Info sheet : Considering labour standards in the procurement process In line with the EU procurement rules and the Government s value for money principle, contracting authorities can take steps to consider and address issues relating to labour standards in the procurement process (see also OGC guidance, Buy and make a difference how to address social issues in Public Procurement) The scope to address labour standards issues varies depending on the stage of the procurement and market engagement process but in all cases it is important to ensure that the principles of relevance, proportionality and non discrimination are observed. The principle points that a procurer needs to address on a case by case basis are: relevance of labour standards to the subject of the contract policy supporting policy commitments in the context of the procurement or market engagement process when in the procurement or market engagement process labour standards issues will be addressed how labour standards issues will be addressed with suppliers and their supply chain partners Relevance of labour standards to the subject of the contract Regardless of whether you are seeking to address labour standards issues through a formal procurement process or as a separate initiative such as a voluntary market engagement process, it is important to consider the significance of the issue in the context of the range of products or services in question. Blanket approaches that apply the same approach for each and every product and service area are strongly advised against. Assessing relevance on a case by case basis is important to ensure that: relevant, appropriate and proportionate requests for information are made of suppliers relevant and appropriate standards or specifications are identified (e.g. ILO
conventions, sector specific standards) the approach is flexible enough to accommodate and recognise initiatives that suppliers are already involved in (e.g. sector specific programmes such as GESI for the electronics sector, Fair Trade, Ethical Trading Initiative) information gathered from suppliers is utilised meaningfully to inform risk assessments, action plans or award decisions the pace, timing and nature of engagement is appropriate to the preparedness of the market and their supply chains, as well as the significance of the risks. Addressing significant risks is important but it is also important to set the pace and direction of change in a way that supports positive impacts for workers and in a way that employers can remain competitive. e.g. bans on activity imposed from outside may drive poor labour conditions underground but not deal with the root cause of the problem. This may require engagement with key stakeholders on the nature of any labour rights problems to help understand the range of perspectives on the problems and possible solutions. time and resource allocated to managing the issues is proportionate to the potential realisable benefits. Relevance quality In determining relevance, consideration should be given as to whether poor labour standards (e.g. unsafe working conditions, excessive hours of work, child labour) could adversely impact on the quality of the products or services being procured, or the successful delivery of the contract In the case of procuring services it is likely that relevance of labour standards to the subject of the contract can be demonstrated in many cases, when consideration is given to the labour provided by the supplier (or its sub contractors) to perform services on behalf of the contracting authority, given that there will often be a clear relationship between poor conditions of employment and the ability or motivation of an employee to maintain required quality standards in the delivery of specified services. For service provision the risk to the quality of services received is heightened where
there is a direct relationship between the contracted staff and the recipient of the service as this allows little scope for introducing quality controls that can fully safeguard the recipient from experiencing sub standard service. However, when considering goods, demonstrating relevance on the basis of quality may be less clear cut. While the same relationship between labour standards and quality of work may apply in manufacturing environments, there are often many quality assurance checks and controls that can be applied by a supplier and his agents throughout the manufacturing process, and logistics chains, which would effectively screen out any sub standard goods. In such cases consideration needs to be given as to whether labour standards have a direct bearing on the quality of the goods supplied. If not this may weaken the case for relevance on quality grounds. However, where goods are directly sourced from supply chains with few if any independent and objective quality checks and controls then the likelihood of labour standards having a direct bearing on the quality of goods is increased which in turn increases relevance. Relevance managing other risks A further area for consideration when assessing relevance relates to risks that could have an adverse impact on the contracting authority s financial wellbeing or its ability to function and fulfil its obligations. Experience in other sectors has shown how the existence of poor labour standards upstream in supply chains presents a variety of risks to organisations and customers downstream. It is possible to identify two overarching risks that give rise to more specific and direct risks for health and social care organisations: 1) Threat to the security of supply The existence of organisations within a supply chain that are operating outside accepted labour standards as defined in international labour conventions and local employment laws, poses a potential risk to the security of supply. Associated risks to the organisation include: costs associated with disruption to the organisation s service provision as a result of the disrupted supply of critical goods or services
costs associated with identifying alternative suppliers at short notice costs associated with contract severance and re-tendering exercises costs associated with increased prices offered by alternative suppliers as a result of short notice periods and reduced market competition 2) Adverse publicity and damage to the organisation s reputation Adverse publicity relating to the identification of labour standards abuses in the supply chains of a health or social care organisation present risks to the organisation which might include: adverse impact on income as a result of patients choosing to receive treatment at other facilities in line with patient choice and payment by results adverse impact on income as a result of the organisation s reduced competitiveness in commissioning exercises adverse impact on income as a result of lost charitable and philanthropic donations adverse impact on resources and service provision as a result of reduced direct support from volunteers (individually or through volunteer groups) adverse impact on staff recruitment and retention given that the majority of employees in the health and social care sector are employed in caring roles, they are likely to be more sensitive to health and wellbeing issues and in general have high expectations of the organisations that they work for adverse impact on levels of patient confidence and trust where actions contradict the values, principles and expectations of patient groups and communities. Policy application Once relevance has been established then the organisation needs to consider its own policy commitments and terms of application to ensure that the approach taken is consistent and supportive of the Policy. For example, if an organisation s policy states that it will work with suppliers to encourage adoption of labour standards through supply chains in line with ILO core conventions on employee rights then it may be determined that early market engagement and communication of expectations would be the most suitable initial approach. When and how?
