UN Procurement Practitioner's Handbook PDF

Table of Contents 1.1 United Nations System of Organizations 4 1.2 UN Procurement as a Tool to Advance UN Policy Goals 5 1.3 Guiding Principles 7 1.4 Financial Regulations and Rules (FRR) and...

Table of Contents 1.1 United Nations System of Organizations 4 1.2 UN Procurement as a Tool to Advance UN Policy Goals 5 1.3 Guiding Principles 7 1.4 Financial Regulations and Rules (FRR) and Procurement Procedures 10 1.5 UN Procurement Reform 11 1.6 Procurement as a UN Profession 14 2.1 Introduction 17 2.2 Codes of Conduct 17 2.3 The Principle of Stewardship 18 2.4 Ethical Concepts and Principles 18 2.5 Ethical Risks and Actions to Manage Them 21 2.6 Potential Areas of Risk in the Procurement Cycle 23 2.7 Ethics at an Organizational Level 25 2.8 Ethics at the Supplier Level 27 3.1 Introduction 31 3.2 Risks in Procurement 31 3.3 Risk Management Process 32 3.4 Benefits of Risk Management 39 3.5 Risk and Risk Management in the Procurement Process 39 4.1 Objectives of the Procurement Strategy 45 4.2 Reviewing the Organization’s Mandate and Strategy 48 4.3 How to Develop a Procurement Strategy 49 4.4 Examine the Organization’s Procurement Spend 51 4.5 Analyzing the Organization’s Procurement Function & Capability 58 4.6 Identifying Strategic Procurement Objectives 59 4.7 Developing & Implementing Corporate Level Strategies 62 4.8 Measuring Results 63 5.1 Operational Procurement Planning 68 5.2 Requirement Definition 72 6.1 Market Research 86 6.2 Procurement Strategy 89 6.3 Solicitation 97 6.4 Evaluation 103 6.5 Contract Award Review and Approval 110 6.6 Contract 112 1 7.1 Introduction to Contract Management 123 7.2 Enabling Contract Management 123 7.3 Contract Performance Monitoring and Control 124 7.4 Change Management 129 7.5 Remedies 131 7.6 Dispute Resolution 133 7.7 Financial Management/Payment 135 7.8 Contract Completion and Closeout 136 8.1 Emergency Situations 139 8.2 Emergencies and Procurement 140 9.1 Cooperation with UN Organizations 144 9.2 Alternative Methods of Cooperation 148 10.1 About United Nations Global Marketplace 149 10.2 Functionalities on UNGM for UN Procurement Staff 149 11.1 Proscribed Practices 151 11.2 The Model Policy Framework on Vendor Sanctions 153 12.1 Logistics Planning Process 156 12.2 Selection of Mode of Transportation 157 12.3 Packing 159 12.4 INCOTERMS 2020 162 12.5 Insurance During Transportation 169 12.6 Shipping Documents 170 12.7 Receipt of Consignments 171 12.8 Restrictions on the Export or Import of Goods 172 13.1 Introduction 173 13.2 eProcurement Tools and Applications 174 13.3 eTendering 175 14.1 Sustainable Procurement 179 14.2 United Nation Global Compact 202 2 Preface The UN Procurement Practitioner’s Handbook (PPH) has been prepared by the “Working Group on Professional Development”, formed by the United Nations High-Level Committee on Management’s Procurement Network (HLCM-PN). The PPH is available in electronic format on the United Nations Global Marketplace website www.ungm.org. Purpose The aim of the handbook is to serve the following purposes: Provide UN procurement practitioners with a common reference point for good procurement practices in the UN system. Describe the common and typical guiding principles, policies, procedures and practices which govern UN procurement activities. Support on-going procurement reform and harmonization efforts in the UN system through the provision of good practice examples and shared principles and procedures. Establish a common knowledge platform for training and on-going procurement capacity development. Target Audience The target audiences of the PPH are: Procurement practitioners in the UN system of organizations Trainers, facilitators and participants of procurement capacity development programs Requisitioners, clients and end-users that are part of the UN procurement process References Input for each chapter has been sourced from specialized agencies, organizations and procurement experts within the UN system and, where available, also from: Existing procurement manuals of the various UN organizations. Known procurement practices in the UN system of organizations. Procurement training and certification programmes. Reservations Procurement in the UN system is governed by the established financial regulations and rules of each UN organization. These regulations and rules may differ in matters of detail from organization to organization. Similarly, organizational-specific procurement policies, practices and procedures may vary. The PPH attempts to collect, organize and present what are considered common good procurement practices and procedures without questioning or challenging any organizational-specific regulations, rules and policies. The idea is to bridge organizational differences and to provide a broader picture of the different ways procurement is practiced within the UN system by focusing on what is common and shared rather than on what is different and exclusive. Therefore, the authors consider the PPH a descriptive and supplementary handbook of good procurement practices within the UN system rather than a prescriptive or normative document challenging existing organizational-specific procurement manuals, policies and procedures. 3 Procurement in the UN System of Organizations This chapter covers the following topics: 1.1 United Nations System of Organizations 4 1.2 UN Procurement as a Tool to Advance UN Policy Goals 5 1.3 Guiding Principles 7 1.4 Financial Regulations and Rules (FRR) and Procurement Procedures 10 1.5 UN Procurement Reform 11 1.6 Procurement as a UN Profession 14 1.1 United Nations System of Organizations The "United Nations system of organizations" (UN) covers a wide variety of organizational units (centres, agencies, organizations, commissions, programmes, etc.) with different institutional and functional structures. The principal organs and subsidiary bodies of the UN Secretariat are included under the regular budget of the UN, as authorized by the General Assembly. Other agencies of the UN system, however, have their own regular budgets or are financed solely from voluntary contributions. These latter two categories, moreover, possess a certain degree of autonomy. The organizations within the UN system also vary considerably both in size and activities. While all organizations spend a certain amount of their budget on administrative procurement to establish and run their offices (office furniture, stationery, etc.), their procurement activities differ as a result of their mandates and policy goals within the UN system. The objective of procurement activities within the UN system is the timely acquisition of goods, services and works while upholding the following guiding principles: Best value for money Accountability, integrity and transparency Fairness and effective competition Best interest of the UN organizations concerned While all organizations of the UN system have agreed on the above guiding principles, their individual procurement regimes are governed by the established Financial Regulations and Rules of each organization, which may differ in matters of detail. The different Regulations and Rules are often also translated into different sets of procurement policies, procedures and practises specific to each organisation and their mandate. 4 1.2 UN Procurement as a Tool to Advance UN Policy Goals The Millennium Declaration 1 and the Millennium Development Goals (MDGs) 2 were in effect from 2000 to 2015 and provided a framework for the broader goals of individual organizations of the UN system. The MDGs established measurable, universally-agreed objectives for tackling extreme poverty and hunger, preventing deadly diseases, and expanding primary education to all children, among other development priorities. For 15 years, the MDGs drove progress in several important areas: reducing income poverty, providing much needed access to water and sanitation, driving down child mortality and drastically improving maternal health. They also launched a global movement for free primary education, inspiring countries to invest in their future generations. Most significantly, the MDGs made huge strides in combatting HIV/AIDS and other treatable diseases, such as malaria and tuberculosis. In September 2015, at a historic UN Summit, world leaders adopted the 17 new Sustainable Development Goals 3 (SDGs or Goals) of the 2030 Agenda for Sustainable Development 4 which officially came into effect on 1 January 2016. The SDGs build on the success of the MDGs and over the next fifteen years, countries will mobilize efforts to end all forms of poverty, fight inequalities and tackle climate change, while ensuring that no one is left behind. The new SDGs are unique in that they call for action by all countries, poor, rich and middle-income, to promote prosperity while protecting the planet. They recognize that ending poverty must go hand-in-hand with strategies that build sustainable economic growth and address a range of social needs including education, health, social protection, and job opportunities, while tackling climate change and environmental protection. All 17 Goals interconnect, meaning success in one affects the success of others. Dealing with the threat of climate change impacts how we manage the fragile natural resources, achieving gender equality or better health helps eradicate poverty, and fostering peace and inclusive societies will reduce inequalities and help economies prosper. While the SDGs are not legally binding, governments are expected to take ownership and establish national frameworks for the achievement of the 17 Goals. UN organizations will also use the SDGs as a framework for developing their own strategic plans, goals and objectives. The Sustainable Development Goals Goal 1 End poverty in all its forms everywhere Goal 2 End hunger, achieve food security and improved nutrition and promote sustainable agriculture Goal 3 Ensure healthy lives and promote well-being for all at all ages Goal 4 Ensure inclusive & equitable quality education and promote lifelong learning opportunities for all Goal 5 Achieve gender equality and empower all women and girls Goal 6 Ensure availability and sustainable management of water and sanitation for all Goal 7 Ensure access to affordable, reliable, sustainable and modern energy for all Promote sustained, inclusive and sustainable economic growth, full and productive employment and Goal 8 decent work for all Build resilient infrastructure, promote inclusive and sustainable industrialization and foster Goal 9 innovation 1 Resolution of the UN General Assembly (A/RES/55/2): United Nations Millennium Declaration, 8 September 2000 2 United Nations Millennium Development Goals on http://www.un.org/millenniumgoals/ 3 Sustainable Development Goals on http://www.un.org/sustainabledevelopment/sustainable-development-goals/ 4 Resolution of the UN General Assembly A/RES/70/1 - Transforming our world: the 2030 Agenda for Sustainable Development 5  Goal 10 Reduce inequality within and among countries Goal 11 