Commercial activities

Increasingly government entities are undertaking commercial activities to generate income that will supplement their allocated budgets. Sometimes agencies take on commercial activities in addition to their core functions. Others may commercialise their existing functions, for example, by delivering services on a user-pays basis.  

Some agencies establish discrete business units within their existing organisation which are distinguishable from the rest of the agency only because they serve a defined external market. An example is a council establishing a business unit to compete in the open market for the provision of regulatory services1. At times these business units may compete with external suppliers to provide a service to the entity in the form of an in-house bid. When an in-house group is successful in the bidding process, it becomes a service provider to its parent organisation as the client or purchaser.

Sometimes government agencies also form separate bodies, such as companies, to conduct commercial activities. An example of this type of activity is a university establishing a company to undertake contract research.

The improper conduct of commercial activities can constitute corrupt conduct as defined by the Independent Commission Against Corruption Act 1988.  

This topic does not cover the general corruption risks involved in service contracting, joint ventures or sponsorship. These are covered in other topics on this website.

Corruption risks

A risk assessment of the commercial activities of a public sector agency is likely to identify some or all of the following corruption risks:

  • An employee of a government agency failing to disclose a prior relationship with a private sector entity selected to have a commercial relationship with the agency.
  • An employee of a government entity acting partially towards an organisation it regulates because the organisation also has an important commercial relationship with the government entity.
  • Former employees exploiting existing relationships within the public entity to obtain an unfair advantage in a bid process.


Managing corruption risks

As a minimum your agency should:

  • Introduce policy and procedures on commercial activities which contain elements listed in the Policy Development Guide and Checklist (see Tips and tools below) and also cover the following:
    • Guiding principles and operating protocols for developing, approving and conducting commercial activities
    • Conflict of interest policy provisions requiring employees, governing bodies and committee members involved in commercial activities to declare any conflicts of interest as they arise and establish clear protocols for managing conflicts of interest.
  • Include in the policy sanctions for any breach of the policy and procedures.
  • Review the policy every two years.
  • Refer to commercial activities in all corporate documents such as codes of conduct.
  • Train all relevant employees in the policy and procedures to ensure they are aware of their accountabilities.
  • Include commercial activities in the agency's internal audit process and corruption risk management processes.


Risk management strategies

Following your risk assessment of commercial activities, the following risk management strategies should be considered:

  • Including the following record-keeping requirements in the policy:
    • establishing a gifts register
    • implementing and regularly updating registers of interests (members of the governing body, relevant employees and committee members involved in commercial activities should be required to declare their private commercial interests in the register2.) and
    • retaining documentation of information requested by and provided to any parties participating in the tender process.
  • Defining what is considered to be a commercial activity as opposed to the usual transactions carried out as part of the agencies core functions.
  • Developing a statement of business ethics to advise the private sector on what to expect when doing business with government. (The statement would provide specific advice about issues such as the offering and receiving of gifts and benefits3.)
  • Developing and implementing a fair and accountable tender process that is open to private organisations.
  • Developing clear criteria to determine the type of commercial work that is acceptable.
  • Segregating employees' roles where the agency decides to enter into a commercial agreement so the core functions are not compromised by their involvement in the commercial activities or relationship.  

Risk management strategies for universities

These risk management strategies for commercial activities should be considered for universities

  • Developing commercial activities guidelines (under its enabling legislation) with provisions for due diligence, appropriate governance, administration and regulations.
  • The commercial activities guidelines including criteria for determining whether a proposal should be classified as a commercial activity such as revenue generation.
  • Maintaining a register of commercial activities as required.  
  • Complying with the National Governance Protocols (in order to be eligible for grants under the Commonwealth Grants Scheme) by adopting the protocols.

Risk management strategies for in-house bids

These risk management strategies for commercial activities should be considered for in-house bids

  • Stipulating in Request for Tender (RFT) documents that an in-house bid is acceptable and the terms under which it will be considered.  
  • The RFT documents also stipulating the information and resource supply responsibilities, performance requirements and obligations of both the agency and the successful tenderer.
  • Business unit employees not being involved in the preparation of RFT documents, including tender specifications.
  • Tight controls on the flow of information between the group preparing the in-house bid and those involved in the bid management and evaluation.
  • Bid management and evaluation employees being required to enter into confidentiality agreements.
  • Tender selection panels consisting of at least one person independent of the agency.
  • All potential tenderers receiving equal access to information.
  • Records and other information which could be used to advantage the in-house team being properly secured.
  • Employees involved in the in-house bid being physically separated from employees involved in specification development, bid evaluation processes and service regulation.
  • Protecting the intellectual property of competing external bidders in the post-bid phase.
  • Fully documenting the above procedures and providing them to all relevant employees; they should also be made available on request to external organisations involved in the tender process.

