April 2015

Councils, tendering and direct negotiations

The Local Government Act 1993 exempts councils from the requirement to invite tenders before entering into certain contracts with other parties.  Such contracts include (among others) the sale of land, the lease of land by councils, contracts for employment and contracts involving an estimated expenditure of less than $150,000.

A consequence of this exemption is that the Local Government Act 1993 permits councils to hold direct negotiations with other parties to enter into such contracts without first having to undergo a genuine competitive process.

The Independent Commission Against Corruption (ICAC) considers that closed negotiations of this nature can create opportunities for dishonest or partial conduct and can also prevent public sector entities from obtaining the best value for money.  In an endeavour to prevent dishonesty and to ensure that councils and other public entities obtain the best value for money, the ICAC issued Guidelines in May 2006 to assist public entities to manage risks in direct negotiations.

These Guidelines provide guidance on the risk mitigation measures which councils should undertake in direct negotiations to ensure that the process resists corruption and delivers value for money.  The risk mitigation measures include identifying and managing conflicts of interest, establishing a negotiation protocol and obtaining external assistance such as from valuers and probity advisers.  Some other measures include establishing a steering committee, segregating duties between staff members and conducting a post-completion evaluation of the project.  The Guidelines provide a detailed checklist which councils should follow in undertaking direct negotiations.

Since the issue of the Guidelines in 2006, ICAC has monitored direct dealings by public authorities and has made findings of corrupt conduct in circumstances where those authorities have undertaken direct negotiations without transparency of dealing and without achieving the best value for money.  Some of those investigations have involved councils.  The most recent findings of corruption made by the ICAC relate to the investigation into Eddie Obeid and the grant of the Circular Quay leases to the existing leaseholders without an open tender process and without Mr Obeid disclosing the interest of his family members in those leases.

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.

Author: Peter Barakate, Executive Lawyer

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