Buying with confidence

Colleen Theron offers practical advice on sustainable procurement

Managing supply chains effectively is key to any successful business. This is particularly true in today's world of global supply chains and in which civil society, the media and non-governmental organisations demand more transparency.

Sustainable supply chain management incorporates the tender process to ensure that proper criteria are included, as well as measures to protect profit, such as business continuity, and brand and reputation management.

This is a challenge for all companies, regardless of size. A recent report from insurance company Zurich found that, although 80% of firms with a turnover of between £5 million and £300 million say their supply chain is critical to their operations, only 17% have business continuity plans in place and check their suppliers have similar arrangements.

Sustainable procurement

The working definition of sustainable procurement proposed by the government's taskforce on the subject is: "A process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole-life basis in terms of generating benefits not only to the organisation, but also to society and the economy while minimising the damage to environment."

Sustainable procurement should not be confused with green public procurement, which takes into account economic, environmental and social impacts in buying choices.

Most companies work to a business model of cost, quality and delivery. However, this approach ignores risk and the longer-term sustainability of suppliers. For businesses to develop greater resilience in their supply chains they have to identify the risks within them. An effective assessment needs to identify not only a risk in relation to lack of access to raw materials - in the case of manufacturers - but also human trafficking or slavery concerns, and implications for environmental impacts and degradation, as well as reputation.

Research has discovered why organisations are increasingly incorporating sustainability into their purchasing decisions. The business benefits include:

• reducing exposure to risk;
• minimising business disruption arising
  out of environmental or social impacts;
• enhancing competitive advantage;
• reducing costs;
• attracting and retaining talent; and
• anticipating legal obligations.

Many companies see sustainability as a means of gaining market share through improving brand value and increasing sales with ethical consumers.

However, there are several barriers to implementing sustainable procurement. The top five are:

• Lack of senior (executive) and organisational support.
• Structural and organisational change.
• Lack of coherent corporate procedures,
  systems and approaches.
• Lack of time, knowledge and capacity.
• Costs, perceived costs and cashable savings.

Legal matters

Two critical statutory amendments this year have changed the procurement process. First, the Public Contracts Regulations 2015, which transpose the EU Directive on public procurement (2014/24/EU), came into force in England, Northern Ireland and Wales on 26 February 2015. Significantly, the legislation will require public bodies and, where applicable, private companies to adapt tender processes to include environmental and social impacts. Second, the Modern Slavery Act (MSA) received royal assent on 26 March. Details of the companies that would be covered were not included in the Act, but will become clear after the government considers feedback to its consultation, which ended on 7 May. It is likely the government will set a £60 million threshold for goods and services in the UK. This is the sum in the California Transparency Supply Chain Act, on which the provisions in section 54 (transparency in supply chains or TISC) of the MSA are modelled.

The TISC clause will require companies to produce and publish on their websites a statement on how they are addressing slavery and human trafficking in their operations and supply chains. The relevance of these provisions to procurement is that they are key to determining what is expected from suppliers and increasingly feed into how suppliers are measured.

Meanwhile, the new regulations on public contracts apply to a contracting authority that covers central government and organisations, such as NHS foundation trusts. The regulations apply when specific thresholds are exceeded. Contracts worth at least £100,000 come under the regulations and, if advertised, a notice must be posted on the government's contracts finder portal. This was not the case previously. There is also a statutory obligation to consider following the Cabinet Office guidance on how and when the information needs to be published.

In relation to environmental and social criteria, regulation 43(1) allows for the contracting authority to specify that a supplier must be entitled to use a specific label as a means of proof that the goods, works or services comply with environmental, social or other characteristics as long as the safeguards are met.

There is now a requirement for contracting authorities to demand an explanation for tenders that appear abnormally low in costs. Regulation 69 states that bids may be rejected only if this explanation is unsatisfactory. However, if the tender is low due to breaches of environmental, social or labour law, the contracting authority is obliged to reject it.

These legal requirements will bind public authorities, but they will also have an impact on private companies seeking contracts from public bodies. In addition, private sector companies pursuing development of best practice in their procurement strategies will no doubt start following the public sector's lead.

Steps to sustainable procurement

There are nine key actions that a company needs to take. These are:

• Develop a sustainable procurement strategy.
• Prepare a sustainable procurement policy.
• Develop a suitable labour code of conduct for suppliers.
• Rethink the decision and basis of purchasing.
• Include sustainability criteria in tender evaluations.
• Create a post-tender selection phase.
• Create sustainability contract clauses.
• Select key performance indicators that reflect the sustainability criteria.
• Monitor and manage information from suppliers to ensure continuing improvement.

Organisations should consider establishing a cross-functional team to develop and implement the sustainable procurement strategy; complete an environmental, social and profile risk assessment; compile a contracts risk register; create a documented sustainable purchasing policy; and communicate widely the strategy and approach.

Engaging with suppliers is a critical element of a successful sustainable procurement policy. Organisations should consider mapping their suppliers using tools, such as BS 8903, which provides guidance on adopting and embedding sustainable procurement principles and practices. They must prioritise suppliers that are critical to the organisation and those that pose the greatest risk.

It is also critical to consider the best method to communicate with key suppliers. This could be through face-to-face meetings, surveys, emails or stakeholder engagement forums. A code of conduct can help in establishing and managing expectations for customers and the suppliers.

All organisations that want to purchase sustainable goods and services need to ensure they understand these key issues:

• To achieve sustainability in procurement, tenders should be evaluated, not according to the lowest price only but
  according to MEAT - the most economically advantageous tender (see panel, below).
• Understand the differences in the tender award and selection stages, and the role of pre-qualification questionnaires.
• Ensure specifications are properly written.
• Monitor contracts.

Tender evaluation criteria for MEAT

Colleen Theron, MIEMA and GASCO, is a director of CLT Envirolaw