Make cities and human settlements inclusive, safe, resilient and sustainable Goal 12 Ensure sustainable consumption and production patterns Goal 13 Take urgent action to combat climate change and its impacts Goal 14 Conserve and sustainably use the oceans, seas and marine resources for sustainable development Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, Goal 15 combat desertification, and halt and reverse land degradation and halt biodiversity loss Promote peaceful and inclusive societies for sustainable development, provide access to justice for Goal 16 all and build effective, accountable and inclusive institutions at all levels Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Goal 17 Development Figure 1 – The Sustainable Development Goals Each organization within the UN system has a certain mandate to contribute to achieving the SDGs. While the UN provides peacekeeping operations in areas affected by war, some organizations focus specifically on the protection of human rights of children, the empowerment of women, the fight against HIV/AIDS, hunger, capacity development etc. Each of these individual mandates results in the development of mandate specific programmes and projects. To implement and realize these programmes and projects the organizations require specific goods, services and works. UN procurement is an essential function in achieving these organizational mandates and, in some cases, it is seen as a model for developing the capacity of recipient governments. In addition to efficiently supporting programmes in each of the above areas, procurement can take some of these goals into consideration when procuring certain goods or services as well as selecting their suppliers. For example: UN organizations may develop policies promoting increased opportunities for priority categories of suppliers. Such policies vary by organization, but the most frequent ones are to limit the number of suppliers from any single nation and to rather provide opportunities to suppliers from a diverse mix of nations, including those suppliers based in the countries or regions where the UN implements its projects. In most cases, such policies provide the respective category of suppliers with greater tendering opportunities but do not provide any preference in the evaluation process. 6  UN organizations may seek to support the focus of the SDGs on poverty reduction, gender equality, women’s empowerment, environmental sustainability and child education by stipulating clauses to this effect in the solicitation documents, and by providing greater representation on shortlists of suppliers respecting such goals. For example, contract clauses that prohibit child labour and prevent sexual exploitation or abuse. UN organizations may agree to implement programmes with funds that include constraints on the origin of suppliers or supplies (e.g., some bilateral tied assistance as well as most multilateral development loans and grants). Such offers should generally be reviewed to ensure that the funds can still be managed in accordance with the general procurement principles otherwise applied, and that subsequent procurement activities will provide an economic and effective solution to the requirement for which it has been offered. The UN actively promotes good governance in Member States, paying particular attention to procurement processes and technical assistance. The UN is aware that it also needs to set an example by practicing good governance. 1.3 Guiding Principles In the area of procurement, the guiding principles are based on the concept of stewardship. Stewardship UN organizations are the stewards of all public funds, which have been provided in trust by peoples and their governments to fulfil the agreed objectives of the UN. A significant proportion of these funds are used through formal procurement processes, for which there are many stakeholders, such as citizens, suppliers or beneficiaries. These stakeholders need to be assured that the funds are being used correctly. In the past, when most funds were allocated to regular administrative budgets and were spent on institutional needs of the organization, procurement accountability was largely the same as general management accountability. However, as funds are provided for specific purposes outside the daily administration of the institution itself – humanitarian relief, peacekeeping, sustainable development, etc. – the number of stakeholders has grown and visibility and scrutiny have been heightened as the impact of the funds on the daily lives of affected people has greatly increased. Procurement officers are the guardians of the principles of procurement. They must ensure the funds they have been entrusted with are spent in a professional, correct, fair, timely and transparent manner. (For more information see Chapter 2: Ethics in Procurement) Guiding Principles While all organizations have agreed on the following four principles in procurement, sometimes minor variations in wording exist in describing the principles of the individual organizations. Best value for money Accountability, integrity and transparency Fairness and effective competition Best interest of the UN organization concerned Financial Regulations and Rules (FRR), organization-specific procurement guidelines and policies and procedures offer, to a certain degree, a full legalistic and normative framework for procurement to be followed. However, there might, from time to time, be grey areas and contradicting instructions in this legal framework. In such situations, the principles of procurement serve as the overall guidelines in support of any professional judgement calls to be made. Buyers can, at any stage of the procurement process, conduct a self-assessment of the specific case or judgement calls made and check whether recommended procurement actions are in full compliance with the spirit of these principles. Best value for money Best value for money means selecting offers which present the optimum combination of factors such as appropriate quality, life-cycle costs (an accurate analysis of all costs involved), timely delivery and 7 other parameters which can include social, environmental benefits or other strategic objectives which meet the end-user needs. Best value for money does not necessarily mean the lowest initial price option but rather represents the best return on investment, taking into consideration the evaluation criteria and quality requirements as specified in the solicitation documents. The principle of best value for money should inspire and guide the selection of the best contracting strategy and should be applied at the award stage to select the offer that effectively meets the stated requirement. In order to uphold the principle of best value for money, the processes of soliciting offers and selecting a contractor should: Maximize competition Minimize the complexity of the solicitation, evaluation and selection processes Ensure impartial and comprehensive evaluation of solicited offers Ensure selection of the contractor whose offer has the highest degree of realism and whose performance is expected to best meet the business unit’s specifications, statement of work or terms of reference Where possible ensure the highest social and environmental benefit to the society Accountability, integrity and transparency Accountability in procurement means that buyers must take ownership of all responsibilities and commitments that have been allocated to them; delivering outputs (for which one has responsibility) within the prescribed time and cost and according to the required quality standards; operating in compliance with the FRR; supporting subordinates, providing oversight, taking responsibility for assignments, and taking personal responsibility for one’s own shortcomings and those of the business unit, where necessary. This must be supported by a filing system, documenting the procurement process, signatures on key documents such as specifications, bidding documents, evaluation reports and approvals, with clear justifications for decisions made, thus leaving a clear audit trail of the actions and decisions taken. Business Units are also responsible for protecting the integrity of the procurement process and maintaining fairness in the organization’s treatment of all bidders. Integrity is therefore about demonstrating the core values of the UN in daily activities and behaviours. This may include: acting without consideration of personal gain; resisting undue political pressure in decision-making and actions taken; not abusing power or authority; standing by decisions that are in the organization’s best interest, even if they are unpopular; taking prompt action in cases of unprofessional, unethical and corrupt behaviour. (For more information see Chapter 2: Ethics in Procurement) A transparent procurement system has clear rules and mechanisms to ensure compliance with those rules (unbiased specifications, open advertisement of requirements, open and fair selection of suppliers invited, objective evaluation criteria, standard solicitation documents, equal information to all parties, confidentiality of offers, announcement of contract awards, etc.). Records are open to inspection by auditors, as and when appropriate, and unsuccessful suppliers can be briefed on the strengths and weaknesses of their own offers. Transparency ensures that any deviations from fair and equal treatment are detected very early, making such deviations less likely to occur and/or minimize their consequences. It thus protects the integrity of the process and the interest of the organization. There are two degrees of transparency: internal scrutiny and external scrutiny. Internal scrutiny is transparency within the UN, such as being open and transparent to examinations conducted by internal auditors. External scrutiny involves transparency outside the UN, such as examination by Member States, the press, external auditors, or other outside observers. Fairness and effective competition Competition conducted in a fair and transparent manner is at the heart of procurement in the UN. For competition to be effective, it must guard against collusion and be conducted based on clear and appropriate regulations, rules and procedures that are applied consistently to all potential suppliers. The procurement process should be carried out in a manner that gives all interested parties, both inside and outside the organization, the assurance that the process is fair. Business units are therefore responsible for providing the widest possible access to UN contract opportunities for the supply community through open competitive procurement processes, broad advertisement on relevant websites, unbiased specifications, clear and unambiguous evaluation criteria, etc. 8 Effective competition also means providing an appropriate solution to the organization’s need with regards to quantity, quality and timeliness at the right price. It requires that the overall transaction cost to the organization in conducting the