CONS6817_S06'16

Procurement (CONS6817) Lara Tookey
PROCUREMENT – SESSION #6
Selecting the Team, Probity and Risk

SELECTING THE TEAM, PROBITY &
RISK

Selecting Consultants and
Probity
• What are we trying to achieve?
• Select a consultant / contractor who will:
• Do a great job
• For a price that is
• Affordable
• Competitive
• Price, Design, Competence, or any
combination.

If you are not spending public money
you can simply negotiate with
whomever you please.
But what if you want a competitive
process??

Objectives of a competitive
process
To obtain a competitive bid:
• Price
• Design
• Competence
Can be any combination of the above.

Issues to deal with…
Implied
contract
of Service
Probity
Collusion

Issue - Collusion
• Contractors, consultants & suppliers cannot
collude to:
• Fix the price
• Determine the outcome of the selection process
• Set the fee scales (by professional bodies)
• Common Law & Commerce Act

Issue – Implied contract of
Service
• In return for contractor(s) preparing and
submitting their tender, the party requesting
the tender is obliged to:
• Be genuinely intending to accept the best
tender
• Evaluate the tenders in accordance with the
criteria they set out in the request for tender.
• All tenderers will be evaluated on an equal basis
against the criteria in the request for
submissions.

• Case law - see Pratt (next slide)
• Also “Navigating the Tender Process’ in
readings

Tenders for DBB
Two issues:
• Competence
• Price
• The easiest and best approach is only allow
those contractors that you consider competent
to carry out the project, to submit a price.
• The most capable contractors will not submit a
bid if the list of tenderers is too long.
• A two stage process is therefore normal, and
will evaluate both competence, then price.

Stage 1 – Expression of
Interest
• Client invites interested parties to submit an
expression of interest setting out their
capabilities
• By invitation (selected tendering process)
• By advertisement (open tendering process)

• Tender evaluation team evaluate submission
against criteria (typical criteria)
• Experience in type of work
• Resources to put on this project
• Track record in working co-operatively
• Financial standing
• Prepare shortlist
• All contractors on the shortlist should be acceptable
if they submit the lowest conforming tender

Stage 2 – Submission of Price
Must be evaluated against the stated criteria:
• Late submissions
• Treatment of tags / non-complying bids
• Right to negotiate with:
• Lowest tenderer
• Lowest two tenderers
• All tenderers
• Under what circumstances you will reject all
bids and talk to other parties

Stage 2 – IF Invitation requests
submissions on competence as
well as price
• Submissions:
• Competence (1st) assessed & given a weighted
score
• Price (2nd) assessed & given a weighted score
• Bidder with lowest combined weighted score
is awarded the contract.
Tender contract issues require that you state that this is
what you are going to do at the time of calling the bids
and set out the criteria and scoring system you will use.

Competence criteria are sometimes referred
to as “Non-price attributes”

Tenders for DB
• Stage 1 Expressions of interest as for DB
• Design competence is a criteria
• Stage 2
• How do you determine the winning bid when
both the design and the price are issues?

Stage 2 – submission of Design
& Price
Most common approach is to ask for bid in
two envelopes:
• The design (1st)
• The price (2nd)
And then either:
• Eliminate all bids whose design is unacceptable
• Eliminate all bids whose price is unacceptable
Need criteria for evaluation of design
Use weighted criteria to determine preferred bid
Same issues as listed under DBB apply

DB Alternative approach
An alternative approach is to select on the
basis of competence and a pricing formula:
• Design fee
• Preliminary & general
• Margin
D&B contractor then works with client to
evolve design.
Subcontractors submit competitive bids for
work sections

PROBITY

Issue - Probity
• Noun
• integrity and uprightness; honesty.
• Synonym ~ rectitude
• rightness of principle or conduct; moral virtue
• Antonym ~ dishonesty
• “Confirmed integrity” (Collins Concise Dictionary)

Drivers of need for probity
(in context of procurement)
• Law of agency (common law): duty of agent
to act to the benefit of the principal
• Public law:
• Duty of public servant to act to the benefit of
the public;
• Need to ensure that the ability to do business
with the government agency is open to all
capable firms;
• Selection of contractor should be on a
competitive basis.

