Ethics and Probity in Procurement

Principles

Probity decisions should be:

  • Helpful: Probity should be used to facilitate discussion of current approaches to market with suppliers in order to promote genuine engagement,
  • Inclusive: Probity processes should be designed to enable innovative approaches to be adopted if required.
  • Tailored: Probity roles can be tailored to the business need and range from using internal expertise through to engaging external specialist advice.
  • Sensible: Each individual process may require a different approach; one size will not fit all.

Probity is the evidence of ethical behaviour, and can be defined as complete and confirmed integrity, uprightness and honesty in a particular process.

1. The principles underpinning ethics and probity in Australian Government Procurement are:

  • Officials must act ethically, in accordance with the APS Values (set out in section 10 of the Public Service Act 1999) and Code of Conduct (set out in section 13 of the Public Service Act 1999), at all times in undertaking procurement.
  • Officials must not make improper use of their position. 
  • Officials should avoid placing themselves in a position where there is the potential for claims of bias.
  • Officials must not accept hospitality, gifts or benefits from any potential suppliers.
  • Agencies must not seek to benefit from supplier practices that may be dishonest, unethical or unsafe.
  • All tenderers must be treated equitably.  This means that all tenderers must be treated fairly - it does not necessarily mean that they are treated equally.
  • Conflicts of interest must be managed appropriately.
  • Probity and conflict of interest requirements should be applied with appropriate and proportionate measures informed by sound risk management principles.
  • Value for money outcomes are best served by effective probity measures that do not exclude suppliers from consideration for inconsequential reasons. 
  • Confidential information must be treated appropriately during and after a procurement process.
  • External probity specialists should only be appointed where justified by the nature of the procurement.

2. Mechanisms for assuring probity should be applied sensibly in procurement processes, with the management of probity issues tailored to each individual process.

3. Importantly, probity should not be used to justify avoiding reasonable discussion with potential suppliers during a tender. Officials are able to discuss current tenders in the market with potential suppliers. The level of detail and formality in providing information should be appropriate to the risk of the procurement. The procurement's level of risk will inform how officials engage with potential suppliers:  

    • For lower risk (typically low cost and complexity procurements run via limited tender), in line with the probity principles above, officials can discuss the procurement. This process can reasonably be dealt with by the tender contact officer with limited requirements for formalised or rigid probity processes. Information can be discussed in a meeting or over the telephone, or where necessary, via written correspondence (e.g. email). Any information provided to the potential supplier that would be useful for other potential suppliers should be de-identified and provided to them also.
    • For higher risk (typically higher cost and complexity procurements run via open tender), it is appropriate to implement more rigor in dealing with suppliers. This may include formalised approaches to handling requests from suppliers, specified probity roles and utilising additional expertise where necessary.

Practice

Applying Probity in Procurement

1. Probity provides a level of assurance to delegates, suppliers and the Commonwealth that a procurement was conducted in a manner that is fair, equitable and defensible.

2. In keeping with the probity principles, officials should:

  • Enter discussions with the intent to promote genuine engagement, including assisting the potential supplier to understand the procurement outcomes. Where a potential supplier is provided clarification, this can assist the entity achieving better value for money outcomes.
  • Make potential suppliers aware that where topics are discussed, this may be suitably de-identified and made available to other potential suppliers. Probity arrangements should not always automatically require that any questions raised in a tender process must be published for all potential tenderers. While questions of a generic nature should be provided to all tenderers, questions that may disclose a tenderer's Intellectual Property should be handled appropriately (for example, by generalising the query), while maintaining the need to treat all tenderers equitably.
  • Not feel pressured into providing information that they consider might be sensitive, provides an unfair advantage or concerns another potential suppliers bid. If unsure, it is appropriate to take the request on notice and to respond after suitable consideration.
  • Retain appropriate records - for low risk procurements this may be as simple as a file note indicating who the discussion was held with, and key discussion points. 

