1. Government Outsourcing
Corruption Prevention Department

2. Government Outsourcing
Corruption Prevention Department
Independent Commission Against Corruption
May 2001

3. CONTENTS
Pages
Introduction 1
Principles 1
Key Control Elements 2
Planning and Implementation 2
Policy and Procedures 3
Segregation of Duties 3
Conflict of Interest 3
Transparency 3
Contracting-Out System 3
Pre-qualification 4
Tender Document 4
Tender Invitation 5
Tender Procedure 5
Tender Evaluation 5
Contract Conditions 6
Contract Administration 7
User Feedback 7
Complaint Channel 7
Disciplinary Measures 7
Payment Procedure 8
Performance Appraisal 8
Management Information System 8
Internal/External Audit 9
Code of Conduct (Service Provider) 9
Further Advice 9
Annex – Summary Control Checklist 10-14

4. Government Outsourcing
Introduction Government departments face the challenge of meeting ever
increasing demands for public services with limited resources.
In recent years, many of them have looked to outsourcing as
one of their key organizational strategies. Government
outsourcing is defined in this guide as the contracting out of
services/functions which have been carried out by direct staff
of government departments, e.g. management services of
government properties and testing of vehicle roadworthiness.
This guide is intended to supplement the Government Stores
and Procurement Regulations and other relevant government
instructions/circulars in assisting government departments to
properly control the outsourcing process to prevent
corruption.
Principles Government departments which outsource their services/
functions should bear in mind that they remain accountable
to the public to ensure effective and efficient delivery of the
outsourced government services by the service providers.
Moreover, for successful outsourcing, government
departments concerned should aim for :-
• a fair, open and accountable contract award and
administration system;
• effective partnering with the service providers based on
specific objectives, rights and obligations; and
• high standard of staff integrity of both the government
departments and service providers.
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5. Key Control Elements The outsourcing process must be founded on an open,
equitable and accountable system. For effective prevention of
corruption, the government department concerned should
incorporate the following elements in its outsourcing process :-
• thorough planning and implementation;
• clear policies and procedures;
• effective segregation of duties;
• avoidance of conflict of interest;
• system transparency;
• open and fair contracting-out system;
• effective, specific and enforceable contract conditions; and
• effective contract administration.
On the other hand, the service provider should be committed
to :-
• providing quality service;
• supervising its staff properly; and
• observing ethical practices.
Planning and Successful outsourcing hinges on thorough planning and
Implementation effective implementation. Management should incorporate,
where appropriate, the checks and balance suggested below
in the overall outsourcing plan, and ensure their full
implementation.
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6. Policy and Procedures While the Government Stores and Procurement Regulations
provide general guidance on procurement of services, clear
departmental policies and instructions should be laid down
for outsourcing and administration of service contracts.
Segregation of Duties To provide adequate checks and balance, the duties and
responsibilities for pre-qualification of service providers,
preparation of tender specifications, tender assessment,
contract award and administration should be segregated.
Conflict of Interest The outsourcing government department should ensure that
its staff strictly follow Civil Service Bureau Circular No. 19/92
on the handling of conflict of interest in the appointment and
administration of the service provider and should issue to
them reminders periodically and on each outsourcing
exercise. It is advisable for the government department to
supplement the Civil Service Bureau Circular with
departmental circulars setting out particular scenarios of
conflict of interest for reference by staff.
Transparency To promote openness, it is important to provide transparency
of policies, procedures and practices.
To facilitate monitoring by service users as well as members
of the public, details of the services/procedures/practices
should be widely publicized, e.g. through the department
concerned, information leaflet, media and on the internet.
Contracting-Out Necessary safeguards should be in place to ensure that the
System procurement is free from corruption and malpractice and that
it meets the principles of value for money, transparency, open
and fair competition and public accountability.
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7. The contracting-out process should follow the Government
Stores and Procurement Regulations and relevant
instructions/circulars.
Pre-qualification To ensure that only service providers of the right calibre are
employed, the government department may prefer a pre-
qualification exercise to identify these service providers. In
such a pre-qualification exercise, the management should
ensure that :
• there are clear and objective shortlisting criteria and a
well-defined marking scheme;
• there are sufficient number of shortlisted service providers
to ensure competitiveness; and
• if the pre-qualification exercise aims to identify the service
providers to be included on an approved list, they should
be regularly recruited by open invitation. Additions to/
deletions from the list as well as performance appraisal of
the service provider should be based on objective and pre-
determined criteria.
The invitation for pre-qualification and the evaluation process
should follow the same principles of the tendering procedures
described below.
