In this blog, CourtHeath explores how VPS managers and executives feel about completing a conflict of interest disclosure form when they are involved in procurement – particularly about disclosing conflicts of duty that may be perceived to arise from work-related dealings with service providers.
VPS personnel are sometimes taken aback when asked to refer to their business as usual working relationships with service providers as a conflict of interest. They may feel that they are being asked to document matters that may be seen as wrongdoing or that they will be judged adversely. This is understandable if they have come from a local government organisation where Council officers with delegated Council powers or duties related to procurement are prohibited by legislation from exercising those powers, duties or functions if they have conflicts of interest. However, it’s different in the VPS.
Although section 7(b)(iv) of Victoria’s Public Administration Act 2004 requires VPS personnel to avoid real or perceived conflict of interest – and this requirement is reflected in clause 3.7 of the Code of Conduct for VPS Employees – in practice it is acknowledged by Victoria’s integrity oversight authorities that some conflicts are an inevitable feature of operating in the public sector making it critical to ensure transparent identification, disclosure and management of conflicts.
As the Victorian Public Sector Commission (VPSC) website states: There is nothing unusual or necessarily wrong in having a conflict of interest. It is crucial, however, that conflict of interest is managed to protect the public interest… If not managed appropriately, conflict of interest can undermine confidence in the public sector and damage the reputations of organisations and individuals.
Victorian government departments and agencies have conflict of interest policies in place consistent with the VPSC Conflict of Interest Model Policy, which outlines minimum expectations for conflict of interest management. VPSC recommends that organisations ensure that their conflict of interest policy reflects their level of conflict of interest risk, which necessitates undertaking a risk assessment to ensure that high risk activities and functions are appropriately covered. Most VPS organisations also have conflict of interest disclosure forms that reflect their policy and are used to capture conflicts of interest and record any applicable management process.
VPSC notes that conflict of interest can arise anywhere in an organisation, but there are some activities and functions that may put employees at a greater risk because of their ability to make or influence decisions that can benefit themselves or others. Procurement and distribution of funds or other benefits, such as grants are specifically called out by VPSC.
Across the whole VPS, there is a common language about how conflicts are identified, managed and disclosed, consistent with the VPSC material. The term conflict of interest includes:
- Actual conflict of interest: there is a real conflict between an employee’s public duties and private interests.
- Potential conflict of interest: an employee has private interests that could conflict with their public duties. This refers to circumstances where it is foreseeable that a conflict may arise in future and steps should be taken now to mitigate that future risk.
- Perceived conflict of interest: the public or a third party could form the view that an employee’s private interests could improperly influence their decisions or actions, now or in the future.
Although they may appear to be more important or more damaging, actual conflicts of interest are often the easiest to deal with as they are more readily identifiable – and they feel wrong. For example, alarm bells should ring if a public official is involved in procurement whilst having a material financial interest in one of the tendering companies or a job offer from that company.
It is often the perceived conflicts of interest that raise the most questions and involve more nuanced considerations. If a reasonable third party could perceive favouritism, bias or lack of independence, the associated circumstances should be disclosed. Then, the risks can be assessed and a plan can be agreed and implemented to manage them with appropriate monitoring and confirmation of compliance. This is the expected approach to protect the reputation of VPS personnel and organisations and to ensure that relationships and interests they have do not undermine confidence in the public sector.
Many VPS organisations have procurement or conflict of interest policies that require procurement approvers or evaluators to disclose any conflicts of interest they may have (whether actual, potential or perceived). This is done by completing a conflict disclosure form at the commencement of their involvement in the procurement process and at any subsequent point should relevant circumstances change. The forms sometimes include questions that prompt personnel to consider situations or interests that may create a conflict of interest or be perceived to do so: connections to family and friends, personal financial interests, former employment connections and work responsibilities that may create actual or perceived conflicts of duty.