Industry Briefings

  • Industry briefings provide potential suppliers with an opportunity to engage directly with the entity and increase their understanding of the tender requirements or processes. It also provides the entity with an opportunity to gauge the level of market interest in the procurement. Such engagement may assist the entity in achieving better value for money outcomes and stronger links to new innovation practices in particular industries.
  • Industry briefings provide an opportunity for suppliers to receive consistent information from the entity on the procurement, improving clarity on the procurement need and reducing the risk of suppliers receiving differing information over the course of a procurement. In line with the probity principles above, while industry briefings provide a forum for responding to potential supplier questions, the entity can continue to engage with potential suppliers outside of these forums. The procurement's level of risk will inform how potential suppliers are engaged outside the industry briefing process.
  • Procurements which most benefit from industry briefings are medium to high complexity procurements that exhibit a degree of uniqueness. Briefings for open tenders should be advertised on AusTender. For limited tenders, officials should retain appropriate records of meetings with potential suppliers that, for low risk procurements, could be as simple as a file note indicating who the discussion was held with, and key discussion points.

Identification and Management of Actual, Potential and Perceived Conflicts of Interest

3. A conflict of interest arises where an official, an adviser or a supplier has an affiliation or interest that might prejudice, or be seen to prejudice, his or her impartiality.

4. Effective conflicts of interest management does not require conflicts to be avoided at all costs; rather, they must be managed appropriately.

5. Agencies should in the first instance seek to eliminate actual, potential and perceived conflicts of interest. When this is not possible (such as where it would exclude needed expertise or the conflict is so widespread as to be impossible to avoid completely), effective management strategies should be implemented.

Officials must be mindful of potential conflicts of interest that might arise and must not use their position to gain or seek to gain a benefit for themselves or any other person. Officials should strive to avoid situations in which there may be actual, potential or perceived of conflicts of interest including not allowing themselves to be improperly influenced by family, personal or business relationships.

Probity Experts

6. External probity experts may include 'process advisers', 'probity advisers' and 'probity auditors':

  • A 'process adviser' generally provides advice on tender process structure, to appropriately address probity issues, as well as on specific probity issues.  Such an adviser could provide advice on drafting, implementing and monitoring compliance with a comprehensive tender process plan.
  • A 'probity adviser' would typically advise on probity issues as they arise during a tender process, possibly in accordance with a probity plan that provides guidance on how probity is to be addressed during the procurement. If the probity expert is an adviser and will not be involved in auditing the process, they can offer advice and solutions if any problems occur.
  • A 'probity auditor' seeks to report an objective opinion on probity issues, generally after the process has been completed. A probity auditor should not be called in during a process to try and remedy problems, but could provide sign-off after a problem has occurred to ensure the probity issues have been addressed and it is appropriate to continue with the process. If a probity expert is engaged as an auditor, they need to maintain their independence and objectivity, and should therefore not be involved in offering advice to solve any probity problems that arise during the tender process.

Establishing Probity Roles

7. Probity roles can be implemented in a number of ways. This includes using expertise from other areas of the entity, through to engaging external specialist advice.

8. External probity specialists should only be appointed where justified, and not automatically just because an open tender process is being undertaken. The decision on whether to engage an external probity specialist should weigh the benefits of receiving advice independent of the process against the additional cost involved and include consideration of whether or not skills exist within the entity to fulfil the role.  Factors that will influence the appointment of an external probity specialist include:

  • The transaction is of high value, complex, unusual or highly contentious.
  • The integrity of the project may be questioned.
  • A prequalified or limited tender process is proposed that is in accordance with the Commonwealth Procurement Rules but the integrity of the selection of suppliers to be invited to tender may be questioned.
  • There has been a history of controversy or litigation in relation to the matter.
  • The matter is of high political sensitivity.
  • The nature of the marketplace makes supplier grievances more likely (such as where competition is strong and commercial confidentiality is particularly important).
  • The nature of the procurement is such that there is a high expectation of a material conflict(s) of interest.

9. Probity and, if required, the role of a probity expert can be addressed within either a tender process plan or a probity plan. It is important that the tender process plan or probity plan is carefully drafted and all parties clearly understand the role a probity expert is being engaged to perform. 

