Legal Briefing No. 51

Number 51

(25 October 1999)

Probity
Aspects of Tendering

To minimise their potential liability when conducting
tender processes, departments and agencies need to take
various measures to ensure that a fair and proper process
is undertaken. At the outset, the tender documents should
be internally consistent and sufficiently comprehensive
to permit tenderers to be able to make an informed decision
about whether to submit a tender, and if so, to submit
a tender capable of complying with the tender conditions.

Similarly, as the Hughes 1 and McMillan 2 cases
show, agencies will need to ensure that tender processes,
particularly tender evaluations, are undertaken consistently
with the tender documents provided to tenderers, and that
the basis of an evaluation is transparent on the face of
the tender documents.

Need for a Probity Plan

An important strategy for ensuring a fair tender process
is the establishment of, and compliance with, a comprehensive
probity plan. The purpose of developing and giving effect
to a probity plan is to ensure the overall fairness and
integrity of the tender process.

This has been recognised by the Competitive Tendering
and Contracting Group of the Department of Finance and
Administration. Commonwealth Procurement Circular (CPC)
97/5 3 indicates that a probity
plan is an important strategy to ensure fair dealing in
tendering. As noted by the CPC, '[i]mplementation of a
carefully drawn probity plan will make it more difficult
for an unsuccessful tenderer to challenge the tender process
on the grounds that the agency had breached the obligation
to act fairly in the treatment of the tenderer.'

The probity plan will usually require the appointment
of an independent probity adviser (sometimes called a 'probity
auditor') to oversee and advise on all probity aspects
of the tender process. The appointment of a probity adviser
is a means of monitoring the conduct of the tender process
to ensure the probity plan is complied with, and the tender
process is conducted properly.

Probity Adviser

A probity adviser may be appointed under a probity plan
to monitor and report on compliance with the plan. The
probity adviser will usually be required to provide advice
on the conduct of the tender process (including the tender
evaluation procedures), ensure that the tender rules and
procedures are followed, and ensure that the tender process
will be conducted fairly and that the tenders received
are assessed in accordance with the stated evaluation criteria.
The probity adviser may be required to advise on the appropriateness
of weighting particular evaluation criteria, and if so,
it will be an important task of the probity adviser to
ensure that the weightings are correctly applied during
evaluation.

However, the probity adviser is not the legal adviser
in relation to the tender process. The role of the probity
adviser is to monitor the tender, evaluation and selection
processes to ensure that they are defensible and that they
are 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.

The probity adviser will normally advise and report to
the tender steering group, and may attend and monitor meetings
of other tender committees, such as the tender evaluation
team. The probity adviser may also be required to advise
on the composition of the tender evaluation team to ensure
that there are no conflicts of interest and that the team
contains the appropriate skills for the evaluation.

Probity Principles

The probity plan should ensure that the probity principles
underpinning the tender process are observed, and that
compliance with the principles can be audited as evidence
that a defensible tender process has been conducted. Although
the probity principles may vary depending on the nature
and subject of the particular tender process, it might
be expected that they would conform generally with some
or all of the principles suggested below. The following
list is not exhaustive:

  • to ensure that all bidders are treated fairly and
    equitably, consistent with the rules of natural justice
    and procedural fairness
  • to ensure that a defensible yet flexible tender and
    evaluation methodology/strategy is established which
    provides a means of meeting the requirements of Commonwealth
    financial management and accountability laws and policies,
    including the Commonwealth Procurement Guidelines
  • to ensure that an effective process to protect all
    confidential information is established
  • to develop guidelines with respect to particular probity
    issues, including conflicts of interest and fair dealing
  • to ensure that all conflicts of interest issues are
    addressed as and when they might arise
  • for outsourcing or privatisation tenders:
    • to establish clear and defensible guidelines
      for dealing with any management or employee buyout
      arrangement or in-house bid, and
    • to ensure compliance with obligations regarding
      consultation with affected employees and their
      representative organisations, and treatment of
      staff in accordance with the relevant workplace
      agreement
  • to ensure effective contract risk management arrangements
  • to minimise potential liability that may otherwise
    arise out of the conduct of a tender process
  • to ensure a clear audit trail and confirm that there
    has been overall compliance with the probity plan.

Some Aspects of a Probity
Plan

Tenderer Inquiries

An important part of any probity plan will be to establish
guidelines for dealing with prospective and actual tenderers
during the tender process, including dealing with tenderer
inquiries. It will be important to keep proper records
of all inquiries from tenderers and others about the tender
process. Contact with tenderers should be made only through
authorised personnel, and there should be strict limits
about what can be said in response to tenderers' inquiries.
The plan should also deal with the issue of whether meetings
can be held with tenderers at any stage before a decision
is made, and if so, the establishment of guidelines about
what can be discussed at those meetings.

There should also be guidelines for seeking and dealing
with tender clarifications to ensure that they do not amount
to an impermissible variation of the tender or the admission
of late material, contrary to the conditions of tender.

