It is essential that employees and stakeholders strictly adhere to and must apply the highest level of ethical and probity behaviour in all areas of work. Particular importance must be emphasized on those engaged in procurement or purchasing activities that involve public money and are subject to more than the usual public scrutiny.
Ethical procurement or purchasing prohibits the breach of trust by discouraging any employee from attempting to realize personal gain through conduct inconsistent with the proper discharge of the employee’s duties. Ethics are the key moral principles or values that provides guidance to all aspects of procurement. Ethical behaviour encompasses the concepts of honesty, integrity, probity, diligence, fairness, trust, respect. It also includes avoiding conflicts of interest and not making improper use of an individual’s position to benefit for themselves.
Probity means integrity, uprightness and honesty. Maintaining probity in procurement involves more than just avoiding corrupt and/or dishonest conduct. It also means ethical behaviour that upholds public values, public trust and ensuring impartiality, accountability and transparency.
Terminology of Procurement versus Purchasing
The terminology of Procurement vs Purchasing can perhaps be best explained using the PP Organogram, as shown in the diagram below. This article will focus on the terminology of Procurement, instead of Purchasing.
Probity in Procurement
The broad objectives of probity in procurement are to:
• provide accountability;
• maintain public sector integrity;
• ensure compliance with processes;
• ensure that all offers will be evaluated against the same criteria;
• preserve public and supplier confidence in Organization’s processes;
• minimise potential conflicts and the potential for litigation;
• ensure the procurement activity provides the best outcome; and
• avoid the potential for misconduct, fraud and corruption
Attributes of Ethical Procurement and Probity
The attributes of Ethical & Probity in procurement comprise seven key elements:
1. Conflict of Interest
All purchasers including staff/colleagues who are involved in or at any stage of the procurement process must declare and/or register their interest. Purchasers should also encourage their senior management who are also involved in the procurement process to declare their interest.
The declaration to include any material personal interest which may have effect or be seen to effect, their impartiality, or judgement, in respect of their duties. Examples include owning shareholding in a supplier.
There are three types of conflict of interest to be aware of:
o Actual conflict of interest – shall mean the purchaser / an officer is in a position to be influenced by their own interests when doing his/her job in procurement,
o Perceived conflict of interest – shall mean the purchaser/an officer is in a position to appear to be influenced by their own interest/or gain when doing his/her job.
o Potential conflict of interest – shall mean the purchaser/an officer is in a position where there may be a chance of being influenced in the future, by their own interest when doing his /her job.
Managing conflict of Interest include taking the proper and essential and appropriate ways and action to resolve or manage it.
2. Transparency, Confidentiality & Fairness
All professional purchasers should treat suppliers fairly and even-handedly at all stages during the procurement process until closure of the purchase. This mean being open with all those who are involved so that everyone including suppliers, other colleagues, and peers will understand all elements of the processes.
These processes include procedures, timescales, expectation, requirements, as well as the criteria for selection. Equally important is that supplier confidentiality must be safe guarded and unsuccessful suppliers should be debriefed with as much transparency as possible about the procurement process as can be provided, for example on the weaker aspects of their tender.
Procurement professionals who become aware of any corrupt activity in the organization have a duty to the profession and their employing organizations to alert or report to their senior management of any such acts.
Any form of bribery or corruption should include but not limited to:
o Bribery is the offering, promising, giving, authorizing or accepting of any undue financial or other advantage to, by or for any persons associated with the procurement process, or for anyone else in order to obtain or retain a business or other improper advantage.
o Bribery often includes (1) kicking back a portion of a contract payment to purchaser/any officer or employees or to the other contracting party, their close relatives, friends or business partners or (2) using intermediaries such as agents, subcontractors, consultants or other third parties, to channel payments to government or party officials, or to employees of the contracting parties, their relatives, friends or business partners.
o Extortion or Solicitation is the demanding of a bribe, whether or not coupled with a threat, if the demand is refused. Procurement professionals should oppose any attempt of extortion or solicitation and are encouraged to report such attempts through available formal or informal reporting mechanisms such as Whistle Blowing.
o Trading in Influence is the offering or solicitation of an undue advantage in order to exert an improper, real, or supposed influence.
o Laundering the proceeds of the corrupt practices mentioned above is the concealing or disguising the illegitimate origin, source, location, disposition, movement or ownership of property and/or money, knowing that such is the proceeds of crime.
o Nepotism is the use of authority or influence to show favouritism to relatives or friends without merit.
4. Business gifts & Hospitality
A common saying is ‘There is no such thing as a free lunch’, which means when there is a case of an offer and receipt in the form of business gifts or entertainment it is considered as sensitive areas for buyers, despite being recognized as standard business practice, especially occurred during festive seasons, as in the case during festive seasons such as Christmas or Chinese New Year. Organisations should have a clear policy on accepting business gifts, and buyers should encourage colleagues to comply with any such policy. Policies include declaring such gifts and surrender the gifts to the organization and for the organization to decide what to do with the gifts.
5. Ensuring Compliance
Ensuring compliance is a focus on high risk areas, understanding suppliers’ operations and offering guidance and support where improvement is necessary or appropriate. This is to ensure that the strategic and operational risks associated with unethical practices are minimized.
Public procurement professionals need to focus on ensuring compliance on their ethical code and the policies that it touches upon. To ensure this compliance, the organization’s focus are:
o Should take place in parallel with the development of monitoring procedures;
o May take time, or need to be introduced in phases;
o May require prioritization of areas associated with ethical issues which might be of greater risk to the organization.
6. Internal organisation and decision-making processes:
A key element in best practice procurement is to clearly define who is responsible for the different decisions at various stages in the procurement process. Agencies or organizations should have clearly documented procedures for:
o authorizing the documents which set the framework for the offering process (including advertisements for Expressions of Interest, Invitation to Tender, etc.);
o evaluating offers, preparing recommendations and making decisions about shortlisting and selection of offeror;
o managing liaison with offering parties including providing information;
o managing negotiations;
o resolving probity and process questions as they arise.
Transparency means an unimpeded visibility. Transparency is paramount in all procurement activities especially public agencies because procurement involves the use of and accountability for public funds. All transactions are subject to scrutiny but not all organizations experience such scrutiny to the degree of the expectation of the public. Therefore, professional procurement officers and their assistants must always conduct themselves in such a way that any scrutiny would not damage their employing organization or its senior management, staff, etc. .
There are basically two degrees of transparency – internal scrutiny and external scrutiny. Internal scrutiny is the transparency within the organization, such as examination are conducted by internal auditors. It seeks to ascertain compliance in-line with the organization’s corporate governance and own standards by the compliance staff. External scrutiny is transparency outside the organization, such as examination by auditors. It refers to the notion that almost anyone can observe and watch how the organization conducts its business and processes.
Only when something is truly of a confidential nature, such as proprietary data or sensitive formation, such as tender prices offered that belong to a supplier, or proposals being evaluated prior to a contract award, should confidentiality be given a higher priority over transparency while still maintaining an overall transparent process. Even though details of pricing data or trade secrets may be held confidential, purchasers/ procurement officers should always assume that how they do their work is available to the public.
Poh, Philip (1988), “Defining and Clarifying the use of Terminologies”, International Federation of Purchasing and Materials Management conference, Brisbane.
Commonwealth Government (2005) “Guidance on Ethics and Probity in Government Procurement”.
Victorian Government Purchasing Board (2001), “Probity Policy ad Guidelines: Government Tendering Projects”, Department of Treasury and Finance.
New South Wales Independent Commission Against Corruption (2005), “Probity and Probity Advising’.