Procurements made easier, but corruption and integrity risks remain

Significant stimulus packages and procurements are being rolled out by Governments across Australia in response to the economic impacts of the COVID-19 crisis. To expedite these recovery initiatives, measures have been taken to ease some of the procurement requirements that would otherwise apply, potentially exacerbating the usual corruption and integrity risks associated with government procurements. In the current environment, particular care will be needed to ensure these risks are appropriately mitigated.

Stimulus packages and unprecedented demand for critical goods and services

Recently announced stimulus packages include:

• $500 million Building Works stimulus package from the Victorian Government;
• $570 million stimulus package to for capital works and maintenance in New South Wales;
• $400 million Accelerated Works Program to deliver the Queensland Government's capital and maintenance roads program;
• $444 million housing stimulus package in Western Australia, including a $319 million social housing package;
• $50 million package to fast track maintenance on public buildings in Tasmania over the next 12 months; and
• $300 million package of stimulus programs in the Northern Territory.

Combined with an unprecedented demand for critical goods and services required to address the effects of the COVID-19 pandemic, the public expenditure has increased significantly in the short term.

Temporary changes and updated guidance for emergency procurements

To accelerate the delivery of these economic measures, various Governments have also announced temporary changes to standard procurement requirements and issued guidance regarding the conduct of emergency procurements.  At the time of publication, these include:

• Guidance issued by the NSW Government confirming the application of section 4 of the Public Works and Procurement Regulation 2019, which allows the authorisation of procurements without the need to comply with Procurement Board policies and directions and without having to demonstrate value for money (see COVID-19 Emergency procurement procedure);
• Guide issued by the Queensland Government that allows agencies to adopt practical procurement measures. These include direct procurement methods and the use of "short form" or abridged terms and conditions (see Emergency procurement COVID-19 guide);
• Procurement Practice Guidelines issued by the Western Australian Government to increase monetary thresholds for procurements from local businesses, including allowing requests for a direct quote from a single supplier for procurements up to a value of $250,000 (up from $50,000) and invitations to submit an offer to be made to a single supplier for procurements up to a value of $500,000 (up from $250,000) (see Procurement Practice Guidelines - Supporting Economic Recovery for Local Businesses); and
• Treasurer's Instruction issued by the Tasmanian Government to allow the adoption of alternative procurement methods such as direct and limited tendering or the use of non-standard procurement documentation or contract terms (see PF-7 COVID-19 Emergency Procurement Measures).

Compounding the corruption and integrity risks in government procurements

Corruption and integrity risks exist for all government procurements, and standard procurement requirements play a role in mitigating these risks to an acceptable level. The combined effect of relaxing those requirements and the massive increase in public expenditure will be the compounding of those risks.

A number of anti-corruption and public sector bodies have issued guidance to draw attention to these concerns, including:

• Independent Commission Against Corruption (NSW) (ICAC) (see Managing corrupt conduct during the COVID-19 outbreak);
• Crime and Corruption Commission (Qld) (see Crime and Corruption Commission (2020) Current and emerging corruption risks: opportunities to detect, intervene and prevent corruption);
• Public Sector Commission in WA (see Integrity risks during challenging times); and
• Office of the Independent Commissioner Against Corruption NT (see Fraud and the COVID-19 Stimulus Package).

The guidance recognises the correlation between periods of disruption and economic downturn and the incidence of corruption in government procurements resulting from a number of factors including increased financial pressure on agency staff and suppliers and the easing of standard procurement requirements.  The urgency of the need to counter the economic impacts of COVID-19 means procurement decisions are likely to be made with haste, with fewer controls in place to mitigate risk and in a constrained bargaining environment, making government procurements vulnerable to corruption risks.

One of the areas identified in the guidance as likely to make procurements more vulnerable to corruption during COVID-19 is the remote working conditions of government agency staff, noting: 

• reduced supervision;
• isolation can breed absenteeism and lapses in judgement and make staff more vulnerable to cyber attack; and
• controlling and monitoring access to commercially-valuable information and the use electronic signatures and maintaining a secure environment can be challenging.

Urgent or compressed timeframes for procurement delivery is another area of concern, as it encourages workarounds and major departures from normal risk tolerances, and may result in regulatory compliance, due diligence and audit issues being neglected.  Urgent timeframes may also result in increased pressure to renew existing contracts regardless of unsatisfactory or poor supplier performance.

Price gouging may occur as a result of significant increases in demand for emergency goods and services as suppliers inflate their prices, or substandard goods or services may be accepted where kickbacks or bribes are paid.

Most significantly, the easing of standard procurement requirements for more expeditious alternatives is likely to erode some of the usual protection from corruption risks. The use of direct quotes or limited tenders creates the potential for improper use of discretion regarding the choice of supplier or contract terms favourable to the supplier. Agencies may also be tempted to exploit the current conditions to undertake non-emergency procurements within the less stringent procurement framework (i.e. where procurements have fallen behind schedule).

What should clients do regarding procurements during COVID-19?

If you are involved in conducting an emergency procurement or a procurement related to a stimulus package, without the usual levels of control and supervision, you should consider adopting some of these practical steps to ensure corruption and integrity risks are mitigated to the extent possible (noting some may be a condition of the exemption to the standard procurement processes):

• provide brief reminders to staff regarding ethical obligations as public officials;
• involve at least two or three people in the procurement process and ensure no single person is exclusively involved in the end-to-end process;
• have clear protocols regarding the access and storage of procurement documents and use of e-signatures;
• keep detailed records regarding key decisions;
• monitor conflicts of interest;
• encourage staff to report any obstacles as they arise, including potential integrity issues;
• undertake basic due diligence on suppliers if not part of a prequalified register or government panel; and
• check lists of debarred/suspended suppliers.

For further information on how to manage risks arising from the implementation of the new procurement rules in a COVID-19 environment, please contact a member of our team.