CHECKLIST OF POTENTIAL RISKS IN THE GOODS AND SERVICES PROCUREMENT PROCESS

(Version 2 December 2006)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Identifying the need and planning the purchase Developing the specification Selecting the purchasing method Purchasing documentation Inviting, clarifying and closing offers Evaluating offers Selecting the successful tenderer Negotiations Contract management Evaluating the procurement process Disposals

1.

Identifying the need and planning the purchase

Risk
Understatement of the need

Likely consequences
Purchase of unsuitable product or service Money wasted Need not satisfied Greater expense Poor competition Totally unacceptable purchase or not most suitable product or service Time lost Increased costs Possible downtime Delay in making the purchase Additional costs for retender Inadequate responses from tenderers Reduced competition Delivery schedule not met Increased procurement costs Misuse of resources Most suitable product not obtained Unethical conduct

Action
Analyse need accurately

Overstatement of the need

Analyse need accurately Use functional and performance requirements Improve consultation with users Obtain clear statement of work and definition of need

Misinterpretation of user needs

Insufficient funding

Obtain appropriate approvals before undertaking process Improve planning Improve forecasting, planning and consultation with users Improve communication with potential tenderers Implement best practice policies, guidelines and practices Maintain ethical environment Improve training of personnel Put suitable controls and reviews in place Consider using a probity adviser Improve communication with potential tenderers

Impractical timeframe

Probity issues

2.

Developing the specification

Risk
Narrow definition or commercial specification (eg. use of brand name)

Likely consequences
Fewer alternatives Most suitable product or service may not be obtained Increased costs Need not satisfied Time lost Increased costs Possible downtime

Action
Define the specification in terms of required outputs Use functional and performance specifications Ensure specification is consistent with needs analysis Improve market knowledge Use functional and performance specifications Use functional and performance specifications Implement a control mechanism to review specification before release Be familiar with requirements Use functional and performance specifications Use an Expression of Interest or Request for Information to clarify requirements (be careful not to infringe intellectual property rights or copyright)

Definition of inappropriate product or service

Biased specification

Inadequate responses from tenderers Claims of unfair dealings

Inadequate statement of requirements

Variety of offers Insufficient responses Products offered not meeting needs Difficult to evaluate

3.

Selecting the purchasing method

Risk
Failure to identify potential sources

Likely consequences
Lack of offers from suitable tenderers

Action
Improve procurement planning processes Improve market knowledge Seek industry participation Use Industry Capability Network Tasmania (ICNTAS) Improve implementation of procurement policies, guidelines and practices Improve tender documentation and clearly identify the evaluation criteria in Request for Tenders Provide staff with appropriate training and experience

Selecting inappropriate method

Need to seek offers again Possible cost variations Failure to obtain value for money

4.

Purchasing documentation
Risk
Terms and conditions unacceptable to tenderers

Likely consequences
Loading of costs in offers Having to modify tender terms and conditions Disruption Low response

Action
Use standard documentation prepared by Crown Law Select appropriate documentation for purchase type (ie. goods, services, goods and services, or information technology related) Improve tender planning Assess and allocate risks appropriately Consult with Crown Law Use commercially acceptable terms Provide staff with appropriate tender planning and procurement skills Ensure staff have appropriate tender planning and documentation training and experience Improve tender planning and preparation Review tender documents before issuing them and ensure evaluation criteria contain the critical factors on which assessment of tenders will be based

Providing inadequate information

Loading of costs in offers Variations in offers Having to provide clarifying information, causing delays in tender closing Additional costs

5.

