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N O V E M B E R 2 0 0 5

Guidelines for managing public sector projects

Probity and probity advising

Probity Cover_final.indd 8/11/05, 5:33 PM2

Probity and probity advising

Guidelines for managingpublic sector projects

N O V E M B E R 2 0 0 5

P R O B I T Y A N D P R O B I T Y A D V I S I N G2

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This publication is available in other formats for the vision-impaired upon request. Please advise of format needed, for example large print or as an ASCII file.

ISBN 1 920726 74 8

© November 2005 – Copyright in this work is held by the Independent Commission Against Corruption. Division 3 of the Copyright Act 1968 (Cth) recognises that limited further use of this material can occur for the purposes of “fair dealing”, for example study, research or criticism etc. However, if you wish to make use of this material other than as permitted by the Copyright Act 1968, please write to the Commission at GPO Box 500 Sydney NSW 2001.

This publication and further information about the Independent Commission Against Corruption can be found at www.icac.nsw.gov.au

Caveat on use of this publication

This publication provides readers with advice, guidance and /or recommendations regarding specific governance issues.

The advice contained herein relates to what the ICAC considers at the time of publication to be best practice in relation to these issues. It does not constitute legal advice and failure to implement the advice, guidance and recommendations contained herein does not constitute corrupt conduct, which is defined in the Independent Commission Against Corruption Act 1988.

Public sector organisations are welcome to refer to this publication in their own publications. References to and all quotations from this publication must be fully referenced.

Independent Commission Against Corruption

ADDRESS: Level 21, 133 Castlereagh Street, Sydney, New South Wales, 2000

POSTAL ADDRESS: GPO Box 500, Sydney, New South Wales, Australia, 2001

PHONE: 02 8281 5999 1800 463 909 (toll free, for callers outside metropolitan Sydney)

FACSIMILE: 02 9264 5364

TTY: 02 8281 5773

EMAIL: [email protected]

OFFICE HOURS: 9.00am to 5.00pm, Monday to Friday


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Contents

Commissioner’s foreword 4

Glossary 5

Acknowledgements 6

Introduction 7

Chapter 1: Understanding probity and the role of the probity adviser 8

What is probity? 8

Probity fundamentals 8

What is a probity adviser? 10

The probity adviser’s reporting structure 15

About the probity advising profession 16

Chapter 2: Deciding whether to use a probity adviser 19

When to use a probity adviser 19

When not to use a probity adviser 21

Alternatives to using an external probity adviser 22

Chapter 3: Engaging a probity adviser 24

Finding and engaging a probity adviser 24

Important considerations in engaging a probity adviser 24

Scope of a probity adviser’s work 26

What specific tasks should a probity adviser perform? 30

Chapter 4: Probity plans 32

Using probity plans 32

Elements of a probity plan 33

Appendix 1: NSW Premier’s Department requirements for

engaging consultants 37

Appendix 2: Contacts and resources 38

Appendix 3: Probity plan templates 39

Bibliography 40


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Commissioner’s foreword

This publication provides important information and guidance about the role of probity in public sector projects.

Probity involves more than just avoiding corrupt or dishonest conduct: it involves ensuring that often-complex public sector processes – such as procurement, disposal of assets, sponsorship and administration of grants – are conducted in a manner that is fair, impartial, accountable and always in the public interest.

Probity plans are now part of the planning and management of many large, complex and/or potentially controversial projects. In some jurisdictions, they are mandatory for very large projects – in New South Wales, for example, state agencies are required to submit a probity plan as part of their reporting to Treasury on projects that are valued at over $10 million and/or are classified as high risk.

A number of organisations and individuals now provide advice on probity issues to public sector organisations on a commercial basis.

This publication provides guidelines for public sector organisations on probity and probity advising, including the development and use of probity plans.

The publication also deals in some detail with the role of probity advisers. It advises that generally speaking there is no need to retain a probity adviser on routine projects. The publication identifies 15 important criteria which may be relevant when considering whether or not to engage a probity adviser.

This publication will help ensure that major public sector projects achieve best value for money and are conducted in a manner that is impartial, accountable and transparent.

I trust that you will find this a useful resource.

The Hon Jerrold Cripps QCCommissioner


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Glossary

Agency Any public sector organisation including, but not limited to, departments, statutory authorities, courts, tribunals and commissions, state owned corporations, public trading enterprises, boards and committees, advisory bodies, trusts, area health services, Aboriginal land councils, universities and local councils.

Conflicts of interest A conflict between the public duty and private interests of a public official where the public official has private interests which could improperly influence his or her official duties and responsibilities.

EOI Expression of Interest

Probity adviser An individual (internal or external) or organisation engaged to observe, review and provide guidance on the probity framework and/or processes of a project.

Probity plan Is the control framework document that establishes tasks, procedures and treatment options for managing the probity-related aspects of a project. The probity plan should include, or follow from, a risk assessment of the known and likely probity risks.

Project This term is used generally to describe any public sector undertaking such as an acquisition, construction of a building, a development application, a grant, a sponsorship, a privatisation, etc.

Proponent A party that is actually or potentially seeking to enter into a transaction or contract with an agency. The term includes but is not limited to tenderers, bidders, buyers, sellers, joint venture partners, sponsors, development applicants and grant applicants.

RFT Request for Tender – is generally any request for a detailed proposal, be it in the form of a tender or some other type of submission, application or bid.


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Acknowledgements

The principal author of this publication is Lewis Rangott, Senior Corruption Prevention Officer, Independent Commission Against Corruption.

This publication could not have been completed without significant input from a number of organisations and individuals that met with the ICAC and provided feedback on early drafts. The majority of the suggestions received have been incorporated into this publication.

The ICAC wishes to thank:

Acumen Alliance

Blake Dawson Waldron

Cosoff Cudmore Knox Lawyers and Mr John O’Grady, Partner

Deloitte Touche Tohmatsu

Ernst & Young

Internal Audit Bureau of NSW

Institute of Internal Auditors and Mr Neil Adams, President NSW Chapter

NSW Audit Office

NSW Crown Solicitor’s Office

NSW Department of Commerce

NSW Ombudsman

NSW Treasury

RailCorp NSW

Mr Bill Rock, Director, Risk Reward Pty Ltd


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Introduction

Probity has become an increasingly important aspect of major government projects in New South Wales. The supply of probity advice services and consultancies has expanded considerably, as have the accountability expectations of government. The increasingly complex nature of many public sector projects and the use of non-traditional contracting arrangements (such as privately-financed projects and alliance contracting), has meant that probity expertise is often sourced from specialists outside the public sector.

Probity considerations most often arise when public sector agencies undertake substantial acquisitions of goods and services, major information and communications technology upgrades, or major construction projects.

However, probity considerations can also arise during the course of other activities, such as the disposal or privatisation of assets, assessment of development applications, the awarding of government grants, consideration of sponsorship offers and entering into joint ventures.

In fact, any significant or complex public project or activity involves identifying and managing probity issues.

The ICAC continues to receive complaints about – and where appropriate to investigate – matters where lapses in probity have been a critical factor. These matters can concern both the management of projects and other complex government activities.

This publication provides guidance on probity advice and how best to use the probity advising profession.

It is intended to be a practical and useful resource for public sector managers and staff involved in managing government projects. It will also be relevant and useful to practising probity advisers.1

This publication presents the key fundamentals that underpin probity management on public sector projects and describes the probity advising role. It provides guidance on the circumstances in which appointment of an independent probity adviser is warranted. It also gives readers guidance on how to find and engage a probity adviser and makes recommendations as to the specific tasks that probity advisers should perform.

The publication also discusses the use of probity plans as a necessary aspect of any major project and covers some of the practical steps that agencies can take to ensure probity without the assistance of a probity adviser.

1 The terms “probity adviser” and “probity auditor” are often used interchangeably. For the reasons outlined on page 10, the ICAC has adopted the term “probity adviser” in this publication.


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Chapter 1: Understanding probity and the role of the probity adviser

What is probity?

The term probity means integrity, uprightness and honesty.

For public officials and public sector agencies, creating and maintaining probity involves more than simply avoiding corrupt or dishonest conduct. It involves applying and complying with public sector values and duties such as impartiality, accountability and transparency.

