Ethics in Purchasing, Procurement, and Acquisitions Management

Introduction to Ethics in Procurement

This paper examines the concepts of responsibility, accountability, and procurement beneficence through a review of the challenges and principles commonly faced in the procurement process by purchasing managers, staff, and suppliers in both private and public institutions.

There are two basic definitions of ethics. The first is that ethics are moral principles that influence conduct, and the second is that ethics is a body of knowledge concerning moral principles.

Ethics is the foundation upon which almost all purchasing-related principles — including honesty, transparency, and fairness — are based. There are several ethical standards that should be maintained in every organization, regardless of whether it is private or public. These standards require that every employee commit to the following:

Procurement is the main link that facilitates the acquisition, and later disposal, of both products and services; it is therefore an essential ingredient for running both public and private organizations efficiently. To implement ethical procurement processes based on codes of conduct, three elements should be considered: ethical sourcing, ethical procurement, and ethical purchasing (Graafland, 2002). The use of the term ethical purchasing in this paper encompasses procurement, sourcing, and purchasing. Ethical purchasing simply means the acquisition of products and services in a manner that is responsible, takes into account the conditions under which those products and services are produced and delivered, and incorporates a mechanism for promoting continuous improvements (Mamic, 2005). When organizations use contracting as a means of acquiring goods and services, concerns may arise regarding the entities with which the firm deals. There is therefore a need to conduct the procurement process ethically in order to address these concerns (Mathenge, 2012).

In recent years, there has been a notable increase in interest in procurement and supply chain management. This heightened attention has also brought to light several business practices that are unethical and violate established codes of conduct. For example, the execution of tendering processes in a non-transparent manner allows suppliers opportunities to gain favorable consideration through bribery (Huang, 2008). According to Gray et al. (1997), when procurement is conducted in a manner that is responsible, transparent, fair, and accountable, it can have a positive effect on a company's performance and on the confidence of its stakeholders. However, such positive outcomes cannot be achieved without implementing ethical principles and codes of conduct (Gichure, 1997).

The sections that follow examine: codes of conduct; ethical theories and principles; challenges and risk areas in the procurement process; and mechanisms for incentivizing compliance with those codes.

Codes of Conduct

Businesses and professional bodies typically attempt to address conformity to standards through the adoption of codes of conduct. However, the majority of such codes are often worded in broad, conceptual terms rather than in situational terms specific to the profession. As a result, professional codes of conduct are frequently ambiguous and leave considerable room for misinterpretation. Practitioners in the field of procurement should not merely adhere to the literal wording of ethical codes; their conduct should instead be guided by the broader meaning of the terms expressed in those codes.

It is also notable that a number of organizations involved in procurement deliberately avoid having specific or detailed codes, believing that such codes may be non-exhaustive and therefore prone to misinterpretation. The absence of specific codes also allows these organizations to avoid situations in which professionals from other fields disregard an issue simply because it has not been explicitly captured in the code, even when that issue may be critical to the procurement process. Those unfamiliar with the general requirements may be unable to apply a code to specific situations. Regardless of how creative or thorough policymakers attempt to be, they will never be able to fully capture and specify every scenario relevant to procurement. It is therefore essential for those involved in procurement to understand the broader context — the spirit, rather than merely the letter, of the rules (IAPWG, 2012).

Ethical Principles in Procurement

Acquisition processes should always be as transparent as possible within the applicable business and legal boundaries. This means being open with all stakeholders — particularly suppliers — so that everyone is aware of the components of the process, including timescales, requirements, selection criteria, procedures, and expectations. Under no circumstances should confidential information provided by suppliers be disclosed to a third party, or used, without the explicit consent of that supplier. Specifically, such information should not be shared with competing suppliers, which is particularly important when an output-based specification is being developed.

While it is common and acceptable to share ideas among competing suppliers in order to arrive at the best solution for the business, the confidentiality of each supplier's information must be maintained. Every person involved in the procurement process should be aware of the principles of commercial confidentiality. Relevant information should not be withheld from suppliers — unless it was received from another supplier in commercial confidence — and those involved in the process must not provide misleading information.

Standard practice dictates that when a supplier requests clarification on any aspect of the purchasing and supply management process, all suppliers who have bid for the project should receive the same information. However, where a supplier asks a particularly insightful question, sharing that question with all other bidders may eliminate that supplier's competitive advantage. Procurement professionals are therefore expected not only to act professionally but also to exercise sound judgment in each specific situation, and to seek advice when in doubt (CIP, 2007).

Those involved in the procurement process are expected to conduct themselves in a manner that reflects strong moral integrity. A procurement officer must set aside cultural differences — whether related to industry, ethnicity, or nationality. Principles of integrity that are not culturally specific must be allowed to prevail, particularly for procurement officers working in the global marketplace. United Nations procurement officers, for example, should demonstrate integrity by:

Due diligence in the context of United Nations procurement involves acting with care and thoroughness. Due diligence requires that procurement officers go beyond the minimum effort necessary to carry out their responsibilities. For instance, diligent UN procurement officers should:

In private organizations, standards of conduct are often shaped by the expectations set by management, and employee behavior is assessed against customer satisfaction and legal requirements. However, procurement officers operating in the international marketplace are held to even stricter standards (IAPWG, 2012).