Key indicators of an ethical procurement model

Key indicators of an ethical procurement model

When we work with companies, we are often told personal stories of experiences that they have had with public sector procurement processes. Assuming these stories are true (and their profit & loss accounts can often corroborate this), some suppliers in Ireland believe that domineering behaviour, unethical negotiating tactics and material post-tender negotiation is widespread. Some of this is contrary to public policy but not illegal, some of it is both of these things.

In Canada, a pioneer in procurement probity, approximately 1 in every 6 contests is set aside and re-run because of buyer-side issues. In Ireland, if this held (and our view is that it would be higher than 1 in 6 initially) this would mean 5-20 of the 100 or so tenders published each week would need to be re-run. In some weeks, it could be multiples of this.

A lack of transparency in many territories constitutes an obstacle to identifying unethical buyer-side behaviour. Until countries deploy full e-procurement and all awarded contract values are published, buyers can hide behind the procurement process. Many people in the procurement policy community believe that total transparency on contract award values is not only in the public interest but also helps SMEs position themselves for large contracts (this approach is taken in Portugal for instance see half way down p.167).

With this in mind, suppliers should take a step back when looking at public or private organisations seeking a quote from them and run through the criteria we are about to outline. It may help them to decide on when to invest time in developing formal bids for work with contracting authorities (buyers).

Below, we highlight some key indicators of ethical, fair, procurement procedures from a supplier’s perspective. 

 

Controls to mitigate fraud and improper behaviour 

Buyers are rotated: It is a healthy sign for suppliers seeking to sell into an organisation when this happens. When this does not happen, suppliers should be wary before bidding. Suppliers can stipulate in certain circumstances surprise or simply question the involvement of decision-makers that patronise suppliers on a regular and continuing basis.

Suppliers are rotated: It is also healthy when suppliers are rotated for work. This does not necessarily mean there is supplier rotation on the same contract, rather that the buying organisation does not practice single sourcing.

Buying decisions are made by a team: It is a good sign when the responsibilities for the tender process are spread across a multi-disciplinary team. While this tends to happen on larger contracts, it is a good practice that allows suppliers to bid with greater confidence that decisions are likely to be reasonably objective.

 

Organisation adopts industry best practices 

Key staff members receive appropriate training: It is a good sign when people in procurement roles have completed CIPS or equivalent training. Such courses have a strong emphasis on relevant supplier management, legal and procurement process techniques. They emphasize fair, robust negotiation and how to measure suppliers and manage contracts successfully. The vast majority of public and private decision-makers and procurement personnel have no formal qualifications in the area. The more people involved in making decisions know about tendering, the better governance tends to be – which stands to benefit suppliers. 

Code of practice for buyers: There are codes of practice for departments and agencies in almost every modern economy. Even in countries as advanced as Canada, decisions are overturned. There is a clear and causal link between training and management accountability for their decision-making and compliance to statutory, legal and other obligations. It can be helpful for suppliers to familiarise themselves with governance codes and ethics codes that individual organisations may have adopted as an organisation.

Contract award processes are subject to audit: Public bodies are often subject to audits of the contracts they award. The extent to which contract awards are regularly subjected to review can be a sign of a good governance model. Where there is a robust, accountable model, suppliers can bid with a degree of confidence that equity, fairness and objectivity will be given due weight in any decision-making process.

 

Dealing with possible indicators of fraud

Long-standing incumbents: suppliers should be aware of long-standing relationships especially where they are being asked to go to the expense of a formal bid process. Unless there is evidence of a desire to move to a multi-vendor supply solution or there is dissatisfaction with an incumbent’s performance, be careful that your business is not making up the numbers at your expense.

Close personal or other kinds of relationships: there should be a policy in place in relation to managing conflicts of interest. If there is knowledge that an incumbent has a close personal or business relationship with the buyer, a business should give consideration to this before submitting a bid. A supplier is within their rights to ask what controls are in place to manage conflicts of interest (where they are material or merely implied by association). Consideration should be given to doing this before a business submits a bid.

Formal commercial transaction arrangements: suppliers should ensure that a bid specifies formal procedures in relation to supply of services / products and payment for such services. Where payments are made in cash without paperwork, it can be a lead indicator for irregular business practices.

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Any suppliers with questions in relation to any of these indicators can get in touch with Keystone at any stage.