Ensuring probity in public sector activities is part of every public official’s duty to adopt processes, practices and behaviour that enhance and promote public sector values and interests.

Effective probity management is concerned with the procedures, processes and systems used rather than the outcome of an activity, undertaking or project. It should also be recognised that – despite good management of probity risks – mistakes, delays and disputes can arise. Similarly, even the best probity processes do not guarantee that a project or activity will be immune from problems or criticism.

The management of probity risks is sometimes seen as being overly bureaucratic. The ICAC does not agree with this view. Considering and addressing probity issues should be a normal part of any significant project being undertaken by an agency, regardless of whether a probity adviser is appointed. Addressing probity issues does not necessarily incur delays or additional costs if this is incorporated into the project planning process from the outset.

Dealing with probity issues early in the planning process of a public sector project can:

■ improve the quantity and quality of private sector involvement by generating confidence in the process;

■ remove ambiguities in the evaluation of proposals;

■ assist in ensuring overall project objectives are met; and

■ minimise costly challenges in the future concerning the integrity or processes of the project.

Probity fundamentals

There are five inter-related fundamentals that all probity advisers, project teams and agencies should keep in mind. The fundamentals should also provide the foundation for any probity engagement. The five fundamentals are:

Best value for money

This is achieved by fostering an open competitive environment in which proponents can make attractive, innovative proposals with the confidence that they will be


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assessed on their merits. Lapses in probity often end with one or more parties obtaining unreasonable financial gains at the expense of the public interest.

Value for money does not necessarily mean lowest price. Agencies need to consider non-price elements of proposals (including risk) and devise criteria that allow them to be evaluated.

Impartiality

Individuals and organisations involved in preparing and submitting proposals for large public sector contracts often invest considerable time, effort and resources in doing so. In return, they are entitled to expect impartial treatment at every stage of the process. If they do not consider the process to be impartial and honest they may withhold valuable ideas or be deterred from bidding in the future. Any form of bias, whether driven by personal interests or not, could jeopardise the integrity of the project.

There is a further risk that proponents who believe the process is prejudiced will commence legal action. Regardless of the outcome, this can cause delays and result in financial costs not anticipated in the project budget.

Dealing with conflicts of interest 2

A large percentage of the matters reported to the ICAC involve an actual, potential or perceived conflict of interest. A conflict of interest is a conflict between the public duty and private interests of a public official where the public official has private interests which could improperly influence their official duties and responsibilities.

The community and potential proponents have a right to expect that public officials will make decisions that are not influenced by private interests. Similarly, when the private sector is engaged to perform public sector duties, there is an obligation to ensure that conflicts of interest are disclosed and effectively managed.

Agencies should also be aware that perceived or potential conflicts of interest can be as damaging as actual conflicts.

Accountability and transparency

Accountability and transparency are related concepts. Accountability involves agencies being able to demonstrate and justify the use of public resources to an appropriate authority. This involves allocating and taking responsibility for past and expected performance. This necessarily involves keeping good records that leave an audit trail.

Transparency refers to the preparedness to open a project and its processes to scrutiny and possible criticism. This also involves providing reasons for all decisions that are taken and the provision of appropriate information to relevant stakeholders.

Demonstrating accountability and transparency gives proponents and taxpayers additional confidence in the decisions being made. It also reduces the opportunities for corrupt conduct and fraud.

2 More specific information about identifying and managing conflicts of interest is available in Managing Conflicts of Interest in the Public Sector: Guidelines and Toolkit, Independent Commission Against Corruption / Crime and Misconduct Commission, November 2004. These resources are available under Publications (Corruption Prevention) on the ICAC website www.icac.nsw.gov.au

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Confidentiality

Accountability and transparency are fundamental to the work of public sector organisations and public officials. However, there is some information that needs to be kept confidential, at least for a specified period of time, in order to protect the integrity of the process and give proponents the confidence to do business with government. This information can include the content of proposals, intellectual property and proponents’ pricing and profit structures. Importantly, much of the information relating to the project needs to be kept confidential up to the point where a contract is signed with the successful proponent. However, once this has happened, government guidelines require that certain information be released, consistent with the fundamental principles of public sector accountability and transparency.3

What is a probity adviser?

Terminology – probity advising and probity auditing

In discussing issues of probity, the question frequently arises as to whether the activity should be described as probity advising or probity auditing. Within the profession the terms are often used interchangeably and there is no legal or professional standard in relation to the correct or agreed use of the terms “probity auditor” and “probity adviser”.

In practice, it is often the case that the person engaged to perform probity activities for a large government project will perform both advice and audit functions.

The ICAC suggests that probity considerations should form part of the normal project planning process, and as such the person engaged to perform these duties will have a significant advisory and planning role in the project plan development phase. Although the person may perform some audit-type functions as the project progresses, the initial and primary function is one of advice. Furthermore, persons who perform probity functions for a project do not necessarily have formal accounting and auditing qualifications, which may make the use of the title “probity auditor” misleading for agencies. It is important to note that the audit functions performed by a person engaging in probity activities are unlikely to provide the same level of assurance as a traditional form of audit (discussed further on pages 11–13).

For the above reasons, the ICAC uses the term “probity adviser” in this publication, while acknowledging that many probity advisers undertake some specific and limited forms of auditing activity.

The following sections define, discuss, and differentiate between the advisory and auditing functions of the role.

Defining and describing probity advising

A probity adviser is an individual or organisation engaged to observe, review and provide guidance on the probity framework and/or processes of a project. Agencies use internal or external probity advisers to verify that the processes followed are consistent with government regulations, policies, guidelines and best practice principles. A probity adviser provides opinions and guidance on probity risks and issues that may

3 See Premier’s Department Memorandum No. 2000-11, “Disclosure on Information on Government Contracts with the Private Sector”, April 2000.


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arise during the process and confirms, in writing, whether the concluded process is consistent with the requirements outlined in a probity plan as well as general probity fundamentals. If probity requirements are not being or have not been met, the adviser identifies the non-conformities and any reasons for these in a written report, and if necessary, suggests solutions and monitors their implementation.

A probity adviser is chiefly concerned with ensuring the integrity of the procedures and processes of the project, rather than project outcomes. That is, the focus is on the means, not the ends of the project. The probity advising role is essentially preventive. For this reason, a probity adviser is usually engaged at an early stage to assist with project establishment and before any serious problem with the integrity of the project can develop.

Probity advisers are most often engaged by public sector agencies when undertaking substantial acquisitions of goods and services, major information and communications technology upgrades or on major construction projects. However, probity concerns can also arise during the course of other projects such as disposal or privatisation of assets, assessment of development applications, the awarding of government grants, consideration of sponsorship offers and entering into joint ventures. In fact, any significant or complex public project can be the subject of a probity-related engagement.4

In some ways, a probity adviser is slightly different from a conventional consultant. This is because part of a probity adviser’s role is to oblige an agency to justify, publicly if necessary, how it has used or misused public resources. One of a probity adviser’s key responsibilities is to provide constructive criticism during the course of a project. This may include suggesting that certain processes be repeated, that persons be removed from the project team or that the team has made a procedural mistake. At times, this constructive criticism may not reflect well on the project manager or the team. However, a probity adviser has a professional duty to ensure that his or her concerns are conveyed in an appropriate fashion, even if this entails reporting adverse findings.

The auditing function

Broadly speaking, the practice of auditing can be divided into financial and non-financial categories. Financial audits are usually mandatory and involve verifying whether an organisation’s financial statements comply with specified criteria (such as the Australian Accounting Standards). They are usually carried out by external auditors with formal accounting qualifications. In New South Wales, the NSW Audit Office is responsible for the financial audit requirements of most public sector agencies.

Non-financial audits can also focus on compliance (e.g. compliance with government policy) but can extend into more general reviews of the economy, efficiency or effectiveness of a particular operation or structure. These latter audits are called performance audits.

Non-financial auditing may be carried out by external or internal auditors and typically is undertaken at the discretion of management. Non-financial audits are less likely to have a universal, mandated body of standards that can be used as benchmarks by the auditor. The non-financial auditor more often audits actual practice against an instrument such as a policy document, agreed industry standards or a project plan.

