual employees, such as appointment, removal and discipline. They are also considered responsible under other legislation that relates to their individual employees, such as the Health and Safety at Work Act 2015 and Privacy Act 2020 (departmental agencies are treated as departments under the Privacy Act 2020).

Departmental agencies are ‘Crown organisations’ for the purposes of the Crown Organisations (Criminal Liability) Act 2002 and therefore have PCBU (Person Conducting a Business or Undertaking) responsibilities in their own right under the Health and Safety at Work Act 2015. The host department will likely also have remaining responsibilities as a PCBU for the departmental agency.

A departmental agency chief executive has the same responsibilities as a departmental chief executive for setting employment policies required under the Public Service Act 2020 (including those that foster an inclusive workplace), although they may adopt the policies developed by the host department.

Section 73(4), Public Service Act 2020 — New Zealand Legislation

Partnership model

While the chief executives of the host agency and departmental agency will each have responsibilities to each other laid out in their working arrangements, these arrangements should not be treated as a commercial relationship. Section 52, Public Service Act 2020 states that the host agency and departmental agency are Public Service agencies, whose chief executives have responsibilities beyond their own individual agency that extend to the collective interests of government. The host and departmental agency chief executives should treat this as a partnership model, where collaboration and supporting each other is the norm, just as it should be within the whole Public Service. The host agency and departmental agency should ensure that matters are discussed with the other party where decisions may affect that party.

Shared services

Most departmental agencies will receive corporate services from the host agency, which is required under section 24(5) of the Public Service Act 2020, unless chief executives of the host and departmental agency agree otherwise. This removes the need for a duplication of corporate arrangements by the departmental agency. Section 24(4) of the Public Service Act 2020 states that as part of the working arrangements between the 2 parties, the 2 chief executives should agree on the specific services that are to be provided and the cost for service. This could include the specific support required from HR, IT, finance, and so on.

Where a departmental agency was previously a business unit of the host agency, it is envisaged the costs and corporate support required to run the departmental agency would be consistent with the prior costs and support to run the business unit, although there may be marginal additional costs for new services provided, such as additional reporting. This may vary, for example, if the departmental agency takes on new functions not previously carried out by the business unit.

Section 24(5), Public Service Act 2020 — New Zealand Legislation

Establishing a departmental agency

Consultation

Te Kawa Mataaho Public Service Commission and the Treasury must be consulted about any proposal that might lead to the establishment of a departmental agency.

Cabinet decision

The proposal for a departmental agency must be approved by Cabinet. Specifically, Cabinet must approve the purpose, scope and functions of the departmental agency and any appropriations to be used.

Order in Council

Once policy decisions have been made by Cabinet, an Order in Council is required under section 23 of the Public Service Act 2020 to establish the departmental agency. It must state:

  • the department that will be the host department of the departmental agency; and
  • which (if any) variations to the model in section 24(2) of the Act apply to it.

Appointment of a chief executive

Once an Order in Council is signed, the chief executive appointment process can be undertaken. Under clause 3(5), schedule 7 of the Public Service Act 2020, the appointment process for a departmental agency chief executive is similar to that of a departmental chief executive but includes the chief executive of the host department as a member of the appointment panel. The Public Service Commissioner appoints the chief executive of a departmental agency.

Clause 3(5), schedule 7, Public Service Act 2020 — New Zealand Legislation

Working arrangements

Under section 24(4) of the Public Service Act 2020, following the appointment of the departmental agency chief executive, that chief executive must work with the chief executive of the host department to agree the day-to-day working arrangements. These arrangements are intended to address how each chief executive will meet their responsibilities in relation to their functions, including how the host department will support the departmental agency chief executive in their role.

Section 24 Public Service Act 2020 — New Zealand Legislation

Under section 24(4) of the Public Service Act 2020, these working arrangements must also be agreed by the Public Service Commissioner.

System architecture and design

Appropriate structures, strong governance and clear accountability help the Public Service and wider public sector organisations to work together to deliver better outcomes for the public.

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