This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Recent Australian audits reveal flawed conflict controls within multiple public institutions, raising concerns relating to unsolicited proposals, biased specifications, unfair advantage, and inadequate conflict screening procedures.
For example, in its December 2021 report entitled Department of Defence’s Procurement of Six Evolved Cape Class Patrol Boats, Australia’s Auditor-General found that the Department of Defence needed to implement better probity safeguards to address potential conflicts arising out of unsolicited proposals and sole-source awards.
The audit reviewed a sole-source contract for the supply of six new patrol boats that was awarded to an unsolicited proposal submitted by Austal Ships Pty Ltd. (Austal). The report found that the Department “did not assess potential probity risks on receipt of the unsolicited proposal from Austal”. As the Auditor-General advised, the Department, which was referred to as Defence in the report, should have implemented proactive measures to mitigate against the appearance of joint development and unfair advantage when it was first approached by Austal prior to the submission of the unsolicited proposal:
It would have been prudent for Defence to consider its probity arrangements for its personnel earlier than it did. Defence records indicate that prior to receipt of the unsolicited proposal, Austal personnel provided Defence personnel with information and modelling relating to the idea of acquiring additional Cape class boats as an alternative to the Armidale class LOTE, to support Navy’s transition to the Arafura class offshore patrol vessels (OPVs). While the ANAO did not identify direct evidence of joint development of the unsolicited proposal before it was formally received, and Defence advised that joint development did not occur, in such circumstances care needs to be taken to avoid the perception of joint development of a proposal which may result in procurement action, so as to avoid any perception that potential suppliers enjoy an unfair advantage. Non-discrimination is a key principle of the CPRs.
The Auditor-General concluded that public institutions should implement procedures to manage the early engagement of potential bidders and the acceptance of unsolicited proposals. Those procedures should include conflict screening protocols and the use of benchmark pricing to enable value-for-money assessments before making any direct award decisions.
Similarly, in its June 2022 report entitled Procurement of Delivery Partners for the Entrepreneurs’ Programme, Australia’s Auditor-General found that the Department of Industry, Science, Energy and Resources failed to properly screen for conflicts when it allowed incumbents to participate in the redesign of solicitation requirements before tendering for new contracts for its $480 million program.
The Auditor-General concluded that the design and administration of the procurement process breached applicable procurement rules and fell short of ethical requirements since probity risks were not appropriately managed. In fact, the report found that the probity advisor’s involvement in drafting the solicitation documents and conducting the evaluation activities adversely impacted the independence of the probity advice provided to the Department. The Auditor-General also found that key elements of the probity plan, including the use of conflict and probity registers, was not properly implemented. For example, the report found that the Department failed to properly maintain a list of individuals with access to controlled information or obtain conflict declarations from all those individuals. Further, the audit found that those who submitted declarations failed to declare all their conflicts and that the Department failed to implement follow-up procedures to mitigate the conflicts that were disclosed.
The Auditor-General also found that the Department failed to properly manage the risk of unfair incumbent advantage since no protocols were established to prohibit the industry partners who were engaged in redesigning the new solicitations from participating in future bid responses. The report concluded that the information revealed to those incumbents “resulted in incumbent providers receiving greater consideration than non-incumbents” with 83 percent of the awards going to incumbents even though they only submitted 20 percent of the total bids. The Auditor-General advised the Department to improve its future procurement procedures to properly address the risk of unfair incumbent advantage.
Finally, in its September 2022 report entitled Digital Transformation Agency’s Procurement of ICT-Related Services, Australia’s Auditor-General found that Australia’s Digital Transformation Agency failed to adequately address fraud and conflict risks. Noting the organization’s low completion rates for fraud awareness and procurement training, the report found that the Agency was not following its internal probity guidelines with respect to the declaration of activity-specific conflicts of interest. In fact, the audit found that the Agency’s policies for controlling the receipt of gifts and benefits did not meet government-wide standards. The Auditor-General recommended that the Agency adopt a series of measures to prevent, detect and deal with fraud, including the development and implementation of a fraud control plan.
As these case studies illustrate, public institutions need to implement proper conflict controls and protect the integrity of their procurement process before they become the next conflict of interest case study.
