Leading by example? Procurement as lever for human rights due diligence

January 22, 2019 •

The session on 28 November 2018 at the UN Business and Human Rights Forum was organised by the Danish Institute for Human Rights (DIHR), the International Corporate Accountability Roundtable (ICAR), the Ethical Trading Initiative Norway (ETI Norway), and the Harrison Institute for Public Law of Georgetown University Law Center.

This session looked at how public procurement at the sub-national level can be used, per the UNGPs and SDG 12.7, as a lever for extending the practice of corporate human rights due diligence in local economies and global supply chains. It focused on identifying transferable good practice examples and lessons learnt from those working with this topic including local and municipal governments, cities, universities, and hospitals. It addressed the unique challenges and opportunities faced at this level including building leverage, ensuring policy coherence between the national and sub-national institutions, and developing institutional capacity.

Claire Methven O’Brien (moderator)

Danish Institute for Human Rights
Strategic Adviser
https://humanrights.dk/staff/claire-methven-obrien

Dr. Claire Methven O’Brien is Chief Adviser at the Danish Institute for Human Rights. Claire is a barrister called to the London Bar, Honorary Lecturer at the University of St. Andrews School of Management and a Visiting Research Fellow at the University of Groningen’s Department of International Law. She is author of the Council of Europe’s Handbook on Business and Human Rights (COE, forthcoming 2018); editor (with Olga Martin Ortega) of Public Procurement and Human Rights: Opportunities, Risks and Dilemmas for the State as Buyer (Edward Elgar, forthcoming 2019) and lead author of Business and Human Rights. A Textbook (Cambridge University Press, forthcoming 2019).

Public procurement is the process by which public authorities purchase the work, goods, or services from businesses that they need to fulfil their functionsSuch goods and services range widely, from infrastructure projects and the acquisition of complex weapon systems, to the commissioning of essential public services in the health and social care sector and the purchase of common manufactured or processed goods such as stationery, furniture, uniforms, personal electronic items and foodstuffs.

Public procurement accounts for 15-20% of global GDP; across OECD States, public contracts account for 12% of GDP on average and World Trade Organisation General Procurement Agreements commitments represent around EUR 1.3 trillion in business opportunities worldwide. Public procurement is therefore a very substantial component of the overall economy. Accordingly, it has potential to influence global supply chains – in a positive or indeed a negative way.

In recent years, governments have been increasingly put in the spotlight by civil society and the media for involvement in human rights abuses via their supply chains, including forced and child labor, excessive working hours, unsafe working conditions and suppression of freedom of expression, across sectors including health and social care, electronics, textiles, construction and security. Particular issues are of course raised in the context of contracting out of public services such prison management and other detention facilities linked to asylum seekers and in the mental health sector, for example.

We have highlighted such issues in our 2016 survey of 20 jurisdictions on public procurement and human rights. In that report we also highlighted weaknesses and gaps in public procurement law and policy frameworks. These remain far from fully aligned with the UNGPs – UNGPs 1 (general regulatory functions), 5 and 6 (state-business nexus) and (policy coherence).

Guiding Principle 6 provides that “States should promote respect for human rights by business enterprises with which they conduct commercial transactions.”

In a variety of ways, they may also have a “chilling effect” on efforts by public procurers to integrate human rights into procurement by leaving uncertainty over their scope for action, consistent with procurement law so-called primary objectives such non-discrimination between bidders, as well as objectives such as promoting accessibility of public contracts to SMEs.

Another major challenge across jurisdictions is lack of capacity amongst public buying function to engage with human rights risks and duties, given budget constraints and other policy goals, competing for their attention for instance, around green procurement.

On the other hand, Government buyers – and many at the local government rather than national government level  – despite such challenges, are already taking exciting and innovative measures, individually and through collaborative buying, to leverage their buying power to promote human rights due diligence and prevent human rights abuses in their supply chains.

Natalie Evans

City of London Corporation
Responsible Procurement Manager, City of London

https://cityoflondon.gov.uk/business/tenders-and-procurement/Pages/responsible-procurement.aspx

Natalie specialises in responsible public procurement and believes that working closely with supply chain partners to ensure human and labour rights is fundamental to achieving our Sustainable Development Goals. Natalie is particularly interested in ethical sourcing of construction materials and electronic equipment, alongside other sustainable development areas including mitigating climate change through forest conservation, the use of renewable energy and alternative fuel vehicles.