4 For this reason, wherever possible this publication will use the term “proponent” instead of “tenderer” or “supplier”.


“The probity advising role is essentially preventive.”


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The audit work that is often undertaken by probity advisers is a type of non-financial audit that involves a combination of compliance and performance checks. The probity adviser verifies that the process followed is consistent with documents such as a probity plan, risk assessment plan and/or the EOI/RFT documents.

Generally speaking, auditing is backward-looking in nature. That is, the auditing process involves analysing information about events that have already occurred. As a result, audits are performed at arm’s length from the event or issue that is being audited. The advantage of this is that the auditor is able to remain independent of his or her subject matter.

The particular and limited form of non-financial auditing undertaken by probity advisers, however, is necessarily done as the project progresses. Because the client agency requires timely information and assurance, there is little value in having the audit performed at the conclusion of the project. Consequently, a probity adviser typically provides opinions or reports at various key decision points or milestones during the project. This approach enables the probity adviser to identify departures from probity fundamentals or standards in time for any errors to be corrected.

The advising function

The advising function differs from the auditing function in a number of key respects. The key emphasis in the advisory aspect of the role is on how a process complies (or can be made to comply) with a particular set of criteria, standards or principles. Conversely, the auditing aspect of the role focuses on whether a process complies with the set criteria, standards or principles.

The advisory function also requires independence from the project, but because probity advice is more likely to be relied upon by the client to make real-time or forward-looking decisions, an adviser does not share the same degree of arm’s length independence as a professional performing a more traditional audit function.

The advising function also entails a greater role in overseeing the preparation of the actual probity plan or risk assessment that is used by the agency to guide the process. A probity service that is strictly audit-based should be confined to assessing compliance with a probity plan, rather than actually preparing it, the general principle being that auditors should not design the process they will be auditing.

In practice, most probity services combine aspects of audit and advice. However, the functions should be understood as different. Most of the time, combining aspects of each function within one engagement will not present difficulties, but the agency needs to be clear about the service it needs. As a general rule, agencies that wish to obtain a level of independent verification that the process followed is consistent with a particular standard or criteria should engage an audit-based service. Agencies that mainly require practical assistance in identifying and managing a range of probity-related risks should engage an advice-based service.

Some of the different characteristics of auditing and advising are listed in Table 1.


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Table 1 – Aspects of auditing and advising on probity engagements

Approach Auditing Advising

Timeframe “Backward-looking” – primarily done after the fact.

“Forward-looking” – primarily done before the fact.

Opinion Provides an audit opinion on compliance with an established guideline, standard or principle.

Provides both opinions and advice contemporaneously, to ensure that an established guideline, standard or principle is followed.

Independence High degree of independence. Largely self-directing.

Independent, but as an adviser has a level of direct interest in the project. More likely to be under the direction of the client.

Service Provides assurance services – finds discrepancies and monitors compliance.

Provides consulting services – anticipates and prevents lapses in probity. More likely to be involved in implementing solutions to probity problems.

Reporting Generally reports to a senior manager or steering committee, above the project manager.

Mainly reports to and liaises with the project manager and/or project team. Less responsibility to external stakeholders.

Report format Emphasis on formal, written reports.

Higher degree of verbal, informal reporting. However, must still provide written reports.

Methodology Adopts an audit methodology and adheres to audit conventions and professional standards.

Departs from strict audit methodology and is more likely to use own standards or approach.

Probity plan Likely to be involved in verifying compliance with a probity plan or similar document, but not in its preparation.

Likely to be involved in overseeing the preparation of a probity plan or similar document.



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Distinguishing between auditing and advising functions can be important

Agencies should be aware of the fact that once a probity adviser begins to give advice on the processes to be followed, that person develops a stake in the outcome of the project. If a probity-related problem develops during the course of the project, the adviser may be caught in a situation where his or her previous advice is called into question (even if it was sound advice). Consequently, the appointed probity adviser, in exercising an auditing function, may be called upon to audit the outcome or consequences of his or her own advice, thereby creating a potential conflict.5

In practice, many users of probity services require a combination of audit and advice. The potential for the two roles to come into conflict is generally a risk that can be tolerated, providing that it is well managed and the agency remains aware of it.

On very large or complex projects, it may be sensible to separate the audit and advice functions by engaging two people or entities (from different organisations), one of whom would perform the probity auditing function strictly at arm’s length from the project, while the other would perform the advisory role. This would be helpful on controversial projects where the independence of the audit function is particularly important.

One possible governance model for these dual roles would be to appoint an external organisation to take on the audit role (which requires the greater degree of independence), while appointing an internal person or unit to act as probity adviser (or vice versa). Other circumstances in which the two functions could be separated are outlined below.

When might the audit and advice functions be separated on probity engagements?

■ If the project is very large or complex and the cost of having the two functions performed by separate individuals or entities can be justified.

■ If having one person or entity performing the two functions creates an actual or perceived conflict of interest that will harm the integrity of the project and/or the independence of the audit work undertaken.

■ If the agency is confident that it can perform one of the functions without external assistance.

■ If, based on the circumstances and the project needs, the agency requires only one of the functions to be performed.

5 The Australian National Audit Office discussed this issue in its report Health Group IT Outsourcing Process – Department of Finance and Administration, Audit Report No. 14, October 2002. The Office found that an important issue was “the care that needs to be taken in obtaining advice from a probity auditor on the resolution of probity issues that may arise in the course of the tender. This issue has implications for the level of independent assurance that can be derived from a sign-off subsequently provided by a probity auditor.”


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The probity adviser’s reporting structure

The following diagram6 provides a reporting model for a typical project where a probity adviser is being used.

The key features of the model are that:

■ The probity adviser is independent of the project team and of the other advisers.

■ The probity adviser’s main reporting lines are to the project manager and the steering committee, but s/he has other reporting lines available.

6 Adapted from the Victorian Government Purchasing Board Probity Plan template – see Appendix 3.


Agency / Department / Council

Director-General / General Manager

Steering committee / Project sponsor

Project manager / director

Project team

Other advisers (legal, financial, technical etc)

Probity

adviser


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About the probity advising profession

In order to call oneself a probity adviser7, a person does not need to possess a particular qualification or required level of education. Entry into the profession is largely unregulated. In addition, there is currently no obvious professional association or peak body that caters directly to probity advisers.8

Almost all practitioners and organisations that provide probity-related services also advertise a range of related business services, which can include:

■ financial auditing;

■ accounting;

■ risk management advice;

■ legal advice / representation;

■ business improvement consulting;

■ fraud prevention / investigation;

■ logistics / supply chain management;

■ information technology;

■ project management.

So, probity advisers can come from an array of professional backgrounds and may provide a wide range of related services. Probity advisers also vary in terms of their experience, methodology and fees and for these reasons the boundaries around the profession can at times be unclear.

Who does probity advising in NSW?

Many of the major accounting and law firms, and some second tier firms advertise probity services. A range of smaller consulting firms also provide probity advising services.

In NSW, the Department of Commerce maintains a panel of standing offer contractors for the provision of “audit and audit-related services”. Agencies can obtain quotations from a number of the contracted firms for probity advising services.9 Local councils may also access this panel. The Department itself also employs officers with expertise in dealing with probity issues and complex tendering and procurement processes. The Department also has RFT process review committees with a mandate to examine the probity and procedural aspects of tenders.

Other central agencies and government-owned enterprises also provide probity advising and more general risk management services to agencies requiring them.

Finally, many agencies have internal staff or divisions (typically the internal audit unit) that are suitably qualified and experienced to perform a probity advising role on significant projects.

7 Or ‘probity auditor’, for those who use this term.8 Many practising probity advisers are members of organisations such as the Institute of Internal

Auditors, the Institute of Chartered Accountants, CPA Australia or the Law Society, but there is no association devoted to the probity advising profession.

9 Pursuant to clause 16(3) of the Public Sector Management (Goods and Services) Regulation 2000, certain agencies must use this panel for some engagements.


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What is the cost of probity advising?

On routine projects, the cost of engaging a probity adviser is likely to outweigh the benefits gained. However, for non-routine projects, a good probity adviser can add value in excess of his or her fee by assisting in the development of, and compliance with, an impartial process. This increases the confidence of proponents in the process and reduces the opportunities for complaint.