Risk management strategies for commercial activities

These risk management strategies for commercial activities should be considered for profit share arrangements involving business unit employees

  • Clearly documenting any profit share arrangements in publicly available documents.
  • Providing for profit share arrangements under a legal instrument such as an employment contract.
  • Implementing quality control measures, such as peer review systems, to help ensure that profit arrangements do not become an incentive for employees to focus on turnaround times at the expense of quality.


Case studies

Case study 1: Reputational costs

In 2003 the ICAC investigated the handling of alleged plagiarism in assignments submitted by postgraduate students enrolled at an offshore campus of a university's graduate school of business. The students were full fee-paying international students enrolled in courses that were part of the graduate school's international strategy.  

Findings were made in this investigation that the then head of the graduate school, and his then deputy, engaged in corrupt conduct by breaching their duty to the university in having the assignments in question re-marked contrary to university policy and without any proper investigation as to the truth of the plagiarism allegations. The ICAC found that they were motivated by a desire to avoid any potential adverse consequences that the plagiarism allegations may have had on the university's offshore program.

This investigation illustrated the potential risk to academic integrity and reputation that can result from the commercial trade in education. The Commission's recommendations included that the university identify and monitor the risk factors in the delivery of courses to full fee-paying students, develop a professional capacity for handling and investigating allegations, and ensure that academic managers are kept aware of the ethical dimension of their work.

Case study 2: Probity in business activity

A NSW local council established a business unit that provided development assessment and building certification, facility cleaning, civil and stormwater design, parks and building maintenance, asphalt and concrete work, road and drainage construction and waste services. These services are available on a commercial basis to both the council and other organisations such as other councils, government departments, universities and private sector organisations.

In setting up the unit the council established guidelines to ensure that probity is maintained. Arrangements for work allocation and supervision, assessment procedures and segregated filing systems were established as safeguards to reduce conflicts of interest that may arise for staff of the business unit. The guidelines are publicly available and revised regularly. 

Frequently asked questions

The employees in my business unit are frequently offered gifts and other benefits from potential contractors and suppliers.  How should we handle this?

Much the same considerations apply to business unit employees as others in relation to gifts and benefits. The real difference is that offers are likely to be more frequent – or perhaps more lavish.  Make sure the business unit has a clear policy that has been written with commercial activities in mind. Because no policy will answer every situation, give employees techniques to guide them such as asking:

  • Why is this gift being offered to me?  
  • Why should I accept this gift?
  • Could it compromise the agency's ability to make an impartial decision?

My agency is moving some of our functions into a business unit. What corruption risks should we consider?    

Apart from the general risks described above there may be risks that arise in the course of the transition of functions into a commercial activity. For example:

  • existing policies or practices may need to be revised or supplemented because they are no longer relevant to the probity issues of a commercial role
  • employees who are hired from the commercial private sector to work in the unit may not be familiar with public sector regulations and standards
  • the relationship of the business unit with the department or agency should be clear as it may have become a purchaser/supplier relationship while the agency still has overall responsibility for the unit.  


Other publications

  • Report on an investigation in terms of section 430 of the Local Government Act 1993 into Wagga Wagga City Council, NSW Department of Local Government, May 2007, pp 96 – 118
  • Risk Management, Australian/New Zealand Standard AS/NZ 4360:2004, Standards Australia
  • Risk Management Guidelines, Companion to AS/NZ 4360:2004, Standards Australia
  • Service Competition Guidelines, Premier's Memorandum  97-24, Department of Premier and Cabinet.



  • Local Government Act 1993 (NSW)
  • Enabling legislation of NSW universities


Relevant websites


Related topics on the ICAC website


1. It is also possible for a council to form a corporation or other entity. However, under section 358 of the Local Government Act 1993 a council must first obtain the consent of the Minister for Local Government. For further information see NSW Department of Local Government circulars 07-49 and 05-51.