Technology Contracts a Target for Corruption

Queensland Crime and Corruption Commission, 2018

By Paul Emanuelli

This article is an excerpt from the forthcoming publication, The Art of Tendering: A Global Due Diligence Guide, available now for advance purchase.

In its August 2018 report ICT procurement — what are the corruption risks?, the Queensland Crime and Corruption Commission warned that public sector information communication technology (ICT) contracts are particularly prone to corruption, and advised public institutions to implement preventative measures to protect their contracting practices in this area. As the report noted, the inherent risks in ICT contracts make them especially vulnerable to fraud and corruption:

What you should know
  • Procurement within government departments has long been known as a high-risk area for fraud and corruption. Corruption vulnerabilities have been identified at several stages of the procurement process, from initial tendering and selection of preferred suppliers to payment of the successful provider and contract management.
  • Procurement related to Information Communication Technology (ICT), with its multi-million-dollar investments and lucrative contracts, has been identified as having particular high-risk vulnerabilities. Government employees with specialised knowledge and influence over ICT procurement may be targeted or “groomed” by private entities with a vested interest in the granting of contracts. Some employees may be susceptible to being induced to act corruptly, making them a risk to the integrity of procurement processes.
  • The rapid pace of change in ICT capability and product development can create a minefield for procurement panels who may lack the subject matter knowledge to fully understand proposed ICT solutions and whether products offered by providers can deliver on expectations.

The Commission noted that the high level of expenditure associated with government technology contracts is one of the key factors that makes these contracts a particularly vulnerable target for corruption:

ICT: big business, high risk
The Queensland Government is currently spending over $1.38 billion on ICT projects across its departments. The high level of spending presents opportunities for private entities within the ICT industry to secure lucrative government contracts.
The consequences of ICT systems failure, coupled with the high expenditure, results in many ICT contracts being categorised as “Critical Business Risks” as outlined in the Queensland Government Procurement Guidelines.
As investigations have shown, government employees with specialised knowledge and influence over ICT procurement may be tempted or induced to act corruptly, making them a risk to the integrity of procurement processes. CCC research indicates some private organisations will use sales tactics to target influential persons within government agencies with a view to building a rapport and influencing procurement processes.

The report also identified poor planning, conflicts of interest, lack of oversight, and the abuse of “emergency” exceptions as recurring factors that increase the risk of corrupt practices in technology contracts:

Why is ICT procurement vulnerable to corruption?
Recent investigations by the CCC have exposed corruption risks associated with government ICT procurement. Factors identified by the CCC as increasing the likelihood of corruption in ICT procurement include:
  • Failure of government agencies to engage in adequate planning for significant ICT procurements
  • Undeclared relationships between ICT providers and government staff with an influence over the procurement process
  • The involvement of government staff in secondary employment that realises a benefit from government ICT contracts
  • Specialised staff undertaking procurement activities with no or limited oversight, resulting in no checks and balances at various stages of contracts, and
  • Failure of relevant managers to prepare for future supply, with repeated assertions that “urgent” circumstances justify shortcuts in the procurement processes.

To guard against these corruption risks, the Commission recommended that public institutions bolster their procurement planning efforts:

Failure of agencies to engage in adequate planning
The technical requirements of significant ICT solutions, combined with the difficulty in addressing uncertainty with project deliverables, mean that any ICT procurement process requires extremely detailed planning. Careful consideration must be given to the following:
  • An analysis of the demand and supply market
  • Procurement strategy options
  • Performance measures and contract management arrangements
  • A full risk identification and assessment with attention to the value, complexity and sensitivity of procurements and
  • Staff awareness of their obligations to fully disclose any conflict of interest (potential, perceived or actual) they may have in relation to procurement activities.

The Commission also stressed the importance of implementing conflict of interest screening procedures to ensure that external advisors retained to provide project support have no direct financial interest in the outcome of the project, since these conflicts can taint the integrity of a tendering process:

The complexities of significant ICT procurement requires agencies to assess their own capabilities to undertake the planning required. To reduce the risk of analysis errors in the planning process, consideration should be given to seeking specialist technical advice or assistance.
  • Experienced subject matter experts, whether internal or external (either from other agencies or private sector professionals), can help reduce the risk of a poor procurement process.
  • Procurement committees should take precautions to ensure that potential conflicts of interest are explored between experts, technical advisory committee members and providers when relying on advice to recommend ICT supply. This should be a proactive process rather than relying on individuals to meet their obligations to declare conflicts of interest.
Recent corruption investigations have identified cases where failings in procurement practices have allowed internal ICT experts to corruptly recommend providers in which they have an undeclared financial interest.

The report also identified the repeated shortcutting of proper procedures as a telltale sign of corrupt practices that are designed to give unfair contract awards to preferred vendors. The Commission recommended that public institutions carefully monitor the use of “urgency” exceptions and carefully investigate the reasons behind decisions to bypass open competition to directly award contracts:

Shortcutting procurement processes to favour vendors
The Queensland Government Procurement Guidelines acknowledge occasions where it may not be possible or necessary for agencies to approach the supply market. These include genuinely urgent cases or circumstances where there may only be one provider who is capable of supply. However, adopting this course of action or using alterative sourcing strategies exposes agencies to greater corruption risks, as employees may be misleading procurement committees to favour particular suppliers.
Where “urgency” is used on a number of occasions as the rationale for approaching one particular supplier despite the existence of a competitive market, agencies should explore what created or is creating the urgency. They should assess the adequacy of probity measures in place to ensure transparent and accountable procurement decision making.

Finally, the Commission recommended that public institutions implement the following measures to protect their procurements from being the target of corruption:

Conclusions: Lessening the corruption risks in ICT procurement
As part of an ICT procurement process, all agencies should:
  • Ensure procurement and contracting practices are transparent, accountable and meet obligations in accordance with legislation, codes and policies.
  • Have a detailed planning process which includes risk identification and assessment adequate to the level of value, complexity and sensitivity of the procurement.
  • Be alert to the possibilities of “grooming” of staff by potential vendors or other interested parties.
  • Proactively anticipate and explore conflicts of interest, and increase disclosure obligations.
  • Scrutinise applications for secondary employment carefully to identify potential conflicts of interest.
  • Find out how frequently “urgency” is given as a reason for taking shortcuts with the proper procurement process, and why it is happening.

Public institutions should implement preventive initiatives aimed at deterring corruption in high-risk areas such as information technology. To that end, government bodies in all jurisdictions would be well served in implementing the corruption prevention measures recommended by the Queensland Crime and Corruption Commission.