Market labour standards risk rating If any labour standards issues are deemed to be relevant to the subject of a contract then it is necessary to consider when and how they will be addressed (in the procurement or market engagement process). The risk assessment will help inform the approach but consideration also needs to be made of the markets preparedness in terms of being able to provide reliable information on labour standards in the supply chains concerned. The matrix below provides a simple model which can be used to inform the most appropriate approach. Labour standards risk/preparedness decision matrix High Set minimum requirements, expect strong evidence and apply these at earlier stages in the process Communicate areas of concern and aspirations as part of wider market engagement or as early in the process as possible. Place contractual requirements on supplier(s) to improve labour standards assurance systems within stated timescales. Where risks are particularly high then provision of independent third party assessments may need to be mandated within the procurement process. Low If labour standards are to be addressed at all then scrutiny of assurance systems should be restricted to key elements (e.g. policy, risk assessments, supply chain dialogue). Minimum standards could be set at early stages in the process. A proportionate approach is required. If labour standards are to be addressed at all then scrutiny of assurance systems should be restricted to key elements (e.g. policy, risk assessments, supply chain dialogue). High Preparedness of market Low The underlying principle of this matrix is that the higher the level of market
preparedness, i.e. the greater proportion of supply to the market that have good systems in place, then it can be appropriate to require a greater level of detail on assurance systems at an earlier stage in the process. This may enable you to set minimum requirements with more confidence that sufficient numbers of suppliers in the market will be able to meet those requirements. Where preparedness is low then a more gradual approach is recommended that allows you to communicate your expectations and provides time for suppliers to put in place effective and sustainable assurance systems. Over time however, suppliers that do not respond will increasingly find it difficult to perform well against more responsive suppliers in the market as minimum standards are raised. When and how? stages in the procurement process Criteria involving social considerations may be used to determine the most economically advantageous tender for the contracting authority which is linked to the product or service which is the subject matter of the contract. Market engagement It is suggested that labour standards issues and procurer expectations are initially communicated to suppliers as part of a market engagement process outside of any formal procurement process. This allows for further information gathering around the: specific issues barriers to progress preparedness of the market It also provides flexibility to reach consensus on interpretations and the most appropriate way forward. In some cases it may be that the issues can be adequately addressed through voluntary activity, reducing the need for due diligence, conditions and contract management under any formal procurement and contract management process. Voluntary charters may be an appropriate mechanism for capturing such activity. Notice of contract It is recommended that the notice of contract makes reference to the fact that tenderers
will be required to provide information on how they try to ensure that labour standards are maintained within their own organisations and the supply chains related to the goods or services offered. This should reiterate messages communicated through preceding market engagement processes but for the avoidance of doubt and in the interests of equality it is recommended to identify proposed requirements of this nature at this stage. Pre qualification Pre qualification stages are commonly used as an initial screening stage for supplier selection. It may be appropriate to set mandatory minimum requirements in relation to labour standards issues where a market has a high level of preparedness for providing assurance and evidence around labour standards but caution needs to be taken to ensure that this does not limit the competition unnecessarily. This stage could be used to identify any convictions for breach of employment laws, evidence of grave professional misconduct or evidence of poor labour standards performance on previous contracts of a similar nature. However, tenderers should be given the opportunity to describe what steps they have since taken to rectify any breach/issue and an objective assessment of any such submission should be made before the decision to exclude is taken. Where there is less certainty around the market preparedness for providing assurance and evidence around labour standards it may be more appropriate to rate responses on a scale in such a way that a very poor response merely receives a lower score as part of the evaluation which does not automatically result in exclusion. This avoids the need to set a minimum standard and reduces the risk of unduly limiting the competition as a result of imposing mandatory minimum criteria. Where responses are to be rated on a scale it will be necessary to devise model responses against each rating point or band to support consistent and objective evaluation of responses. An example of this approach is provided below.