Inviting, clarifying and closing offers

Risk
Failure to adequately address enquiries from tenderers

Likely consequences
Claims of unfair practices Offers with qualifications by tenderers Withdrawal of offers

Action
Implement standardised procedures for responding to enquiries Provide staff with appropriate tender management training and experience Respond in a timely manner to enquiries Allow adequate time for tenderers to respond As above Answer queries in writing and provide copies to all potential tenderers Ensure that all potential tenderers are provided with any addenda Establish formal security procedures

Actual or perceived favouritism in providing information

Complaints from tenderers Withdrawal of offers

Actual or perceived breach of confidentiality

Complaints from tenderers

Risk

Likely consequences
Mistrust by tenderers

Action
Train staff in their obligations Perform regular audits and reviews of security processes Advise tenderers of security measures Use appropriate tender advertisement strategy to increase competition (eg. consider advertising tenders in other publications as well as the local paper) Consult with ICNTAS to identify potential tenderers Provide potential tenderers with advance notice of tender requests Improve tender documentation and specifications Allow sufficient time for tenderers to respond Actions as above for insufficient number of responses Improve your market knowledge Review specifications or conditions Seek feedback from known suppliers on their nonresponse

Insufficient number of responses

Need to undertake process again Increased costs Delayed delivery to the client Poor value for money due to limited competition

No response from known quality suppliers

Reduced competition Increased costs of products or services

6.

Evaluating offers
Risk
Failure to follow effective evaluation procedures

Likely consequences
Inconsistent evaluations Possible complaints from tenderers Subjective not objective evaluation of offers

Action
Provide staff with appropriate tender assessment and evaluation training and experience Improve tender assessment and evaluation processes Maintain, audit and review evaluation procedures Ensure that Evaluation Committee members declare any conflicts of interest Maintain, audit and review security procedures Provide staff with

Breaches of security

Claims of unethical or unfair practices Loss of faith with tenderers

Risk

Likely consequences

Action
appropriate training and experience and monitor performance Ensure that Evaluation Committee members understand and sign Confidentiality Agreements

Offers fail to meet needs

Need to call tenders again Additional costs Delay in delivery

Improve market knowledge Improve tender documentation Conduct market research Develop functional and performance specifications Ensure evaluation criteria contain the critical factors on which the assessment of tenders will be based and that they are clearly identifiable to tenderers in tender documents Ensure evaluation criteria are appropriate and measurable Ensure that Evaluation Committee members sign Declaration of Conflict and Confidentiality Agreements

Failure to identify a clear winner Decision made on subjective grounds

Claims of unethical and unfair behaviour Complaints from tenderers

7.

Selecting the successful tenderer

Risk
Selecting an inappropriate supplier

Likely consequences
Failure to fulfil the contract

Action
Provide staff with appropriate tender evaluation, financial and technical skills training and commercial expertise Improve evaluation procedures Improve evaluation criteria and clearly identify them to tenderers in tender documents Reject unacceptable offers Perform financial, technical and company evaluations before awarding contract Procurement Review Committee to review tender and selection process prior to awarding contract Ensure users are involved in the evaluation/selection process Improve technical evaluation procedures and train staff as appropriate

Selecting inappropriate product

Failure to meet the clients need

Risk

Likely consequences

Action
Procurement Review Committee to review tender and selection process prior to awarding contract

8.

Negotiations
Risk
Not matching the expectations of buyer and tenderer

Likely consequences
Contract disputes Delivery delays Cost variations Reduction in value for money Purchase of less suitable product Inefficient use of resources

Action
Improve communication, including ensuring that Conditions of Contract form part of the Request for Tender Provide staff with training in contract planning and management Define terms carefully Record each partys obligations Clarify all ambiguities before signing the contract Look at alternatives to share risk Distinguish between essential and non-essential goals and requirements Establish baseline before negotiations Distinguish essential goals from others Consider variations to contract Provide negotiators with adequate training Ensure potential suppliers aware of Policy requirements before submitting responses Seek exemption from Crown Contracts Confidentiality Standing Committee Provide negotiators with adequate training and support Negotiate commercial terms Terms should be fair and reasonable Check final draft of contract with successful tenderer Keep records of all negotiations and agreements

Deadlock on details of agreement

Delays in delivery Need to restart procurement Possible cost of legal action Inability to finalise contract Delays in delivery Variations in cost Inefficient use of resources