Very little empirical research has been undertaken in relation to the costs of probity advice. One study by Ng and Ryan found that, of engagements where a fee was identified, approximately two thirds of probity engagements conducted in Queensland between 1994 and 1998 were at a cost of less than $30,000. However, the range of costs for individual probity engagements for this period was from under $5,000 to in excess of $60,000.10

To improve value for money, the ICAC encourages agencies to consider appointing suitably qualified internal staff to act as probity advisers in lieu of external consultants.

Does a probity adviser need to have accounting or auditing qualifications?

In practice, the majority of probity advisers have a grounding in either financial, compliance or performance auditing. Some have formal auditing qualifications and belong to professional associations, while others have a more general understanding of audit methodology.

The ICAC does not consider that formal accounting or auditing qualifications should be a prerequisite for a probity adviser. Advisers with backgrounds in other fields can also be proficient at identifying and remedying probity concerns. That said, assessing or verifying compliance with an agreed standard is a key part of a probity adviser’s role. Consequently, the ICAC recommends that all probity advisers be able to demonstrate some familiarity with audit techniques and, in particular, the conventions relating to independence and the duty to report breaches of probity.

What competencies does a probity adviser need?

A probity adviser should have the ability to maintain an independent mind, analytical and problem-solving skills and developed communications skills, which includes the ability to resolve grievances in a diplomatic manner.

Because entry into the profession is unregulated, demonstrated experience is an important attribute for a probity adviser. It is considered essential that a probity adviser has proven experience in the profession, but not necessarily in the precise portfolio or project that is being considered. The skills and attributes that make a good probity adviser are largely transferable across different types of project.

There are, however, some areas where a probity adviser should be able to demonstrate technical awareness and knowledge. In NSW these include:

■ The relevant government legislation, policies and guidelines pertaining to procurement, disposal and major projects. This would include the NSW Government Procurement Policy and Code of Practice for Procurement (as amended). For local government projects, this would include aspects of the Local Government Act 1993 and the Environmental Planning and Assessment Act 1979.

10 Ng C & Ryan C, “The practice of probity audits in one Australian jurisdiction”, in Managerial Auditing Journal, vol.16 (1/2), 2001, p.73.



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■ Legislation relating to corrupt conduct and other forms of misconduct and maladministration, as well as protected disclosures.

■ Details of any relevant case law covering the provision of probity advice and the management of public sector projects (see below).11

■ The probity fundamentals outlined on pages 8–10 and their implications for public sector projects.

Case law example – Cubic Transportation Systems vs State of NSW (NSW Supreme Court, July 2002)

In this case, the unsuccessful tenderer, among other things, argued that the integrity of the tendering process for an electronic public transport ticketing contract had been compromised. The judgment was in favour of the Government but it contained several lessons relevant to the role of the government-appointed probity adviser:

■ For a large and complicated project it would be rare for the evaluation process to be flawless, despite the efforts of the probity adviser.

■ Some proponents can question the probity of a process merely to create a delay that can be used to their advantage. That is, complaints about probity can be made in bad faith.

■ It is reasonable and appropriate for a project director to rely on the advice and reports of the probity adviser when making decisions about the project. However, ultimate responsibility for the probity of the process lies with the government agency.

■ It is appropriate for the probity adviser to assist in the resolution of probity issues that arise during the course of the project.

■ The probity adviser must perform sufficient work in order to support the conclusions reached.

■ All documentation in relation to the evaluation process may be accessed during court proceedings.

11 The ICAC does not consider that formal legal qualifications are required to meet this need. A good source of information on case law pertaining to the contracting process is Seddon N, Government Contracts – Federal, State and Local, 3rd edition, 2004.


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Chapter 2: Deciding whether to use a probity adviser

When to use a probity adviserProbity advisers can add value to a project in a number of ways. However, an over-reliance on external advice can inhibit an agency’s ability or willingness to develop its capacity to address issues associated with probity and ethical practice in a holistic fashion. For this reason, the ICAC generally recommends that probity advisers not be appointed on routine projects. Instead, project managers and team members alike should ensure they incorporate probity fundamentals into their projects and develop a probity framework or controls. Ensuring that internal staff develop and implement probity controls enhances an agency’s capacity to resist corruption.

However, the ICAC acknowledges that from time to time, most agencies will have to undertake projects that are not routine.

The ICAC has identified the following criteria that agencies should consider carefully before deciding whether a probity adviser is required. The criteria listed are not exhaustive or binding, but are intended to help agencies when deciding whether or not to engage a probity adviser for a particular project.

Criteria for use in assessing the need for a probity adviser

The engagement of probity advisers can be considered when:

1. The expected cost of the project is high relative to the types of project normally undertaken by the agency.

2. The project itself is inherently complex or risky.

3. There has been a relevant history of controversy or litigation in relation to the agency, the project or one of the potential proponents.

4. The project is politically sensitive (for example, a major privatisation or a project with a significant environmental impact).

5. It is anticipated that there will be an in-house or public sector bid and independent scrutiny is needed to avoid actual or perceived bias. Additionally, if there is an incumbent contractor with a strong relationship with the agency other competitors may require additional assurance that the process is genuine.

6. The costs of bidding are expected to be high relative to the size of the contract.

7. The project involves significant intellectual property, an unsolicited proposal for a major project or highly subjective selection criteria.

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8. The agency wishes to make substantial changes to the scope of the project or the bidding process after it has already commenced.12

9. The evaluation process requires lengthy and detailed face-to-face meetings with individual proponents and/or site visits.

10. The project is expected to be privately financed; or uses a complicated contract structure such as a build-own-operate-transfer contract or alliance contract; or where a very long term public–private partnership is to be established.13

11. Guidelines issued pursuant to section 400C of the Local Government Act 1993 (or any other guidance from the Department of Local Government) either recommend or require the appointment of a probity adviser for a public–private partnership.

12. The market is highly concentrated or there are very few players and information sharing, collusion or other forms of anti-competitive behaviour are a possibility.

13. A proponent has already been involved in the feasibility study or pre-tender stages of the project, having thereby potentially obtained an unfair advantage.14

14. The agency is expecting to make a sizeable profit or generate a considerable income stream from the project.

15. The agency is not an informed buyer, or lacks experience in the nature or magnitude of the project being undertaken.15

As more of these criteria become relevant, the case for engaging a probity adviser is strengthened.

Engaging probity advisers on a ‘full service’ basis can be expensive or indeed unnecessary, so at times it may be more practical to appoint a probity adviser to consider only the high risk probity aspects of the project. For instance, an agency may engage a probity adviser for the sole purpose of assisting in the preparation of a probity plan or conducting a probity risk assessment. The ICAC supports these types

12 Although the ICAC recommends that probity advisers be appointed early in the project, when there is a substantial, unforeseeable change in the scope or terms of the project it might be reasonable to then appoint a probity adviser. The appointment of the adviser may form part of the response to the original decision to change the scope or terms but should not form part of the justification.

13 The NSW Government guidelines, “Working With Government – Guidelines for Privately Financed Projects” (November 2001) state “A probity auditor should be appointed for large, complex and unusually sensitive PFPs to ensure that a transparent and robust process is followed” (p.30).

14 The ICAC advises that wherever possible, consultants that work in these preliminary phases of a project be contracted on the basis that they can be excluded from future phases if necessary. If it is not possible to exclude consultants on subsequent phases, ordinarily all potential proponents should be provided with the same information as the proponent performing the preliminary work.

15 The Liverpool Council Public Inquiry has suggested that when considering entering into a public– private partnership, a council should perform a skills assessment of its staff to determine whether external assistance, such as probity advice, is necessary. Liverpool City Council Public Inquiry, Final Report, Volume 2, June 2004, p.5. The ICAC supports this approach for all major projects.


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of limited engagement, providing that the agency negotiates them in good faith.16

In addition, agencies should make an assessment as to whether an internal member of staff or expert from another agency could perform some or all of the probity advising role.

The majority of the criteria above are such that agencies should be in a position to make a decision about the need for a probity adviser at the early stages of the project.

When not to use a probity adviser

As stated previously, probity advisers should in general not be used to oversight the routine or standard business of an agency. There are, however, other circumstances in which the use of a probity adviser is inappropriate. In the past, the ICAC has discovered probity advisers being appointed for the wrong reasons or with unrealistic expectations about what can and should be achieved.

