PSP60616 Advanced Diploma of Procurement & Contracting – Block 1 – Activity 4 – CASE STUDY: Ethical Procurement

ACTIVITY 4 – CASE STUDY: Ethical Procurement

The Consistent Contractor Scenario

An allegation has been made to you by an electrical contractor (Contractor A) whose business is based in the ACT. They claim that another electrical contractor (Contractor B) has been getting the vast majority of available work without other companies even being given a chance to provide a quotation. They also allege that Contractor B often won work offered for tender or by quotation even when they were not the lowest bidder. Contractor A is of the opinion that the Department unfairly favoured Contractor B because of close personal and business relationships developed over a number of years.

You conduct an initial review to determine whether closer investigation of the matter is justified. You find that nine electrical contracting work packages have been awarded to Contractor B over the year to date out of a total of 12 electrical contracting work packages offered by the Department. Of those, only one was conducted by open tender. This was awarded to Contractor B although three of the other tender submissions were for amounts significantly below that quoted by Contractor B. However, the Tender Assessment Panel Report had recommended awarding the contract to Contractor B because their total weighted score was the highest when experience and knowledge of Departmental operations was considered. The panel report also questioned whether the three lower bids were potentially a reflection of the lack of experience and knowledge of these contractors and they may have underestimated to costs involved in achieving the work packages to the standard required by Department.

Five other Work Packages were awarded after a Request for Quotation was sent to selected companies. Contractor B only won two of these work packages and in each case, they were the lowest quoted price. Six Work Packages were valued at less than $10,000 these were awarded after a single quote had been sought for each of these packages. The quotations were all sought from Contractor B and the total value of the Work Packages awarded without competitive quotation was initially $53,783. However, due to errors in scoping the project and ‘unforeseeable additional work requirements’ the total amount paid to the contractor for these six work packages totals $187,456.

For the nine projects won and completed by Contractor B a total of $697,387 was billed to and paid by the Department. There were no cost overruns in the work won by tender and competitive quotation, and all work was completed on time and the Department is satisfied with the quality of the work completed by the Contractor B.

In your investigations, you also find an internal audit report from two years ago. The audit report shows the Department had engaged Contractor B on a regular ad hoc basis for minor and medium level electrical work without regular testing of the market. It also shows the Department regularly underestimated the extent of work required. Finally, the audit identified that contractors ‘unique’ experience and expertise had been the sole criteria for awarding the work.

Interestingly, the Audit Committee provided recommendations and the Departmental Senior Executive had directed that small and medium level electrical work would in future be bundled into similarly sized work packages of between $30,000 and $50,000 in value. This was justified on the basis it would avoid Departmental staff members constantly having to seek quotations for regularly required work but at the same time ensure that small local contractors could effectively compete for work. The Audit Committee report stated that the outcome of the changes would be:

  • a more competitive market generating high level of focus on work quality;
  • improved value for money outcomes for the Department;
  • provide increased opportunities for local tradespeople; and
  • avoid any one contractor gaining more than a small percentage of the total work.

You are concerned a relationship with a Contractor B had developed into such interdependence that other potential suppliers were not even invited to submit bids.  You are concerned that over time the relevant Departmental staff member continued to give work to a reliable contractor who they get along with without ensuring value for money is achieved. You recommend to the Senior Executive that the complaint made against Contractor B be further investigated.

After reading the Scenario discuss the following questions with your allocated team

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