Need for probity applies to:
• Employees:
• Public agencies
• Public & Private companies
• Firms employed by:
• Public agencies
• Public & Private companies
• And where they are acting as agents (eg
Arch, QS or PM firms) running procurement
processes on behalf of a principle

Probity Issues
1. Conflict of interest
2. Fairness & impartiality to all potential bidders
3. Fairness & impartiality to all selected bidders
4. Confidentiality

If high levels of probity are required it is
necessary to have Probity Plan -
See example provided

1. Conflict of interest
• A conflict of interest arises when a person
making a decision may benefit from the
outcome of that decision.
• The benefit may accrue to them directly or to a
friend or relative.
• A conflict of interest arises when a person
accepts a gift or favour from a firm who may
benefit from their decision.

Required action in a probity
plan
• All conflicts of interest should be declared.
• Person should be removed from the decision
making process if the test of ‘confirmed
integrity’ cannot be met.

2&3. Fairness and impartiality
to all
• Largely a public law issue:
• Need to ensure that the ability to do business
with the government agency is open to all
capable firms.
• Not required in the Private Sector

Fairness & impartiality
includes
• Ensuring all interested firms have the
opportunity to supply the same level of
information.
• Ensuring all interested firms are given the
same advice.
• Requires a system for logging all questions and
answers and distributing them to all interested
parties.

Fairness cont.
• Evaluation process must be the same for all
firms
• The opportunity to make verbal as well as
written presentations must be equal.
• NOTE:
• A two stage evaluation process can be used
• A short list is prepared from initial written
submissions and then
• More detailed information is called for from the
selected listed firms.

Required action in a probity
plan
• Establish criteria for selection of bidders
• Advertise request for expressions of interest
• Set out information required from those seeking
to express an interest
• Set out process and criteria to be used for
selection
• Evaluate and short list using stated process
and criteria

4. Confidentiality
• Information gained in the course of the
process should be not be:
• Used for personal gain
• Pass to others who can gain from it
• Passed to other bidders?
• How do you deal with requests to submit a cheaper
non-complying bid?
• Required action in probity plan
• Set out confidentiality policy for dealing with
non-complying bids.

Record keeping – key in
probity
• How can your ‘integrity’ be demonstrated in
a court of law?
• It can involve you in a lot of tedious detail in
developing the plan and in its
implementation.

RISK

Risk in procurement (SIM)
• The imposition of risk with limited or no
negotiation can result in the misallocation of
risks – this sets the tone for the relationship
throughout a project.
• The current practice is to simply transfer risk
without any assessment of who is best able
to manage it resulting in an adversarial
environment.

Risk allocation - collaborative
• Optimal risk allocation seeks to minimise both
project costs and the risks to the project by
allocating particular risks to the party in the
best position to control them.
• This is based on the theory that the party in the
greatest position of control with respect to a
particular risk has the best opportunity to
reduce the likelihood of the risk eventuating
and to control the consequences of the risk if it
materialises.

The language of risk
Sensitivity (the impact on the project)
Probability(how
likelyisittohappen)
Risk to whom at what point in the project?

The risk management framework as viewed by Flanagan and Norman (1993) is a useful
platform from which the linkage between risk and procurement systems can be
discussed.
Risk identification
Risk classification
Risk analysis Risk attitude
Risk response
The relationship between
risk and procurement
systems lies within the area
of risk response.

Risk response
• Accept and control
• Reduce /mitigate then accept and control
• Transfer
• Do not proceed

Project Delivery
/ Procurement
Systems
Separated
Integrated
Management
Collaborative
Focus
for this
session
Risk for these
methods will
be reviewed
later

As can be seen in the table each
method carries a different level of
risk for the client.

Contractual Risk Allocation
Risk sharing
(modified from Kerzner, 2000)
Contractor’sRisk
Owner’sRisk
100%
100%0%
0%
Risk allocation
Lump-sum (Fixed Price)
Fixed Price Incentive
Cost-Plus Incentive
Cost-Plus Award Fee
Cost-Plus Fixed Fee
Cost Sharing
Cost-Plus Percentage

CONS6817_S06'16

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