Tender Document Sufficient tender information should be given to potential
bidders to enable them to assess their interest and to prepare
a conforming bid. To provide a level playing field, the tender
specification should be drawn up in an objective and
descriptive manner; performance specification rather than
brand names should be stipulated. An outline of the tender
evaluation criteria and a warning against bribery should be
included in the tender document.
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8. Tender Invitation Opportunities for tendering should be open to all eligible
tenderers. In the case of a restricted tender, all shortlisted
service providers should be given a fair chance to bid. Single
tender should only be used in exceptional circumstances and
must be fully justified and approved by an appropriate
authority, e.g. Government Central Tender Board. Adequate
publicity should be given and sufficient time should be
allowed for potential tenderers to prepare and submit tenders.
Tender Procedure Tenders should be submitted in duplicate and lodged in a
secure tender box. The tender box should have double locks
with the keys held separately by staff members of an
appropriate level.
If e-tendering is adopted, the relevant Government Supplies
Department procedures should be strictly followed.
Tender Evaluation To avoid allegations of preferential treatment to a particular
tenderer, tenders should be assessed based on pre-determined
criteria. Personal prejudice will be reduced if an evaluation is
subject to a well-defined marking scheme. If only pre-
qualified service providers are invited to tender, the lowest
conforming bid should be recommended for acceptance; any
deviation must be justified and approved by an appropriate
authority independent of the assessment team, e.g. a
committee or Government Central Tender Board.
To ensure objective assessment and to afford greater
protection against bias or manipulation in open tendering, the
two-envelope tender assessment system should be adopted.
The envelopes containing the "quotation" should only be
opened after the technical proposals have been properly
assessed.
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9. Contract Conditions For effective contract administration and prevention of abuse,
the contract should clearly specify the rights and obligations
of both the outsourcing government department and the
service provider as follows :
Government Department
• service requirements;
• schedule of rates for the services (if applicable);
• handling of contract variations;
• rules and details of deducting or withholding payment for
unsatisfactory services;
• termination of contract for persistently poor performance
or serious contract breaches;
• conditions for contract extension (if any);
• warning clauses against the acceptance or offer of
advantages; and
• authorized access to information by Director of Audit for
audit purpose.
Service Provider
• reporting requirements;
• handling of confidential information;
• declaration of potential conflict of interest;
• the adoption of a code of business and staff conduct; and
• management structure and administration system.
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10. Contract An effective and comprehensive system of site inspections
Administration comprising both regular inspections and surprise checks by
the government department concerned should be established.
Supervisors of the staff concerned should also conduct
frequent surprise checks to guard against possible collusion
between their staff and the service provider.
To put in place an accountable system, proforma inspection
records should be maintained, irregularities should be
reported, and instructions should be issued to the service
provider for timely remedial action.
Where feasible, electronic devices may be employed to
continuously monitor the performance of the service provider,
e.g. CCTV monitoring of security service.
User Feedback For effective external monitoring, feedback from users should
be obtained regularly or at the time of the service delivery (if
feasible) by the government department concerned, e.g. via
completion of questionnaires upon receipt of service or
periodically (i.e. opinion survey) to be returned to the
government department direct. The feedback should be used
to facilitate supervision and performance appraisal of the
service provider.
Complaint Channel To further facilitate external monitoring by users and members
of the public, there should be effective complaint channels,
e.g. hotline or provision of complaint forms addressed to the
government department direct, which should be adequately
publicized. Procedures should also be laid down for
handling complaints received.
Disciplinary Measures There should be a well defined and effective disciplinary
system to ensure that appropriate action is taken against a
service provider whose performance is unsatisfactory, e.g. a
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11. de-merit point and payment deduction system, which should
be made known to the service provider and strictly
administered.
Payment Procedure To avoid fraudulent claims through corrupt dealings, the
service provider should be required to provide billing details
on a timely basis, which are subject to audit as follows :
• upon receipt of the invoice, the service provided should be
verified against the relevant records;
• payment deductions during the period should be verified
and applied;
• where feasible, the user should be asked to confirm the
payment details; and
• invoices should be submitted to an independent section
(e.g. the accounting or finance office) for double-checking
before payment.
Performance Appraisal A formal performance appraisal system, taking into account
results of supervisory checks, user feedback and complaints,
should be set up to enable the performance of the service
provider to be evaluated in a fair, objective and systematic
manner.
Supervisory staff should compile assessment reports with the
aid of a standard proforma periodically, say, quarterly, and at
the end of the contract, which should be examined and
endorsed by a more senior staff member to ensure fairness.