The following are examples of instances where the use of a probity adviser would probably be inappropriate:

■ Agencies relying solely on the presence of a probity adviser to demonstrate probity when they have or should have systems in place that incorporate probity fundamentals.

■ Agencies conceiving of and using probity advisers as a form of ‘insurance’ and as a possible scapegoat should problems emerge, or to avoid being held accountable as managers. A probity adviser should give the agency a degree of assurance but not create a sense of complacency.

■ Using probity advisers to justify speeding up a project, cutting corners or making hasty decisions.

■ Using probity advisers as de facto media spokespeople, or pointing to the presence of a probity adviser as a response to media enquiries.17

■ Using a probity adviser to justify a decision to depart from a competitive process and to negotiate directly with one bidder.

■ Engaging a probity adviser with terms and conditions that are too narrow for probity-related risks to be identified and addressed.

■ Appointing the probity adviser to take on other roles such as providing legal or business advice that may affect his or her independence.

■ Using a probity adviser who the agency believes will be easily compromised or will endorse management’s line on key issues affecting the integrity of the project.

Probity advisers should not be engaged on a ‘set and forget’ basis. The presence of a probity adviser should not give the project manager or the project team a reason for ignoring or side-stepping probity issues. The probity adviser should certainly be relied upon to identify problems and recommend solutions, but it is not necessarily his or her job to implement those solutions.

16 That is, probity advisers’ scope of work should not be narrowed for the purpose of avoiding scrutiny. In addition, if unforeseen probity issues develop during the course of a project, the client should be flexible about expanding the scope of the probity adviser’s work.

17 It is appropriate to provide the media with an explanation of how a probity adviser’s guidance was followed, but it is not appropriate to assert that the mere presence of the probity adviser justifies a particular outcome or establishes the probity of a process.


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Alternatives to using an external probity adviser

If a project does not warrant the appointment of a probity adviser, or if costs prevent an agency from engaging a probity adviser on a ‘full service’ basis, there are a number of practical steps that can be taken to improve the integrity of the project. These include:

■ Prepare a probity plan and ensure that it is followed. This can be done with or without the assistance of a probity adviser. Probity plans are discussed in more detail in Chapter 4.

■ Seek advice or assistance from the Department of Commerce or Treasury. This could involve undertaking a ‘gateway review’ at one or more of six key decision points in the project.18 The Department of Commerce has accredited reviewers who can conduct gateway reviews. Although these reviews cover more than just the probity aspects of the project, they can help to identify risk areas that can adversely affect cost and delivery.

The NSW Auditor-General has recommended that at least one ‘health check’ be performed during all major high-risk projects with recommendations addressed on a timely basis.19

■ Ensure that at least one suitably qualified and experienced independent person is part of the evaluation committee and/or project team. This may provide an increased level of confidence in the integrity of the process.

■ Require the project manager to prepare a separate report to the steering committee or senior management addressing probity issues. In addition, incorporating probity fundamentals into the project manager’s contract can improve his or her commitment to maintaining appropriate standards of probity.

■ Obtain agreement to make video or audio recordings of meetings held with proponents and ensure that an independent minute taker is present. Retaining the services of an independent person to observe and document certain processes can be a practical alternative to using a probity adviser.

■ Establish and promote a grievance handling procedure that allows proponents to raise probity issues in a confidential manner with a person who is at arm’s length from the project. This can form part of an agreed communications protocol for the project.20

■ Appoint an experienced internal person to act as a probity adviser. The NSW Auditor-General has noted that additional involvement by internal auditors on major projects is desirable.21 Internally appointed probity advisers should, however, have the necessary autonomy and independence to challenge decisions made and processes followed and, if necessary, to convey any concerns they might have to senior management.

18 For more details see the NSW Government Procurement Policy, TPP 04-1, July 2004. For certain acquisitions, use of a gateway review is mandatory at the business case stage of the project.

19 Audit Office of NSW, Review of Sydney Water’s Customer Information and Billing System, Report to Parliament, Volume One, 2003, p.14.

20 If the matter relates to a NSW government procurement contract, formal complaints should be directed to the State Contracts Control Board.

21 Audit Office of NSW, State Rail Authority: The Millennium Train Project, Performance Audit Report No. 112, June 2003, p.43.


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■ Develop an agency Statement of Business Ethics and use it to inform staff and proponents about the ethical standards set by the agency and establish the ground rules for engaging with the private sector. For more details, see the ICAC’s publication, Developing a statement of business ethics – A guide to building ethical business relationships between NSW public sector organisations and the private sector (May 2004).

■ Section 27B(3)(c) of the Public Finance and Audit Act 1983 gives the Auditor-General the power to provide the Treasurer or a Minister with any audit or audit-related service that is requested. Although this will not typically involve a probity advising role per se, the Auditor-General can examine the performance aspects of a project. Section 27B(5)(b) empowers the Auditor-General to consider any lack of probity or financial prudence in the management or application of public resources.

■ Reconsider undertaking the project. If an agency cannot manage or tolerate the probity risks of a project (with or without a probity adviser), it may be sensible to either delay or cancel the project, or consider inviting a different agency to manage it.



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Chapter 3: Engaging a probity adviser

Finding and engaging a probity adviser

As noted on page 16, the Department of Commerce maintains a panel of standing offer contractors that certain agencies must use if seeking an audit service. Where this panel is not used, and pursuant to the Public Sector Management (Goods and Services) Regulation 2000, the contract value thresholds for the appointment of consultants are established by the Premier’s Department. The thresholds at the date of publication are listed in Appendix 1 but agencies should consult the Premier’s Department for any updates.

For local government, section 55 of the Local Government Act 1993 and Part 7 of the Local Government (General) Regulation 2005 apply. Councils are not legally required to tender for contracts (including consultancies) valued at less than $150,000. Despite this, the ICAC suggests that local councils interview and obtain quotations from a number of probity advisers before formalising an engagement.

The ICAC suggests that where probity advisers are used they be appointed at an early stage, at or about the same time that a business case or similar analysis is being prepared and certainly before any EOI/RFT documentation is finalised. If this is done the adviser can have a greater influence on the processes to be followed.

There should be a degree of internal segregation when selecting a probity adviser. Ideally, the project manager and project team should have only a limited role in nominating or engaging the probity adviser. Although the staff performing most of the immediate work on the project should have a say in whether or not a probity adviser is needed, the actual appointment should be made by senior management.

Similarly, someone senior to and outside the project team should approve the probity adviser’s scope of work. There is a risk that someone within the project team could seek to obtain the symbolic benefits that accrue from having a probity adviser, but at the same time prepare a relatively narrow scope so as to prevent genuine scrutiny.

Important considerations in engaging a probity adviser

A probity adviser should not be encumbered by any actual or perceived conflict of interest that could compromise his or her duty to give candid advice about the probity aspects of the project.

The probity adviser or his or her organisation must not be providing another service relating to the project. A probity adviser cannot simultaneously serve in roles such as legal adviser, technical adviser or project manager and still maintain independence. The probity adviser’s role in the project should be strictly confined to probity issues and not stray into other fields of advice, even if the adviser has expertise in these

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areas. A probity adviser (and his or her organisation) should preferably have no other current or prospective business relationship with the client agency on other projects. However, in practice this is often difficult to achieve.

In addition, a probity adviser should have no commercial relationship with one of the actual or likely proponents that would create a conflict of interest. It is not only important that the individual adviser(s) are not associated with a proponent but also that their firm is not engaged by a proponent in relation to the project. Probity advisers from large organisations should be able to access a register of commercial interests or a similar source of information that will facilitate the discovery of any actual, perceived or potential conflicts. Options for managing conflicts include disclosure, separation of duties, establishing barriers to prevent the exchange of sensitive information (commonly known as “Chinese walls”) and in more serious cases, replacement of the probity adviser(s).

Where a concern is raised in relation to the independence of the probity adviser, it is not sufficient to merely argue that the perception is misplaced or that it is not legitimate to make enquiries about the probity adviser’s appointment. If there is anything questionable about the probity adviser’s independence, his or her value to the project will be diminished.

