C.6  Is the conflict of interest risk manageable?

If a COI exists (whether actual, potential or perceived) the Project Director must undertake a risk assessment and determine whether the risk is manageable. As noted, the advisor must also submit a proposed management strategy when identifying the COI to the Project Director.

To complete the risk assessment, the Project Director must examine the following questions.

•  What is the degree of incentive for the advisor to compromise the interests of government?

The Project Director considers the following:

To what extent would the advisor and/or their interests benefit if the advisor compromised the interests of government?

What are the nature and significance of the other relationships or interests?

In what way will an individual or organisation benefit or be disadvantaged?

Is the advisor working on a success fee basis or a fee-for-service basis?

If an individual or organisation benefits or is disadvantaged by bias, how will that impact on the project?

Will other stakeholders consider the impact material?

Take the example of the two different PPP projects, A and B, (mentioned above) where the commercial advisor for project A also provides advice to a bidder on project B. This could be considered a very difficult risk to manage using the considerations of incentives listed above. However, the Project Director could be expected to consider the risk more manageable if the advisor was engaged only to provide limited advice on a specific matter for project B, and that matter was not central to the overall bid evaluation.

•  What level of ability does the advisor have to compromise or harm government's interests?

The Project Director considers the following:

How seriously does the matter impact on the fairness of the competitive process?

Would a bidder, or other person with access to the information obtained or the report prepared by the advisor, gain an unfair advantage?

Will any relevant information obtained by the advisor be disclosed to all bidders?

What protection is provided by the evaluation framework and the advisor's role in this framework?

Could the advisor's access to information compromise the government's interests in other ways?

For example, for projects A and B, the 'level of ability to compromise or harm government interests' could be considered a very difficult risk to manage under the measures above. However, the Project Director could well consider the risk more manageable if the advisor was working on an environmental impact study common to both projects, to be made publicly available to all bidders.

•  Are current internal management arrangements sufficient to manage the COI event or could new arrangements be put in place?

The Project Director considers the following:

Does the advisor have mechanisms in place - such as internal management arrangements acceptable to the Project Director - to prevent bias and unnecessary information exchange being introduced into the project? These arrangements could include, among other things:

different personnel working on the project;

separation of internal management streams;

different locations for engagements; and

restrictions on sharing information between teams.

For example, in the illustration of an advisor working on different sides of two different but related PPP projects, internal management arrangements could also be considered a very difficult risk to manage according to the internal management considerations above. However, the Project Director could be expected to consider the risk more manageable if a different team of individuals from a different office under the direction of a different partner is providing the advice to the bidder, and the advisor's internal management arrangements are acceptable and fully disclosed.

In assessing the potential risk of the COI, the Project Director should also consider the extent to which existing contractual agreements - including signed confidentiality deeds and the terms and conditions of the advisor's engagement agreement - will mitigate the risk.

As stated previously, where a COI exists, an advisor is able to act on both sides of a PPP project only in rare circumstances. For the Project Director to consider the risk of the COI event acceptable, the proposed management strategy must include, at a minimum, a central committee within the firm, with partners outside the affected management streams signing off on internal management arrangements and willing to monitor compliance over the life of the contract.

Table C-1: Potential outcomes, criteria and actions in managing conflict of interest risk