Corruption Matters - May 2017 - Issue 49

Is a prequalified supplier really prequalified?

A number of NSW Government supplier prequalification schemes exist. While their use can improve procurement outcomes, a failure to understand the risks associated with them can create corruption opportunities. Two key areas of risk relate to the prequalification process and the extent to which terms of engagement are specified in scheme conditions.

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The NSW Government currently has approximately 20 supplier prequalification schemes. At first glance, “prequalification” appears to imply the existence of a process in which applicants are rigorously vetted to ensure that only suitable suppliers become members. Such a process would provide agencies using the scheme with assurance that key procurement risks associated with its suppliers have been controlled.

Unfortunately, this apparent implication does not always hold, as prequalification requirements vary considerably from scheme to scheme. Some schemes have a robust vetting framework that is tailored to the goods or services being supplied; others have prequalification requirements that consist of little more than an Australian Business Number (ABN) check and a willingness to perform the relevant work.

Consequently, there is a risk that an agency using a prequalification scheme unknowingly hires a supplier that they would not ordinarily hire. For instance, unbeknownst to an agency, a prequalified supplier may have a conflict of interest with relevant agency staff, resulting in their engagement creating unacceptable corruption risks. Similarly, a prequalified supplier may have a history of poor performance that is not revealed in a scheme’s prequalification process.

To help manage these risks, documentation regarding the prequalification requirements for each scheme is available from ProcurePoint. Becoming familiar with these requirements can allow public officials to ascertain whether a given scheme’s vetting requirements are sufficient for the procurement in question. Agencies can then perform their own due diligence on suppliers to fill in any “vetting gaps”.

In addition to understanding prequalification requirements, public officials may wish to familiarise themselves with other scheme conditions. The extent to which prices and terms are fixed by a scheme varies across different schemes. Without knowledge of relevant scheme conditions, agencies may fail to achieve value-for-money from a given procurement, for instance, because they mistakenly believe that prices are fixed and standards specified by the scheme.

Indeed, a failure to understand scheme conditions can expose an agency to increased corruption risk. As an example, the Commission has encountered a number of users of the 0007 Contingent Labour prequalification scheme who falsely believe that explicit employment screening criteria are spelt out in the scheme. In fact, the scheme conditions explicitly state that agencies are responsible for communicating any screening needs and expectations to suppliers.

The careful use of prequalification schemes can save an agency time and achieve better procurement outcomes. However, the variability of conditions across schemes means that using a given scheme without understanding its conditions can both expose an agency to increased corruption risk and result in poor procurement outcomes.

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