01 Jul 2015

Contracting with government - are you conflicted?

by Alexandra Wedutenko, Suriyaa Rome

A “one size fits all” approach should be avoided, but at the program or procurement level, there are some practical measures for identifying and managing conflicts of interest.

Governments in Australia spend billions of dollars each year on programs and the procurement of goods and services. Underlying these spending decisions is a robust probity framework, which requires public servants to identify and manage conflicts of interest.

If they don't, they can jeopardise the probity of the process, which could open the door to the process being criticised or challenged. It may also amount to fraud or misconduct by the relevant personnel.

Any entity contracting with government also must know about these conflict of interest requirements, which may apply to the entity by way of legislation, rules of the process (ie. for a program or procurement) or contractual arrangements with government.

Although this article focuses on conflict of interest requirements at the Commonwealth level, all Governments in Australia have conflict of interest requirements. As such, it is important for in-house counsel acting on either side of government contracting processes to be aware of these requirements.

What is a conflict of interest?

In the context of government contracting, a conflict of interest can arise where:

"…the impartiality of an officer in discharging their public duties could be called into question because of the influence of personal considerations, financial or other. The conflict in question is between official duties and obligations, on the one hand, and private interests on the other." [1]

The Australian National Audit Office (ANAO) has noted that a conflict of interest can also arise in the form of a conflict of role, whereby an officer is required to fulfil various roles that may conflict with each other in some way. [2]

A conflict of interest may be actual, potential or perceived. Importantly, a perceived conflict of interest can be just as damaging as an actual conflict of interest.

Situations where a conflict of interest may arise

The New South Wales Independent Commission Against Corruption (ICAC) has detailed a list of factors that may put an officer at risk of a conflict of interest, which has also been adopted by the ANAO. [3] The factors identified by ICAC include:

  • financial and economic interests, such as debt, assets;
  • a family or private business;
  • a secondary employment commitment;
  • affiliations with for-profit and non-profit organisations, sporting bodies, clubs and associations;
  • affiliations with political, trade union or professional organisations, and other personal interests;
  • obligations because of relationships to people living in the same household;
  • significant family or other relationships with clients, contractors or other staff working in the same (or a related) organisation; and
  • future employment prospects or plans (ie, post-separation employment). [4]

Legal and policy framework

The framework for dealing with conflicts of interest in government contracting arises from a variety of legislation and policy. For example, Commonwealth public servants are subject to requirements such as:

  • Criminal Code Act 1995 (Cth): under which the knowing provision of false or misleading information to the Commonwealth is an offence; [5]
  • Public Service Act 1999 (Cth): which includes a requirement for Australian Public Service employees to disclose, and take reasonable steps to avoid, any conflict of interest (real or apparent) in connection with their employment; [6]
  • Public Governance, Performance and Accountability Act 2013 (Cth): which includes the duty to act honesty, in good faith and for a proper purpose [7] and an obligation to disclose a material personal interest that relates to the affairs of the entity; [8] and
  • Commonwealth Procurement Rules [9]  and Commonwealth Grants Rules and Guidelines. [10]

It is important to note that those contracting with government may also be subject to elements of this framework, by way of various mechanisms. For example, the provisions of the Criminal Code Act 1995 (Cth) noted above will apply regardless of whether a person is a public service employee or otherwise.

Additionally, government will often ask applicants/tenderers to declare any conflicts of interest as part of an application/tender process (ie, for a program or procurement). For applicants/tenderers that ultimately enter into contract with government, there may also be ongoing contractual requirements to declare and manage any conflicts of interest.

A global and current concern

Far from being an issue specific to Australia, conflicts of interest have received attention at the global level, due to various corporate governance and financial market events during the last decade. The Organisation for Economic Co-operation and Development (OECD) has developed guidelines for managing conflicts of interest in the public service, which notes:

"Conflicts of interest in both the public and private sectors have become a major matter of public concern worldwide. An increasingly commercialised public sector that works closely with the business and non-profit sectors gives rise to the potential for new forms of conflict between the individual private interests of public officials and their public duties …When conflict-of-interest situations are not properly identified and managed, they can seriously endanger the integrity of organisations…"[11]

Even if there is a robust conflict of interest framework in place, there may still be shortcomings in the management of conflicts of interest at the program or procurement level. For example, in one recent audit report, the ANAO considered how conflicts of interest were dealt with in the context of a competitive funding program. [12] The ANAO noted that: [13]

  • there were shortcomings with the departmental record of declared direct and indirect conflicts of interest and how they were addressed;
  • the conflict of interest arrangements that were adopted did not address the issue of potential conflicts that arise as a result of past collaboration between panel members and applicants (for example, through past co-authorship of publications); and
  • there were shortcomings in relation to the management of conflict of interest situations that were not addressed in the program governance arrangements.

Practical measures

A “one size fits all” approach should be avoided, as each process will give rise to different conflict of interest issues, but at the program or procurement level, practical measures for the identification and management of conflicts of interest generally include:

  • tailoring the conflict of interest procedures to reflect the circumstances and areas of risk for the particular program or procurement;
  • requiring personnel involved in the process to sign a conflict of interest declaration (which at least reminds personnel to be mindful of conflicts of interest);
  • requiring the declaration of conflicts of interest to be an ongoing obligation throughout the process;
  • reporting all conflicts of interest identified to the relevant decision maker;
  • where a conflict of interest exists, appropriately managing the conflict of interest; and
  • maintaining a record of all conflicts of interest declared and the process chosen to manage conflicts of interest.



[1] Australian National Audit Office, Audit Report No.47 2013–14, Managing Conflicts of Interest in FMA Agencies, pp 27–8. Back to article

[2] Above, n 1. Back to article

[3] Above, n 1. Back to article

[4] New South Wales Independent Commission against Corruption, Identifying and Managing Conflicts of Interest in the Public Sector, 2012, p 2. Back to article

[5] Criminal Code Act 1995 (Cth), s 137.1. Back to article

[6] Public Service Act 1999 (Cth), s 13. Back to article

[7] Public Governance, Performance and Accountability Act 2013 (Cth), s 26. Back to article

[8] Above, n 7, s 27. Back to article

[9] Commonwealth Procurement Rules, para 6.6. Back to article

[10] Commonwealth Grants Rules and Guidelines, para 13.7. Back to article

[11] Organisation for Economic Co-operation and Development, Managing Conflict of Interest in the Public Service — OECD Guidelines and Country Experiences, 2003, p 13. Back to article

[12] Australian National Audit Office, Audit Report No.11 2013-14, Delivery of the Filling the Research Gap under the Carbon Farming Futures Program. Back to article

[13] Above, n 6, p 17. Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.