Changes to the ICAC Direct Negotiations Guidance

The scene

It has been 12 years since the previous direct negotiations guidelines were released by the NSW Independent Commission Against Corruption (ICAC).  The first guidance was released in 2006 and in August 2018, the ICAC released a new look version  – Direct negotiations: guidelines for managing risks. The ICAC’s position has remained consistent since 2006 noting the corruption risks associated with this procurement approach given the closed nature of the negotiations – that is a Government Agency negotiating with one supplier only without a current competitive process.

The underlying messages of both the previous and new look direct negotiations guidance material is that corruption risks are significantly higher when the need to compete for government contracts is removed and that direct negotiations can undermine the public interest by making it more difficult to demonstrate value for money.

OCM was one of the external service providers who the ICAC consulted with prior to the release of the new guidelines.  The intent of the consultation was to seek advice on the type of direct negotiations advice we give on a thematic level, what is working with the guidance material and what could be improved or clarified.  From OCM’s experience the most beneficial aspects was the principles which were referred to in the guidelines as the fundamental principles of public sector work. The 2006 guidance acknowledged that the ICAC is unable to identify every circumstance where direct negotiations could be justified. Therefore, if the proposed direct negotiations breached any of these principles then agencies should not proceed with the direct negotiations or ensure that sufficient strategies are in place to mitigate the risks.

As part of the feedback OCM provided to the ICAC, the principles based approach in their guidance was practical and useful in providing advice to clients on whether direct negotiations would be possible. This required clients and agencies to actively consider the circumstances in which they were seeking a tender / procurement exemption and provide clear and defendable reasons for why the proposed direct negotiations would not contravene these principles.

So what’s new

The new look direct negotiation guidance, has further explored the principle based approach with emphasis being placed on agencies using the guidelines as a guide and placing more onus on agencies to analyse whether, from a corruption risk perspective, the direct negotiations are the best way to proceed. The ICAC guidance has also moved to be more in line with the current thinking for NSW Government procurement which is to select the most appropriate procurement strategy that is commensurate with the level of risk. This is in place of the default position of requiring an open tender process for any contract which reaches a specific value threshold.

The 2018 direct negotiation guidance material recognised that agencies can often avoid direct negotiations by simply opening up the process to a level of competition. Rather than it being direct negotiations versus open tender process only, the focus of the guidance is to undertake a level of market engagement and/or analysis in order to validate that direct negotiations is the best approach.

As stated above, one of the aspects of the 2006 guidance that OCM drew from most frequently was the fundamental principles of public sector work. Specifically, the principle of ensuring that a direct negotiation approach would not breach the principle of fair chance to do business with government. OCM is pleased that this has continued as a strong theme in the new look guidelines. The ICAC has put these principles at the forefront of the overall probity principles with an emphasis on fairness and impartiality. Our view based on our detailed probity and procurement experience the emphasis of fairness on these types of procurement approaches is vital.

Overall, our view of the new look guidelines are that they enhance the corruption risk management and prevention focus by:

  • Moving away from a list of ‘permissible’ circumstances where direct negotiations can be justified
  • Requiring agencies to undertake more detailed and critical analysis of the circumstances surrounding the proposed direct negotiations and whether, when applying the probity principles, the direct negotiation approach is really the best solution
  • Putting a focus more on corruption risk management than purely procurement related risk

Finally, while the direct negotiation checklist has been removed from the 2006 guidelines, the new look guidelines include a table in Chapter 3 outlining the key integrity and commercial issues that agencies should be mindful of when undertaking direct negotiations. This is a more practical and risk focused approach that more directly aligns with the current procurement framework for NSW Government.