Importance of Ethics and Transparency in Public Procurement Processes

Ethics in Procurement Module 3 1

Learner Outcomes Students will: Memorize why competition is important in public procurement. Memorize the impact of fair andopen competition on supplierconfidence. Recall the ethics checklist. Relate how bundling affects fair trade. Recall bidders do not write specifications and then compete for the business. Recall the exception to allow an individual to enter into a contract with the state. 2

Why We Need a Procurement Function or Division Well-run and effective organizations have defined procurement policies, procedures and processes to ensure that procurement is fair and open and effective. While efficiency is important, procurement s role as the custodian of public policy is paramount. 3

Safeguarding Public Funds Procurement staff have a fiduciary responsibility in the safeguarding of public funds. They are responsible for maintaining the integrity of spending of public funds. 4

Safeguarding Public Funds In performing the duties of a procurement officer, you are: Juggling the interests of the taxpayers. Working under public scrutiny, and Trying to take advantage of the maximum competition to get the best value for your end users. 5

Ethics Checklist Accept nothing except a handshake and a business card. Be independent protect the interest of the state as a whole. Act only in the public interest. Remain a trustee of the public s money. Strive for efficiency. Protect the economy. Guard against fraud and corruption. Conduct yourself in a manner beyond reproach. Send amendments available to all interested parties. 6

Public Confidence It is the public s money It is important the public perceive procurementis being carried out in a Fair and Open as well as ethical and prudent manner. Stories of fraud, personal benefit and conflicts of interest are often associated with the procurement process. 7

Competition and Ethics While all state employees should maintain an ethical approach to working with contracts, there are some who are held to a higher standard in practicing sound contract ethics. These are employees who: Determine policy. Make final spending decisions. Participate in the review and/or analysis of bids and bid specifications this includes evaluation committees and anyone involved in the preparation of the specifications. Prepare or approve requisitions for purchase against previously bid contracts. Prepare claims or are involved in the approval process. 8

Competition and Ethics These employees should carefully avoid even the appearance of impropriety, and are encouraged to maintain a higher degreeof accountability and accept nothing of value. 9

Fair and Open Competition It is public policy that all firms should have an equal chance of obtaining government business. 10

Fair and Open Competition The competitive bidding process must be fair and open. "Fair" means that all bidders are treated the same and that no bidder has advance knowledge of the project information. "Open" means there are no secrets in the process such as information shared with one bidder but not with others and that all bidders know what is required of them. 11

Fair and Open Competition In order to be sure that a fair and open competition is achieved: Any discussions held with service providers must be neutral, so as not to taint the competitive bidding process. The agency or public procurement professional should not have a relationship with a bidder prior to the competitive bidding that would: Unfairly influence the outcome of a competition. Furnish the bidder with "inside" information. Allow the bidder to unfairly compete in any way. 12

For Example A conflict of interest exists when the contracting agency or public procurement professional is associated with a bidder that is competing for a contract. 13

Fair and Open Competition Public bodies are required as a matter of both public policy and law to ensure that goods and services are obtained by Fair and Open competition. Failure to do so can result in courts awarding damages to aggrieved bidders. 14

Bidder Confidence The procurement process works best when there is real competition. This requires the active support of the bidder community. Bidders won t participate if: The process does not make sense. The process is not fair. They distrust the process. 15

Bidder Confidence Without competition, prices rise and quality drops. 16

Some Practices that Restrain Fair Trade Accepting a late bid. Using evaluation criteria not stated in the solicitation. Unnecessary sole source purchases. Improper communication with bidders. Restrictions on bidder qualifications. Bundling and not allowing for multipleawards. Barriers to pre-qualification. Brand names and other unnecessary restraints in specifications. 17

Some Practices that Restrain Fair Trade Post-bid specification changes. Letters of Intent when used in lieu of formal bidding. Post-award contract changes. Most favored customer pricing. Slow pay. Preferences. Rotation of bidder lists in lieu of inviting all interested parties. 18

Some Practices that Restrain Fair Trade Long-term contracts. Disclosing the budget. Confidentiality breach or leaks of inside information. Disclosure of proprietary information. 19

Integrity Do what you said you would do. Do it when you said you would do it. Do it the way you said you would do it. LarryWinget 20

InteragencyAgreements State agency to another state agency. Pursuant to Title 74 section 581. Should not be made to evadecompetitive bidding. State agency to a political subdivision or agency of the UnitedStates. Pursuant to Title 74 sections 1001 through 1008. Bona fide governmentalentity. 21

85.13. Accepting or Giving of Gratuities Prohibited Penalty It shall be unlawful for the State Purchasing Director or any buyer or any officer of the Office of Management and Enterprise Services, or any member of their immediate family, under the Oklahoma Central Purchasing Act to accept any gift, donation, or gratuity for himself or any member of his immediate family from any seller or prospective seller of any property covered by the Oklahoma Central Purchasing Act; and it shall further be unlawful for any seller . The violation of any provision of this section shall constitute a misdemeanorand in the event the State Purchasing Director or any buyer or any officer of the Office of Management and Enterprise Services is convicted for the violation of this section he shall forfeit his position immediately in addition to the penalty provided in thissection. 22