Example pre qualification question and model answers The tenderer is requested to provide detail on the actions it takes to try and ensure that labour standards are being maintained in line with ILO core conventions and local labour laws, throughout its supply chain(s) for the goods and services being tendered for. Evaluation guidance model answers Rating Assessment Model responses 0 Major concerns Response provides no meaningful information on labour standards, ethical sourcing or actions taken to ensure labour standards are being maintained or improved. Some information provided but this is vague and unconvincing in terms of the existence 1 Concerns of a systematic and effective process for verifying compliance of suppliers with ILO core conventions, local labour laws or having remedial action processes in place. Evidence is provided to demonstrate that analysis has been undertaken on the nature of the supply chain and some initial assessment of labour standards risks has been made. Information is provided to demonstrate that some labour standards risk assessment has been undertaken. Where significant, convincing information is provided on action the 2 Good confidence tenderer takes to verify that ILO core conventions and relevant local labour laws are being maintained with their suppliers. This is supported with details of remedial action procedures. Some timescales are provided for key activities such as supplier communication, self assessments and verification. Information is provided to demonstrate that labour standards risk assessments are undertaken as part of a systematic approach. Where assessments identify significant 3 Excellent risks or concerns, convincing and comprehensive information is provided on action the tenderer takes to verify that ILO core conventions and relevant local labour laws are Confidence being maintained with their suppliers, and further up the supply chain. Details are also provided on remedial action policy and procedures. All information is supported by timescales, schedules and details on number of verifications undertaken - indicating an ongoing and systematic process.
However, if the information requested would have no bearing on supplier selection then it should not be included at all at this stage and the issues should be addressed either as a condition of contract or through voluntary approaches. A range of potential pre qualification questions covering sustainable development and labour standards is provided with in the NHS SID4Health model. Link to NHS SID4Health Collect Pre Qualification Data Invitation to tender Social considerations can be included in specifications where they are directly relevant to the subject matter of the contract, principally on grounds of quality. For example, in the instance of care services you may seek information from tenderrs on the procedures they have in place to ensure that the working hours and patterns are managed to support their staff in maintaining required high standards of patient care and service. Regulation 30(6) permits a contracting authority to reject what they consider to be abnormally low tenders, providing a tenderer is first given an opportunity to explain the reasons for the low price. In deciding whether to reject an abnormally low tender a contracting authority can, amongst other things, request information relating to: a) The economics of the method of construction, the manufacturing process or the services provided; b) The technical solutions suggested by the economic operator or the exceptionally favourable conditions available to the economic operator; and c) Compliance with the provisions relating to employment protection and working conditions in force at the place where the contract is to be performed. In addition assurances may be sought to demonstrate that labour costs are consistent with the provision of decent working conditions and wages. Award A contract should be awarded to the tenderer offering the best value for money, that is, the optimum combination of whole-life costs and quality to meet the authority s
requirements. Value for money in this context equates to most economically advantageous for the contracting authority (not wider). Criteria involving social considerations may be used to determine the most economically advantageous tender where they provide an economic advantage for the contracting authority which is linked to the product or service which is the subject matter of the contract. Economic advantage could be realised through the reduction of liabilities and costs associated with the management or mitigation of risks and realised consequences. Conditions of contract Any provision that the supplier is to be expected to make under the contract should be set out in the conditions of contract. In the context of labour standards assurances the extent and nature of such conditions will, to some extent, need to be influenced by the preparedness of the suppliers. For example where preparedness is not high, then it may be appropriate to specify that suppliers will be required to provide evidence of labour standards self assessments, to the contracting authority, for all of their first tier suppliers within 12 months of contract award. Alternatively, where preparedness is greater, it may be appropriate to stipulate that the supplier is required to maintain an effective labour standards assurance management system covering supply chains relevant to the contract at all times and to provide information on elements of the system to the contracting authority on request. Tenderers should be required to acknowledge the conditions of contract and agree to comply with these when delivering the contract. This emphasises the importance of highlighting expectations of tenderers as early in the procurement process as possible so that they have sufficient opportunity to account for any such conditions of contract within the tender submission. The use of conditions of contract should help to ensure that focus on labour standards is maintained throughout the term of the contract.
Contract performance In line with the points made under conditions of contract, contract performance should be monitored and managed throughout the term of the contract. Where specific conditions of contract are applied in relation to labour standards then these should also form part of contract performance monitoring and management. Risk ratings and the maturity of the assurance management systems applied will influence how much management focus is required.