Commercial notes No. 15

No. 15
14 March 2005

This issue

Common issues in procurement processes
How can a probity adviser/probity auditor/legal process
adviser assist?

When are probity services needed?

Peter Kidd

Peter Kidd Senior Executive Lawyer
Australian Government Solicitor
T 02 6253 7210
F 02 6253 7301
peter.kidd@ags.gov.au

Sarah Tormey

Sarah Tormey Lawyer
Australian Government Solicitor
T 02 9581 7672
F 02 9581 7445
sarah.tormey@ags.gov.au

Probity and process issues are integral considerations
for agencies in ensuring the defensibility and overall
success of government procurement processes.

In the context of a government tender or procurement process,
probity is often used in a general sense to mean a defensible
process which is able to withstand internal and external
scrutiny – one which achieves both accountability
and transparency and provides tenderers with fair and equitable
treatment.

Public awareness and scrutiny of government's management
of probity and process related issues is significant and
increasing. There are a number of reasons for this, including:

  • increased concern with ethics and accountability in
    public life
  • greater media scrutiny
  • more time and resources now required from bidders
    in formulating and submitting bids, leading to demands
    for increased accountability and transparency in procurement
    processes.

Failing to conduct a procurement process with due regard
to probity and fair dealing may potentially leave it open
to challenge. Defending challenges is time consuming, costly,
can undermine public confidence, affect reputations and
act as a distraction from government's core functions.

Outcomes of any challenge (whether or not ultimately successful)
are negative and involve consequences for government, senior
management and, potentially, for staff and advisers generally.

This note firstly examines some of the issues which we
find most often arise in the context of government procurement.
It next deals with the roles of probity/process advisers
and probity auditors. Finally we consider the circumstances
in which probity services are needed, and the type of probity
role which agencies may require.

Common issues in procurement processes

Disconnect between Request for Tender (RFT) and evaluation
plan

The decision in the Hughes case 1 established that a process
contract may arise from procurement processes. When the
procuring entity is a government agency, it may be appropriate
to imply in the process contract a duty to act fairly.
One aspect of this duty involves the requirement to evaluate
bids according to the priorities and methodology specified
in the RFT. In this context it is now common practice for
government agencies to prepare and obtain internal sign
off on a formal evaluation plan before bids are opened.
Properly drafted and implemented evaluation plans enable
agencies to demonstrate that they have objectively evaluated
bids in accordance with the RFT and without conscious or
subconscious bias towards an initially preferred bidder.

The Commonwealth Procurement Guidelines stress the need
for 'logical, clearly articulated, comprehensive
and relevant conditions for participation and evaluation
criteria' to enable an accurate and fair assessment
of all potential bidders. 2

However, in practice there is often a lack of consistency
between evaluation plans and the requirements specified
in the applicable RFTs. To avoid this problem, the RFT
and the evaluation plan should be drafted together to enable 'side
by side' review to ensure that the evaluation methodology
proposed in the plan is consistent with the draft RFT.
For example, if the plan proposes threshold or mandatory
requirements, these should be clearly brought to the attention
of bidders in the RFT. In addition, all steps in the evaluation
process described in the RFT should be mirrored in the
evaluation plan.

Disconnect between evaluation criteria and requested
information from bidders

In order to ensure a fair evaluation process, bidders
must be considered on the basis of the bids submitted.
This process is enhanced in circumstances where agencies
give careful consideration to ensure that enough information
is sought from bidders to enable full evaluation against
each evaluation criterion, and to ensure that additional
information is not inadvertently sought to the cost of
bidders.

It is therefore necessary for agencies to ensure that
the RFT requires bidders to provide information by direct
reference to the evaluation criteria. In addition, prior
to requesting information from bidders, agencies should
consider the relevance to the evaluation of each piece
of information requested. Finally, agencies should ensure
that the evaluation methodology is sufficiently broad to
permit all relevant information submitted by the bidder
to be taken into account.

Communication with bidders

It is important for agencies to ensure that identical
information is available to all potential bidders during
the procurement process. In order for this to occur, procedures
need to be established to govern communication with bidders.