procurement process is minimized in the interests of the overall budget of the organization. Economy in the procurement process should protect the interest of the budget owner, while effective competition ensures the interest of the end-user is met. Best interest of the organization The ultimate objective of procurement is to add value to the organization in fulfilling its mandate, goals and objectives. To a large extent the other three principles contribute to this principle, but this principle also includes concepts such as: Promoting the public good as specified in the mandate of the organization Maintaining the highest image, reputation and interest of the organization through execution of the procurement process in full conformity with the Respecting the interest of stakeholders Potential conflicts among the guiding principles While together the principles provide a common framework supporting UN procurement, individual principles may conflict in some situations, requiring professional and management experience, as well as judgement, to achieve the correct balance. Some examples are provided below: In a particular procurement transaction, for example, during humanitarian emergencies, the principle of doing what is in the “best interest of the organization” may prevail over the principle of effective competition. In fact, organizations involved in emergency relief are often faced with the limitations of procedures that were originally established to control standard office procurement and have therefore found it necessary to develop procedures better adapted to unforeseen emergency situations. This involves overriding some standard processes to enable urgent action. It is essential that steps taken in such circumstances, and the reasons for taking them, are well documented. Procurement officers should assume that such decisions will be reviewed and audited after the fact, and ensure they will stand up to scrutiny. (For more information see Chapter 8: Emergency Procurement) The interest of the organization may also cause the UN to explicitly consider factors which are otherwise extraneous to the immediate procurement, such as, geographic distribution, support to small and medium enterprises, support to women-owned businesses, environmental sustainability, curbing child labour and production of landmines, etc. This may require additional resources and effort to qualify potential suppliers. UN goals of broadening participation in solicitations, particularly to disadvantaged groups, may benefit from smaller lots to increase local interest. It may require use of additional procurement resources for active market research, including outreach to find appropriate potential suppliers not previously on the roster, and evaluation of extra offers. This should be accepted as part of the normal process. Open competitive tendering for an international organization may conflict with economical use of administrative resources and effectiveness of completing solicitations in a reasonable period. Organizations may address this through shortlisting procedures, whereby the higher the expected contract value, the larger the number of invitees on the shortlist. Open competition may conflict with the recommended practice of establishing strategic long-term partnerships. The competitive principle is normally understood to argue for placing each requirement out to competitive bidding, potentially risking disruption when changing suppliers. Some UN organizations have concluded that their FRR permit entering into long term framework agreements on a non-exclusive basis as the result of a competitive solicitation. This permits assurance of uninterrupted supply at competitive prices and the development of a closer quality assurance and working relationship. Transparency in UN procurement may require added effort by preparing solicitation documents with detailed criteria for evaluation and the tender process. The fairness and competition principles also require broad advertisement for a minimum period, 9  which increases costs and supplier preparation time. Whilst this results in a transparent and fair process, it may go against effectiveness. Procurement officers and those acting in or supporting the procurement function are in a special position of trust and must uphold high standards of professionalism to be able to fulfil the above requirements. 1.4 Financial Regulations and Rules (FRR) and Procurement Procedures The FRR of each organization provide the framework for the administrative context within which procurement is carried out, as specified in its respective procurement procedures. The FRR specify key guidelines for procurement, types of procurement instruments and evaluations, primacy of competitive tendering while recognizing situations in which that may not be in the best interest of the organization. The FRR vary among organizations, and the nuances are important for the work in each organization. The FRR provide for delegation of authority to increase the operational responsiveness of the procurement function, while also requiring segregation of duties to ensure control, and accountability for the correct (or improper) use of the authority and available resources. While UN organizations share the same general procurement principles and have many similar processes and procedures, each organization’s procurement procedures may differ as to levels of delegations of authority, monetary thresholds, approval processes etc. Differences are being reduced and increasingly harmonized as much as possible through the One UN procurement reform process. Content of FRR The FRR and procurement procedures (which some agencies have assembled into procurement manuals and guidelines) specify the solicitation procedures for the supply of goods, services, or works. They include appropriate methods for evaluating and selecting awardees and awarding potential contracts. The FRR clearly state the principle of selection through competitive tendering. They also indicate conditions which might justify waiving the competitive tendering process in favour of direct contracting, where it is deemed to be in the interest of the organization, as long as justification is supported by clear evidence that tendering would not provide an effective solution. The FRR may permit a UN organization to procure on a collaborative basis, i.e., on the basis of solicitations and arrangements, such as a long- term framework agreement, established by another UN organization. (For more information see Chapter 6: Procurement Process and Chapter 9: Cooperation) The FRR vary among organizations, and the nuances are important for the work in each organization. The FRR provide for delegation of authority to increase the operational responsiveness of the procurement function, while also requiring segregation of duties to ensure control, and accountability for the correct (or improper) use of the authority and available resources. Differences have been reduced through the “Delivering as One” UN procurement reform process and other harmonization initiatives. No financial commitment without budget availability The FRR and procurement procedures stipulate that the procurement process should only begin once an approved and budgeted requisition has been received. Nonetheless, those organizations faced with special exigencies in field operations often tolerate initiation of internal procurement processes, including issuance of solicitations, before formal receipt of an approved and budgeted requisition. In such exceptional circumstances, whenever solicitations are issued in advance of confirmed budget availability, potential suppliers should always be informed that the solicitation is “in anticipation” of the requirement, and that procurement will only proceed when full authorization has been received. While signature of the eventual contract and corresponding creation of a financial commitment should clearly wait until receipt of the approved and budgeted requisition, internal preparation of specifications and solicitation documents could be considered as part of procurement planning. Nonetheless, issuance of the solicitation documents prior to budget confirmation always requires a specific management decision and approval. 10 Segregation of duties UN organizations have generally developed an administrative structure based on segregation (or in some cases separation) of responsibilities for procurement. This structure typically recognizes that the requisitioner, budget controller, buyer, receiver and payer should be separate authorities, in order to provide appropriate organizational checks and balances, and to permit specialization in their respective professional areas. The main purpose is to reduce the possibility of fraud and corruption, and to emphasize accountability of all key players in the procurement process. Delegation of authority As specified in their respective FRR, the Executive Directors of UN organizations may delegate authority to specific staff to implement procurement activities. Such delegations are intended to reduce administrative bottlenecks and provide increased responsiveness by locating decision making authority nearer to the activity. Of relevance to procurement are both the financial and procurement delegations of authority, although only the procurement delegation is discussed here. The procurement delegation provides authorization to award and/or sign a contract and/or issue payment upon confirmation that the correct procedures have been followed. By exercising the authority, the staff member becomes accountable for the action and potentially financially liable for error (misconduct). Delegations are generally made at one of the following levels and the thresholds for each level are found in the individual UN organization’s procurement manual: LEVEL DELEGATIONS UP TO A MAXIMUM LEVEL… 1 Of petty expenditure for small purchases 2 For which tender procedures apply 3 Not requiring review by the organization’s Contracts Review Committee 4 Requiring review by the organization’s Contracts Review Committee 5 Of higher financial authority in very large programmes with experienced staff Not all UN organizations use all levels. 1.5 UN Procurement Reform Introduction Procurement at the UN has undergone significant transformation since reforms were initiated in 1999. The main issues taken into consideration as part of UN procurement reform can be found in several UN official documents, particularly Resolution A/RES/54/14 of 22 November 1999. The Resolution specifies the direction that procurement reform initiatives need to follow in order to strengthen the principles of transparency, effectiveness and efficiency while also fully reflecting the international character of the UN. Reform initiatives Specific reform initiatives include: Increased opportunities to suppliers from developing countries and countries with economies in transition; wider participation of suppliers from all Member States in general; and improvement of communication with suppliers; improvement of system for registration of suppliers. More transparent, open, impartial and cost-effective procurement processes, based on competitive tendering. 