POTENTIAL RISKS

GOODS AND SERVICES PROCUREMENT PROCESS

 Contents
1. Identifying the need and planning the purchase ................................................ 1

2. Developing the specification .......................................................................... 2

3. Selecting the purchasing method .................................................................... 4

4. Purchasing documentation ............................................................................. 5

5. Inviting, clarifying and closing offers ................................................................ 6

6. Evaluating offers ........................................................................................... 7

7. Selecting the successful tenderer .................................................................... 8

8. Negotiations ................................................................................................ 9

9. Contract management................................................................................. 10

10. Evaluating the procurement process ............................................................. 12

11. Disposals ................................................................................................... 13

1. Identifying the need and planning the purchase

Risk Impact/Likely consequences Control activity/Action
Understatement of the Purchase of unsuitable product or Analyse need accurately
need service Money wasted Need not
satisfied
 Risk Impact/Likely consequences
Overstatement of
the Greater expense
need Poor competition
Misinterpretation of user Totally unacceptable purchase or not Improve consultation with users
needs most suitable product or service
Time lost
Increased costs
Possible downtime
Insufficient funding Delay in making the purchase
Additional costs for re-tender
Impractical timeframe Inadequate responses from tenderers Improve forecasting, planning and
Reduced competition
Delivery schedule not met
Probity issues Increased procurement costs
Misuse of resources
Most suitable product not obtained
Unethical conduct
Control activity/Action
Analyse need accurately
Use functional and performance
requirements
Obtain clear statement of work
and definition of need
Obtain appropriate approvals
before undertaking process
Improve planning
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
2. Developing the specification
Risk
Narrow definition or
commercial specification (eg.
use of brand name)
Definition of inappropriate
product or service
Biased specification
Inadequate statement of
requirements
Impact/Likely
consequences
Fewer alternatives
Most suitable product or
service may not be obtained
Increased costs
Need not satisfied
Time lost
Increased costs
Possible downtime
Inadequate responses from
tenderers
Claims of unfair dealings
Variety of offers
Insufficient responses
Products offered not meeting
needs
Difficult to evaluate
Control activity/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)
3. Selecting the purchasing method
Risk Impact/Likely consequences Control activity/Action
Failure to identify potential Lack of offers from suitable tenderers Improve procurement planning processes
sources Improve market knowledge
Seek industry participation
Selecting inappropriate Need to seek offers again Improve implementation of procurement policies,
method Possible cost variations guidelines and practices
Failure to obtain value for money Improve tender documentation and clearly identify
the evaluation criteria in Request for Tenders
Provide staff with appropriate training and
experience
4. Purchasing documentation
Risk Impact/ Likely consequences Control activity/Action
Terms and conditions Loading of costs in offers Use standard documentation prepared by Crown
unacceptable to Having to modify tender terms and Law
tenderers conditions Select appropriate documentation for purchase
Disruption type (ie. goods, services, goods and services, or
information technology related)
Low response
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
Providing inadequate Loading of costs in offers Ensure staff have appropriate tender planning and
information Variations in offers documentation training and experience
Having to provide clarifying information, Improve tender planning and preparation
causing delays in tender closing Review tender documents before issuing them and
Additional costs ensure evaluation criteria contain the critical
factors on which assessment of tenders will be
based
5. Inviting, clarifying and closing offers
Risk
Failure to adequately address
enquiries from tenderers
Actual or perceived
favouritism in providing
information
Actual or perceived breach
of confidentiality
Insufficient number of
responses
No response from known
quality suppliers
Impact/ Likely consequences
Claims of unfair practices
Offers with qualifications by tenderers
Withdrawal of offers
Complaints from tenderers
Withdrawal of offers
Complaints from tenderers
Mistrust by tenderers
Need to undertake process again
Increased costs
Delayed delivery to the client
Poor value for money due to limited
competition
Reduced competition
Increased costs of products or services
Control activity/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
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)
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 non-
response
6. Evaluating offers
Risk
Failure to follow
effective evaluation
procedures
Breaches of security
Offers fail to meet needs
Failure to identify a clear
winner
Decision made on
subjective grounds
Impact/ Likely consequences
Inconsistent evaluations
Possible complaints from tenderers
Subjective not objective evaluation of
offers
Claims of unethical or unfair practices
Loss of faith with tenderers
Need to call tenders again
Additional costs
Delay in delivery