Such procedures should stipulate that only authorised
personnel are to provide information to potential bidders.
In particular, agency employees should not express any
personal opinions on the procurement process publicly,
privately or on the email system, particularly in relation
to preferred potential bidders or prices, unless specifically
authorised to do so. They should also refrain from making
any comments or giving information to the media regarding
the procurement process.

If potential bidder briefings are conducted, all material
information provided at the briefing and during the procurement
process should be documented and sent to all interested
parties. 'Interested parties' can be taken
to include all people who have collected, been sent or
downloaded from the agency's website, copies of the
documentation relating to the relevant request for submissions.

However, agencies should advise potential bidders that
information will not be copied to other interested parties
to the extent that it relates to information unique to
the submission, or potential submission, of the potential
bidder making the query.

It is also important for agencies to ensure that submissions
and assessment data gathered during the evaluation phase
are not communicated outside the evaluation team.

Through the adoption of comprehensive procedures governing
communication during the procurement process, an agency
will play an important role in ensuring that all bidders
compete on a level playing field.

Bid repair versus bid clarification

A bidder may be requested to clarify its bid where there
is a conflicting statement or an ambiguity in that bid.
However, it is important to consider all requests for clarification,
and the answers provided to these requests carefully. In
some cases, the answer given by a bidder may change its
bid and therefore amount to 'bid repair', rather
than 'bid clarification'. In addition, before
asking for further information from bidders, agencies should
carefully consider whether their proposed questions are
in fact seeking clarification of bid ambiguities, and not
correction of mistakes or additions of omitted material.

Agencies must also consider whether they may be affording
an advantage or disadvantage to the other bidders by inviting
additional information or clarification from one bidder
and not the others. To ensure procedural fairness, it may
be necessary to allow all bidders the opportunity to provide
additional information. 3

Management of conflicts of interest

The Commonwealth Procurement Guidelines emphasise that
procurement processes must be conducted in an ethical manner
to avoid conflicts of interest and the misuse of power.
4 Conflicts of interest will arise where a member of a
procurement team or an adviser to a procurement team have
an affiliation or interest which prejudices – or
might be seen to prejudice – their impartiality.

All members of the procurement team, and their advisers,
must declare all conflicts of interest before the beginning
of the bidding process. In addition, 'conflicts of
interest' should be the first agenda item at all
meetings of relevant teams, committees and panels.

The response to conflicts and potential conflicts of interest
will vary depending on the nature of those conflicts. Where
a serious conflict or potential conflict of interest is
identified, the officer or adviser concerned should be
removed from the procurement process. If a less serious
conflict or potential conflict of interest is identified,
some ring fencing or quarantining of the individual/sensitive
information may be sufficient to deal with the problem.

How can a probity adviser/probity auditor/legal process
adviser assist?

Role of the probity adviser

A probity adviser may be appointed under a probity plan
to monitor and report on compliance with the plan. A probity
adviser is usually an adviser who is external to and independent
of the process, who will scrutinise (by way of observing
and reviewing) the tender and evaluation process, provide
advice on probity issues which may arise before and during
the tender process, and advise whether the process is equitable
and conducted with integrity.

The role of the probity adviser is usually to monitor
the tender, evaluation and selection processes in order
to advise whether they are defensible and conducted in
a fair and unbiased manner. The probity adviser does not
undertake the evaluation and is not responsible for advising
on the legal issues that arise from the conduct of the
tender process. However, the probity adviser will provide
advice on the conduct of the tender process (including
the tender evaluation procedures), advise whether the tender
rules and procedures are followed, and whether the tender
process has been conducted fairly and the tenders received
are assessed in accordance with the stated evaluation criteria.

In the period following the release of the RFT, for example,
the probity adviser can advise on issues such as bidder
communications and bid receipt, including the treatment
of late bids.

In respect of the evaluation phase, the probity adviser
can advise on matters such as the establishment of an evaluation
team, assessment of risk and score adjustment, and the
assessment of value for money. The probity adviser can
also conduct, or arrange for a third party to conduct,
various types of probity and security investigations on
a particular company and/or its directors and secretaries.

The probity adviser will normally advise and report to
the project steering group, and may attend and monitor
meetings of other tender committees. Often the probity
adviser will also provide all tender evaluation team members
with a probity briefing before the actual commencement
of tender evaluation.

