Scenario 4: Shares, directorships, and other financial interests

What is the situation?

A government department is procuring reconfigured national transport services. Existing contracts are due to expire shortly.

The procurement covers urgent and routine transport services throughout the country. The services are structured into several regions, and public organisations can use the services contracted for their region.

A working group is set up. Jan, a director at one of the public organisations that would use the transport services, is a member of this group.

Jan declares that she has a close working relationship with one existing supplier. She also has “secondary employment” with a potential supplier and a subsidiary of another. She holds shares in a fourth potential supplier.

Why is this a conflict?

Roles in, or relationships with, organisations that intend to participate in a procurement process always create the risk of divided loyalties. This is particularly true if the organisation’s success or failure in the procurement affects the person’s income or the value of any shares that they own.

In this situation, the interests of the public organisation that Jan is the director of are not aligned with the interests of the other organisations she also works for or has an interest in.

Procurement can be undermined at the planning stage

The draft technical specification was shared with the working group that Jan was part of. Because she had specialist knowledge and experience, she could provide feedback and influence the specification.

She might have consciously or unconsciously skewed the specification to favour the suppliers she was involved with, even if only because she was more familiar with their operations.

Other suppliers could certainly perceive this to be the case.

Communication needs to be formal and well controlled

Jan suggested that she could be a contact for suppliers that wanted to know more about the service requirements in her region. Again, this could have led to actual, potential, or perceived inequity in what information was provided, when, and to whom.

It could be perceived that those organisations that Jan had a relationship with or worked for could get preferential access to useful information.

Shares are part ownership of a business

Jan holds shares in a company that is a potential supplier. As a result, she has a financial interest in the outcome of the procurement process. This is because the success of the company will influence the value of her shares.

Management plans that do not mitigate the conflict

The government department identified some management plans to deal with this scenario. However, these plans do not address the risk arising from the shares and the secondary employment.

Proposed management plan Why it doesn’t work
Jan does not have a decision-making role in evaluating tenders or selecting supplier(s). Although this limits the level of influence Jan has on the outcome to some extent, it does not control her influence on the requirements and specifications. These could still favour certain suppliers.
Jan is conflicted with multiple parties in the tender, so the effect of this will average out. Multiple conflicts do not “average out”. On the contrary, they combine to undermine confidence in the process.
This management plan also does not consider the relative size of the conflicts. For example, if most of Jan’s secondary income is from one supplier, she might be more positively inclined towards it than the other suppliers.

What might be a better plan?

Conflicts from roles in, or relationships with, other organisations can be difficult to mitigate or manage, especially if the conflict is financial.

Even if Jan gives up her secondary employment, these organisations will become former employers. Former employers are a common source of conflict, which we cover in scenario 5.

A better plan is for Jan to not be involved at all. If her expert input is needed, an independent peer review might give the government department confidence that the resulting specifications and requirements do not favour any particular party.

It is inappropriate for Jan to be a contact for suppliers during the tender process. All contact, questions, and requests for clarification from suppliers should be through a single point of contact at the public organisation. This ensures that information flow is controlled and that all interested parties get the same information at the same time.