Access to Tender Process Information

A probity plan should also address the arrangements for
accessing information related to the tender process. Arrangements
will need to be put in place to protect and maintain the
security and confidentiality of the tender documentation,
material received from tenderers, and the tender evaluation
and recommendations. Procedures or protocols for staff
access to tender documentation and for receipt of tender
documentation will need to be put in place. These arrangements
should include appropriate training for staff involved
in conducting the tender process, or otherwise dealing
with tenderers and potential tenderers. There will also
need to be consistent and defensible arrangements for bidder
access to information. This may involve industry briefing
sessions, access to sites or key staff, and the dissemination
of information to tenderers during the tender process.

Checks on Tenderers

The plan will also need to provide for the review of issues
that may arise during a tender process, for example, determining
the extent to which probity, financial and security checks
will need to be conducted of tenderers. The AGS has good
working relationships with regulatory bodies such as the
Australian Securities and Investments Commission (ASIC)
and the Australian Federal Police (AFP) who will undertake
the necessary checks. These checks should be conducted
even if the particular company involved may appear to be
a financially solid, well-recognised and respected organisation.
For example, the checks could reveal that the company engages
in anti-competitive or other inappropriate business activities
which will need to be considered before deciding whether
the company should be a preferred tenderer.

Guidelines on Conflicts and Disclosure

In addition, the plan should provide for the establishment
of guidelines on conflicts
of interest issues and disclosure. It may be necessary, for example, to require
tenderers to sign confidentiality or non-disclosure deeds before they can be
given access to information. Similarly, undertakings may be required from tenderers
that they have not had access to information concerning the tender, other than
information officially provided in accordance with tender documentation or
information that is otherwise publicly available. This may be an appropriate
strategy where there is a risk that tenderers will seek to recruit Commonwealth
officers involved in developing the Commonwealth's tender requirements or running
the tender process so as to gain an unfair advantage in the preparation of
their tenders. To avoid criticism from tenderers, the need for these undertakings
should be made known to tenderers early in the process. In addition, personnel
involved in the tender process should be made aware that they are required
to disclose any potential conflicts of interest, such as proposed offers of
employment from prospective tenderers.

Assessment and Negotiation

A key part of the plan will be to set out the appropriate
framework for the assessment of tenders and, subsequently,
the contract negotiation with the preferred tenderer or
tenderers. The plan will need to provide for the oversight
of compliance with the agreed tender evaluation methodology,
review of the tender evaluation report, sign-offs in relation
to compliance with the evaluation methodology, review of
tender clarifications, and review of the application of
the evaluation criteria (ie. to ensure a consistent application).

In relation to contract negotiation, the probity plan
should provide for the identification of key issues for
negotiation and the agency's preferred position on the
issues. Procedures also should be established to govern
the negotiations, including timeframes and the parties
to be involved. There also should be a process for debriefing
unsuccessful tenderers, and guidelines for how this debriefing
should be undertaken.

Management or Employee
Buyouts; In-House Bids

The possibility of a bid from a management or employee
buyout team in the case of a privatisation, or a bid from
an in-house team in a proposed outsourcing, can give rise
to particular difficulties from a probity perspective,
and strategies may need to be developed to manage these
difficulties to maintain the integrity of the tender process.

For example, staff involved in preparing the buyout or
in-house team bid should not be involved in developing
the tender documentation or the evaluation of tenders.
The general rule is that these staff should not have any,
or any significant, involvement in the tender process:
that is, an involvement that would give the buyout or in-house
team an unfair advantage over other tenderers. If any involvement
of these staff is required to assist with the tender, appropriate
risk management measures will need to be implemented.

It is important to note that these measures are no guarantee
that the process will not be the subject of criticism.
However, effective implementation of the measures should
minimise the scope for issue to be taken with the process.
These measures might include confidentiality/non-disclosure
deeds, physical separation of staff, restricting access
to the bids of other tenderers, ensuring an open tender
process, including full dissemination of information to
all tenderers.

Role of AGS

AGS is happy to assist departments and agencies with their
tender process, including preparing tender documentation,
assisting with evaluation, and developing and implementing
probity plans. AGS is also happy to undertake the role
of probity adviser for clients.

1 Hughes Aircraft Systems International
v Air Services Australia (1997) 146 ALR 1. For more
information on the Hughes decision see Legal
Briefing No. 33
.

2 J S McMillan Pty Limited, Pirie Printers
Holdings Pty Limited and Imsep Pty Limited trading as
National Capital Printing Pty Limited v Commonwealth
of Australia (1997) 147 ALR 419.

3 CPC 97/5 is available from the CTC website
at http://www.ctc.gov.au/Publications/purchasing/cpc/cpcindex.htm

For further information please contact any of the following
lawyers:

Canberra John Scala (02) 6253 7223
Linda
Richardson
(02) 6253 7207
Harry
Dunstall
(02) 6253 7066
Sydney Simon Konecny (02) 9581 7585
Melbourne Martin
Bruckard
(03) 9242 1386
Brisbane Robert
Claybourn
(07) 3360 5767
Perth Graeme
Windsor
(08) 9268 1102
Adelaide Sarah Court (08) 8205 4231
Darwin Rick Andruszko (08) 8943 1400
Hobart Peter Bowen (03) 6220 5474

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

The material in this briefing is provided
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 this briefing.

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