10. Before the process commences, all parties should have a clear understanding about the level of assurance that the entity will be seeking from the adviser. Entities should specify whether a final sign-off is needed for the entire process, whether sign-offs should be provided at the end of specified phases of the tender process, or at particular milestones, and should clearly specify the timing and the nature of the sign-offs required. Entities should ensure that external probity experts clearly understand the nature and extent of sign-off they will be asked for, with this requirement appropriately documented, such as through the external probity expert's contract. 

11. Probity experts should be independent and free from conflicts of interest, and have a sound knowledge of all relevant government policies and procedures. Sign-off by external probity experts cannot replace officials' own accountabilities and obligations in regard to the proper conduct of procurement activities.

TIPS

  1. Agencies should take care in designing tender process rules, to avoid setting up rules in a tender which they don't then follow, or follow at the cost of value for money. For example, Conditions for Participation, due to their mandatory nature, should be kept to a minimum. To minimise the risk of creating probity problems by inadvertently breaking tender rules, the Conditions for Participation for a tender process should be limited to any legal, commercial, technical and financial abilities a supplier needs to fulfil the requirements of the procurement. Conditions for Participation should be easily identifiable in documentation, and be limited to objective conditions that are either met (yes) or not met (no).
  2. The tender evaluation criteria advised to industry in the request documentation must not be altered during the evaluation process without a formal request documentation amendment process.
  3. The evaluation criteria advertised in the request documentation must be used to evaluate the tenders and must be related to the tender response requirements.
  4. A Probity Plan or a Process Plan can be a useful tool to ensure that probity issues are considered prior to the start of a procurement, including where that procurement is sensitive or of high value, high risk or subject to a high degree of public scrutiny.  Where utilised, Probity Plans or Process Plans should be customised to suit the procurement, taking into account the size, complexity and risks of the procurement. Issues that might be considered in creating a probity/process plan include what actions might be taken to ensure tenderers are treated equitably, strategies to deal with deviations from the process, and procedures for managing actual, perceived and potential conflicts of interest.
  5. Sound records management is important to demonstrating that probity has been addressed appropriately in procurement process.
  6. Security measures used should be commensurate to the size, complexity and risk of the procurement. Officials must appropriately protect confidential information and not use inside information (including Intellectual Property) provided to the entity in relation to the procurement, either for the material benefit of the official or for another person. 
  7. In any procurement there is always the possibility that actions, errors or omissions may occur that result in a breach of probity requirements that place the procurement process in jeopardy. These problems will need to be addressed quickly and in accordance with the rules for the procurement. It is important that the entity can clearly demonstrate that its decisions were made using proper and ethical processes. Again, proper documentation of the issue is important and external assistance may be warranted.
  8. Agencies should consider whether, and if so which, parts of the APS Values and Code of Conduct might apply to contractors performing services on behalf of the APS. Where elements of the APS Values and Code of Conduct are to be observed by a contractor, the relevant contract should explicitly state the obligation.
  9. Persons involved in the tender process, including contractors such as legal, commercial or probity experts, should make a written declaration of any actual, potential or perceived conflicts of interests prior to taking part in the process. These persons should also have an ongoing obligation to disclose any conflicts that arise through until the completion of the tender process. The nature of such declarations could relate to, for example: other employment; prior employment; financial interests in organisations that may be potential suppliers; relationships with people who have interests in these organisations; or relationships between contract managers and incumbent providers where contract managers are on evaluation panels. 
  10. The rules for tender processes should:
  • Make clear to tenderers what steps will be taken in the event of actual, potential or perceived conflicts of interest being identified (arising prior to and during a tender process) either in relation to the Evaluation Committee and its advisers or the tenderer itself -  this could range from the evaluation of the nature and extent of any issues identified, through to a Tender not being considered further if significant issues are identified;
  • Make clear what steps will be taken in the event of actual, potential or perceived conflicts of interest being identified in relation to Evaluation Committee members or other parties involved in the consideration of tenders. This may range from ensuring minor issues are appropriately documented, through to removal from the process for more significant issues; and
  • Include arrangements to deal effectively with incumbent suppliers (if any) during a tender process. This could include having separate contact points within the entity for ongoing contract management and for the tender process (that is, the day to day contract manager is not the contact for tender enquiries).
  1. Tender documentation, including any draft contract, should make clear the arrangements that will apply to any actual, potential or perceived conflicts of interest once a supplier is contracted. Disclosure requirements should be clear, with appropriate and proportionate measures, informed by sound risk management principles, included in the contractual arrangements to address any such conflicts of interest.
  2. Tender documentation should make clear that, for procurements above the relevant thresholds, late tenders will not be accepted.
  3. The Hughes and McMillan cases demonstrate that agencies need to conduct tender processes in a manner consistent with the tender documents.

