The Importance of Supply Chain Transparency in Public Procurement of Apparel: A Call to Action for the Obama Administration

October 31, 2016 •

NVM Photo

By Nicole Vander Meulen
Legal and Policy Associate, ICAR

“It’s like you are working with no hope because you are doing work that can’t sustain your life.”

These words, said by a factory worker in Haiti, reflect a reality on the ground in the production of goods that ultimately end up in the hands of the U.S. government. Working in a factory that, as of 2013, produced camouflage clothing for the U.S. government, this laborer describes not having access to potable water during work and being paid wages so low that he could not afford to buy shoes. “It’s a task for the U.S. government, which advocates the rule of law, to watch how these clothes are being made,” he says. “But I don’t think it is watching this.”

This worker’s story is not unusual. In another harrowing example, a labor organizer working at a factory in Bangladesh that produced uniforms for the U.S. General Services Administration was arrested by police and tortured in 2010. He was then found dead, with clear signs of foul play, in 2012.

As highlighted by these examples, the U.S. federal government is not fulfilling its duty to protect against human rights abuses by businesses; a duty that is reaffirmed in the United Nations Guiding Principles (UNGPs) on Business and Human Rights. This duty is particularly strong when a State-business nexus exists, including when a government procures goods or services. As revealed in a New York Times article, however, U.S. government suppliers in various countries “show a pattern of legal violations and harsh working conditions,” including padlocked fire exits, falsified wage records, and unsafe buildings.

A necessary step in driving human rights improvements in apparel supply chains is supply chain transparency, including public disclosure of the names and locations of all suppliers that an apparel company is sourcing from. This type of transparency allows grassroots organizations and workers themselves to act as monitors and alert the apparel company or, in the case of procurement the public body about any human rights abuses in a particular factory. Once public purchasers are aware of these abuses, they can work with their apparel contractors to remediate and prevent future abuses.

This type of transparency-driven monitoring is much more effective than social audits, which have proven to be problematic. Workers are in the factories day in and day out and witness or experience abuses first hand. An auditor’s assessment, on the other hand, is solely based on the short amount of time allocated for the audit. For example, just because exits are not locked on the day of an audit does not mean they are not locked the rest of the year. Additionally, while an auditor may be able to identify concrete safety problems, such as the number of fire extinguishers, it is difficult for an auditor to accurately report on intangible issues such as harassment of workers and retaliation against those who try to organize.

There is some promise in terms of government action to address the issue of supply chain transparency. For example, the city government of Madison in the U.S. state of Wisconsin has taken steps toward supply chain transparency in the apparel sector. Madison is part of the Sweatfree Purchasing Consortium, a group of U.S. state and local governments committed to purchasing apparel made under decent working conditions. In 2005, Madison adopted General Ordinance 4.25, which requires contractors to ensure that apparel purchased by the city is produced under conditions that meet certain employment standards.

In one instance, the requirements of General Ordinance 4.25 were incorporated into a request for proposals on a cooperative contract for uniforms for the Madison fire department, metro transit, and police department in May 2014. Bidders were required to provide a “bidder disclosure statement” that included the address, wages, and hours for factories where total aggregate value of goods produced under the contract would add up to $5,000 or more per year. The information provided by the awarded contractor is publicly available on the Sweatfree Purchasing Consortium database. In addition to this initial transparency during the bidding process, there is a contractual requirement to submit compliance action plans for certain factories and to undergo independent monitoring. These requirements did not dissuade companies from submitting bids. In fact, all bidders submitted a satisfactory bidder disclosure statement, and the awarded contractor has submitted compliance action plans as required in the contract.

This demonstrates that apparel companies are willing and able to engage in supply chain transparency to obtain highly competitive government contracts. Outside of public procurement, apparel brands such as C&A, Nike, Levi’s, and Marks & Spencer are already disclosing some of their supply chains voluntarily. The federal government can use its leverage as a buyer to regulate transparency as a requirement for all contracts.

Importantly, requiring federal contractors to disclose their supply chains would not even involve passing new legislation in the United States, as such legislation already exists. Namely, the Federal Funding Accountability and Transparency Act of 2006 requires the Office of Management and Budget (OMB) to create and operate a searchable public website for all federal contracts, including apparel contracts, above $25,000. The Act requires this database to include the country and address where the work is performed for both contractors and their subcontractors, excluding businesses with income less than $300,000. The database created for this purpose is USAspending.gov.

However, in the implementing regulations, the OMB significantly limited this reporting requirement to first tier subcontractors, and even that reporting requirement applies only in very limited circumstances. The result is that information on actors beyond the prime contractor is rarely made public. This limitation is not in line with Congressional intent. During the Senate hearing on the bill, co-sponsor Senator John McCain (R-Arizona) stated, “It is the taxpayers’ dollars. I think we should track the taxpayers’ dollars to [their] ultimate end.” Then Senator Barack Obama (D-Illinois), who was also a co-sponsor, agreed. Additionally, the agencies that are implementing the Act agree that its “reporting requirements flow down to all subcontracts, regardless of tier.”

This limitation led ICAR and eleven other NGOs to send a letter to President Obama in April 2016, calling for the full implementation of the Act, as Congress intended. The letter was also sent to the OMB, calling for a written explanation for the limitation of the Act. The letter has received no response to date from the Obama administration or from the OMB.

The U.S. federal government’s purchasing power is one of its most powerful tools in addressing business-related human rights harms. As outlined above, a necessary first step in eradicating human rights abuses linked to the spending of U.S. taxpayers’ dollars is to require contractors to disclose their supply chains. Luckily, the U.S. Congress has already laid the legal foundation for doing this. The ball is now in the U.S. Executive Branch’s court. It must fully implement supply chain transparency if it is serious about its duty to protect human rights from business-related violations.