11  Increased use of modern electronic means of communication to disseminate/receive information regarding requests for proposals, invitations to bid and requests for expressions of interest. Assurance that bids received through electronic means are not compromised. Increased transparency of procurement decisions and maintenance of the principle of separation of responsibilities of the requisitioning and approving officers. Improved use of acquisition planning. Enhanced professionalism of procurement practitioners through increased training and formal certification in essential qualifications. Improved cooperation and common regulations and rules. Increased field support. Enhanced accountability through greater delegation of authority. Definition of conflict of interest and implementation of a zero-tolerance policy on gifts and hospitality. Introduction of financial disclosure programmes for procurement staff. Introduction of independent procurement challenge systems. Working groups Procurement reform is supported at the highest level and carried out at both the organizational and inter-agency level. In 1976 a group of senior procurement staff from different UN agencies met in Geneva and formed the Inter-Agency Procurement Working Group (IAPWG). In April 2007, this informal working group was formalized under the Chief Executives Board’s (CEB) High Level Committee on Management (HLCM). It is now known as the HLCM Procurement Network (HLCM PN or Procurement Network). At present, representatives of 40 UN organizations are members of the Procurement Network. These organizations are represented by their Directors of Procurement and/or their deputies, who actively participate in the Procurement Network’s bi-annual meetings. Together these representatives have responsibility for the USD 18.8 billion (2018) that the UN spends annually to support its activities and programmes in more than 170 countries. The purpose of the HLCM PN is to promote the strategic importance of Procurement and Supply Chain Management in programme and service delivery in a transparent and accountable manner. It has four working groups, which aim at professional development of procurement staff, strategic vendor management, harmonization of UN procurement business processes and practices, and ensuring that sustainable procurement interventions are embedded in the procurement activities of the UN system. The majority of the Procurement Network member organizations are also members of the United Nations Global Marketplace (UNGM), which is the common procurement portal of the UN system of organizations (for more information see Chapter 10: United Nations Global Marketplace). The HLCM PN’s programme of work furthers the efficiency and effectiveness of the procurement function within the UN system through collaborative procurement arrangements, simplification and harmonization of procurement practices, and by fostering professionalism amongst staff that are responsible for procurement. The Procurement Network, through information and knowledge sharing, promotes procurement opportunities to potential suppliers from developing countries, as well as those from countries with economies in transition, and supports, where possible, capacity development for procurement in those countries where UN organizations serve. Achievements The work of the HLCM PN has resulted in the following achievements: Establishment and continual enhancement of the UN Global Marketplace (UNGM): notably, the reform and simplification of the vendor registration process; facilitating information-sharing on sanctioned vendors; enabling integration with UN Agency e- tendering and enterprise resource planning (ERP) systems and development of a comprehensive Knowledge Centre for the benefit of both external stakeholders and UN staff. Development and implementation of a Model Policy Framework for Vendor Sanctioning, including vendor flagging functionality in UNGM. 12  Development of Guidelines for Common UN Procurement at the Country Level (available in several UN languages) and corresponding training materials. Agreement on Best Practice for Sharing Long Term Agreements among UN Agencies (available in several UN languages). Standardization of the Table of Contents for UN Procurement Manuals. Development of a suite of common procurement prototype templates. Improved cooperation between UN Agencies at HQ-level through the establishment and strengthening of Common Procurement Teams. Identification of key commodities and services for collaborative procurement; for example, vehicles, freight forwarding and cargo insurance. Facilitation of supplier access to UN business opportunities, especially for entities from developing countries and countries with economies in transition: through coordinated multi-agency business seminar activities; improving availability of web- based information and fostering partnerships with Chambers of Commerce and Trade Agencies, etc. Development of Sustainable Procurement tools; guidelines, guides and training. Development of a framework to track Sustainable Tenders in the UN system. Compiling and sharing regular overviews of procurement training opportunities for reference purposes for UN procurement practitioners. Development and maintenance of this publication, ‘UN Procurement Practitioner’s Handbook’. To harmonize their procurement activities, many UN organizations have formed formal collaborative procurement initiatives. The Common Procurement Team (CPT) of FAO, IFAD and WFP, the three Rome- based agencies, was initiated in 2010. The three organizations operate under harmonized rules and procedures for joint tendering of commonly procured HQ goods, works and services. Their Procurement Officers meet regularly to update the CPT tender plan and discuss CPT joint initiatives. Joint tenders are equally distributed among the three agencies and conducted based on the procurement procedures of the lead agency. In Geneva, the Common Procurement Activities Group (CPAG) is leading efforts towards the simplification and harmonization of procurement practices within the Geneva-based international organizations, with the objective of increasing efficiency and effectiveness of UN procurement activities. The aim of the CPAG is to build more effective, coherent and better-performing business practices and to lower the cost of commonly required goods and services for all its members due to volume purchase agreements. CPAG is a successful example of a group-led procurement strategy based on the shared goals of pooling experience and research, exchanging best practices and collaborating on procurement projects. CPAG is achieving these goals through: Promoting the standardization among member organizations of procurement policies, standards, procedures and procurement training programmes. Benefitting from economies of scale by pooling procurement requirements in the Geneva duty station. Promoting the standardization of goods, works and services in use among Geneva- based agencies. Enhancing the efficiency and effectiveness of procurement operations by enabling member organizations to benefit from the results of the procurement activities of other members. At country level, many UN organizations have also created common procurement teams. More information on these collaborative efforts can be found in the Knowledge Centre on www.ungm.org. There have been several Joint Inspection Unit (JIU) reports on cross-cutting procurement harmonization and coordination issues within the UN system. These JIU reports and their recommendations have provided important inputs to the HLCM PN for enhancing the procurement profession and practices within the UN system. 13 1.6 Procurement as a UN Profession Introduction Procurement is an internationally recognized profession. Within the UN system, it has evolved from being considered a simple “back-office” administrative purchasing function to increasingly being recognized as a professional, “value-adding” function, supporting the achievement of key goals and results of its member organizations. In addition, procurement has been elevated to a strategic function within more and more organizations. Procurement officers and those acting in or supporting that function are in a special position of trust and are held to high standards of professionalism. Development of professional and ethical competencies and qualifications of UN procurement officers is recognized as an important component of the UN procurement reform process. Procurement officers operate within a complex environment. They are subject to pressure from end- users seeking rapid response or a specific technical solution, from suppliers seeking invitations or contracts, from donor representatives or the public seeking explanation for the use of the funds, and by anyone who thinks they detect a lack of transparency or other weakness in the process. The Professional Competencies and this Practitioner’s Handbook contain the basic common technical and procedural knowledge expected of UN procurement officers, to be complemented by specific knowledge of regulations, rules and procedures of each organization. Heightened professionalism of UN procurement officers is the basis for increased delegation of authority and corresponding accountability that are central to the current UN procurement reform process. The current training and certification effort is an important element in this, as are the increased training efforts of each UN organization. Staff Level Training and Certification Programmes In an effort to further professionalize their procurement staff, many UN organizations have developed their own procurement training and certification programmes which include online training, in-house courses and attendance at training programmes designed by other agencies. These training programmes include topics such as: Acquisition planning Contractual issues in purchasing and contract management Humanitarian logistics and humanitarian supply chain management Risk management in procurement Monitoring in supply chain management Long Term Agreements Ethics in procurement Sustainable procurement Contract management and administration Training and Certification provided by UNDP United Nations Development Programme (UNDP) offers a specialized procurement training and certification programmes to staff from the UN system, non-governmental organizations, international development financing institutions and their borrowers, and governments 5. The following formal procurement certification courses are provided: Introductory Certificate in Public Procurement, Level 2 – CIPS Accredited Advanced Certificate in Public Procurement, Level 3 – CIPS Accredited Diploma in Strategic Public Procurement, Level 4 – CIPS Accredited The UNDP certification courses are accredited by the Chartered Institute of Procurement and Supply (CIPS) 6 assuring