260:115-3-5. Procurement ethics - prohibited conduct Standard of conduct. The Oklahoma Central Purchasing Act, State Ethics Commission rules and other state laws contain regulations, prohibitions and penalties governing procurement ethics. Transactions relating to the public expenditure of funds require the highest degree of public trust and impeccable standards of conduct. One year limitation for certain contracts. Unless otherwise provided by law, a state agency is prohibited from entering into a sole source contract, a professional service contract or . Supplier gratuities. A supplier or any prospective supplier shall not give or donate anything of value to the State Purchasing Director or any state employee or agent of the State Purchasing Director, acting within the scope of delegated authority, or any member .. 23

Prohibited Activities The state purchasing director or any state employee or agent of the state purchasing director (this includes public purchasing professionals) acting within the scope of delegated authority, shall not: 1. Sell to or otherwise provide acquisitions to any agency subject to the Oklahoma Central Purchasing Act. 2. Be employees, partners, associates, officers or stockholders in or with any business entity that sells to or otherwise provides acquisitions to any agency subject to the Oklahoma Central Purchasing Act. 24

Prohibited Activities 3. Be employed in any of the positions authorized by the Central Purchasing Act if a spouse or child owns any stock in any business entity which sells to or otherwise provides acquisitions to any agency subject to the Oklahoma Central Purchasing Act. Be employed in any of the positions authorized by the Central Purchasing Act if a relative within the third degree of consanguinity or affinity sells to or otherwise provides acquisitions to any agency subject to the Oklahoma Central Purchasing Act or is interested in any business which does so. 4. 25

Prohibited Activities Exception Such relative, excluding a spouse or child, may own $5,000 worth or less, or 1 percent or less, whichever is the lesser amount, of the stock of a corporation or any business entity which sells to or otherwise provides acquisitions to any state agency subject to the Oklahoma Central Purchasing Act. 26

Competition and Ethics YourResponsibility: Make sure specifications are written to obtain adequate competition (bidders do not write specifications and then compete for the business). The Non-CollusionCertification signed by every bidder in submitting a response states: Neither the bidder nor anyone subject to the bidder's direction or control has been a party: a. to any collusion among bidders in restraint offreedom of competition by agreement to bid at a fixed price or to refrain from bidding, 27

Competition and Ethics Non-Collusion Certification (cont): b. to any collusion with any state official or employee as to quantity, quality or price in the prospective contract, or as to any other terms of such prospective contract, nor c. in any discussions between bidders and any state official concerning exchange of money or other thing of value for special consideration in the letting of a contract. d. to any efforts or offers with state agency or political subdivision officials or others to create a sole brand acquisition or a sole source acquisition in contradiction to 74 O.S. 85.45j.1. Planning a Procurement Allow sufficient time to follow your agency s internal procedures and Central Purchasing requirements and procedures. 28

Question for thought: A state agency purchasing officer deals directly with a business owned by his son. He processes numerous transactions for less than the competitive threshold; with a net value of over $1 million dollars. Is this acceptable public purchasing practice in Oklahoma? 29

The short answer is No. This purchasing officer has violated Oklahoma statutes and rules by: Violating the public trust. Doing business with a spouse or child. Circumventing Fair and Open Competition. 30

cont. Under The Central Purchasing Act, this purchasing officer is guilty of a misdemeanor and upon conviction shall be fined not less than $100 nor more than $500 and/or may be imprisoned in the county jail for not more than 6 months. If he has engaged in split purchasing to keep the transaction amounts under his competitive threshold he has committed a felony. 31

Question for thought: I ve been asked to put together a bid for a large road construction project. This is my first big project, so the boss s secretary offered to help me put the bid together. Her sister works for a company that does these kinds of projects all the time. We re on a tight deadline and I could really use the help. The problem is, the company her sister works for frequently bids on and wins these projects. Does this violate the fair and open competition rule? I can t help thinking it could give her sister s company an unfair advantage. 32

You have good instincts. This approach would certainly circumvent Fair and Open Competition, a violation of the Central Purchasing Rules and the Central Purchasing Act. As you probably remember, the public procurement professional should not have a relationship with a bidder prior to the competitive bidding that would: Unfairly influence the outcome of a competition. Furnish the service provider with "inside" information. Allow the bidder to unfairly compete in any way. 33

Question for thought: I m working with a team to evaluate bids on a sealed bid project. We had just opened the bids to begin our evaluation process, when the boss brought in one last bid. It was from a bidder we work with frequently, and the boss asked us to consider this bid along with the others. The closing date for bid submissions was two days ago. Does this violate the fair and open competition rule? 34

Yes, it does. In a sealed bid process, any bid not submitted by the deadline cannot be considered. As I m sure you recall, it is public policy that all firms should have an equal chance of obtaining government business. Considering a late bid is unfair to all of the bidders who submitted their bids on time as is showing favoritism to a frequent supplier. 35

CONTINUE TO MODULE 4 36