Unfair tender fears turning government contractors away

By David Donaldson

July 6, 2016

Corruption concerns are stopping some businesses bidding for public sector contracts, according to research released by Victoria’s corruption watchdog.

The Independent Broad-based Anti-corruption Commission survey of state government contractors revealed 40% of respondents believe corruption to be a problem in the VPS, with 34% stating they have been deterred from bidding for contracts due to worries about corruption. Those who believed corruption to be more of a problem were more likely to say they had not entered a bid due to concerns about corruption.

The perception of corruption “can undermine a procurement process by causing suppliers to alter their approach to government procurement, to the detriment of the public interest”, says the report. Fewer bidders makes it less likely government will get the best deal.

“These results indicate — rightly or wrongly — that public sector procurement is perceived as open to corruption, and that there are concerns around an uneven playing field for Victorian suppliers,” IBAC CEO Alistair Maclean said.

“We now know this perception is stopping businesses from bidding for government work, which raises questions of value-for-money and the quality of goods and services the public sector is delivering for Victorians. To help restore confidence, public sector agencies must have robust anti-corruption measures in place that protect their procurement processes from exploitation.”

“One-week deadlines strongly imply that companies who regularly win the tenders are already aware and prepared to submit.”

IBAC recommends a range of measures public sector agencies could take to strengthen procurement practices and build public confidence in the state’s procurement processes, including better communication with suppliers on public procurement standards, a ban on public sector employees receiving gifts, benefits or hospitality from suppliers, and the introduction of oversight arrangements of procurement activity.

There is a significant gap in perceptions of corruption between contractors and public servants. While 40% of businesses saw corruption as an issue, only 24% of senior Victorian state public servants surveyed in 2012 identified the buying of goods or services as a corruption risk in their agency.

Gifts continue to be a problem. Half of respondents believe it is typical for gifts to be offered to public servants, just under half believe public servants accept gifts or benefits. Notably, 7% state a public servant has asked them to provide a gift, cash or other benefit.

A third of survey respondents believe it is typical for public servants to give suppliers unequal access to tender information and a quarter believe it is typical for confidential tender information to be leaked. One commented:

“So often the deadlines are no more than a week for submission of a substantial tender. This strongly implies that companies who regularly win the tenders are already aware and prepared to submit. In the health area its very much about who you know and it’s common for preferred suppliers to receive additional information and a ‘heads-up’ prior to a brief being released.”

Another expressed concern about their own company’s confidential information being leaked:

“It would be nice if [agency] did not release confidential process information to competitive contractors. I experienced numerous instances of corruption including ‘leaking’ of confidential information about my company’s contractual arrangements … I decided NOT to respond to any [more] requests for tenders when I lost all confidence in the integrity of the process.”

Construction, education seen as most corruption-prone

Perceptions varied by industry, with construction, education and health and welfare being the three where corruption was believed to be most likely to exist. A whopping 79% of respondents who worked in construction, 72% of those who worked in education and training and 70% in healthcare and social assistance said they believed corruption was a problem in their own sector.

The procurement methods identified as most vulnerable to corruption were direct negotiations and procurement via non-tendered quotations. “This reflects the greater degree of discretion exercised by public sector officials and less stringent controls in these processes, compared with panel contracts and tenders,” argues the report.

While nearly two thirds of respondents (64%) said they would report corruption if they became aware of it, 22% said they were unlikely or very unlikely to do so.

Concerningly, those who believed corruption to be a greater problem told researchers they were less likely to report it. The main barrier was a fear that reporting would negatively impact their organisation.

Seven steps to fix the system

The IBAC report makes a series of recommendations to help improve both the integrity of the VPS and perceptions among contractors about corruption:

  1. Public sector agencies should ensure suppliers are aware of how to report concerns with any part of the procurement process, including the suspected corrupt conduct of public sector officials and other suppliers. Suppliers should be advised of reporting mechanisms within public agencies, as well as external agencies such as IBAC and the VGPB.
  2. To assist suppliers identify conduct of concern during a procurement process, public sector agencies should ensure suppliers understand the standards expected of public sector officials including requirements around conflicts of interest, impartiality, and gifts, benefits and hospitality.
  3. Public sector agencies should proactively communicate with suppliers as to why it is neither necessary nor appropriate to offer public sector officials incentives (in the form of gifts, benefits or hospitality).
  4. VPSC should, as part of its review of the Victorian public sector gifts, benefits and hospitality framework, consider the implementation of a ban on public sector employees receiving any gift, benefit or hospitality from a current or prospective supplier.
  5. Public sector agencies should ensure they have robust conflict of interest frameworks in place, that employees are equipped to identify conflicts of interest and there are clear and stringent processes for managing those conflicts.
  6. Public sector agencies should put in place oversight arrangements of procurement activity (whether a request for quote process, open or restricted tender, or panel arrangements) within their organisation to ensure that goods, services and works are being appropriately procured to deliver value for money and process integrity.
  7. Bodies with responsibility for setting standards in public procurement (such as the VGPB and HPV) should give consideration to other measures agencies could take to improve transparency, such as the publication of information on selection criteria, providing unsuccessful bidders or tenderers with the reasons for the rejection of their bid or tender, and publishing information on all contracts awarded by public sector agencies.
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