compliance with recognized international qualification standards. All UNDP/CIPS certification courses at Introductory (Level 2), Advanced (Level 3) and Diploma (Level 4) levels are tailored to reflect common UN and public procurement rules, policies, procedures and best practises. Upon completion of the courses, students receive a certificate co-signed by UNDP and CIPS, which 5www.training.undp.dk 6CIPS is a professional association, dealing with matters related to procurement and supply chain management based in the United Kingdom. www.cips.org 14 means that students accomplishing qualifications in this programme also achieve recognized academic credits and qualifications with entitlements for continued studies within the CIPS qualification system. The UNDP/CIPS programme also offers full CIPS membership benefits such as access to knowledge databases, participation in professional communities and networks. Successful students from the UNDP/CIPS can continue to higher level based professional qualification programs offered directly by CIPS. These programs are slightly more geared towards private sector purchasing in developed countries, but offers a progressive and comprehensive qualification later in the domain of procurement and supply chain management: Professional Diploma in Procurement and Supply (CIPS level 6) Advanced Diploma in Procurement and Supply (CIPS level 5) Diploma in Procurement and Supply (CIPS level 4) Advanced Certificate in Procurement and Supply Operations (CIPS level 3) Certificate in Procurement and Supply Operations (CIPS level 2) The Knowledge Portal of The Chartered Institute of Purchasing and Supply (CIPS) offers access to expertise, experience, knowledge and resources to support procurement and supply management activities. UN staff can access this portal through www.ungm.org. UNDP also offers more generic, specialized and/or cross-cutting training courses addressing specific UN and public procurement topics and qualification requirements. The following courses are offered on recurrent basis at 15 different training locations around the world. These courses include: Contract and Supplier Relations Management Procurement Strategy Development Supply Chain Management in Humanitarian Organizations Risk Management in Contracting for Construction Services Effective Negotiations in Projects and Procurement Contracting & Management of Individual Contractors Logistics & INCOTERMS 2020 Effective Programme and Procurement Teamwork Sustainable Public Procurement Anti-Corruption and Ethics in Procurement Public Procurement Reform Implementation Government Procurement Capacity Development The International Training Centre of the ILO The International Training Centre of the ILO offers competency-based procurement management training programmes. Training workshops cover all categories of procurement – goods, work and services - in accordance with: The World Bank’s procurement guidelines; the United Nations Commission on International Trade Law (UNCITRAL) model law; the Government Procurement Agreement and/or the EU procurement directives and other regional provisions. The Centre provides procurement training courses in the following areas: Supply chain management: logistics, insurance policies and Incoterms Procurement management for goods, physical services and consultancy services Procurement management for goods and consultancy services Procurement of physical services Works procurement management Public - private partnership policies: legal framework and competition requirements Advanced contract management Sustainable procurement: social, economic and environmental considerations Procurement audit and systems for prevention and detection of fraud and corruption eProcurement Public sector governance: legal and institutional frameworks for procurement audits Public financial management Procurement management in the public sector Finally, UNOPS offers a training course on sustainable procurement, which is developed in partnership with ITC-ILO and UNEP and based on the "Buying for a Better World” guide (available on 15 www.ungm.org). The course can be provided as classroom training and is also available online for all UN procurement practitioners on www.ungm.org. 16 Ethics in Procurement This chapter covers the following topics: 2.1 Introduction 17 2.2 Codes of Conduct 17 2.3 The Principle of Stewardship 18 2.4 Ethical Concepts and Principles 18 2.5 Ethical Risks and Actions to Manage Them 21 2.6 Potential Areas of Risk in the Procurement Cycle 23 2.7 Ethics at an Organizational Level 25 2.8 Ethics at the Supplier Level 27 2.1 Introduction The UN procurement process involves a wide range of activities ranging from procurement planning through to contract monitoring and management. All procurement practitioners must adhere to the strict ethical standards and responsibilities that apply to procurement activities, in order to protect the integrity, fairness and transparency of the procurement process. The discipline of ethics relates to the concepts of right and wrong conduct, moral duties and obligations, a system of moral principles and values, and to moral character. Most procurement related principles, i.e., fairness, integrity, transparency and accountability, are based on ethics. Procurement practitioners, therefore, need to maintain an unimpeachable standard of integrity in all business relationships, both inside and outside their UN organization. Ethical conduct must be observed in all dealings with the organization’s partners, donors, governments and the general public, and ethical behaviour should be promoted throughout the entire supply chain. Procurement officials must never use their authority or office for personal gain and must seek to uphold and enhance the standing of the UN at all times. Professional standards of ethical conduct for UN staff are stated in Articles 100 and 101 of the Charter of the United Nations, in the Staff Regulations and Rules of the United Nations, as well as in the Financial Regulations and Rules (FRR). Further, each individual staff member, through signature of the Oath of Office, agrees to “regulate their personal conduct with the interest of the United Nations only in view”. 2.2 Codes of Conduct Organizations and professions often seek to address standards of conduct through the adoption of codes of conduct. Professional codes of conduct are generally written in broad conceptual terms rather than in specific situational or descriptive terms. They leave room for interpretation and may often seem ambiguous. Procurement professionals cannot abide merely by the letter of the law, or the specific words in any code of conduct, but should rather be guided by the spirit of the law and the broader concept that the code is intended to express. One reason why many procuring organizations avoid detailed and specific codes is that these may give the impression that anything not specifically prohibited is permitted, or that anything not specifically addressed is unimportant. No matter how hard policy-makers try, they will never be able to specify in law, code, regulation, rule, or other written requirement everything that a procurement officer needs to know regarding what is allowed or appropriate and what is prohibited or to be avoided. It is therefore, necessary for procurement officers to understand what the code, law or rule is intended to accomplish. The primary UN system regulations and rules on ethics and behavioural standards are contained in the Secretary-General’s Bulletin, “Status, Basic Rights and Duties of United Nations Staff Members,” ST/SGB/2002/13, as well as in the “Standards of Conduct for the International Civil Service” (Jan 2002) 17 and, as mentioned above, the United Nations Oath of Office which can be found at http://www.un.org/en/ethics/. In addition, the procurement regulations and rules are derived from the respective FRR of each UN organization, and these FRR clearly state that consideration must be given to the following principles when exercising the procurement functions: best interest of the organization concerned; best value for money; accountability, integrity and transparency; and fairness and effective competition. Although individual contractors do not have the status of UN officials, while working on UN-related business, individual contractors must comply with the UN Supplier Code of Conduct found at www.ungm.org and further discussed in Section 2.7 below. 2.3 The Principle of Stewardship According to the Concise Oxford English Dictionary, a steward is “a person employed to manage another’s property.” When the steward is a UN staff member, spending money that comes from UN Member States and a variety of other public sources is a special kind of stewardship, with which international procurement officers are entrusted. It is an immense responsibility, and these funds should only be spent in accordance with each UN organization’s regulations and rules. There should not be any deviation from these rules to suit an individual staff member’s own convenience. All UN officials are required to display the utmost loyalty to the UN, its Charter, regulations and rules over their respective personal preferences and gains. This requirement is straightforward and unbending. However, exercising the high standards of professional responsibility expected of UN staff members is not always easy. It requires UN staff members to exercise clear judgement every day by ensuring their professional practices and outside relationships conform with the spirit and letter of prescribed regulations and rules, as well as broader and harder to define ethical standards. UN procurement officers can face highly competing pressures. The pressure to satisfy the demands for quicker turnarounds, better quality and lower prices in procurement can compete with the pressure to fulfil their duties with the utmost responsibility and ethical standards. It is therefore, the main role of each UN procurement officer to execute their procurement function according to the highest standards of professionalism and in respect of the values, objectives and interests of the organization. This implies the procurement officer must adhere to the principles of fairness, impartiality, transparency, stewardship, avoid conflict of interest and any impropriety or perception of such, and respect and apply the organization’s relevant policies, rules and procedures. 