At the conclusion of the tender process, the probity adviser
usually provides confirmation (or sign off) that the process
has met all probity and process requirements. This would
normally involve the provision of a sign off which confirms
that the process followed applicable government policies
and the agreed probity plan, and that the tender evaluation
was conducted in accordance with the process as set out
in the tender evaluation plan.

How does the role of a probity adviser differ from the
role of a legal process adviser?

While the concept of a process (or legal process) adviser
and probity adviser has been used synonymously, significant
differences have emerged with the roles.
A probity adviser solely considers probity issues and is
primarily concerned with defensibility in the event of
a challenge. A legal process adviser considers both probity
issues and project management techniques in government
procurement.

The legal process adviser assists the project in developing
and drafting the procurement strategy, and the process
documents used to govern the process, including conditions
of tender and evaluation plan. In other words, while the
probity adviser would normally be required to review and
comment on these documents as developed by the project,
the legal process adviser would be actively engaged in
the development and preparation of the documents.

Accordingly, while the legal process adviser would also
usually be external to the process, they would be less
independent of the process than a traditional probity adviser
and more likely to form part of the integrated project
team. In this regard, the legal process adviser performs
a complementary role to the project legal adviser, with
the legal process adviser generally responsible for advising
on, drafting and monitoring the procurement processes,
and the project legal adviser generally responsible for
the drafting of the contract(s), reviewing and advising
on tenderer statements of compliance, and contract negotiation
with the preferred tenderer(s).

The legal process adviser takes on a broader strategic
role for the project, often advising on the overall procurement
strategy, reviewing compliance of all advisers with that
strategy, ensuring that all elements of the procurement
strategy (including all process documentation) comply with
applicable legal and process requirements, advising generally
on all process issues, supporting decision making, and
providing process sign off on issues that might arise during
the conduct of the project.

Whether you are considering engaging a probity adviser
or a process adviser, if it is intended that their advice
should attract legal professional privilege, the terms
of engagement for the adviser will clearly need to specify
that they are engaged to provide legal advice in relation
to probity and/or process issues. 5

How does the role of a probity adviser differ from the
role of a probity auditor?

The terms probity auditor and probity adviser are also
often used interchangeably. However, there is a distinct
difference between these roles. A probity adviser works
closely with the client from the beginning of the procurement
process, providing advice on probity/process issues which
may arise, and providing advice on strategies to overcome
potential problems. The probity adviser is therefore expected
to give advice which is proactive and strategic in nature.
A probity adviser is closely involved in the procurement
process, and so cannot be regarded as an 'independent' party.
The probity adviser can also fulfil the role of legal adviser
to the client.

In contrast, a probity auditor's role is more generally
an 'after the fact' role, auditing the process
after the process is completed, or at key stages during
the process. The process and associated documentation are
audited and any probity issues are identified. The issues
are addressed in a probity audit report. A probity auditor
must be completely independent, and therefore cannot be
the legal adviser or otherwise involved in the project.

When are probity services needed?

Many procurement projects are undertaken without the requirement
for probity or process services. However, an agency may
decide to obtain probity services if, for example:

  • the transaction is of high value
  • the project has a high profile and is likely to be
    subject to scrutiny both within government (Parliament/Australian
    National Audit Office) and externally (for example, significant
    media and other external stakeholder interest)
  • the matter is highly complex, unusual or contentious
  • the integrity or fairness of the project may be subject
    to question
  • the matter is politically sensitive
  • there is a high probability of conflict of interest
  • there is an increased likelihood of grievances by
    tenderers (for example, competition between tenderers
    is expected to be intense). 6

What kind of probity role is required?

The extent of proactive involvement by a probity or legal
process adviser varies from project to project and client
to client. In some cases the client may only require the
adviser to be involved at certain key stages of the tender
process (for example, at tender opening and to review the
tender evaluation process). In other projects, a client
might see the adviser as being an integral member of the
tender team and expect the adviser to play a proactive
role throughout. In other words the role needs to be tailored
to the client's own requirements and expectations.

