The tendering process brings with it the potential of conflicting interests.
Government procurement of goods and services by external suppliers has now become common practice. Outsourcing or"contracting out", as it is called, is increasingly seen by governments as a business-savvy approach to service delivery for two reasons: it allows for greater financial efficiency and it enhances governments' ability to access state-of-the-art products and services.
As a result, a significant aspect of public administration today involves managing the processes of external delivery. Ministers are still responsible to Parliament and their departmental officials continue to be answerable to them. Parliaments, the media and, indeed, the public are largely unsympathetic to the claim"the outsourcer got it wrong".
Ministers and, in particular, public officials now have to walk something of a tightrope to ensure programs are administered in a way that satisfies two broad requirements. They must deliver efficient, cost-effective programs; as well as maintain accountable, ethical and transparent standards of public administration.
While it could be argued that the stringent ethical standards and procedures binding government agencies obstruct the delivery of"best business outcomes", public office bearers have a duty to be exemplary in the way they conduct business. Of course, ethical exemplarity goes to the nature of what government should be in an open society. And, while such a principle goes without saying, it has also been clearly stated in a number of legal cases.
As external tendering becomes more commonplace for governments, the law surrounding it is becoming more specific and requires fairness and fidelity to stated process. The most frequently referred to court ruling in this area still seems to be that of Finn J of the Federal Court of Australia in the Hughes Aircraft case. The ACT Supreme Court has also recently held a tendering process invalid for reasons partly to do with fairness and regularity of process.3 Officials in agencies also need to be aware that, quite apart from the legal position, there is plenty of scope for official scrutiny of tendering processes from Senate Estimates Committees and the Auditor General who has power to conduct performance audits.
The number of parties involved in a tender can also contribute to its legal complexities. For more in-depth tender processes, governments will often need to engage any or all of the following specialists from various sources:
- a legal adviser;
- a business adviser;
- a probity adviser or auditor (usually an admitted solicitor, but the use of accountants for this function seems increasingly popular), and- a technical adviser.
Conflict can also arise in more subtle (and potentially more sinister) areas of the tender process. Given this fact, agencies do well to develop a"sixth sense" in detecting possible conflict before it eventuates. For legal and probity reasons, it is imperative that such matters are dealt with immediately. If a conflict of interest emerges when the tendering is sufficiently advanced that it compromises the process, the best an agency can do is to take immediate remedial action as part of a risk containment strategy.
From the outset, agencies should also ensure that all outsourced advisers are aware of how much (if any) potential conflict the agencies are prepared to risk. Ideally, of course, agencies should not contemplate any tolerance of conflict.
The following overview shows the more common conflict scenarios government tenders face.
1. An adviser is also a bidder in the RFT process. The conflict of interest here is obvious. The agency and a bidder are, potentially, contracting parties. The legal position here is that if any adviser, (legal, business or otherwise) wishes to bid in the tender process, they must be clearly denied. If an adviser has been"formally appointed" but no actual work done, there may be some scope for the adviser's withdrawing as adviser so that it can put itself in a position to bid. The risk here, however, is very high and action would need to be taken at a very early stage in the tender process. The agency would need to be satisfied that no actual advising had occurred and that the adviser had not had access to information or data that might in any way relate to the tender.
2. An adviser to the agency in an area unrelated to the RFT is also a bidder in the RFT process. Superficially, there appears to be little scope for conflict in such circumstances. However there are dangers arising out of the possibility that information or data in unrelated areas of the agency could flow from one area to the other. Agencies need to be satisfied that this possibility cannot arise and aware that information flows can occur inadvertently.
The fact that the agency is one organisational unit means that there would be high risks in relying on the separation of the different areas. There are proposed solutions to this problem, such as the so-called"Chinese walls" method, discussed below. But, unless there is good reason for the agency to take any risk, it would be wise to avoid relying on the separation of the two areas within the agency.
3. A past (and not current) adviser to the agency on areas relating to the tender now wishes to bid in the RFT process. The potential for conflict of interest here will depend on the particular circumstances. Extreme caution is required, however. If the agency can demonstrate that there is in fact no overlap in knowledge between the past engagement and the present tender requirement, it may be that no conflict will arise. The danger to an agency is that links that were initially unforeseen could emerge during tender evaluation or negotiation if the adviser were successful.
4. An adviser to the agency in relation to the RFT is also advising a bidder in the same process. There is a clear conflict of interest here. The one adviser cannot advise both the agency and a bidder. The adviser will be advising parties whose business and legal interests clearly diverge. This is a classic case of"God and Mammon" and should not be entertained by agencies in any circumstances.
5. An adviser to the agency in relation to the RFT is also advising a potential subcontractor to a bidder, but not the bidder (that is, the potential prime contractor). Again, this gives rise to classic conflict of interest difficulties. For practical purposes, there is little or no difference between a bidder bidding as a prime contractor and a firm or company associated with it as a potential subcontractor.
6. An adviser, not being an adviser to the agency, is advising two (or more) bidders in the one RFT process. While less straightforward because it does not directly affect the agency this is another clear case of conflict of interest; two bidders being advised by the one adviser is taking a risk. An agency that becomes aware during the process that two bidders are being advised by the one, say, law or accounting firm, should satisfy itself that there are no other probity issues involved in accepting the two bids.
If an agency becomes aware of such a situation, it needs to ensure its RFT includes provisions such as the prohibition of collusive tendering. The use by two tenderers of a common adviser does not necessarily mean that collusive practices are involved, but the warning signs are there. Agencies should be extremely wary of accepting bids where a common adviser has had input into more than one bid.
7. An adviser, not being an adviser to the agency, is advising a bidder and also a subcontractor in the RFT process. This scenario is a variation on the theme discussed in the previous situation. While there are no hard and fast rules or clear answers, awareness of such circumstances should at least start warning bells ringing within agencies.
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