Ethical Issues in Procurement & Supply Chain Management

(Course in Purchasing Management)

Institute of Supply and Material Management

Damith Liyanage
BSc in (Logistics) Management, Dip. SCM (ITC)

CMILT, MISMM,
 Ethics
• Values, practices and customs that guide the behaviour of an individual.
• Ethics is a matter of behaving within the stated standards of the group to which one
belongs.
Integrity – use of funds, resources assets and authority according to the intended official purposes.
Absence of integrity – Bribery, nepotism, misuse of public office for personal interest.

• Product substitution in the delivery.

• Conflict of interest
• Abuse and manipulation of information
• Waste and abuse of organizational resources.
 Corruptions in Procurement

1. Bribery / Kickback
2. Conflict of interest
3. Patronage / nepotism
4. Extortion
5. Fraud
6. Collusion
7. Embezzlement
 Impact of corruption in Procurement

1. Waste of resources.
2. Poor quality of goods or works.
3. Environmental impacts.
4. Impacts on health and human safety.
5. Erosion of public confidence in the integrity of employees and the
organization.
 Effects of Unethical Practices

1. Disregard for standards and virtues of integrity.

2. Moral decay.
3. Loss of goodwill from the public.
4. Slow down economic development.
5. Withdrawal of international support.
6. Loss of stakeholder’s confidence.
 Procurement Process

1. Planning
2. Solicitation & Contract Award
3. Contract Award
4. Asset disposal (Reverse Logistics)
 Corruption Risks

Need Identification & Sourcing:

1. Overstated physical requirements.

2. Exaggerated price projections.
3. Distorting competition and favouring particular bidders.
4. Bribes or kickbacks in exchange for a contract award.
5. Bidders conspire to fix the outcome of a bid and inflate contract prices.
 Corruption Risks
Suppliers and Contractors:

1. Bid suppression
2. Complementary Bidding
3. Bid rotation schemes
 Corruption Risks
Evaluation & Awarding:

1. Substitution of evaluation criteria.

2. Delays in evaluation.
3. Substitution of evaluation members during the evaluation process.
4. Entertainment of vendor intermediaries during the procurement process.
5. Bid evaluation committee members not having the “ technical expertise necessary” to properly evaluate bids.
6. Order splitting.
7. Placing orders above tendered prices and quantities.
8. Underperformance ( Not meeting the required standards).
 Corruption Risks
Contract Implementation

1. Accept / receive less quantity or type other than ordered.

2. Partial delivery.
3. Diversion of goods for personal use or resale.
4. Unjustified variation of the orders.
5. Delay in acceptance of goods.
6. Payment before delivery.
7. Payment for goods, services or works not received.
8. Selective payment of suppliers.
9. Full payment for partial delivery.
10. Delayed payment.
 Corruption Risks
Disposal

1. Disposal of items not worth disposing.

2. Non disposal of disposable items.
3. Disposal to favoured buyer.
4. Disposal to staff without involving competition.
5. Disposing item at lower than its real value.
6. Releasing item before full payment is received.
 High Risk Areas in Procurement

1. Urgent Purchases
2. Large contracts
3. Complex technology
4. Sector vulnerability
5. Emergency Response
 How to prevent corruptions?

1. Placement of procurement function at a strategic level.

2. Evaluation / appraisal of suppliers’ and contractor’s performance.
3. Putting procurement governance instruments in place.
4. Involvement of users in the process.
5. Move towards e-procurement.
 Guidelines in ethical and professional conduct.

1. Declaration of interest.
2. Confidentiality and accuracy of information.
3. Competition.
4. Business gifts policy.
5. Staff management:
1. Adequate remuneration.
2. Merit – based recruitment.
3. Regular training for high standards of professionalism.
4. Dedicated code of conduct for procurement staff.
5. Conflict of interest management.
6. Post – employment regulations.
7. Gifts and gratitude policy.
8. Reporting channels for wrongdoing.
Everything Begins with you