Management To facilitate the senior management's monitoring of both the
Information System performance and supervision of the service provider, a
management information system should be set up, keeping
key information and statistics on the administration of the
contract, such as details of surprise inspections and
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12. documentation audits, irregularities committed by the service
provider, actions taken, payment deductions and ratings of
performance appraisal.
Internal/ To ensure that the system in place is in order, to further
External Audit improve its cost effectiveness and control, and to act as a
deterrent against irregularities and abuses by staff or the
service provider, independent internal audit of the
outsourcing process should be performed periodically.
Where feasible, external audit should also be arranged to
further enhance the independence of the system review and
bring in new dimensions for improvement and prevention of
abuse.
Code of Conduct Staff of the service provider are performing a public duty in
(Service Provider) the delivery/discharge of the outsourced government service/
function. They should observe the stringent ethical
requirements of a government servant. Service providers
should, therefore, be required to compile a staff code of
conduct governing, inter alia, acceptance of advantages,
declaration and avoidance of conflict of interest, etc. for
compliance by their staff.
Further Advice This module is one of a series of Best Practice Modules
prepared by the ICAC Corruption Prevention Department.
The measures outlined above are not exhaustive and should
be tailored to meet the specific needs of individual
government departments. Government departments requiring
further advice from the Corruption Prevention Department in
their outsourcing processes, particularly in assisting service
providers to draw up their business or staff code of conduct,
should call Tel. No. 2526 6363.
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13. Annex
Summary Control Checklist
The following checklist outlines the major areas for control. If
a "No" answer applies to any of the questions, a control
weakness requiring special attention and proper justification
may exist.
Planning and Implementation Yes No
Are the outsourcing activities well planned?
Are effective checks and balance built into
the system?
Are sufficient resources committed to effective
implementation of the plan?
Policy and Procedures
Are clear departmental policies and
instructions laid down for the outsourcing
activities and administration of the service
provider?
Segregation of Duties
Are the duties and responsibilities for
prequalification of service providers,
preparation of tender specification, tender
assessment, contract award and administration
effectively segregated?
Conflict of Interest
Are staff and persons concerned reminded
to declare conflict of interest periodically and
on each outsourcing exercise?
Transparency
Are the outsourcing policies, procedures and
practices effectively publicized?
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14. Yes No
Are service users and members of the public
informed of details of the services provided
and the complaint channel for unsatisfactory
services, e.g. via information leaflets, the
media and/or the internet?
Prequalification
Are there clear and objective criteria and a
well-defined marking scheme for shortlisting
service providers?
Are there sufficient number of shortlisted
service providers to ensure effective
competition?
Are there objective criteria for maintaining the
approved list of service providers?
Tender Document
Are the service requirements clear and
specific enough for effective tender
comparison and subsequent contract
administration?
Are the tender specification objective, fair and
reasonable?
Are the tender evaluation criteria and a
warning against bribery included in the tender
document?
Tender Invitation
Are all shortlisted service providers given a
fair chance to bid?
Is single tender properly justified and
approved by an independent authority?
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15. Yes No
Are adequate information and time given to
potential tenderers to bid?
Tender Procedure
Are tenders submitted in duplicate and lodged
in a secure tender box?
Is the tender box fitted with double lock, with
keys separately kept by authorized staff?
Are Government Supplies Department
procedures followed for e-tendering?
Tender Evaluation
Are tenders assessed against pre-determined
criteria?
Is the two-envelope tender assessment system
adopted?
Contract Conditions
Are the service requirements clearly and
effectively specified?
Are the rights and obligations of both
contracting parties clearly specified?
Are the rules and details of deducting or
withholding payment for unsatisfactory
services included?
Is a probity clause included?
Is the service provider bound to adopt a code
of business and staff conduct?
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16. Contract Administration Yes No
Is there an effective and accountable system
of site inspections by government staff
concerned?
User Feedback
Is there an effective external monitoring
system for the outsourced services?
Is feedback from users obtained regularly
and/or at the time of the service delivery?
Complaint Channel
Are there established and well publicized
complaint channels?
Disciplinary Measures
Is there a well defined and effective system to
discipline under-performing service providers?
Payment Procedures
Are invoices submitted by service providers
verified?
Are payments made by an independent
section after double-checking the invoices?
Performance Appraisal
Is there an accountable performance appraisal
system?
Does it take into account results of
supervisory checks, user feedback and
complaints?
Is it made known to the service provider?
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17. Management Information System Yes No
Is there a management information system
to facilitate monitoring of supervision and
performance of the service provider?
Internal Audit
Is independent internal audit of the
outsourcing process performed periodically?
Corruption Prevention Department
Independent Commission Against Corruption
May 2001
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18. J1676