2.4 Ethical Concepts and Principles Professional standards of ethical conduct, no matter what the organization, contain typical characteristics, including commitments to: Loyalty and respect for regulations and rules Integrity Impartiality, fairness and transparency Confidentiality Avoidance of appearance of impropriety Due diligence Loyalty and respect for rules and regulations UN procurement officers are charged with the highest standards of loyalty and discretion. When undersigning the ‘Oath of Office’, UN staff members promise: “... to exercise in all loyalty, discretion and conscience the functions entrusted to me as an international civil servant of the United Nations, to discharge these functions and regulate my conduct with the interests of the United Nations only in view, and not to seek or accept instructions in regard to the performance of my duties from any Government or other authority external to the organization.” It is therefore important that UN procurement officers should: 18  Stand by decisions that are in the organization’s interest, even if they are unpopular. Understand the regulations and rules pertaining to his or her profession and organization. Understand why the regulations and rules are necessary and why they must be complied with. Interpret and apply rules in accordance with their intent. Be able to perform procurement responsibilities effectively and efficiently and still abide by the pertinent rules. Permitted exceptions to requirements should be kept to a minimum and be fully justified and documented. If a regulation or rule must be reconsidered or changed, the procurement officer should pursue the appropriate process to submit the recommended revision through established channels and include complete documentation to explain and justify the proposed change. During this process, the existing regulations, rules and procedures must be followed. The procurement officer must perform regulated tasks consistently, according to the specified procedures, and take a leadership role to help co-workers and stakeholders to also understand and follow them. Integrity UN procurement officers are expected to maintain superior standards of integrity and moral values. The International Civil Service Advisory Board identifies integrity as, “one of the fundamental, if not paramount, standards of conduct” which is, “underlined in Article 101 of the United Nations Charter and explicit or implicit in corresponding articles of the basic instruments of the specialized agencies.” Their report explains: “The concept of integrity enshrined in the Charter of the United Nations embraces all aspects of behaviour of an international civil servant, including such qualities as honesty, truthfulness, impartiality, and incorruptibility. These qualities are as basic as those of competence and efficiency, also enshrined in the Charter…” Cultural differences including nationality, ethnicity, industry or profession, must be set aside. Generic principles of integrity that extend beyond and rise above such differences must be allowed to prevail, especially in connection with the business transactions conducted by UN procurement officers. Integrity, to a procurement officer in the international marketplace, means believing that the public trust is so important that it cannot be compromised. A procurement officer should therefore demonstrate integrity by: Making decisions without consideration for personal gain. Resisting political pressure in decision-making. Ensuring that official power or authority are not abused. Demonstrating the values of the UN in his/her daily actions including impartiality, fairness and honesty. Taking prompt and effective action to deal with unprofessional or unethical behaviour. Impartiality and fairness In a report by the International Civil Service Advisory Board ‘impartiality’ features as a key requirement. The report states: “Impartiality implies objectivity, lack of bias, tolerance, restraint - particularly when political or religious disputes or differences arise. The staff member’s personal views and convictions remain inviolate, but he has not the freedom of a private person to “take sides,” to enter a dispute as a partisan, or publicly to express his convictions on matters of a controversial nature, either singly or as a member of a group. Just as the practice of impartiality will strengthen the secretariat, repeated instances of partiality, or bias, will do serious harm to the organization”. In the context of impartiality and fairness the procurement officer should set aside all personal and organizational biases and apply the same standards of evaluation to all the suppliers (equal treatment). For example, if one supplier requests additional information, all suppliers should receive that same information at the same time. Or, if one offer is disqualified in the evaluation process and the award placed with the next lowest priced offer, the reason for disqualifying the lowest offer must be applied to the evaluation of all offers uniformly. Fairness implies being reasonable as well as impartial, and 19 treating UN suppliers with professional, business-like courtesy, as well as with strict adherence to the policies and procedures for conducting the transaction. Transparency Transparency means unimpeded visibility. Because public procurement involves the use of and accountability for public funds, transparency is, perhaps, paramount in all procurement activities. All transactions are subject to scrutiny but not all organizations experience such scrutiny to the degree of the UN. Therefore, procurement officers must always conduct themselves in such a way that any scrutiny would not damage the UN, its leaders, member organizations, staff, or programmes. There are two degrees of transparency: internal scrutiny and external scrutiny. Internal scrutiny is transparency within the UN, such as examinations conducted by internal auditors. It seeks to ascertain compliance with the UN’s own standards by the UN’s own compliance officers. It enables an organization to determine if there are problems that need to be addressed with regard to transparency and provides them with recommendations on what steps may need to be taken. External scrutiny involves transparency outside the UN, such as examination by Member States, the press, external auditors, or other outside observers. It refers to the notion that almost anyone can observe UN activities and see how the UN conducts its business. Only when something is truly of a confidential nature, such as proprietary data belonging to a supplier, or proposals being evaluated prior to contract award, should confidentiality be given a higher priority over transparency. It is still essential, however, that an overall transparent process be maintained. Procurement officers should always behave and perform their duties bearing in mind that their work may be open to public scrutiny. Confidentiality Confidentiality needs extra consideration in UN procurement due to the delicate nature of the information that is handled in procurement processes, such as pricing of products, marketing strategies, etc. A breach in the confidentiality of the data handled in the procurement process could result in discrediting the UN and instilling distrust in governments, partners or suppliers. The concept of confidentiality is repeated in several instances in the Code of Conduct documented in the Standards of Conduct in the International Civil Service 2001; ST/SGB/2002/13, Regulation 1.2 (i) and V, 35. It states that: “The disclosure of information may seriously jeopardise the efficiency and credibility of the organization. International Civil Servants are responsible for exercising discretion in all matters of official business. They must not divulge confidential information without authorization. Nor should international civil servants use information that has not been made public and is known to them by virtue of their official position to private advantage. These obligations do not cease upon separation from service.” Confidentially might seem to be in direct contradiction to the concept of transparency but, in this context, it means that whilst the way the overall procurement process is conducted needs to be clear and transparent, true proprietary data needs to remain confidential. Avoidance of the appearance of impropriety In the private sector, appearances are tempered by the wishes or standards of the organization’s leadership. Employee behaviour is judged according to legality and the satisfaction of owners or customers. However, international public-sector procurement officers must adhere to more conservative standards. UN procurement officers must be constantly aware of how their actions appear to outside observers, and they should always behave in such a way that their actions cannot be perceived as improper. Behaving correctly in a “technical” sense is not enough; it is also necessary to avoid even the appearance of impropriety. Not all societies have the same standards or traditions when determining what is considered proper and what is not. It is important to recognize cultural differences in appearances and to anticipate, in the most conservative terms, what might be perceived as improper conduct. This added dimension of the appearance of impropriety places an extra responsibility on procurement professionals. What people think of the procurement officer’s behaviour can be the basis of major scandals, based on misunderstandings and erroneous information that can damage an organization’s 20 effectiveness in achieving its mission. In an international environment, the damage can be immense and have long-lasting effects on the credibility of the organization. Due diligence Due diligence, in the context of UN procurement, refers to carrying out duties carefully and thoroughly and avoiding careless practices or techniques. Due diligence requires that all activities by procurement officers be pursued in a manner that goes beyond the minimum effort. For example, diligent UN procurement officers should: Check the references of potential suppliers. Develop impartial evaluation criteria. Carefully analyse the offers received. Avoid cutting corners for the sake of convenience. 2.5 Ethical Risks and Actions to Manage Them Some of the common ethical risks in the procurement process include: conflict of interest; fraud; corruption; coercion and collusion. Each of these types of ethical risks is explained below. Conflict of interest A very common risk situation related to ethics in procurement is the risk of a conflict of interest. A conflict of interest can be defined as a direct or mutually exclusive clash between the interest of the UN and the private or personal interest of a UN procurement officer. A conflict of interest occurs when a staff member’s private interests, such as outside professional relationships or personal financial assets, interfere or appear to interfere with the proper performance of his or her professional functions or obligations as a UN official. Within the procurement environment, a conflict of interest may arise in connection with private interests such as, personal investments and assets, political or other outside activities, employment after retirement from the UN or the receipt of a gift that may place the staff member in a position of obligation. A conflict of interest may also arise in situations where a staff member is seen to benefit, directly or indirectly, or allow a third party, including family, friends or someone they favour, to benefit from the staff member’s decisions. There are three types of conflict of interest that could occur in the procurement environment. Actual Conflict of Interest - when a staff member is in a position to be influenced by their private interests when doing their job. Perceived conflict of interest - when a staff member is in a position to appear to be influenced by their interests when doing their job. Potential conflict of interest - when a staff member is in a position where they may be influenced in the future by their private interest when doing their job. In the context of procurement, a UN procurement officer should: Declare with immediate effect any potential conflict of interest. Not use information obtained during their professional duty for personal profit. Disclose and dispose the financial interest involved. Withdraw from any procurement process where he/she may have a conflicting interest. Declaration It is good practice to have officials involved in the procurement process, including those participating in bid opening panels, evaluation committees or contracts committees, sign, in advance of their duties, a declaration of no conflict of interest. Honesty, truthfulness, impartiality, and incorruptibility must always be applied whenever a conflict of interest, or the appearance of conflict of interest, arises in the course of conducting procurement. 