Two global super-brands, Volkswagen and Nestlé have been in the news of late highlighting some key issues for purchasers of products in the public and private sectors. While Volkswagen’s travails have been well documented, Nestlé’s proactive admission that they identified instances of forced labour in its seafood supply chain is a development that raises a number of interesting questions for buyers.
Nestlé have stated that they commenced an investigation in 2014 on foot of reports of the endemic exploitation of migrant workers in South East Asia. Nestlé even took the unusual step of publishing their report into this episode. From a governance as well as a procurement perspective, they can fairly assert that they are taking concrete action to ensure that such conditions do not present in the products they source from the region. This said, the report’s assertion that the practice is endemic in the region (page 3) raises questions for all other organisations sourcing from that and other locations in the developing world.
In parallel with these developments, EU member states are rolling out the 2014 Procurement Directives which have strengthened provisions that mean the consequences for these kinds of sourcing issues can become a serious commercial problem. Such issues raise substantive questions on probity, social, legal and transparency grounds.
Probity & anti-corruption
- Grounds for exclusion from public contracts present where false statements or claims are made in relation to the technical capacity of a product. For instance, recent high-profile sourcing issues could have implications for many police fleets using cars that are found to be deficient in relation core selection criteria (e.g. declared emissions levels were a defining matter in selecting the preferred make of car for the fleet but actual levels were later found to be different and another make would have been selected instead).
- There are also provisions for bringing forward convictions and fraud charges where such sourcing issues present in public procurement contests.
- In the private sector, car rental companies would have grounds for investigating their supply chains where they suspect material sourcing issues may have arisen on foot of a major recall and/or a probity matter.
Labour standards
- There is a cross-cutting social clause based on respecting environmental, social or labour law obligations under EU and national rules, collective agreements and international law. Companies that fail to comply with these commitments can be excluded from public procurement competitions so that social dumping is not used to unfairly win public business in the EU.
- This presents serious questions for buyers of food products, clothing, technology, commodities and other products that are sourced from areas that are high risk locations for exploitation, bribery, corruption, slavery and child labour.
Interestingly, sub-contracting does not absolve purchasers from their responsibilities in this regard. A chain of responsibility is provided for and national authorities are expected to have a policy in relation to laying this out for companies using third parties to perform a contract.
Moreover, member states are meant to have monitoring arrangements and draw up reports that manage these risks to requirements under EU law, criminal law, commercial law, human rights law, labour law and environmental law.
As public incidents like Volkswagen and Nestlé come to light, public and private buyers may well find themselves under increasing pressure to be able to explain how they took all reasonable steps to ensure that their supply chain is free from unwanted characteristics (e.g. slavery, corruption etc.).
Practical steps all buyers can take in the short-term include:
- Establishing a definition for what is deemed a material breach by a supplier;
- Defining the supply chain for all key suppliers and drawing up a list of material issues that run contrary to established policy (and where relevant the prevailing law);
- Ensuring there are adequate arrangements in place for obtaining comfort in relation to these risks;
- Ensuring key stakeholders are aware of what is being done by the organisation (if a public buyer, this will include your suppliers, NGOs and peers; if a private buyer it will include the board, risk committee, investors, NGOs and other interested parties).
The era of relying on self-certification from well-known companies appears to be on the cusp of profound change. Every organisation can benefit from assessing how prepared they are for handling sourcing issues in the future.
Photo by Douglas Heil and sourced from Pixabay
