Anti-corruption insight series: spotlight on procurement

The Australian Government spends tens of billions of dollars on procurement contracts each year, and even more on grants. The procurement process is particularly vulnerable to corruption because of the significant sums of money involved. Allegations of corruption associated with procurement have been a recurring feature of complaints received and investigations conducted by the National Anti-Corruption Commission (NACC) and State and Territory integrity agencies.

Late last year the NACC Commissioner highlighted procurement and the interface of the public and private sector as two of the three key domains where the NACC is seeing corrupt conduct.[1] As a result, anti-corruption and integrity agencies like the NACC have increased their scrutiny over private companies’ dealings with government.

The NACC has a broad remit to investigate anyone (not just a public servant) whose conduct may affect the honest or impartial exercise of a public official’s powers, functions or duties.[2] The definition of ‘public official’ relevantly includes contractors and consultants to the Commonwealth. This means that all businesses working with, or wanting to work with, the Commonwealth public sector will need to be aware of their obligations in this space.

Recipients of Commonwealth grants will also fall within the NACC’s jurisdiction as they will be considered contracted service providers if the funding arrangement includes the provision of goods or services to the Commonwealth or a Commonwealth agency. If the Commonwealth or agency is not the recipient of the goods or services under the agreement, the test is whether the contract for the grant involves the provision of goods or services to another party in connection with the activities of the Commonwealth or the agency. This gives the NACC a broad area of operation which can be a surprise to those working in private sector companies.

Risks areas and warning signs

The NACC Commissioner has observed that there are several key corruption risk areas in procurement:

State and Territory anti-corruption commissions have identified the following warning signs when it comes to procurement:

• Tenders being drafted in a narrow or vague fashion to favour a particular supplier
• Tenders being split so they can fall under procurement thresholds
• Suppliers offering gifts or benefits to employees involved in the procurement process.

A case study example

One example given by the NACC Commissioner is where a contractor accesses government information and uses it to win further contracts.

This situation might arise where a company has an employee working closely with public servants, or embedded within a government department or agency, to advise on a procurement (for example as a technical advisor, consultant or secondee). If the company who placed its employee to work on the procurement later participates in that procurement (for example by submitting a tender), the employee and the company will likely both have a conflict of interest. 

The employee working on the procurement in this case is a ‘public official’ for the purposes of the NACC Act.[3] The employee may have shared their knowledge of the procurement with their employer company (unless there was an information barrier or non-disclosure arrangement in place to appropriately manage the conflict of interest). If so, this may have given that company an unfair advantage over other tenderers in preparing their tender. The employee may have engaged in an ‘improper act (or failure to act)’ in not managing a conflict of interest which is ‘for the purpose of abusing their office as a public official’ and therefore corrupt conduct.[4]

Further, the employer company who tenders for the project might have engaged in conduct that adversely affected, or could have adversely affected, the honest or impartial exercise of a public official’s (ie. their employee’s) powers, functions or duties. If so, this is corrupt conduct too.[5]

As outlined in our previous insight, conflicts of interest are often at the heart of corrupt conduct. Corrupt conduct in procurement will usually involve a conflict of interest because a person has put their personal or business interests above their public duty or responsibility. Being able to recognise, manage and monitor conflicts of interest in a procurement is crucial to the mitigation and prevention of corrupt conduct.

Commonwealth Procurement Rules update to prevent corrupt practices

With the spotlight on corruption in procurement, the Commonwealth Procurement Rules (CPRs) were amended last year to insert a specific reference to preventing corrupt behaviour.[6] Paragraph 6.7 of the CPRs was inserted last year, and states:

‘Officials undertaking procurement must seek to prevent corrupt practices by recognising and dealing with actual, potential and perceived conflicts of interest and not accepting inappropriate gifts or hospitality.’

A related amendment was made to paragraph 6.10 of the CPRs, which enshrined that breaching paragraph 6.7 is grounds for enlivening the remedies available under the Government Procurement (Judicial Review) Act 2018 (Cth). One of the available remedies is obtaining a suspension of a procurement while a breach of the CPRs is being investigated.[7]

How to reduce your risk – a checklist

To mitigate the risk of corruption in procurement, it is important to consider the following issues at the outset of the procurement:

• Is the process, as well as the expectations, for declaring conflicts of interest (including potential and perceived conflicts) well known in your organisation? In other words, do your staff know when they need to make a declaration and if so, how they do this?
• Is there a conflict of interest register specific to the procurement and a plan to manage declared conflicts? Consider undertaking regular and random audits of the conflicts of interest register.
• Do you need to implement any bespoke controls having regard to the particular kind of procurement (eg. a probity advisor may not be required for smaller scale, routine procurements, but they will likely be necessary for high value, high risk procurements)?
• Have staff working on the procurement completed adequate training on probity and corruption risks?
• Are protections in place to ensure decision makers can make decisions properly and impartially?
• Are your policies and procedures consistent with current legislative obligations? Have there been any recent developments that people scheduled to work on the procurement should particularly be aware of?
• Are there avenues for staff working on the procurement to report suspicions of corruption?

If you missed our previous anti-corruption insights, you can find them here and here.