21 Gifts and gratuities A common conflict of interest situation UN procurement officers have to face is whether or not to accept gifts from suppliers, partners or governments. Offering gifts to customers is a very common practice in the private sector. It is a marketing strategy based on the universal sense of reciprocity: if we receive something, we feel obliged to give something in exchange; i.e., there is no such thing as a “free lunch”. Suppliers often offer different types of gifts, for example perishable products, hospitality, free training courses or experiences such as exhibitions, fair trades, and sometimes in-kind donations, etc. that are related to the activity of the specific UN organization. Identifying covert gifts is not always easy. A supplier may, for example, offer free training activities which may be seen as beneficial for the organization. However, very careful review of the impact of accepting such gifts should be undertaken. Would receiving the gift benefit one company over the others? Would acceptance be fair to the competitors? It can be difficult to judge how to behave in a particular situation, and what would be the appropriate action. Accepting gifts, honours or other tokens of appreciation can impact a procurement officer’s independence and impartiality. Such situations may compromise both his/her integrity and the UN’s reputation. The acceptance of a gift can also create a conflict of loyalties or raise expectations from the giver of the gift. The majority of UN organizations have adopted a “Zero-Tolerance Policy” towards unethical behaviour and corrupt practices, including bribery, extortion, coercion, fraud and collusion. In exercising this policy, most UN organizations prohibit their staff from receiving any gifts or other incentives that could induce, or be perceived to induce, the staff member to take any action that is other than independent or impartial. The way the policy is applied to gifts and other emoluments is described below: From Governments As a rule, UN staff cannot accept any honours, decorations, favours, remuneration or gifts from Government sources. However, if refusal of an unanticipated gift would cause embarrassment to the UN organization, it may be accepted on behalf of the organization and then reported and entrusted to the Secretary-General or the Executive Director of the UN organization as appropriate. From non-governmental sources While the receipt of honours, favours, gifts or remuneration from non-governmental sources may be permitted with the prior approval of the Secretary-General, approval will only be granted in exceptional cases. From any source having or seeking a contractual relationship Accepting gifts from a person or entity doing business with the UN or seeking to establish a contractual relationship with the UN, constitutes a conflict of interest. A UN staff member may not accept anything from such sources. There is no exception to this rule. Offering or promising gifts When people exchange gifts in a work setting, it can be perceived as if favours were granted in order to influence the exercise of professional judgment. A UN staff member may not offer anything of value, such as gifts, favours, or other personal benefits, to other staff members or to third parties if by doing so they are trying to influence the recipient’s official actions. Offering gifts such as a birthday present is acceptable if there is no expectation of any official action in return. Procurement officers should take the following actions in order to avoid ethical issues related to gifts/gratuities or other types of honours from arising: Ensure that all vendors and contractors who work with the UN are aware of the UN’s strict policy regarding the giving of gifts. Decline any offer of meals, tickets, travel expenses, or other hospitality from UN suppliers. Acceptance of such is prohibited. Register and dispose of gifts that arrive unexpectedly and cannot be returned in accordance with ST/AI/2010/1. A Guide for UN Staff. 22  Refrain from distributing business cards, brochures, or any other type of business solicitation on behalf of an external entity. Never take a gift accepted on behalf of the UN organization for personal use. Never accept cash given as a gift in your official capacity from any person or entity, for any reason. Some UN organizations may have their own guidelines with regard to gifts, and UN procurement officers are responsible for knowing and applying the respective guidelines of their organization. 2.6 Potential Areas of Risk in the Procurement Cycle Procurement officers are exposed to a number of risks when dealing with suppliers whose business practices may be different from those of the UN organization. Situations posing ethical dilemmas can occur in any type of procurement activity but will have a higher impact in high value/high risk purchases. Regardless of the value of the procurement activity, the highest standards of ethical behaviour must always be maintained to ensure probity of the procurement process. Some potential areas of risk relating to ethics in the procurement cycle are listed in the table below. Table 1 – Potential areas of risk AREA OF RISK EXPLANATION AND EXAMPLES Lack of proper budgetary control, for example when all funds are not Budgeting allocated to a specific purpose, can provide the necessary funds for fraud and corruption to take place. Without regular audits and strict management controls, there are Financial approval opportunities for fraudulent use of a person’s own levels of authority, or of policy misusing someone else’s. Perceived need Requirements can be invented or falsified. Specifications can be written to favour a specific supplier. Specification Clarifications on specifications can be provided to only one of the development invitees during the tendering process. Evaluation criteria can be written, or amended, after receipt of offers to Evaluation criteria favour a particular supplier. This process can be used to limit the field of competition to give a favoured Pre-qualification supplier an advantage. This process can be used to give the illusion of competition where it does not Invitation to really exist by inviting tenders from companies who are known to be tender/sourcing unsatisfactory or ineligible, or by not sending out complete specifications to all bidders at the same time etc. Fraud at this stage occurs mainly when objective evaluation criteria have not been agreed in advance. It can also occur where technical staff are able to Offer evaluation use their specialist knowledge to mislead other members of the evaluation team. Favoured suppliers can be assisted or given useful information during Negotiation negotiations. Suppliers may find opportunities for fraud either through deliberately fraudulent acts or through buyer incompetence. Contract award Procurement staff could artificially split contract award to remain under the organizational threshold for contract committee review or to award more contracts to preferred suppliers. Post award changes Allow suppliers to increase profits by charging more for revised to specifications specifications. 23  Examples are: Allowing under-deliveries of goods or non-performance to specifications Ordering and Drafting false goods inward notes ½receipt of goods Deliberately over ordering Allowing inventory to dwindle so that emergency orders at a higher price will have to be processed Invoice certification Deliberate overcharging, backdating orders to allow benefit from price changes, paying twice, failing to insist on or monitor retentions. Delegations to a large number of people making it difficult for the central Decentralized procurement function to exercise total control and awareness of what is procurement going on in the decentralized units. Although decentralization can often organization improve efficiency and reduce costs, it can also increase the risks of corruption. Potential warning signs of unethical practices There are some typical signs that may indicate or warn of unethical practices. These include, but are not limited to the following: Deviation from proper procedures Poor record keeping: missing files and documents Buyer’s extravagant life style Resistance to audit and reluctance to delegate Exclusive handling of supplier by only one person Secrecy Vs confidentiality Dictatorial management style Unnecessary meetings with suppliers Reluctance of suppliers to submit bids There are both internal and external forces which can serve as barriers to someone making ethical decisions. External forces include political pressure, following group norms, doing what is rewarded in the organization and what someone is told to do. Internal forces include personal expedience and greed, fear of reprisal and intimidation and ethical ignorance and blindness. Below is a six-step ethical decision-making model which UN staff should consider when faced with making ethical decisions. Evaluate the situation, determine the facts that you know and check your perceptions Test the ethics. What are the ethical issues and questions at stake? Help those affected. Who are the stakeholders, and how might they be affected by the situation? Identify the rule(s). Ensure compliance with organizational codes of conduct Call for advice and guidance, if necessary Stand up for ethics. Make the best possible decision and take action. Ensure the resolution is just and fair for all stakeholders In addition to the six-step process outlined above, UN staff should also consider whether the decision is consistent with their organization’s policies, procedures and guidelines and whether it is acceptable under applicable laws and regulations. They should also ensure that the decision adheres to the universal principles and values that their organization has adopted and that it satisfies the staff member’s definition of right, fair, transparent and impartial. UN staff do not have to make these difficult decisions alone. Each UN organization has many resources available, including an Ethics Office or Unit, to assist staff with addressing ethical issues that may arise in the course of their work. It is always best to ask for advice when the situation is not clear and there are reasons for ethical concerns. Best practices In order to try and prevent unethical behaviour, it is best practice during ongoing procurement activities for procurement officers to: 24  Decline meetings with bidders one on one (always have two UN staff present). Only conduct business during normal working hours. Invite suppliers to meeting rooms and not individual offices. Establish an agenda and have minutes for all meetings with suppliers. 