Natalie highlighted the work undertaken by the City of London to embed human rights within public procurement, noting that the City of London is working together with other boroughs (municipalities) within London to increase their leverage. She highlighted the importance of knowing your supply chain and how the City of London undertakes supply chain mapping, which feeds directly in to analysing the salient human rights risks in the supply chain. This is an important starting point and corresponds directly to the human rights due diligence cycle as elaborated in the UN Guiding Principles on Business and Human Rights.

Responses to questions

  • Natalie highlighted that shock tactics can work to get the topic of human rights and public procurement on the table – demonstrating how human rights are being violated in supply chains through videos and pictures. This is especially useful when you are only one person in an organisation driving the agenda.
  • Natalie highlighted that there are many different layers of protection which they apply on a contract by contract basis and is dependant on the risks in each contract. For example, when addressing high risk categories like construction, there are two elements; the material and the workers. In terms of the workers, they use the police force in the square mile (in the City of London) to train contract managers on the ground to identify what forced labour looks like. In terms of materials measures involve training the commercial contract managers to push suppliers to do more such as mapping supply chains, audits, affiliating with expert organisations. Each situation is dealt with in different ways based on the contract. The measures taken are documented and then shared with others so they can learn from what previous public procurers have used and have found to work.
  • Natalie highlighted that the UK Social Values Act 2012 was very useful in kicking off the conversation about human rights and public procurement as it requires local authorities to consider human rights in public procurement at the very start. The UK Modern Slavery Act was also highlighted as instrumental in terms of introducing human rights due diligence in to a business dialogue.
  • Natalie noted that the City of London has a social value panel – representing different rights holders. The procurement team Natalie is part of presents what they intend to do to this panel – the panel challenges the team and shares their ideas. The procurement team incorporate the panel’s suggestions and report back regularly on the measures taken.
  • Natalie noted that the City of London screens out businesses from the start of procurement processes if they are not in compliance with the law. They do not just look at businesses which have been prosecuted, but go further to see whether they are in compliance with legislation.
  • Natalie responded to a question about using the Swedish standards by stating that currently each region in Sweden deals with a different issue (e.g. medical supplies). The muncipalities then share and collate their learnings, including a code of conduct which spells out exactly what they expect in terms of human rights due diligence. At the moment Natalie and her team are tailoring this code of conduct to UK law, including the Modern Slavery Act, and will then share it with other boroughs in London to use. With all suppliers using such a code the thought is that this will have a greater chance of making suppliers change and meeting human rights standards.
  • Natalie highlighted that one of the first steps for businesses is supply chain mapping to see where the goods and services come from and then identify the risks based on this.
  • Responding to a question on paying suppliers (in Kenya it can take 90-120 days to get paid), Natalie noted that they pay major suppliers within 30 days and SMEs within 10 days. Natalie noted that if you respect them it will result in a better business relationship. Natalie and her team then encourage their suppliers to adopt a similar approach to their own lower tier suppliers.

Stine Foss

Ethical Trading Initiative Norway
Senior Advisor

Stine Foss has worked for Ethical Trading Initiative- Norway (ETI-Norway) for nearly a decade. As a Senior Advisor she manages a portfolio of 29 members, both private companies and public entities on their work on sustainability and specifically due diligence for responsible business conduct. Stine is also coordinating ETI-Norway’s work to revise methods, resources and reporting schemes to be coherent with international standards such as UNGP and OECDs Due Diligence Guidance for Responsible Business Conduct. Stine has been working with the public sector and public procurement specifically for the last five years as a lever for responsible business conduct. This includes individual consulting in procurement processes and developing tools and resources along the way.

Context

  • Ethical Trading Initiative Norway (ETI-Norway (IEH in Norwegian)) is a multi-stakeholder Initiative and a membership organisation working for sustainable supply chains.
    • There are about 170 members committed to working for sustainable supply chains.
    • There are 25 members from the public sector – 10 municipalities and regions, 6 public universities and 9 government enterprises (Public hospitals, railroad, the governments property developer)
  • Public procurement contracts account for 12% of GDP on average – In Norway this is 16% (and over 500 billion NOK).
  • The Norwegian Act on Public Procurement from 2016 gives stronger intensives for ethical public procurement.
    • Several suppliers to the public sector in Norway were clear that they wanted stricter regulation for the public procurement law, one of the reasons being it would level the playing field.

