Socially responsible procurement: the other part of 'Sustainable Procurement'
Sustainable procurement means buying goods and services and taking into account:
value for money - quality, fitness for purpose, whole-of-life costs, etc.;
environmental aspects;
the entire life cycle of products; and
social aspects – sustainable supply chains and the effects of issues such as labour conditions, including child labour provision, occupational health and safety and compliance with relevant industrial and environmental regulations (http://www.sustainableprocurement.net/home2.html).
Although 'sustainable procurement' encompasses more than environmental considerations, the main focus of this website to date is environmental procurement. Currently, there is more information and more tools available to assist agencies to purchase green products and services than the other socially responsible aspects. As more information is developed about how to buy according to social responsibility principles (or 'ethical procurement'), this website will be updated and expanded. The following information has been developed to provide some assistance.
What are the socially responsible aspects of sustainable procurement?
Increasingly, governments are unlikely to want to be closely associated with companies involved in environmentally damaging production, exploitative, unhealthy or unsafe employment arrangements, shady or sharp practices in market or supply chain management such as failure to pay sub-contractors, or capital management practices that strip shareholders of asset value. Whilst there is an expectation that governments deal only with 'good' suppliers, and the status of a good supplier both enhances a firm’s reputation and communicates solidity and reliability, policy has not been developed around the principle of engaging only with socially responsible suppliers.
While as purchasers, governments assess supply risk, the reputation risk of association as a purchaser with companies involved in collapse or corporate scandal should also be considered. This may require a closer investigation on the performance of suppliers by purchasers.
Are the goods manufactured overseas?
The mechanisms to support an ethical purchasing decision when dealing with domestic supply sources can be identified but the process becomes more difficult when assessment of international supply sources is required. Remember too, that assessment of international supply sources may also be required when there is substantial offshore manufacture for goods obtained from a local distributor.
What standards should be applied?
Two major issues confront the purchaser required to make an assessment of employment standards of an overseas supply source. First, what standard is to be applied?
Governments are unlikely to want to be associated with suppliers who use of unhealthy or exploitative labour arrangements. Some underlying principles supporting an ethical supply commitment may include:
goods are manufactured by suppliers who comply with all local labour and industrial and environmental regulation; and
suppliers comply with United Nation’s standards concerning the use of child labour.
Insistence on supply conditions equivalent to those which apply in Australia may restrict supply options to the highest priced market segment and exclude foreign sources of supply from consideration.
Identifying the matters you want to know are managed in a defensible manner is only the first step in establishing an ethical procurement policy for overseas suppliers. Having identified what you want to know, the difficulty of gaining accurate information arises.
While management strategies such as site visits by purchasers may not be feasible, other strategies such as:
using local agents to inspect, monitor and report;
commissioning audit of compliance with recognised standards; and
investigating whether the suppler is used by other ethical purchasers can be adopted.
Although these may be available they are likely to represent costly strategies, and except in the case of large scale procurement, are likely to offset savings reflected in the bid price. In risk prone industries, the information cost of auditing compliance may need to be taken into consideration in the procurement decision.
In Europe, a number of ethical purchasing associations have been formed. Membership requires commitment to sourcing from ethical suppliers and the association reduces monitoring costs for each organisation by sharing information). The Ethical Trading Institute requires that supply complies with the following basic principles.
The nine requirements of the Ethical Trading Institute Base Code are:
Work is chosen freely.
Freedom of association and the right of collective bargaining are respected.
It must be emphasised that the information sources required to be confident that an overseas supply chain is ethical is still at an early stage of development. It may well be that the most important contribution an agency can make to promote sustainable procurement policies include raising awareness, supplying information (product criteria, manuals etc) and developing and communicating (internal or external) codes of conduct and reporting initiatives to the broader field of procurement.
What can you do?
Some measures to strengthen the commitment to socially responsible purchasing may include requiring tenderers/businesses to provide a statement detailing:
all applicable industrial instruments that apply to the business;
any findings against the tendering entity by a court, tribunal, commission or board of a breach of an applicable industrial instrument, including a finding of a breach in a non-confidential consent order, in the preceding 24 months;
any convictions under applicable legislation in the preceding 24 months;
any current proceedings or prosecutions in respect of a breach of an applicable industrial instrument or an offence under applicable legislation; and
remedial measures implemented to ensure future compliance with applicable industrial instruments and legislation.
The assessment of the tenderer can consider:
the seriousness of breaches or offences that are the subject of an adverse finding or conviction;
the number of adverse findings or convictions;
whether there is a pattern of repeated or on-going breaches (including any current proceedings or prosecutions before a court, tribunal, commission or board); and
whether remedial measures are commensurate with the breach and have been or can reasonably be expected to be effective in ensuring ongoing future compliance with applicable industrial instruments and legislation.
The responses should be checked.
Compliance Registers – do they help purchasers?
A continuing problem has been the multiplicity of codes purporting to document compliance with ethical production standards. While there are attempts at harmonising the requirement of numerous codes, this continues to be a problem both for suppliers and purchasers. Code compliance registers also have more embedded problems. Codes of conduct focus on easy information and simplistic observations. Early codes on the use of child labour demonstrated the limits of this approach. Bans on child labour further impoverished poor households and drove children into crime and prostitution. Matters only improved once more realistic ethical standards were developed from careful surveys on the nature and impact of child labour in poor households and communities. (ID21, 2003, http://www.id21.org/insights/insights49/insights-iss49-art05.html )
Use of compliance codes requires the purchaser to have a developed understanding of what is required in a firm to meet the compliance standards and the extent to which there are is a match in values and priorities. The purchaser must also be confident in the judgement of the third party whose assessment is being used in an evaluation of the business-worthiness of a potential supplier. Does the assessor ask similar questions and consult with a similar range of parties to those that you would as purchaser? The questions that need to be answered include:
How is the assessment carried out?
Is it continuous monitoring or a one-shot assessment?
How frequently are assessments undertaken?
Does it involve a local assessment or does it rely on external experts?
Who is consulted in the assessment?
Becoming registered as compliant may also be difficult for firms in developing countries. Codes have been criticised for being over-reliant on the observation of western auditors many of whom charged fees more appropriate to developed economies than undeveloped economies. As a result, the cost of registration favoured western owned global brands over small local firms in developing economies. A similar outcome has been observed in environmental code registration where the cost of compliance and auditing was more than many environmentally sound but small companies were willing to pay.
In summary, the use of third party assessments and registered compliance with codes of conduct can represent a useful information source to the distant purchaser but must be used with care and forethought.
