ICAC releases guidelines to help public sector agencies manage corruption risks in direct negotiations

Thursday 23 August 2018

The NSW Independent Commission Against Corruption (ICAC) has released guidelines to help NSW public sector agencies involved in direct negotiations with external parties to manage corruption risks, but recommends they avoid the practice if possible due to the high level of those risks.

In Direct negotiations - guidelines for managing risks, released today, the ICAC states that direct negotiations should be avoided unless they clearly fall within the government’s legislative and policy framework, and/or the risk of corrupt conduct has been managed in accordance with the guidelines recommended in the publication. Direct negotiations are exclusive dealings between an agency and an external party without first undergoing a competitive process. The Commission identifies government procurement as the most common area where direct negotiations can arise, with other areas including investment activity, delivery of government services, and joint ventures.

These guidelines, which are updated from the Commission’s 2006 direct negotiations report, include a set of criteria to apply for undertaking direct negotiations, such as exemption by statute or government policy, uniqueness and monopolies where it is beyond doubt that no other supplier or counterparty can meet the agency’s well-defined needs. The Commission also provides advice on avoiding the need for direct negotiations, such as through forward planning via the establishment and use of panels, avoiding lock-in, and bundling and unbundling contracts to encourage additional competition.

The ICAC Chief Commissioner, the Hon Peter Hall QC, said that while the Commission accepts that there are instances where direct negotiations are unavoidable, it is incumbent on agencies to ensure if they are involved in direct negotiations that they conduct them strictly in accordance with strong probity principles, and have a fortified policy framework in place to ensure that corruption risks are addressed.

“The guidelines note that the corruption risks associated with direct negotiations are significantly higher than those associated with open processes such as tendering,” Chief Commissioner Hall said. “I would also remind agencies that the public interest is paramount when considering any form of negotiation, and direct negotiations can be detrimental to that interest by undermining the potential for government to realise the full value of public assets.

“While there can be acceptable reasons for engaging in direct negotiation, it must be executed properly; as the publication notes, criteria about whether it is appropriate to proceed with direct negotiations can be open to abuse with public officials at times subject to making, or being persuaded by, false claims about the existence of monopolies and unique proposals to create the appearance of conformance with the Commission’s guidance.

“Often, this conduct is driven by laziness, lack of imagination or poor planning, but sometimes the behaviour is corrupt. We have seen many instances of that behaviour before the Commission as can be seen in the paper’s case studies, ” Chief Commissioner Hall said.

Guidance the Commission provides in the case that an agency decides to proceed with direct negotiations includes to:

•    Consider the probity principles of fairness, impartiality, accountability, transparency and value for money.
•    Manage the risks, including seeking authority, documenting the process, performing due diligence, managing conflicts of interest and segregating duties, conducting the negotiations (remember there is still “negotiation” to undertake), agreeing on the price and executing the agreement, monitoring the other party in the negotiations, and undertaking post-completion steps.

The guidelines can be accessed from the ICAC website at www.icac.nsw.gov.au. Government agencies wishing to learn more about managing corruption risks in direct negotiations should contact the Commission and request the Corruption Prevention Division on 02 8281 5999 or email icac@icac.nsw.gov.au.

Direct negotiations - guidelines for managing risks

Contact: ICAC Manager Communications & Media, Nicole Thomas, 02 8281 5799 / 0417 467 801