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CHECKLIST OF POTENTIAL RISKS IN THE GOODS AND SERVICES

PROCUREMENT PROCESS
(Version 2 December 2006)

1.

Identifying the need and planning the purchase

2.

Developing the specification

3.

Selecting the purchasing method

4.

Purchasing documentation

5.

Inviting, clarifying and closing offers

6.

Evaluating offers

7.

Selecting the successful tenderer

8.

Negotiations

9.

Contract management

10.

Evaluating the procurement process

11.

Disposals

1.

Identifying the need and planning the purchase


Risk

Likely consequences

Action

Understatement of the
need

Purchase of unsuitable
product or service

Analyse need accurately

Money wasted
Need not satisfied
Overstatement of the need

Misinterpretation of user
needs

Greater expense

Analyse need accurately

Poor competition

Use functional and


performance requirements

Totally unacceptable
purchase or not most
suitable product or service

Improve consultation with


users

Time lost

Obtain clear statement of


work and definition of need

Increased costs
Possible downtime
Insufficient funding

Delay in making the


purchase
Additional costs for retender

Impractical timeframe

Inadequate responses from


tenderers
Reduced competition
Delivery schedule not met

Probity issues

Increased procurement
costs
Misuse of resources
Most suitable product not
obtained
Unethical conduct

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

Risk

Likely consequences

Action
Put suitable controls and
reviews in place
Consider using a probity
adviser
Improve communication
with potential tenderers

2.

Developing the specification


Risk

Likely consequences

Action

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

Fewer alternatives

Define the specification in


terms of required outputs

Most suitable product or


service may not be
obtained

Use functional and


performance specifications

Increased costs
Definition of inappropriate
product or service

Need not satisfied


Time lost
Increased costs
Possible downtime

Biased specification

Inadequate statement of
requirements

Improve market knowledge


Use functional and
performance specifications

Inadequate responses from


tenderers

Use functional and


performance specifications

Claims of unfair dealings

Implement a control
mechanism to review
specification before release

Variety of offers

Be familiar with
requirements

Insufficient responses
Products offered not
meeting needs
Difficult to evaluate

3.

Ensure specification is
consistent with needs
analysis

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)

Selecting the purchasing method


Risk

Likely consequences

Action

Failure to identify potential


sources

Lack of offers from suitable


tenderers

Improve procurement
planning processes
Improve market knowledge
Seek industry participation
Use Industry Capability
Network Tasmania
(ICNTAS)

Selecting inappropriate
method

Need to seek offers again


Possible cost variations

Improve implementation of
procurement policies,

Risk

Likely consequences

Action

Failure to obtain value for


money

guidelines and practices


Improve tender
documentation and clearly
identify the evaluation
criteria in Request for
Tenders
Provide staff with
appropriate training and
experience

4.

Purchasing documentation
Risk

Likely consequences

Action

Terms and conditions


unacceptable to tenderers

Loading of costs in offers

Use standard
documentation prepared by
Crown Law

Having to modify tender


terms and conditions
Disruption
Low response

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

Providing inadequate
information

Loading of costs in offers


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

5.

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

Inviting, clarifying and closing offers


Risk

Likely consequences

Action

Failure to adequately
address enquiries from
tenderers

Claims of unfair practices

Implement standardised
procedures for responding
to enquiries

Offers with qualifications by


tenderers
Withdrawal of offers

Provide staff with


appropriate tender

Risk

Likely consequences

Action
management training and
experience
Respond in a timely
manner to enquiries
Allow adequate time for
tenderers to respond

Actual or perceived
favouritism in providing
information

Complaints from tenderers

As above

Withdrawal of offers

Answer queries in writing


and provide copies to all
potential tenderers
Ensure that all potential
tenderers are provided with
any addenda

Actual or perceived breach


of confidentiality

Complaints from tenderers


Mistrust by tenderers

Establish formal security


procedures
Train staff in their
obligations
Perform regular audits and
reviews of security
processes
Advise tenderers of
security measures

Insufficient number of
responses

Need to undertake process


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

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

No response from known


quality suppliers

Reduced competition
Increased costs of products
or services

Actions as above for


insufficient number of
responses
Improve your market
knowledge
Review specifications or
conditions
Seek feedback from known
suppliers on their nonresponse

6.