Claims of unethical and unfair behaviour
Complaints from tenderers
Control activity/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 appropriate training and experience
and monitor performance
Ensure that Evaluation Committee members
understand and sign Confidentiality Agreements
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
7. Selecting the successful tenderer
Risk Impact/ Likely consequences Control activity/Action
Selecting an inappropriate Failure to fulfil the contract Provide staff with appropriate tender evaluation,
supplier 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
Selecting inappropriate Failure to meet the client’s need Ensure users are involved in the evaluation/selection
product process
Improve technical evaluation procedures and train
staff as appropriate
Procurement Review Committee to review tender
and selection process prior to awarding contract
8. Negotiations
Risk
Not matching the expectations of
buyer and tenderer
Deadlock on details of agreement
Failure to secure mandatory
conditions
Failure to secure agreement in
relation to Crown Contracts
Confidentiality Policy
Unfair or onerous requirements on
the tenderer in the contract
conditions
Failure to reflect the terms offered
and agreed in the contract
Inadvertently creating a contract
without the delegate’s prior
approval
Impact/ Likely consequences
Contract disputes
Delivery delays
Cost variations
Reduction in value for money
Purchase of less suitable product
Inefficient use of resources
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
Inability to finalise contract
Delays in delivery
Inefficient use of resources
Requirement to negotiate with other
ranked suppliers
Contract disputes
Invalidity of contract
Legal action
Poor supplier/customer relationship
Contract disputes
Legal action
Poor supplier/customer relationship
Expense of negotiating out of the contract
and paying damages
Committing to other associated work
prior to main contract existing
Control activity/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 party’s 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
Procedure in place to ensure delegate’s
approval obtained first
Provide negotiators with adequate
training
9. Contract management
Risk Impact/ Likely consequences Control activity/Action
Variations in price and foreign exchange Cost overruns Agree on prices and the basis of
prices
Agree on a formula for calculating
variations
Unwillingness of the supplier to accept the Delays in delivery Seek legal redress if non-
contract Need to restart procurement acceptance causes loss
Negotiate but retain integrity of
the contract
Failure of either party to fulfil the conditions Contract disputes Ensure good contract
of the contract Failure to satisfy needs administration and performance
management
Delays in delivery
Hold regular inspections /
Downtime
meetings and ensure progress
Legal action reports
Ensure all staff know
responsibilities and conditions
Ensure good record keeping and
documentation
Inadequately administering the contract Cost increases Maintain up-to-date agency
Failure of contract procedures and practices
Full benefits not achieved Ensure all staff are suitably trained
and experienced in contract
Delivery of unsatisfactory product
planning and management
Contract/supply disputes
Commencement of work by the supplier Potential liability to pay for unauthorised Confirm verbal acceptance of
before contract is exchanged or letter of work contract with written advice
acceptance issued Possibility of legal action for perceived Accept all contracts in writing
breach of contract Ensure approvals are received
before allowing work to start
Unauthorised increase in scope of work Unanticipated cost increases Ensure all contract amendments
Contract disputes are issued in writing
Record all discussions and
negotiations
Confirm instructions in writing
Loss of intellectual property Loss of commercial opportunity Ensure suitable clauses are
Unwarranted reliance on supplier for included in the contract
product support
Failure to meet liabilities of third parties (eg. Legal action Check that all obligations are
royalties or third party property insurance) Damage to the agency’s professional covered in the contract
reputation Agree on responsibilities
Implement appropriate safety
standards and programs
Loss or damage to goods in transit Delays in delivery Include appropriate packaging
Downtime instructions in specification
Liability disputes Agree on insurance cover for
supplier to provide
Accept delivery only after
inspection
Know when title of goods is
transferred to buyer
Fraud Misuse of resources Maintain an ethical environment
Legal action Follow and maintain fraud control
Disruption to procurement activities procedures
 Risk
Key personnel not available
Impact/ Likely consequences
Progress on project disrupted
Less expertise
Control activity/Action
Include requirement in
specification and ensure
compliance in post-tender
negotiation
Know the market
Accept risk and manage possible
delay
10. Evaluating the procurement process
Risk
Failure to evaluate procurement
and management processes
Failure to identify and address
problems
Impact/ Likely consequences
Failure to improve procurement and
management processes
Procurement objectives not achieved
Possible failure in the future
Control activity/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
Inadequate tender management
Impact/ Likely consequences
Not achieving best return
Claims of unethical and unfair practices
Claims of bias and favouritism to
organisations or individuals
Reduction in value for money
Control activity/Action
Set reserve prices
Deal with reputable firms
Include disposal clause in initial contract
Maintain ethical environment
Sell by open tender
Document reasons for decision
Provide staff with appropriate training