Some clients employ a legal process adviser without appointing
a separate legal adviser for the project. In that case
they principally seek advice on process related issues
with an expectation, however, that the process adviser
would also comment on contractual issues where applicable
(in many cases, the client will have used its in-house
legal or contracting area to develop the contract in the
first instance). Where this occurs the approach has been
generally to have one or more team members examine the
tender documentation (including the tender evaluation plan)
from a probity or legal process perspective, and other
team member(s) look at the proposed transaction documents
(usually the contract) from a legal perspective.

On occasions the same firm may be approached to formally
act as both the legal adviser and the probity adviser for
a particular project, with both roles being specifically
recognised in the terms of engagement. In this situation,
unless the client otherwise agrees to the roles effectively
being combined, the approach has similarly been to have
one team member focus on the probity/process issues and
another team member focus on the legal issues. As there
can be occasions where the dividing line between probity
or process and legal issues is not altogether clear, it
is important that these team members work closely together.
However, the client needs to be aware that the probity
adviser role cannot be totally independent.

The extent of the role undertaken by the probity or process
adviser directly affects the extent of the sign off on
the tender process which can be provided. If the role is
a limited one this would be stated in the qualifications
to the sign off and obviously the sign off could not provide
any assurance on aspects of the process which the probity
or process adviser had not been involved in reviewing.

Peter Kidd has worked in the private sector,
in industry and with government agencies over a 20 year
career, including a period of four years with a major legal
practice in London. Peter has been extensively involved
in government procurement and associated probity and process
matters, including work both as a legal and probity adviser
and work designing and establishing probity processes with
major
government departments and agencies.

Sarah Tormey is a Lawyer based in AGS Sydney.
Sarah has experience in competitive tendering and contracting,
contract drafting, and intellectual property and information
technology law.

Notes

1Hughes Aircraft Systems International v Air Services
Australia (1997) 146 ALR 1, discussed in AGS Legal
Briefing No. 33, 2 July 1997. See also Cubic Transportation
Systems v State of NSW [2002] NSWSC 656, discussed
in AGS Commercial
notes No. 5
, 30 August
2002.

2 Refer to paragraph 4.3 of the Commonwealth Procurement
Guidelines, Department of Finance and Administration,
January 2005, <http://www.finance.gov.au/ctc/>.

3MBA
Land Holdings Pty Ltd v Gungahlin Development Authority [2000]
ACTSC 89.

4 Refer to paragraph 6.20 of the Commonwealth
Procurement Guidelines.

5 See 'Legal professional
privilege and commercial transactions' in AGS Commercial
notes No.
11
, 7 September
2004.

6 Refer to section 8 of the Guidance on Ethics
and Probity in Government Procurement, Financial
Management Guidance No. 14, Department of Finance and
Administration,
January
2005.


AGS contacts

AGS has a national team of lawyers specialising in probity
and process issues in government procurement. For further
information on this note, or on other procurement issues
please contact John Scala or Peter Kidd or any of the lawyers
listed below.

John Scala

National
John Scala Chief Counsel, Commercial
T 03 9242 1321 F 03 9242 1481
john.scala@ags.gov.au

Canberra

Peter Kidd
Harry Dunstall
Garth Cooke
Henry Addison

02 6253 7210
02 6253 7066
02 6253 7010
02 6253 7264

Sydney

John Berg
Simon Konecny

02 9581 7624
02 9581 7585

Melbourne

Paul Lang
Kenneth Eagle
Lynette Lenaz

03 9242 1322
03 9242 1290
03 9242 1358

Brisbane

Robert Claybourn

07 3360 5767

Perth

Lee-Sai Choo

08 9268 1137

Adelaide

Nic Giannantonio

08 8205 4287

Hobart

Peter Bowen

03 6220 5474

Darwin

Ashley Heath

08 8943 1408

ISSN 1443-9549 (Print)
ISSN 2204-6550 (Online)

For enquiries regarding supply of issues, change of address
details etc.
T 02 6253 7052 F 02 6253 7313 E ags@ags.gov.au

The material in these notes is provided
to AGS clients for general information only and should
not be relied upon for the purpose of a particular
matter. Please contact AGS before any action or decision
is taken on the basis of any of the material in these
notes.

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