Evaluating offers
Risk

Likely consequences

Action

Failure to follow effective


evaluation procedures

Inconsistent evaluations

Provide staff with


appropriate tender
assessment and evaluation
training and experience

Possible complaints from


tenderers
Subjective not objective
evaluation of offers

Improve tender
assessment and evaluation
processes
Maintain, audit and review
evaluation procedures
Ensure that Evaluation
Committee members
declare any conflicts of
interest

Breaches of security

Claims of unethical or
unfair practices

Maintain, audit and review


security procedures

Loss of faith with tenderers

Provide staff with


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

Improve market knowledge

Additional costs

Improve tender
documentation

Delay in delivery

Conduct market research


Develop functional and
performance specifications
Failure to identify a clear
winner

Claims of unethical and


unfair behaviour

Decision made on
subjective grounds

Complaints from tenderers

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

Likely consequences

Action

Selecting an inappropriate
supplier

Failure to fulfil the contract

Provide staff with


appropriate tender
evaluation, financial and
technical skills training and

Risk

Likely consequences

Action
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
product

Failure to meet the clients


need

Ensure users are involved


in the evaluation/selection
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

Likely consequences

Action

Not matching the


expectations of buyer and
tenderer

Contract disputes

Improve communication,
including ensuring that
Conditions of Contract form
part of the Request for
Tender

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

Provide staff with training in


contract planning and
management
Define terms carefully
Record each partys
obligations
Clarify all ambiguities
before signing the contract

Deadlock on details of
agreement

Delays in delivery
Need to restart
procurement
Possible cost of legal
action

Failure to secure
mandatory conditions

Inability to finalise contract


Delays in delivery
Variations in cost

Look at alternatives to
share risk
Distinguish between
essential and non-essential
goals and requirements
Establish baseline before
negotiations
Distinguish essential goals
from others

Risk

Likely consequences

Action

Inefficient use of resources

Consider variations to
contract
Provide negotiators with
adequate training

Failure to secure
agreement in relation to
Crown Contracts
Confidentiality Policy

Unfair or onerous
requirements on the
tenderer in the contract
conditions

Inability to finalise contract


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

Seek exemption from


Crown Contracts
Confidentiality Standing
Committee

Contract disputes

Provide negotiators with


adequate training and
support

Invalidity of contract
Legal action
Poor supplier/customer
relationship

Failure to reflect the terms


offered and agreed in the
contract

Inadvertently creating a
contract without the
delegates prior approval

9.

Ensure potential suppliers


aware of Policy
requirements before
submitting responses

Contract disputes
Legal action

Negotiate commercial
terms
Terms should be fair and
reasonable
Check final draft of contract
with successful tenderer

Poor supplier/customer
relationship

Keep records of all


negotiations and
agreements

Expense of negotiating out


of the contract and paying
damages

Procedure in place to
ensure delegates approval
obtained first

Committing to other
associated work prior to
main contract existing

Provide negotiators with


adequate training

Contract management
Risk

Likely consequences

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
contract

Delays in delivery

Failure of either party to


fulfil the conditions of the
contract

Contract disputes

Need to restart
procurement

Failure to satisfy needs


Delays in delivery
Downtime
Legal action

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

Risk

Likely consequences

Action
Ensure good record
keeping and
documentation

Inadequately administering
the contract

Cost increases
Failure of contract
Full benefits not achieved
Delivery of unsatisfactory
product

Maintain up-to-date agency


procedures and practices
Ensure all staff are suitably
trained and experienced in
contract planning and
management

Contract/supply disputes
Commencement of work by
the supplier before contract
is exchanged or letter of
acceptance issued

Potential liability to pay for


unauthorised work
Possibility of legal action
for perceived breach of
contract

Confirm verbal acceptance


of contract with written
advice
Accept all contracts in
writing
Ensure approvals are
received before allowing
work to start

Unauthorised increase in
scope of work

Unanticipated cost
increases
Contract disputes

Ensure all contract


amendments 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 included in the contract

Unwarranted reliance on
supplier for product support
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

Loss or damage to goods


in transit

Delays in delivery
Downtime
Liability disputes

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

Fraud

Misuse of resources
Legal action
Disruption to procurement
activities

Key personnel not


available

Progress on project
disrupted

Maintain an ethical
environment
Follow and maintain fraud
control procedures
Include requirement in
specification and ensure

Risk

Likely consequences

Action

Less expertise

compliance in post-tender
negotiation
Know the market
Accept risk and manage
possible delay

10. Evaluating the procurement process


Risk

Likely consequences

Action

Failure to evaluate
procurement and
management processes

Failure to improve
procurement and
management processes

Develop systematic
evaluation methods,
techniques and evaluation
criteria

Failure to identify and


address problems

Procurement objectives not


achieved

Agree on performance
criteria (with supplier and
customer)

Possible failure in the


future

Develop good relationships


with suppliers
Include evaluation clause
in the contract
Implement performance
management strategies

11. Disposals
Risk

Likely consequences

Action

Collusive bidding at auction

Not achieving best return

Set reserve prices

Claims of unethical and


unfair practices

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.