Probity advisers should also have current and sufficient professional indemnity insurance in place. If a prospective adviser cannot demonstrate that s/he has appropriate insurances or other forms of indemnity, consideration should be given to appointing an alternative adviser. Before retaining a probity adviser, the agency should also check any referees or letters of reference from previous clients.

Is it acceptable to repeatedly engage the same probity adviser?

The Premier’s Department “Guidelines on the Engagement and Use of Consultants” require that consultants be engaged on the basis of best value for money, impartiality, accountability and ethical practices. If a particular probity adviser repeatedly meets these merit-based criteria in a competitive environment, then s/he can be reappointed.

In addition to general over-use, there are some risks associated with repeatedly using the same adviser. If an agency develops a degree of reliance on, or familiarity with, a particular adviser, its own risk management capabilities can deteriorate. In addition, repeated use of the same probity adviser could create a perception that the adviser’s independence has been compromised (although this should not override merit-based appointments).

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Who is the client?

In large or complex projects, it is common for the probity adviser to have multiple stakeholders to whom s/he is accountable or has a professional duty. These can include:

■ the project manager and team;

■ the evaluation committee;

■ the steering committee, audit committee or project sponsor;

■ the proponents or potential proponents;

■ the principal officer of the agency and/or the Board of Directors;

■ the Minister;

■ the Parliament or local council; and

■ watchdog agencies such as the ICAC.

In practice, probity advisers usually form a co-operative, non-adversarial working relationship with the project staff and proponents. However, there are occasions where it will be necessary for the probity adviser to go outside these immediate clients and convey any concerns to other parties in the above list. The probity adviser’s scope of engagement should provide the authority to exercise this obligation.

Under section 11 of the Independent Commission Against Corruption Act 1988, the principal officer of a NSW public authority has a duty to report to the ICAC any matter that s/he suspects on reasonable grounds may concern corrupt conduct. The probity adviser has a professional obligation to communicate any such suspicions to the principal officer. This reporting obligation prevails despite any confidentiality undertakings that may have been given.22

When an agency chooses to appoint an internal member of staff as the probity adviser it is important that, to the extent possible, s/he be given the power to fearlessly convey concerns and opinions to senior management. This may require that the internal probity adviser work outside the usual organisational hierarchy.

Scope of a probity adviser’s work

Effective probity advisers apply a variety of different methodologies and practices to their work and as such there is no one best or standard way to undertake probity advising. The ICAC does, however, strongly recommend that all probity engagements be based on the five probity fundamentals outlined on pages 8–10.

22 The Australian Auditing and Assurance Standard AUS 210 requires financial auditors to maintain a professional scepticism about the possibility of fraud and to report any instances of fraud to the appropriate level of senior management. Although these standards are not binding on them, many probity advisers use them as part of their methodology.


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Agreeing on the scope of work

When appointing a probity adviser, an agreed scope of work should be drawn up and signed by both the client agency and the adviser. This scope should be flexible enough to be able to address unforeseen events but should not give the project manager or agency representative the ability to steer the probity adviser away from problem areas. The scope of work should include, but not be limited to:

■ the general objectives of the engagement;

■ a statement of the project under review;

■ methodology to be followed by the adviser;

■ a list of relevant information, files, personnel and resources etc that can be accessed;

■ professional standards to be applied;

■ relevant legislation and policy to be observed;

■ reports and audit opinions required;

■ method of communication and oversight;

■ tasks to be completed plus any other deliverable outputs; and

■ the point at which the engagement will conclude and the circumstances under which the engagement can be ended if necessary.

Some probity advisers adopt a less formal approach and merely provide unstructured trouble-shooting advice on probity issues as they arise. The ICAC does not believe that this is a desirable practice. To the extent possible, the agency’s expectations of the adviser should be specified, including the deliverables.

Client agencies should be aware that probity advisers cannot deliver guarantees that a particular process or stage of the project has been completed flawlessly. Any opinions or conclusions provided by the adviser may therefore have to be qualified to reflect the actual work undertaken to support the opinion or conclusion and any limitation affecting the work performed.

When engaging consultants it is usual for an agency to be cautious about authorising additions or variations to the scope of the work, especially where they are suggested by the consultant. However, in the case of a probity-related engagement, there may be justifiable reasons for extending the scope of work on the recommendation of the probity adviser. Examples include the emergence of unforeseen or new issues that may impact on the integrity of the project. It is incumbent on senior officers of the agency to consider the extension of the scope under such circumstances, as failure to do so may seriously compromise the ability of the probity adviser to provide a satisfactory level of assurance. Similarly, agencies should only prematurely terminate the services of a probity adviser when there are strong, supportable reasons to do so. Failure to justify a premature termination might raise questions about the agency’s willingness to face scrutiny.

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effectively. It is necessary for the probity adviser to have the authority to probe into all aspects of the project that fall within the scope of his or her work, particularly if there is a suspicion that something is being deliberately concealed or down-played as an important issue or event.

If there is disagreement as to the adviser’s scope of work, the matter should be referred for decision to a senior level within the agency and, if appropriate, the principal officer.

What areas should probity advisers avoid?

Probity advisers should not be involved in the project to the extent that they are making decisions about a particular course of action. The adviser’s deliverables should be in the form of opinions, observations, recommendations and advice. While it is expected that a probity adviser will carry out many of the hands-on tasks noted in the probity plan (e.g. conducting interviews, obtaining declarations, reviewing documents), these tasks should be performed in order to support the probity adviser’s reports or advice. Similarly, a probity adviser can make observations about the way meetings with proponents are conducted, but s/he should not actually conduct or chair the meetings.

Although the distinction between advising the project team and performing the work of the project team can be unclear, the general rule is that probity advisers should give advice or opinions about probity issues, but should not be making final decisions and implementing solutions.

Unfortunately, however, it is not uncommon for probity advisers to be asked to give advice on how to compromise or bypass accepted standards of probity. Consider the following hypothetical exchange:

Scenario

Project Manager: One of the bidders has lodged a late tender, but I really want to accept it because they are a good operator. What can I do?

Probity Adviser: In my opinion, considering the tender was clearly late, it would be risky to accept it because the RFT documents state that late tenders cannot be accepted. You could be breaching the conditions of tendering and probity fundamentals in relation to impartiality and may also be exposing yourself to legal action.

Project Manager: There must be some way of getting around it? If we don’t get this bidder on the shortlist, I’m going to have to explain it to my boss. You’re the probity expert, can’t you tell me how I can get around the rules?


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In this situation, if the probity adviser were to give the project manager the justification s/he is looking for, the probity process itself would be subverted and the probity adviser would be compromised. Further, if legal action ensues, as the probity adviser warned, the adviser is likely to become involved in the controversy.

The ICAC recommends that, wherever possible, probity advisers and their client agencies decline to be involved in negotiations like the one in the above scenario. Wherever an agency chooses to ignore probity advice or there is a departure from the probity plan, this should be documented by the probity adviser and the officer making the decision and, if necessary, reported to the steering committee, principal officer or other relevant senior officer. Once this notation has been made and reported, the probity adviser can then give qualified advice on the project as it proceeds, even though the original advice has not been followed.

Probity advisers will often face ethical dilemmas where they need to decide between what they know to be best practice, and what they believe can be realistically achieved in the circumstances. A lapse in probity is just one risk that a project team must consider. There are also legal, technical, financial, political, environmental, safety and other risks that can jeopardise the project. At times it will be necessary for the probity adviser to accept that other risks will be given greater weight. However, probity advisers should not allow this to affect their independence or the quality of their advice. Again, wherever probity advice is not or cannot be followed, this should be documented so that the adviser does not become party to a course of action that s/he has advised against.

The situation outlined in the above scenario could be resolved as follows:

Resolution

Project Manager: One of the bidders has lodged a late tender, but I really want to accept it because they are a good operator. What can I do?

Probity Adviser: In my opinion, considering the tender was clearly late, it would be risky to accept it because the RFT documents state that late tenders cannot be accepted. You could be breaching the conditions of tendering and probity fundamentals in relation to impartiality and may also be exposing yourself to legal action.

Project Manager: There must be some way of getting around it? If we don’t get this bidder on the shortlist, I’m going to have to explain it to my boss. You’re the probity expert, can’t you tell me how I can get around the rules?