Experiences

  • Since 2009 after writing the first Guidance on Ethical public procurement in Norway, IEH have also been working with the public sector.
  • What IEH does:
    • Help these procurers by developing guidance, tools and resources needed for them to do a proper human rights due diligence in the light of a procurement process, and also analysing risk and consider appropriate measures to reduce or mitigate those risks.
  • Procurement process:
    • IEH saw from an early stage that setting criteria at the contractual phase is not enough and more than a simple self-declaration was needed. IEH developed self-assessment questionnaires, and helped public procurer perform controls and audits at factories.
    • The next step was to see how to IEH can use the earlier stages of a procurement process, such as award criteria and qualification criteria to further human rights protections.
    • The Norwegian health sector was one of the first actors that wanted to develop and test using a qualification criterion that required the supplier to demonstrate that they had a system in place that would make them able to fulfil the ethical contractual criteria (such as human rights, and ILO conventions); an early version of a due diligence process.
    • The planning phase and dialog was key. IEH helped them and have assisted many others since then to arrange supplier seminars well ahead of the competition, to inform and be absolutely clear of the requirements. The goal is not to exclude anyone, but to use the public procurement as a lever for more sustainable and responsible business conduct.
      • Especially in one-time procurements, qualification criteria would be beneficial, because it’s hard to do anything with the stones that’s delivered and already on the ground.
    • IEH is also conducting training and workshop, and one-one training for private companies and suppliers to public sector.

Next steps: Capturing synergies and multiple purchasing powers

  • At this point IEH are looking to Sweden, who are working on a municipal level collaborating on risk assessments and follow-up. This mean sharing information of risks and follow up with suppliers in a more efficient way by collaborating rather than each player following up on the same contracts. IEH is facilitating and coordinating this project now to allows public buyers to capture synergies and multiply purchasing powers in pursuit of human rights.

Responses to questions

  • Different sectors have different levels of maturity. Stine noted that they can’t ask advanced questions of sectors which are new to this. They have to tailor the questions to the maturity of the market and encourage and support them to develop. Transparency is one of the first and most important things to ask for.
  • Different types of businesses have different capacities and needs. It is important to design a system which works just as well for SMEs as it does for large companies.
  • Suppliers sign contracts without understanding what they were getting in to – when IEH started asking questions we ran in to problems – it is important to walk them through what is required
  • More than 50% of new members are joining IEH because of the increasing amount of selection criteria from the public sector (including new legal requirements)
  • Some of Norway’s bigger private companies who have been members of IEH for a while – these businesses see human rights protections in public procurement as a big driver in their measures to adopt human rights standards, rather than the consumer as people in Norway are not the boycotting type. Criteria demanded through procurement is driving Norway’s business and human rights advancements.
  • Stine highlighted the close co-operation they have with Sweden who are leading on the subject.
  • The learnings from the private sector and procurement can help in the design measures in the public procurement realm.
  • Value for Money – most public buyers are frustrated with the demands of lowest price and want to do something more. Especially the health sector – they don’t want medical instruments from Pakistan, for example, which caused a child to become sick through their production.
  • Public buyer need direction from above. However, it will take time to get the message from politicians through to action by public buyers, but progress is being made.

Kaori Kuroda

CSO Network Japan
Executive Director

Kaori Kuroda is the Executive Director of CSO Network Japan. She also serves as Japan Director of the Asia Foundation based on the partnership arrangement between the Foundation and CSO Network Japan. Ms. Kuroda was a senior fellow at Social Accountability International in 2006 and Japanese NGO Expert for developing ISO 26000 (ISO Standard for Social Responsibility) from 2007 to 2010. She currently serves as a member of the Roundtable for promoting Sustainable Development Goals (SDGs) and the working group on Sustainable Sourcing Code for the Tokyo 2020 Olympic and Paralympic Games and the President of Japan Civil Society Network on SDGs. CSO Network Japan serves as the secretariat for Civil Society Platform for Japan’s National Action Plan on Business and Human Rights.

Legal framework to promote Sustainable public procurement in Japan

Specific laws and measures are in place to promote/evaluate social and environmental factors in Public Procurement (PP) in Japan. However, there is no comprehensive policy to promote sustainable public procurement.

Specific laws and measures include:

  • The Law Concerning the Promotion of Procurement of Eco-friendly Goods and Services by the State and Other Entities in 2000;
  • The Act of Promotion of Procurement for Persons with Disability in 2013;
  • The Act on Promotion of Women’s Participation and Advancement in the Workplace.

Comprehensive evaluation tendering system, which considers factors other than bidding price, was introduced in 1999. A considerable number of local governments have introduced and used this system (according to CSONJ’s survey for local governments on Sustainable PP).

Potential enablers for respect for human and labour rights by procurement of local governments

Expansion of a certification system for businesses in recognizing for the efforts to promote Human Rights by adding points in contractor selection.

