Instruction: DFAT’s course
of action when suppliers
are investigated or
sanctioned by other aid
donors
May 2015
Instruction: Investigation or sanction of suppliers by other aid donors
This instruction sets out DFAT’s course of action when it is notified, or ascertains, that an aid
program supplier, or potential supplier, has become subject to investigation or sanction by a
Multilateral Development Bank or another aid donor. The instruction describes how DFAT will
determine its course of action in relation to such entities (individuals or companies) with regard
to future or current procurement processes, existing contracts or any other relevant
circumstance relating to the entity.
Background
Fraud and corruption in the aid program
DFAT has a Zero Tolerance Policy towards fraud and corruption, including in the Australian aid
program. This means that for all instances of attempted, alleged, suspected or detected fraud
DFAT will investigate the matter to determine the nature and extent of the fraud and if fraud is
confirmed: apply appropriate administrative or contractual penalties, including termination of
engagement; seeking prosecution of offenders and the application of appropriate penalties,
including through referral to local police or other relevant authorities overseas and/or the
Australian Federal Police (where appropriate); and seek the recovery of misappropriated funds
or assets.
The policy applies to all DFAT staff (including locally engaged staff at posts and contracted
personnel) and external parties that receive Australian Government funds, including private
sector contractors, non-government organisations, civil society organisations, multilateral
organisations, partner governments, third-party service providers and other funding recipients.
Investigation and sanction of suppliers by other aid donors
Multilateral Development Banks (MDBs) and other aid donors also conduct investigations into
entities that are alleged to have engaged in fraudulent or corrupt practices, or other integrity
violations. When substantiated, such entities are subject to donor sanctions including
debarment, in which entities are ineligible to be involved in donor-financed activities for a
specified period. MDBs publish lists of sanctioned entities, for example, the World Bank Listing
of Ineligible Firms and Individuals and the Asian Development Bank Sanctions List. In 2010, the
World Bank, Asian Development Bank, European Bank for Reconstruction and Development,
Inter-American Development Bank and African Development Bank entered into the Agreement
for Mutual Enforcement of Debarment Decisions. Under the Agreement entities debarred for
more than twelve months by one signatory MDB are cross-debarred and are ineligible to be
involved in the activities of all signatory MDBs.
Information sharing
DFAT has Memoranda of Understanding with the Integrity Units of the World Bank and the Asian
Development Bank. The agreements set out that each party will provide the other with
2
Instruction: DFAT’s course of action when suppliers are investigated or sanctioned by other aid donors
information of relevance for the detection, substantiation and prevention of fraud and
corruption in their respective work. The Memoranda do not prescribe courses of action to be
taken by the parties in relation to specific instances of potential fraud or corruption.
DFAT’s Contractual disclosure requirements and remedies
Requests for Tender
It is a mandatory condition for participation in a DFAT tender that tenderers, and any proposed
subcontractors, are not subject to investigation by or listed on the World Bank List or a Relevant
List.1 Tender documentation requires suppliers to warrant that they are not so listed/under
investigation and to notify DFAT immediately should it occur. DFAT reserves the right in its
absolute discretion to exclude from consideration any tender where the tenderer is listed/under
investigation.
Contracts
DFAT’s standard contracts suite requires that contractors immediately notify DFAT should they,
their personnel, or a subcontractor, become subject to investigation, proceedings or listing on
the World Bank List or a Relevant List. DFAT contracts give DFAT the right to terminate a
contract by notice where a contractor or a related entity is or becomes listed or is subject to a
process that may result in them being listed. DFAT also has the right to require a contractor to
terminate an agreement with any subcontractor or related entity that is listed. Failure to notify
DFAT of investigation or listing may result in immediate termination of a contract.
DFAT Assessment
Notification of an entity’s investigation/sanction by an MDB, a development donor, or receipt of
information from another source, will trigger an assessment by DFAT to determine an
appropriate course of action. The assessment and determination of the best course of action
will be led by ACD (AS FRB and AS CVB) in consultation with the relevant geographical areas,
and will consider factors such as:

The seriousness of the allegations or findings;

The extent of involvement of the entity in the Australian aid program;

The relationship between the entity that is under investigation or debarred and its
related entities;

The potential impact any proposed action may have on the aid program;

The level of controls the entity has in place, or proposes to implement; and
1 The World Bank List is defined as “a list of organisations maintained by the World Bank in its “Listing of Ineligible Firms” or
“Listings of Firms, Letters of Reprimand” posted at: http://web.worldbank.org.” Relevant List is defined as “any similar list to
the World bank List maintained by any other donor of development funding.”
Instruction: DFAT’s course of action when suppliers are investigated or sanctioned by other aid donors
3

What action has been taken by other donors.
DFAT will maintain confidentiality in its assessments of entities that are still under investigation
by an MDB or other development donor.
Actions
DFAT will take a flexible approach when determining an appropriate course of action. DFAT will
respond in a manner that is commensurate with the scale and scope of the potential violation.
Its response will reflect proportionality and will adopt an appropriate balance between risk
management and flexibility in accordance with the known facts of the case.
DFAT will in all cases provide a formal written notification to the entity of its assessment, its
decision and the determined course of action. All further correspondence entered into with the
entity on the matter will be through formal written correspondence.
Entities Under Investigation
Where DFAT receives information that an entity is under investigation DFAT will, at a minimum,
seek written assurances from the entity involved that its systems and processes are appropriate
to manage and prevent fraud and corruption. DFAT could seek independent verification, at the
entity’s cost, to confirm this. Consideration will also be given to DFAT undertaking its own
investigations, including due diligence checks.
While DFAT does not automatically exclude the entity from tendering ahead of formal action
being taken by another donor, it reserves its right to do so.
Debarred Entities and Entities Subject to Other Sanctions
In serious cases, where fraud and/or corruption is proven to be significant or systemic against
an entity, DFAT will refuse to accept tenders from that entity for the duration of its listing by the
World Bank, ADB or other donor.
In less serious cases DFAT may allow the entity to continue bidding for aid program work, but
impose stringent conditions, such as requiring it to demonstrate improved corporate systems
and processes to manage and prevent fraud and corruption, demonstrate improved ethical
practices, or provide other assurances to DFAT, including through the greater use of audits, at
the cost of the entity. In relation to specific contracts DFAT may require the entity to
demonstrate that it has appropriate project-level systems and processes to manage and
prevent fraud and corruption. Again, independent verification at the entity’s cost may be used to
provide this assurance.
DFAT will only act against that part of the entity that is sanctioned by a development donor, in
line with the practice of the World Bank. DFAT will maintain its rights to impose a broader
sanction than that imposed by the development donor.
Reservation of Rights
In all cases DFAT reserves the right not to accept bids from entities listed by development
donors. Protection of the aid program, broader public interest and reputational issues are of
fundamental concern.
4
Instruction: DFAT’s course of action when suppliers are investigated or sanctioned by other aid donors