Probity Adviser: No, I can’t do that. If you want to accept a late tender, that is your decision, but I will have to outline that decision and my contrary advice in a report to the steering committee. However, if the steering committee decides that this late tender will be accepted, I can continue to provide advice on the remaining aspects of the tender process.



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Do agencies have to follow probity advice?

The agency undertaking the project is responsible for the probity of the process followed. This responsibility cannot be contracted to the probity adviser. The probity adviser is, however, responsible for assisting an agency in meeting its probity obligations. In this regard, probity advisers’ clients are not compelled to follow the advice provided. The recipient of the advice (usually the project manager, the project sponsor or the steering committee) can choose to either accept or reject the advice.

In practice, the client agency would be expected to accept well-founded probity advice that is given. Any decision to depart from probity advice should be brought to the attention of senior managers above the project manager. If probity advice is being habitually rejected, the steering committee or senior management should intervene to satisfy themselves as to the reasons, and to ensure that the integrity of the project has not been compromised.

The ICAC recommends that where an agency decides not to follow the advice of the probity adviser, the decision and the reasons for it be fully documented. The departure should also be recorded in the probity adviser’s report, along with any alternative action taken by the agency to mitigate the probity risks identified.

What specific tasks should a probity adviser perform?

Different probity advisers approach their task in different ways depending on the nature of their brief and their own skills and methodology. Therefore, it is not possible to be definitive about their specific tasks.

However, the ICAC urges agencies to require a few key services from their probity adviser:

1. Oversee preparation of a probity plan – a probity plan is the control framework document that establishes tasks, procedures and treatment options for managing the probity-related aspects of the project. The probity plan should include, or follow from, a risk assessment of the known and likely probity risks associated with the project. The probity plan should be prepared at or near the commencement of the project so that it is capable of guiding the work of the probity adviser and the project team. While it is expected that the probity adviser will be involved in overseeing preparation of the probity plan (including the risk assessment), the document itself should be approved by the client agency. The agency has ultimate responsibility for any future departures from the plan. If the probity service being sought is primarily an audit, it may be inappropriate for the probity adviser to have a role in actually authoring the probity plan (because s/he would end up auditing compliance with his or her own work). Rather, the audit role will be to verify compliance with the existing probity plan. Probity plans are covered in more detail in the next chapter.

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itself. In particular, the probity adviser should be present at all meetings involving proponents.

3. Perform tasks required of the probity adviser by the probity plan (this will include ensuring that conflicts of interest and confidentiality issues are addressed). The probity adviser should also verify compliance with the probity plan.

4. Respond to any unanticipated probity-related issues or complaints that arise (i.e. those issues not anticipated in the probity plan).

5. Provide a probity report – the probity adviser should provide the client with at least one written report detailing his or her findings. This report should be based on the existing probity plan. Providing additional reports at each of the key decision points is one way of allowing the probity adviser to maintain his or her independence while still providing timely advice. The report(s) should make reference to the following:

■ the letter of engagement and scope of work;

■ the methodology used;

■ the specific work performed;

■ details of any departures from the probity plan or the probity adviser’s own scope of work and how these were or were not addressed;

■ details of any other probity issues and how these were or were not addressed; and

■ the probity adviser’s opinion or conclusion, including any necessary qualifications.

The probity adviser must do whatever work is required in order to support and defend his or her written opinion or conclusion. This can include conducting interviews, reviewing documents, obtaining declarations and making observations at meetings.

As a general rule, reports prepared by probity advisers should be accessible under Freedom of Information legislation. Wherever possible, reports should not contain information that is commercial-in-confidence or subject to legal privilege. Given that probity advisers are engaged to improve accountability and transparency, it would be paradoxical if their work were not accessible.23 Where necessary, probity advisers should also be available to testify in legal proceedings, before Parliamentary committees or to provide information to agencies such as the ICAC, Ombudsman or Auditor-General.24

Finally, in practice it is typical for probity advisers to provide a range of oral or informal advice to members of the project team. Much of this will not be of sufficient gravity to warrant being included in a written report. However, there is a tendency for project teams to concern themselves mainly with the content of the formal reports, rather than the informal or oral advice. The ICAC therefore recommends that wherever practicable, probity advisers record or convey their advice in writing (such as in a file note or via email), even if it is unlikely to appear in a formal report. A record of all the advice provided will help to protect both the integrity of the project and the probity adviser.

23 NSW Treasury Circular 02/10, “Ownership of Internal Audit Documentation” (July 2002) states that external audit providers are to be engaged on the basis that all audit documentation remains the property of the client agency.

24 Investigative agencies such as the ICAC and the Ombudsman can compel the production of documents that might otherwise be exempt under the Freedom of Information legislation. Probity advisers can also be compelled, in some circumstances, to give evidence to the ICAC.



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Chapter 4: Probity plans

Using probity plans

A probity plan is the control framework document that establishes tasks, procedures and treatment options for managing the probity-related aspects of the project.

Probity plans are most often prepared for complex or controversial procurement and disposal projects. However, agencies should use probity plans to support other projects such as accepting sponsorships, awarding grants, entering into joint ventures and assessing controversial development applications. The ICAC encourages public sector agencies to prepare probity plans for all significant projects, irrespective of the presence of a probity adviser.

The probity plan should include, or follow from, a risk assessment of the known and likely probity risks associated with the project. It considers the key decision points (e.g. issuing bid documents, evaluating proposals, creating a shortlist, selecting a preferred proponent), the attendant risks and the preventative action that should be taken in relation to each.25 It should be underpinned by the key probity fundamentals against which the probity aspects of the project are to be assessed.

Agencies should note that, pursuant to the NSW Government Procurement Policy (issued July 2004), certain projects require the submission of a Procurement Strategy Report to Treasury. The Policy states that these Reports should include a probity plan.26

What should a probity plan cover?

A list of possible elements to be covered by a probity plan can be found on pages 33–36.

However, as a minimum, a probity plan should address the following:

■ Creation of a mechanism for disclosing and dealing with conflicts of interest. This should apply to steering and evaluation committee members, project team members, management, advisers (including the probity adviser if there is one) and shortlisted proponents.

■ Establishing a communications protocol that ensures that one proponent does not obtain an unfair advantage over others. This would involve establishing a single or limited number of contact points, a process for documenting all communication with proponents and a system for responding to queries and grievances. The protocol should not inhibit dialogue between proponents and the agency to the point where reasonable queries cannot be asked and answered. If face-to-face meetings with individual proponents are likely to be required, the protocol should also establish rules for these meetings.

■ A system for checking compliance with legislation and regulations as well as with government and agency guidelines, policy and procedure.

■ Ensuring all personnel who will have access to information that may be sensitive, valuable or advantageous to a particular party, sign and adhere to confidentiality

25 A probity plan can be a stand-alone document, or be nested within a wider risk assessment or project plan. The title or location of the document is less important than the manner in which the identified probity risks are addressed.

26 At the time of writing, this requirement applied to construction projects that are valued at more than $10 million and/or are classified as high risk.


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undertakings. Other security or confidentiality controls such as provisions relating to the receipt, storage and opening of proposals should also be addressed.

■ An assessment of the proposed evaluation methodology that will be used to assess proponents’ bids or submissions. That is, the criteria, weightings, scoring mechanisms, response format, shortlisting process etc. The evaluation methodology should be consistent with probity fundamentals. The probity plan should also include a mechanism for ensuring that the evaluation methodology is applied correctly and consistently.

■ Assigning probity-related roles and responsibilities to individuals working on the project.

Other probity issues particular to the project being undertaken including procedures for dealing with departures from the agreed process.

A robust probity plan will not necessarily prevent poor decisions from being made, but it should go a long way towards preventing decisions being taken for the wrong reasons. The plan should continually bring the project team back to the key probity fundamentals outlined on pages 8–10: obtaining best value for money; impartiality; dealing with conflicts of interest; accountability and transparency; and confidentiality. In relation to each process or key decision, the team should satisfy itself that these five fundamentals have been adhered to.

Elements of a probity plan

This chapter concludes by providing a checklist of tasks that can be incorporated into a probity plan. The checklist can be used by agencies when preparing their own probity plan or by probity advisers overseeing the preparation of a probity plan. It is a guide only. Not every item on the checklist will need to be included and additional items may need to be addressed on particular projects. In addition, some items may also be addressed by standard agency procedures or RFT documentation.