It is important that evaluators and approvers declare any conflicts of duty they may have. Conflicts of duty arise when a person is required to fulfil two or more roles that may be in conflict with each other or may be perceived to be in conflict. VPS personnel often wear two hats e.g. being responsible for contract performance of current providers in parallel with being an evaluator or approver in a procurement process. It is not always possible to avoid a conflict of duty, for example, in specialised areas of expertise where it is preferable to have experts as evaluators but those personnel have work duties that are in conflict.
Circumstances that could reasonably be perceived by a third party such as a competing tenderer, as leading to favouritism or bias are important to disclose as they are often the source of a complaint or challenge. Incumbent providers can be perceived to have an unfair advantage as they are known to the tendering agency and therefore to have opportunities to influence VPS personnel and to gain preferential access to information. And on the flip-side, incumbent providers may consider themselves to be at a disadvantage if there is tension between their organisation and the state such as current contractual performance issues being managed by VPS personnel who are also involved in procurement decisions.
Once matters are disclosed, a risk assessment should be undertaken and where appropriate a plan should be documented and implemented about how the conflict will be managed in practice – for example, that the evaluator/approver will not speak with particular personnel and will step back from certain work duties during the procurement process – or where that is not feasible, how the conflict will be managed in practice in the public interest.
In its report – Managing Corruption Risks Associated with Conflicts of Interest in the Victorian Public Sector, Victoria’s Independent Broad-based Anti-Corruption Commission (IBAC) identified some misconceptions about disclosing and managing conflicts of interest. IBAC explains that there are five myths relating to conflict of interest:
Myth 1: A public sector officer with a conflict of interest is corrupt.
Myth 2: It’s more important that I get the job done quickly.
Myth 3: Conflicts of interest can always be avoided.
Myth 4: There is no conflict because I can act fairly and without bias.
Myth 5: I told my manager about the conflict of interest, that’s all I need to do.
South Australia’s Independent Commission Against Corruption has also recently reminded public sector agencies how conflicts should be disclosed and managed. The approach makes sense for the VPS too:
“There should be open and regular discussion with public officers about how to deal effectively with conflicts of interest.”
There are three fundamental principles when it comes to conflicts of interest:
- Identify — Public officers must be aware of their personal interests, public duties and responsibilities, and conflict or perception of conflict in order to identify a conflict of interest.
- Disclose — Conflicts of interest should be disclosed — in writing to a manager, supervisor, or agency head — as soon as practicable. Warning that intentionally inaccurate disclosures could ‘give rise’ to corruption allegations, and that disclosures must contain enough information to allow them to be managed effectively.
- Manage — Public servants should involve a more senior public officer in the management of the conflict, who should then review, assess, and plan the management of the disclosure.
“Most importantly, public authorities should regularly instruct their staff on their conflict of interest obligations. Conflicts of interest are a recurring incident of the work of all public officers; likewise the obligations should be regularly restated.”
It is inevitable that VPS personnel will have conflicts of interest to disclose when one considers the broad definition which includes perceived conflicts and conflicts of duty relating to work dealings with current service providers. Particularly in niche areas or within an industry sector, VPS personnel have a variety of relationships with providers and their staff: friendships developed over time with personnel of providers; working relationships with providers; former employment connections; professional networks, etc. It’s a principle stated in Victorian Government Purchasing Board probity guidance that personnel with appropriate capability including subject matter expertise are involved in making procurement recommendations. So, rather than excluding personnel on account of their conflicts of interest, it is often preferable to retain their expertise within the evaluation process whilst requiring them to disclose and manage any conflicts.
So next time you get asked about your work-related conflicts of interest, there’s no need to feel uncomfortable. Conflicts of interest are only bad if they are not declared and actively managed.
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Conflict of Interest, VPSC
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A participant in the UN Global Compact, CourtHeath seeks to raise awareness about the Sustainable Development Goals and the principles of the Global Compact with business and government organisations in Victoria
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[procurement, conflict of interest, VPS]