2.7 Ethics at an Organizational Level There are also warning signs at the organization level showing potential weaknesses in ethical practices. Some of these are included below: No communication of expectations Too much trust in key employees Lack of proper authorization procedures – too many exceptions Changes in organizational structure Tendency towards crisis management Poor/no system design - processes just “evolved” over time Accounting personnel inexperienced or lax in their duties. Organizational tools and mechanisms to prevent and detect unethical practices In addition to individual UN staff taking responsibility for their ethical behaviour and following best practices, there are also some organizational tools and mechanisms that may be used to prevent and detect the occurrence of unethical practices as outlined below. Management responsibility Management should maintain the highest standards of integrity in its everyday dealings. Where senior management behaves dishonestly, corruption and fraud will spread to all levels. Management’s responsibility is to set the highest standards of integrity and to be an example for everybody in the organization to follow. Managers should also point out correct behaviour to employees and draw the line between acceptable and unacceptable behaviour. Management is also ultimately responsible for the operations and assets under their command. It is their responsibility, and in their interest, to ensure that the organization has the necessary procedures and control systems in place to ensure maximum security and minimize the risk of corruption and fraud. Code of ethics It is critical for all UN organizations to document very clearly in a code of conduct or a code of ethics the type of behaviour expected from staff members as well as what is considered unacceptable behaviour It is also important that organizations promulgate and enforce their codes of ethics so that they promote an atmosphere of ethical behaviour. Organizational procedures To prevent fraud and corruption an organization should have in place the following organizational procedures: PROCEDURES INCLUDING Background of all job applicants should be checked before they are Pre-employment screening employed and granted access to premises and assets. Classification and ‘Clear desk policy’, secure filing cabinets for all employees, sufficient protection of information number of paper shredders, secure disposal of all waste paper. Procedures should be introduced for all data processing resource. Data security standards Instructions on minimum standards should be enforced. All employees should be responsible for reporting losses and security Incident reporting incidents. All incidents, regardless of how small they are, should be reported. 25 Personnel policies and procedures Fair, open, and efficient personnel policies and procedures reduce the organization’s exposure to fraud. UN organizations should consider the following factors in their personnel policies and procedures: POLICIES AND PROCEDURES FACTORS TO CONSIDER Security responsibilities should be drafted into contracts and job Job descriptions descriptions. Awareness training can clarify what is meant by ethical conduct, short cuts, and fraud. Training programs can be supported by booklets on the Education and training organization’s business ethics and security policies, newsletters including reports on frauds discovered and lessons learned from them, as well as films and videos. New employee induction training should cover security. Organizational rules for conducting investigations into suspected or reported incidents of fraud or breaches of security, including employee obligations to assist in such Investigation investigations. Criminal offences or reasons for disciplinary action should be brought to the attention of all staff. Accounting controls The integrity of accounting systems is an essential element in preventing fraud. Controls should ensure that details of all goods and equipment moving in and out of the organization are recorded on serially numbered documents or computer records, and copies of documents recording movements are retained securely. Maximum use should be made of numerical controls. Levels of authority to approve accounting transactions should be clearly defined and regularly audited. Each system should define who will be held responsible for losses, errors and concealment. Areas of responsibility should be identified and enforced. Books and records should be protected in the same way as all the organization’s assets. Segregation of duties This is the most basic and one of the most effective ways of preventing fraud since it removes the possibility of ‘closed loops’, that is, one person having the authority to budget, provision, order and pay. Each transaction should be divided into a number of stages and no one person should ever have the authority to handle all of the stages. All purchasing responsibilities must be segregated (including supplier selection) from disbursement and accounting activities in order to ensure that the procurement process is fair and transparent. Control systems Control systems in procurement protect honest buyers and suppliers from false accusations of dishonesty, encourage them to work honestly and effectively, and prevent and detect corruption. It is often difficult to get the right balance between under and over control and many organizations have control systems which are either too restrictive or too lax. An effective and well-balanced control system needs to be flexible, allowing honest buyers and suppliers to operate efficiently, while at the same time minimizing the risks of dishonesty. Controls in procurement Procurement procedures should be set out in a manual provided to all staff involved in procurement. Procedures, authorities, responsibilities and penalties for not adhering to procedures should be clearly defined. When setting the strategy for a particular procurement activity, the following factors should be taken into account: 26  Threshold above which contracts and orders must be put out for competitive tenders should be clearly defined and enforced. As far as possible, spot, short-term, or emergency orders should be avoided. Cost-plus contracts should be avoided if possible, but if they cannot be avoided special care should be taken to verify the supplier’s expenses. Financial approval policy The policy on financial approval for procurement actions should be clearly communicated to all relevant staff. The consequence of abuse should be defined. Approval levels should not be set artificially low, but at a realistic level sufficient to enable employees to do their jobs efficiently. Standard terms and conditions of contract, and standard forms should be included in all solicitation documents as well as in all contracts and purchase orders. Standard forms used in procurement should be developed. Control over goods and services received As discussed above, there are several potential risks related to ethics in the procurement cycle. Controlling the receipt and storage of goods is a vital aspect of eliminating opportunities for fraud. There are various measures that can be taken to avoid these risks. The UN organization should have an auditable system in place for receiving and verifying the quality and quantity of the goods received. There should be procedures in place for reporting and recording variations in the quantities of goods and any defects in quality such as damage or breakages. In the case of large quantities, the organization should implement a sampling system in order to check the accuracy of the supplier’s shipment. UN staff responsible for receiving goods should be properly trained in inspecting the quality of materials received. In addition, only goods or services supported with an authorized purchase order or contract can be accepted. The UN organization must have a system in place to verify that goods or services received are for legitimate outstanding purchase orders. This entails matching the purchase order number entered as part of the receiving transaction with records contained in the organization’s procurement system. UN organizations should also periodically and systematically monitor their suppliers to ensure that their actual performance meets expectations. Performance reporting includes: percentage of on-time delivery, accuracy of shipments, product quality, and actual cost of performance compared with original cost projections. Any storage areas maintained by a UN organization should be secure and only accessible to authorized personnel who have been given special access cards. The organization should also have an electronic log of items being stored and removed from the storage facility and spot checks should be carried out periodically. There should be a UN designated staff member responsible for monitoring the quantity of stocks of frequently used items in order to ensure that they are purchased on a regular basis and that last-minute purchases will not be required. 2.8 Ethics at the Supplier Level Code of Conduct, UN Declarations and General Conditions of Contract It is fundamental that the UN Organisations promote ethical conduct in the supply chain. The United Nations Supplier Code of Conduct (see Chapter 2 Ethics in Procurement) was developed from the core values outlined in the Charter of the United Nations. has been fully endorsed by all UN organizations. It is expected that all suppliers who wish to do business with a UN organization embrace this code of conduct. UN organizations also expect all its suppliers to adhere to principles of the UN Global Compact (see Section 14.3), derived from the Universal Declaration of Human Rights; the ILO Declaration on Fundamental Principles and Rights at Work; the Rio Declaration on Environment and Development; and the UN Convention against Corruption. Suppliers are required to notify the UN should they themselves suspect that any suppliers of inputs to their processes might contravene any of the commitments contained in these documents. 27 In addition, suppliers have the obligation to comply with the UN organiz