Probity – The Good, the Bad and the Ugly
The Corruption Prevention Network NSW recently hosted a probity seminar attended by procurement, audit and investigation, legal and HR professionals. Stephen Horne, Principal of Checks Balances & Integrity, facilitated a panel of probity experts teasing out the types of probity issues they are seeing with some practical applications for common problems. The panel of experts included Sarah Mullins, Principal of OCM, Jason Masters, a Director and Corporate and Technology Governance Advisor, and Warwick Smith, MD of Procure Group.
Stephen opened the session with the perennially popular question of what is probity exactly. Describing the time when he first started seeing references to probity in Government reports, it initially appeared to be something of a shield used to block decisions from overt scrutiny. It has since become an integral part of the procurement and tendering process as an ethical balance or extension of the legal or compliance element.
Sarah then led discussion with some observations around the shift in dynamics of procurement and highlighting some of the key trends being observed in NSW Government procurement with reference to the recently release 10 point plan. A key impact of this increase in infrastructure spend is that the market can now pick and choose which projects it wants to bid for which in turn impacts the value for money prospect. There has also been an increase in collaborate contracting and interactive tendering. This has provided both pros and cons with additional risk becoming a by-product of the increased level of consultation during the procurement process.
Sarah touched on the NSW Government’s action plan in relation to a ten-point commitment to the construction sector including:
- Procure and manage projects in a more collaborative way
- Adopt partnership-based approaches to risk allocation
- Standardise contracts and procurement methods
- Develop and promote a transparent pipeline of projects
- Reduce the cost of bidding
- Establish a consistent NSW Government policy on bid cost contributions
- Monitor and reward high performance
- Improve the security and timeliness of contract payments
- Improve skills and training
- Increase industry diversity
Some key practical points and recent observation from large transaction Sarah raised was the need to look for innovative solutions for procurement and reducing the cost of bidding. This has been particularly the case for projects which have involved the not-for-profit sector. One other consideration that has been flagged and which warrants further exploration is the establishment of pre-qualification panels to streamline procurement more generally.
Jason opened his discussion with the statement ’better to build a fence at the top of the cliff than to be the Ambulance at the bottom’. In short, risk assessments needed to be appropriate and proper, you need to build the right team, and build a project plan.
One of Jason’s fundamental criticisms of the current Government procurement space was that procurement professionals don’t necessarily understand the procurement framework. They are often caught up in rules with corporate legal support not having the capacity to or often bringing in legal advice too late into the process. He also cited a lack of sophistication in the negotiation process. All in all, he feels that they’re not building teams effectively and procurement is often done in crisis mode with activities conducted on the back of expired contracts which restricts the time and inclination to conduct properly considered valuations.
Other areas Jason found to be wanting were innovation, much talked about but not often well practiced due to the incorporation of overly prescriptive processes; and a lack of governance in terms of the fact that very rarely did probity reports go to risk and audit committees.
Risks discussed included collaborations leading to vendors being too close; a high turnover of procurement staff; a lack of standards with different firms having different experiences; and that the NSW Department of Finance, Services and Innovation (DFSI) were not engaging enough.
Jason also agreed with Sarah in the use of interactive sessions as it helps the market understand the risk of the transaction, which at the end of the day saves the Government money. Warwick built on this describing proponent feedback with the probity process as being ‘fair and square’. Warwick also provided observations from the market and his experience that having the probity adviser present doesn’t stifle the process but instead breaks down the barriers. Warwick also talked about the usefulness and productiveness of debriefings, if conducted correctly, in helping unsuccessful proponents. His advice was to be well prepared, don’t be defensive or too guarded and effectively facilitate the process. The key is to have confidence that the right decision has been made but benefits are obtained when the market has clear feedback on strengths and weaknesses of their bid.
In terms of the weighting vs non-weighting debate around tender applications, Warwick suggested that the most appropriate approach was dependent on the project and that it generally works better on large procurement projects. He did also state that either way, it should be consistent.
The other key point Warwick raised was the independence of the probity advisor. If you lack independence as a probity advisor your reputation is compromised. In whatever approach you take, you have to be mindful of who your client is. People in the organisation want you to be independent even if your direct client wants a particular outcome. You have to be able to let a client go if they don’t accept your advice because it’s in everyone’s interest that the tendering process goes well.