TRAPS

  1. It is not appropriate for a procurement official to seek or receive hospitality, gifts or benefits from a potential supplier on the basis that all suppliers in a process are making similar offerings. 
  2. Tender process rules (such as in the request for tender and tender Evaluation Plan) should not overuse the word “must”.  For example, a requirement that tenderers must provide resumés for all staff intended to work on the contract could result in any tenderer that does not comply having to be excluded, or the agency having to break its own rule to keep that tenderer in the process.
  3. Effective probity arrangements should not preclude officials undertaking market research with potential suppliers before the approach to market is released, but care must be taken to avoid the perception that any potential tenderer has received information that provides them with an unfair competitive advantage.
  4. It is not always essential or advisable for potential tenderers to be required to excuse themselves from participating in a tender for which they have either previously assisted (eg. planning and scoping work) or have been previously contracted due to a perceived unfair competitive advantage being gained by such potential tenderers.  Rather, agencies may seek, if possible, to take appropriate measures to establish a level playing field for other tenderers (such as through the provision of comprehensive information through physical and/or electronic data rooms).
  5. Probity arrangements should not impose a barrier to ‘normal’ interactions between the purchasing agency and the supplier in tender processes. For example, potential suppliers in a tender process that are supplying other goods or services to the agency conducting the procurement should not be impeded in providing those other goods or services. However, those interactions should be limited to ‘business as usual’ with all discussions and activities in relation to the procurement being conducted in accordance with the rules for that procurement.
  6. Probity arrangements should not always automatically require that any questions raised in a tender process must be published for all potential tenderers.  While questions of a generic nature should be provided to all tenderers, questions that may disclose a tenderer’s Intellectual Property should be handled appropriately (for example, by generalising the query), while maintaining the need to treat all tenderers equitably.
  7. Officials need to ensure that probity arrangements do not create an environment where probity becomes an impediment to sound procurement practices.  For example, probity arrangements should not seek to:
    • exclude tenderers for not attaching a tenderer’s declaration -  the process should allow for such corrections;
    • prevent officials clarifying a tender response in circumstances where such a clarification could assist the Evaluation Committee in better understanding what the tenderer is offering;
    • mandate an inflexible ‘rating’ and ‘weighting’ approach where numerical scores are entered into a predetermined mathematical formula rather than allowing Evaluation Committees to use their judgement – the evaluation methodology adopted should be appropriate to the nature of the procurement, to ensure value for money is achieved;
  8. While external expert probity advice can be a valuable asset in a tender process, the appointment of such specialists, and the sign-offs provided by those specialists, do not remove the agency’s accountability for the process.
  9. To maintain fairness and transparency in a procurement process, the separation of duties is important. Officials involved in evaluation of tenders should not be those who are approving the proposal to spend public money. 
  10. Where external probity experts are involved in a procurement, officials should carefully consider, and test the merits on a case by case basis, of any ‘rules’ proposed by that probity expert that:
  • insist on the probity experts signing-off on all responses to questions from tenderers – even when those questions/responses are of a highly technical nature outside the experience or expertise of the probity adviser; and
  • insist on the probity experts attending all meetings with tenderers in circumstances where it could be appropriate simply for protocols to be put in place to guide agencies in their engagement with tenderers.
  •   Where an external probity expert has been appointed to assist a procurement, officials should take care not to:
  • seek probity advice on legal advice, and vice versa;
  • avoid taking decisions and seek further advice when a course of action is clear, for example, a late tender is not allowed under Division 2 of the CPRs and further probity advice will not change that; and
  • allow ‘weak’ advice (for example, ‘on the other hand’ or ‘arguably’) to form the basis of a contentious decision unless avoidable.

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