The tasks in the checklist are grouped by the stages of a typical project. Depending on the specific project, these tasks may need to be performed in a different sequence. Because probity plans are preventative in nature, the majority of probity-related tasks need to be performed early in the process.

Tasks to be incorporated in a probity plan:

Prior to issue of EOI / RFT

❏Assess the need for an independent probity adviser.

❏Check that the selection process for all advisers and consultants (including the probity adviser if there is one) is in line with the Premier’s Department Guidelines on the Engagement and Use of Consultants.

❏Assign probity-related roles and responsibilities to individuals working on the project.

❏Ensure that the EOI/RFT documentation is designed to elicit the information necessary for proper evaluation.

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❏Review detail of specifications and EOI / RFT documents. (Address probity issues such as: Is the documentation consistent with the business case? Are any bidders disadvantaged? Does the incumbent have an unfair advantage? Is the agency locked in to a particular technology? Is there sufficient scope for innovation? How will ‘essential’ and ‘desirable’ criteria be managed? Is the agency obliged to accept the lowest bid / lowest compliant bid? etc).

❏Prepare an assessment of the proposed evaluation methodology that will be used to assess proponents’ bids or submissions. That is, the criteria, weightings, scoring mechanisms, response format, shortlisting process etc. Include a mechanism for ensuring that the evaluation methodology is applied correctly and consistently.

❏Check whether there is scope to make minor alterations to the specifications or advertised evaluation process, if necessary.

❏Supervise the advertising arrangements to ensure optimum levels of interest and competition.

❏Check whether there is sufficient discretion to commence direct negotiations and/or abort the process if there are no satisfactory or complying bids.

❏Agree processes for dealing with bids that are late, non-conforming or in need of clarification / amendment.

❏Ensure that any market sounding activities or pre-tender discussions do not confer advantages on a particular proponent. If necessary, exclude firms that have participated in pre-tender activities from further aspects of the project.

❏If there is likely to be an in-house or public sector bid or the project involves a management buy-out, establish specific controls for communicating with the bid team, protecting confidentiality and access to information.

❏Establish a communications protocol, including how to manage phone enquiries, requests for meetings, face-to-face meetings, product demonstrations and site visits, documentation of communications, protocol for offering and accepting hospitality etc. If necessary, conduct staff training in record keeping and maintaining an audit trail.

❏Re-emphasise the gifts and benefits policy to staff and advisers.

❏Ensure secure storage arrangements for bid documents and other confidential information. This includes physical and electronic storage.

❏Establish and maintain a Movement Control Register for key documents.

❏Ensure that any community consultation or marketing campaign is consistent with probity fundamentals and government policy.

❏Ensure that there is a mechanism for accepting and managing protected disclosures.

❏Establish a grievance handling procedure as well as a protocol for referring disagreements to senior persons within the agency.


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Prior to closing date for proposals

❏If not already completed, ensure that evaluation weightings are calculated and documented.

❏Review the credentials or qualifications of team members and the evaluation panel.

❏Ensure that any extension of time is granted to all potential proponents in a timely manner with no one party being given additional time or advance notice.

❏Ensure that if the specifications or evaluation process need to be altered in a minor way, there is no unfair advantage for any of the proponents.

❏Design the process for opening tenders (electronic or manual) and ensure that they are not read or accessed before the due date.

❏Establish a procedure for identifying intellectual property or information that is commercial-in-confidence.

During assessment / evaluation

❏Ensure that the evaluation methodology designed (see above) is applied correctly, that no irrelevant matters are taken into consideration and that the process is documented.

❏Arrange for an official record to be made of any meetings with proponents. This could include video or audio recordings and/or an independent minute taker. Ensure meeting agendas are prepared in advance and adhered to, and that improper discussions do not occur before, during or after meetings.

❏Ensure that no order splitting has occurred with the intent of avoiding thresholds for competition.

❏Review any proposed sub-contracting arrangements of proponents or other advisers to address hidden conflicts of interest and ensure value for money is obtained.

❏If a local preference policy is being used, ensure that it is applied correctly so that local proponents do not obtain an unintended advantage.

❏Sometimes proponents’ identities are removed from bid documents before they are evaluated to promote objectivity. If this is the case, the probity plan should ensure compliance.

❏If a two-envelope system is being used (that is, separate documentation on price and non-price criteria), verify that it has been carried out properly.

❏Supervise the erection of ‘Chinese wall’ arrangements to manage conflicts of interest where necessary.

❏Negotiate anti-poaching agreements to prevent proponents from holding out employment opportunities to key staff of the agency.

❏If ‘best and final offers’ are being sought ensure that confidentiality is preserved and that there is no ‘bid shopping’.

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After selection

❏Oversee the due diligence process and referee checking.

❏Arrange debriefings for unsuccessful bidders, ensuring that confidentiality is maintained. Record and address any complaints.

❏Adhere to Premier’s Memorandum 2000-11 regarding disclosure of information on government contracts.

❏Oversee any negotiations that occur with the preferred proponent leading up to the signing of a contract. Check for departures from the winning bid that was tendered.

❏Ensure mechanisms are in place to supervise the work carried out by the successful proponent.

Ongoing / throughout the process

❏Assess the process for compliance with relevant government policies and legislation – (such as the NSW Government Code of Practice for Procurement, Local Government (General) Regulation 2005, Public Finance and Audit Act 1983, Environmental Planning and Assessment Act 1979 and Premier’s Department Memoranda and Circulars).

❏Contact the ICAC or relevant government agency for advice where necessary (if there is a reasonable suspicion of corrupt conduct, this should be conveyed to the principal officer for referral to the ICAC pursuant to section 11 of the ICAC Act).

❏Perform milestone or health checks at key decision points, as required (e.g. gateway review to be facilitated by the Department of Commerce) and prepare written reports identifying probity issues and how they were managed.

❏Brief senior managers, local council or ministers as required. If necessary, submit reports detailing how probity-related issues have been dealt with.

❏Check that financial delegations are within policy limits and that they are being exercised with care.

❏Obtain confidentiality undertakings from personnel with access to valuable information (this task may need to be repeated as new information, proposals and parties surface).

❏Obtain conflict of interest declarations from project team members, advisers, shortlisted proponents and other personnel involved in the project (including actual, potential, perceived, pecuniary and non-pecuniary conflicts of interest). Any conflicts should be managed according to their seriousness and materiality.

❏Agree on a timetable for all of the above.


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Appendix 1: NSW Premier’s Department requirements for engaging consultants

The NSW Premier’s Department Guidelines on the Engagement and Use of Consultants, (July 2004) provides guidelines for agencies engaging consultants:

■ Where the estimated cost is less than $30,000 – a minimum of one written proposal is required provided the cost is reasonable and consistent with the market.

■ Where the estimated cost is between $30,000 and $150,000 – at least three written bids are required.

■ Where the estimated cost is greater than $150,000 – an open invitation should be made via public advertisement.


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Appendix 2: Contacts and resources

NSW Department of Commerce

Tel: (02) 9372 8877

Fax: (02) 9372 8640

Procurement helpdesk:

Tel: (02) 9372 8600

Fax: (02) 9372 8822

Email: [email protected]

NSW Treasury

Tel: (02) 9228 4417

Website: www.treasury.nsw.gov.au/procurement/procure-intro.htm

Guide to Period Contracts – as updated

www.supply.dpws.nsw.gov.au/Information+for+Buyers/Publications/Publications.htm


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Appendix 3: Probity plan templates

The Victorian Government Purchasing Board has created a probity plan template that is suitable for many projects. It can be accessed at

www.vgpb.vic.gov.au

The Tasmanian Government’s Probity Guidelines for Procurement (November 2004), contains advice on the key probity aspects of a contracting process. It can be accessed at:

www.purchasing.tas.gov.au/buyingforgovernment/publications.jsp

The Queensland Government’s Probity and Process Governance publication (August 2002), relating to public–private partnerships, contains a probity plan template. It can be accessed through the Queensland Government’s State Development, Trade and Innovation website at:

www.sdi.qld.gov.au


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