A certification system was established along with the enforcement of the Act on Promotion of Women’s Participation and Advancement in the Workplace on April 1, 2016. Based on this Act, the Guidelines to utilise public procurement and subsidies to evaluate corporations that promote measures such as work-life balance to advance women in workplace were established. The measures include certification systems based on the Act; One such system is the Eruboshi certification for businesses that promote women’s participation and advancement in the workplace; and the other is the Kurumin and Platinum Kurumin certifications for family friendly businesses that support employees raising children. A company which is granted the certification can earn extra points in competition in tendering.

An increasing number of local governments established a Public Contract Ordinance.

This Ordinance is to ensure appropriate working conditions (mainly wages) and endeavour to achieve the stability of workers’ livelihood as a goal (however, Japan has not ratified ILO No. 94). Some municipal governments add some elements of social responsibility to appropriate working conditions.

Possible facilitators for promoting human rights through PP

  • The SDGs may become a driver for municipalities to take on Sustainable PP;
  • The Sustainable Sourcing Code for Tokyo 2020 Olympic and Paralympic games could provide a legacy to build on;
  • A national action plan on business and human rights in which PP is likely to be a core issue may have an impact on society.

Responses to questions

  • In relation to a question on ordinances. Public Contract Ordinance is the ordinance to ensure appropriate working conditions (mainly the minimum wages or above) and endeavour to achieve the stability of workers’ livelihood as a goal. Some municipal governments add some elements of social responsibility to working conditions. The enactment of the Public Contract Ordinance has slowly spread nationwide to avoid the creation of “government-manufactured working poor” as a result of the race to the bottom in tendering. The first municipal government which enacted this Ordinance is the city of Noda in Chiba prefecture close to Tokyo in 2009. After that, the Noda continued to discuss and improve the Ordinance. In 2017, Noda established City Public Contract Ordinance Council. The city checked that approximately 2000 workers received appropriate wages in the previous year. Some municipal governments which have not enacted the Ordinance. However, some of them established a guideline for checking working conditions in the public contract. Labour unions, lawyers and civil society organizations have been lobbying local councils for enactment of the Ordinance. There is also advocacy for ratification of ILO No 94 – Convention concerning Labour Clausesin Public Contracts as well.
  • In relation to a question on the certification system. A certification system is effective in the case of Japan. The Act on Promotion of Women’s Participation and Advancement of Women in the Workplace allows a company which is granted the certification in promoting women’s participation and advancement in the workplace to earn extra points in contractor selection. It should be noted that a certification system can be expanded to give more incentives to businesses which respect human rights (for example, a certification for businesses conducting human rights due diligence practices, for example). The certification system in Japan gives SMEs a step up – they can also get training programmes from local authorities.

Dutch Government Presentation

  • Annually the Dutch national public procurement spend is €73.3bn;
  • The central government buys around €12bn in goods and services;
  • 80% of world trade is connected to value chains of multinational enterprises (UNCTAD 2013);
  • 1 out of 7 job worldwide is part of an international value chain (ILO 2015).

Therefore public procurement can make a difference.

Dutch Ministry of Foreign Affairs (Kirsten Kossen) – a policy perspective

Kirsten works in the international responsible business conduct team at the Dutch MFA which works to stimulant Dutch businesses to follow the OECD MNE Guidelines and the UNGPs. The RBC team use International Responsible Business Conduct Agreements – on international RBC – partnerships between businesses, NGOs, unions, and governments, to avoid and address human rights issues in international value chains. Based on OECD MNEs and UNGPs.

Public procurement is a means of making Dutch companies realise the OECD MNE and UNGPs. Since 2017 due diligence is a mandatory contract requirement in central government procurement contracts.

The RBC team have been conducting pilots on how to use due diligence criteria in the selection process.

The bulk of public procurement lies at the local level – so they try to stimulate and help local governments make due diligence part of their procurement processes.

PIANOo (Milan Bijl) – Providing knowledge and support

PIANOo provides guidance on public procurement and helps share knowledge and experiences locally. It then shares these lessons learnt internationally. The key is to ensure procuring organisations have knowledge and skills and to support organisations in fulfilling the due diligence requirements in the contracts. An Ethical public procurement academy has been set up  consisting of a 9 month course . The first course with 15 students is starting in 2019.

Contract manager for the Dutch Government (Albert Geuchies) – Applying intentional social conditions in tenders

A contract managers job is to make sure we get what we agreed upon. We ask parties to make a risk analysis of the products they deliver to the Dutch government and to mention these efforts in their annual reporting. Key points are to work together with initiatives in the market (e.g. Electronics Watch). Involve your customer. Share successes. The most important element is mapping your supply chain to identify where human rights risk and violations lie. We need to help businesses in doing so.