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NSW Government Bulletin

22 July 2020


Published by:

Victoria Gordon

NSW Government Bulletin

New ICAC guidelines assist NSW public sector conduct due diligence checks

The NSW Independent Commission Against Corruption (ICAC) has released new guidance to help the NSW public sector conduct due diligence checks on potential suppliers.

The “Supplier due diligence: a guide for NSW public sector agencies published on 17 June 2020 (Guide) examines:

  • what is due diligence
  • why, when and how due diligence should be performed
  • who should perform due diligence.

The Guide should be used as a tool for NSW public sector agencies to ensure they are achieving the best value for money with the billions of dollars of taxpayer money spent on the procurement of goods and services each year.

What is due diligence?

The Guide defines due diligence as checks performed by an agency on a counterparty to understand whether the supplier:

  • is genuine
  • is capable and reliable
  • is financially viable
  • has the required authorities, licences and status
  • is of good repute and integrity.

In a nutshell, due diligence helps to answer the question: should we be doing business with this organisation?

Why, when and how due diligence should be performed?

The Guide states that supplier due diligence is important for ensuring:

  • value for money
  • preventing corrupt conduct
  • maintaining trust in public administration
  • complying with legal and regulatory expectations.

The Guide also advises checks may need to occur further along the supply chain should it extend into countries where practices such as forced labour or trafficking in children are common.

Due diligence is typically performed during the procurement or sourcing stage, after potential suppliers have been identified but before the contract with the preferred supplier has been entered into. However, due diligence needs to be considered in the procurement planning phase so that appropriate supplier questionnaires can be included in tender documents.

Supplier due diligence is also an ongoing process and agencies should be checking back in with current suppliers to see if their licences and insurances are up to date, and if they are complying with all legal and regulatory obligations.

In terms of how due diligence should be performed, the Guide recommends that agencies undertake a “risk-based” approach – which is expanded on further below.

Who should perform due diligence?

Due diligence is usually tasked to the procurement team of the agency but may also involve other teams including finance, human resources or legal.

Agencies can also engage third parties to provide due diligence services.

“Risk-based” approach to performing due diligence

The Guide recognises that due diligence takes time and money and recommends a risk-based approach as a result. Other factors the agency needs to take into its approach are the agency’s capability to undertake the due diligence (time, cost and effort involved), the financial risks to the agency, the risk of corruption or other regulatory breaches (known conflicts of interest or high-risk supply chains) and supply risks (importance of the contract to the agency).

The Guide focuses on five categories of checks for agencies to consider based on the following questions:

  • is the supplier genuine?
  • is the supplier capable and reliable?
  • is the supplier financially viable?
  • does the supplier have the required authorities, licences and status?
  • is the supplier of good repute and integrity?

The Guide provides good guidance and case studies on what to look for when considering the above five questions, as well as supporting resources and information to assist agencies in this process.

Practical issues

The Guide also provides helpful tips on practical issues when performing due diligence, including:

  • outsourcing due diligence
  • prequalification panels and schemes
  • keeping watch lists or do-not-engage lists
  • subcontractors and supply chains
  • post-engagement due diligence and contract management

Who should use the Guide?

The Guide is for anyone involved in procurement in the NSW public sector but can also be applied by public sector agencies in other jurisdictions. 

Private sector agencies can also look to the Guide as a “best practice” tool when performing due diligence checks on suppliers.

Finally, suppliers can also use the Guide to understand how public sector agencies conduct due diligence and equip themselves with the information they may be required to provide in a procurement process.

The Guide can be accessed from the ICAC website here.

Authors: Scott Alden & Victoria Gordon

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Application by the Planning Ministerial Corporation [2020] NSWSC 903
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Environment Protection Authority v Grafil Pty Ltd; Environment Protection Authority v Mackenzie (No 3) [2020] NSWLEC 90
PROSECUTION – defendant company liable for the offence under s 144 of the Protection of the Environment Operations Act 1997 of unlawful use of land as waste facility PROSECUTION – defendant company director liable under executive liability provision for same offence as defendant company

Coffs Harbour City Council v Noubia Pty Ltd [2020] NSWCA 142
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Eberand v Department of Customer Service [2020] NSWCATAD 176
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The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Victoria Gordon

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