One of the issues Warwick touched on was that government procurement doesn’t pay enough for effective talent retention which in turn leads to a lack of experience. In these circumstances probity advisors can help get their framework right. They can also add value to the process by giving proponents and the executive the confidence to be involved and they can cut out the red tape and streamline the process. For example, in instances of conflicts of interest, an issue can be more easily defended if a probity adviser has been involved.
In a Q&A session following, there was discussion in relation to the risks relating to movement in pricing in the market and how this is factored into the evaluation process. Sarah provided advice on one recent observation where the tender validity period was not sufficiently long to allow for the evaluation of the bids. This then resulted in more than one request to tenderers to confirm an extension to the tender validity period which has price implications for the tender responses. Agencies should be mindful of the realistic timeframe for undertaking tender assessment and balance this with the reasonableness of asking tenderers to lock in their pricing for a long period of time, particularly with the static nature of the sub-contractor market.
Warwick built on his discussion around applying weightings and scorings and suggested that there needs to be a risk-based assessment with a sophisticated approach for it to work. Steven added that most things that go wrong are predicable and rushing the process leaves you with no evaluation capacity. This led to an audience question around what it is that causes the rush when it comes to procurement. Jason responded by outlining that the best approach was to plan properly, prepare the RFT and evaluation process, then complete an agencies own response to with view of asking yourself the ultimate question of ‘can you complete this tender?’ Warwick suggested that a lack of expertise is the problem while Sarah added that there needed to be a greater focus on linking the schedules to the evaluation criteria so it is clear that the information being sought from the market is relevant to the evaluation criteria. One of the common mistakes seen is that template documents are used to tenders and there is an inconsistency between the criteria communicated to the market in the tender and those used for the assessment which creates a significant transparency risk.
The next question asked when it is appropriate to use a probity adviser. Warwick answered that in the case of high risk processes, in the case of an incumbent, if there has been a problem in the past with a particular type of procurement, and in the case of an inexperienced procurement team. Jason suggested that keeping track of precedents from published decisions within your organisation would also be a useful indicator. Sarah also highlighted the fact that probity advice is not the same thing as legal advice and that it’s of benefit for probity to get involved early in the procurement process to ensure that clients understand the distinction. For example, there may be a number of discretions in the tender document which provides the agency with discretion make a number of changes to the process. A legal opinion on this may be that the decision is consistent with the discretions in the tender documents; however, the probity advice will be focussed on whether the exercise of the discretion in the identified circumstances would be seen to be fair and ethical.
There were a few more questions around probity processes including whether there were issues with using auction tools, whether risk assessments were process oriented or substantiated, and the use of innovation to side-step controls. Simon commented that the use of tools such as ARIBA should be restricted to commodity-based procurement and Jason responded that risk assessments were generally approached with the application of a kit-bag of automatic considerations followed by self-testing to detect outside the box risks. Steven added that it should be focused around delivery of a project but not the procurement process during which probity is restricted to confidentiality concerns. Warwick addressed the innovation query with the comment that 95% of tenders are still not unique and that we’re not seeing a lot of innovation yet anyway.
The last question was around conflicts of interest. They can be declared, but do they mask a deeper relationship? Jason discussed the idea that we probably overplay conflicts of interest in what is a highly connected world and that it’s best to make it a self-regulating process in a face-to-face open forum. Steven added that it needed to be refreshed and updated continually, not just a tick the box exercise while Warwick suggested that we should be using the term ‘associations’ and have them all out on the table in the first instance, particularly in relation to contractors, so that we can determine what restrictions need to be applied early.
Sarah also highlighted that conflict of interest management should not be seen as a one off activity in terms of the forms being completed early in the process and then not considered during the ongoing procurement process. It should be a standard agenda item for associations to be considered and updated as required particularly where a procurement process may be undertaken over a lengthy period of time. Lastly, it is important to make it clear at the commencement of the process that disclosing or having a conflict of interest is not necessarily a bad thing. Everyone will have interests outside of their work and it is inevitable that at some point there may be a need to disclose an association. The key is disclosing it and identifying the most appropriate management strategy which may be limited to documenting and monitoring it without the need to remove someone from the process.
If you have any questions about any of the points discussed or other questions around probity, please contact us.