Failure to secure mandatory conditions

Failure to secure agreement in relation to Crown Contracts Confidentiality Policy

Inability to finalise contract Delays in delivery Inefficient use of resources Requirement to negotiate with other ranked suppliers

Unfair or onerous requirements on the tenderer in the contract conditions

Contract disputes Invalidity of contract Legal action Poor supplier/customer relationship

Failure to reflect the terms offered and agreed in the contract

Contract disputes Legal action Poor supplier/customer relationship

Risk
Inadvertently creating a contract without the delegates prior approval

Likely consequences
Expense of negotiating out of the contract and paying damages Committing to other associated work prior to main contract existing

Action
Procedure in place to ensure delegates approval obtained first Provide negotiators with adequate training

9.

Contract management
Risk
Variations in price and foreign exchange

Likely consequences
Cost overruns

Action
Agree on prices and the basis of prices Agree on a formula for calculating variations Seek legal redress if nonacceptance causes loss Negotiate but retain integrity of the contract Ensure good contract administration and performance management Hold regular inspections / meetings and ensure progress reports Ensure all staff know responsibilities and conditions Ensure good record keeping and documentation Maintain up-to-date agency procedures and practices Ensure all staff are suitably trained and experienced in contract planning and management Confirm verbal acceptance of contract with written advice Accept all contracts in writing Ensure approvals are received before allowing work to start Ensure all contract amendments are issued in writing Record all discussions and negotiations Confirm instructions in writing Ensure suitable clauses are included in the contract

Unwillingness of the supplier to accept the contract Failure of either party to fulfil the conditions of the contract

Delays in delivery Need to restart procurement Contract disputes Failure to satisfy needs Delays in delivery Downtime Legal action

Inadequately administering the contract

Cost increases Failure of contract Full benefits not achieved Delivery of unsatisfactory product Contract/supply disputes Potential liability to pay for unauthorised work Possibility of legal action for perceived breach of contract

Commencement of work by the supplier before contract is exchanged or letter of acceptance issued

Unauthorised increase in scope of work

Unanticipated cost increases Contract disputes

Loss of intellectual property

Loss of commercial opportunity

Risk

Likely consequences
Unwarranted reliance on supplier for product support

Action

Failure to meet liabilities of third parties (eg. royalties or third party property insurance)

Legal action Damage to the agencys professional reputation

Check that all obligations are covered in the contract Agree on responsibilities Implement appropriate safety standards and programs Include appropriate packaging instructions in specification Agree on insurance cover for supplier to provide Accept delivery only after inspection Know when title of goods is transferred to buyer Maintain an ethical environment Follow and maintain fraud control procedures Include requirement in specification and ensure compliance in post-tender negotiation Know the market Accept risk and manage possible delay

Loss or damage to goods in transit

Delays in delivery Downtime Liability disputes

Fraud

Misuse of resources Legal action Disruption to procurement activities Progress on project disrupted Less expertise

Key personnel not available

10. Evaluating the procurement process

Risk
Failure to evaluate procurement and management processes Failure to identify and address problems

Likely consequences
Failure to improve procurement and management processes Procurement objectives not achieved Possible failure in the future

Action
Develop systematic evaluation methods, techniques and evaluation criteria Agree on performance criteria (with supplier and customer) Develop good relationships with suppliers Include evaluation clause in the contract Implement performance management strategies

11. Disposals
Risk
Collusive bidding at auction

Likely consequences
Not achieving best return Claims of unethical and unfair practices

Action
Set reserve prices Deal with reputable firms Include disposal clause in

initial contract Maintain ethical environment Inadequate tender management Claims of bias and favouritism to organisations or individuals Reduction in value for money Sell by open tender Document reasons for decision Provide staff with appropriate training

Acknowledgment: This checklist is based on a checklist developed by, and has been reproduced with the permission of, the NSW Department of Public Works and Services.