Ambitious tech project partnering US giant and govt agency founders

MBIE is among government agencies that worked on the ‘lighthouse’ projects with Microsoft.
Photo: RNZ / Dom Thomas

A confidential government project with a big US tech firm was aimed at sparking “government system-wide change” – but went nowhere.

The idea was hatched by the Ministry of Business, Innovation and Employment (MBIE) as a so-called “lighthouse” project in 2020-21 after Internal Affairs asked it to come up with some special work for Microsoft.

OIA papers said the principles of “openness” and “transparency” undergirded the project.

However, it was set up and run under an exclusive memorandum of understanding (MOU) with Microsoft that was not disclosed to the public till earlier this year.

RNZ previously reported on a similar Ministry of Education “lighthouse” project with Microsoft, to put more AI into schools, which suffered a similar fate.

The two ministries got into the projects after the government’s top digital officer encouraged departments to come up with special projects for the US company.

MBIE was already working on a Digital Boost project to increase small businesses’ digital skills – to help create “the most digitally enabled small business sector in the world”, as the government put it, after it found $44m for digital training in the 2021 Budget.

Microsoft had signed up to Boost, but wanted more, MBIE told RNZ.

“They were also interested in separate projects that would potentially involve large-scale data analytics as this would help to demonstrate the value of New Zealand-based data farms,” it said of the $2.5 trillion company’s intentions.

The US firm had just applied to buy freehold non-sensitive land in Auckland to build hyperscale data centres.

Read the documents:

MBIE- Microsoft Lighthouse terms of reference, Sept 2023

RNZ Official Information Act Request to MBIE, Sept 2023

MBIE- Microsoft, Small Business Lighthouse, Sept 2023

Project B

MBIE responded by proffering up a “lighthouse” project with a “wider vision”.

“The wider vision of this Lighthouse initiative goes beyond a data-sharing collaborative for small business transformation,” MBIE said in a draft terms of reference document in early 2021.

“It has the potential for a government system-wide change that will allow for collaboratives in other sectors (eg environment and social) to leverage the learnings and capabilities of the trust-based mechanism and data-sharing environment established here,” the document said.

“Thus, the stakeholder list could be extremely long, and will extend well beyond government to sector, industry, and NGO stakeholders.”

Each page of the document has a footnote ‘Classified as Microsoft Confidential’.

The MOU with Microsoft that remains in force today, talks about the firm engaging with government agencies in “thought leadership” about how to implement “digital government” by 2030.

Microsoft wore its own costs in the Lighthouse Project B, as it was called, while the ministry put its own staff on the job.

RNZ is trying to find out what the lighthouse projects cost the taxpayer.

From the MOU, there appeared to have also been a technical research project, and some sponsorship by a US business school close to Microsoft founder Bill Gates.

An MBIE graphic sketching out the potential powers of the ‘Lighthouse Enabling Engine’ gives insight into the aspirational goals of the project.

Photo: Supplied/ MBIE

The 13-page document mentions the “Small Business lighthouse vision” nine times, and “trust-based mechanism” eight times.

It envisaged employers being able to enlist an apprentice, get export advice or instant help to comply with regulations, really easily.

“The parties also intend that this programme is to act as a ‘lighthouse’ example, for both the public and private sector, of the transformational opportunities enabled by adoption of advanced digital capabilities for better data governance and use,” the paper said.

“In particular, MBIE intends that Project B should serve as a proof-of-concept for how government can create the digital Public Service ecosystem to achieve a more interactive, intelligent, effective and value-adding service and regulatory relationship with NZ businesses.”

The public-private partners did not get around to building the engine or the mechanism.

However, even after Project B’s terms of reference expired without being signed, in June 2021, the ministry kept putting resources into it.

It hired the big consultancy Deloitte heading into 2022 to run workshops, which Microsoft went to, for MBIE and other departments to develop a business case for the ‘Enabling Engine’.

“It was hoped that this business case would be used to seek funding,” the ministry told RNZ.

Project A, and an education lighthouse project

MBIE’s second related project, Project A, of Microsoft giving voluntary support to Digital Boost, had carried on, “at no cost to the taxpayer” (though Boost did look at giving subsidised laptops to businesses), the ministry told RNZ.

Microsoft signed up for Boost three months before the government announced it, in May 2021. Its interest was in giving businesses access to its skills content and certifications.

At the same time, the Ministry of Education was running its own “lighthouse” project on AI with Microsoft, under the same confidential MOU.

Where are the lighthouse projects at now?

No commercial deal or contract was done by MBIE with Microsoft, despite Internal Affairs trying to chivvy the lighthouse projects along, as OIA emails showed.

“It eventually became clear that the support offered by Microsoft was not deemed by MBIE sufficient” to build a proof-of-concept for Project B, the ministry said.

It moved on – it had “competing priorities for … internal budgeting and resource allocation”.

By February 2023, Lighthouse Project B was dead in the water. Officials recommended the minister stop it, and no work was done on it since.

Education’s “lighthouse” suffered a similar fate.

This did not dent Microsoft’s fortunes. Its local revenues rose $200 million to more than $1 billion last year, and it continued to snare a lot of government business, moving masses of public data to its cloud-computing data centres in Australia.

Only Microsoft and its rival Amazon Web Services (AWS) have special MOUs with the government chief digital officer.

The agreements were non-binding and confidential. The terms signed by a top executive at Internal Affairs, forbid any official disclosing the existence of the MOU, publicly or privately.

Both MOUs were belatedly released by the government earlier this year.

AWS’s agreement grew out of “high-level” discussions including between then-prime minister Jacinda Ardern and the global head of AWS, official papers said.

“The MOU does not provide AWS with any special advantages.”

AWS and Microsoft have together just won a key public health data contract.

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