Tying public procurement to human rights standards

Inclusive Economy08 Aug 2013Gisela ten Kate

Linking public procurement to corporate compliance and engagement with international standards could play a key role in developing a strategy to support social and inclusive progress globally.

We all condemn the use of child labour in the stone industry in India, the fuelling of conflict through mining in Eastern Congo and the bad working conditions in the garment factories in Bangladesh. European enterprises or their subsidiaries can be linked to each of these types of human rights abuses. Companies are constantly seeking to source and operate in low-income countries with low standards on working conditions. This creates a responsibility to prevent adverse effects on human rights in the whole of their value chain. However, companies seem to fail to actively engage in the assessment of these risks. Although a living wage, healthy and safe working conditions and the absence of forced excessive overtime could actually play a positive role in helping to address inequality, companies somehow need a carrot or a stick. And this is where governments come in: they can influence corporate behaviour even without introducing new legislation: through public procurement. Governments only need to formulate and implement social criteria.

The purchasing power of the state is a very powerful instrument because the public sector is the largest consumer in the European economy, accounting for around 19% of European GDP. The European Union has several legal possibilities to take social considerations into account. In the guide Buying Social, the European Commission writes that labour conditions can be included in contract performance clauses. In addition, public procurement can facilitate economies of scale and offer long-term business relations (See also the blog post Maximizing social impact through the power of the public purse). This makes it easier for companies to invest in supply chain transparency. Social criteria will raise awareness on the origin of products and how they are produced within the different sectors. This does not mean producers should avoid high-risk countries in order to be sure of childfree production, the point is to try to change conditions for workers worldwide and to include them in economic development.

Recently, the Dutch government decided to apply social criteria to all public procurements above the European threshold. These criteria contain the fundamental principles of the International Labour Organisation (ILO): freedom of association and the effective recognition of the right to collective bargaining, the elimination of all forms of forced or compulsory labour, the effective abolition of child labour, and the elimination of discrimination in respect of employment and occupation. For some specific sectors, such as cacao, garments, flowers and tea, additional criteria are being formulated with regard to a living wage, fair trade principles and statutory working hours. Under this policy, selected contractors must indicate the existence of social risks. If they do, the contractual requirements may include disclosure of suppliers and an action plan to respect ILO standards. In theory, the contract can be terminated if the company fails to live up to the performance requirements.

The Dutch approach is to lead by example. However, there are some ambiguities when it comes to practice. The system is based on trust and, on an operational level, the social criteria cannot be guaranteed. Because the provisions can only be laid down as terms of reference, frontrunners will not be rewarded and others will not be motivated to take steps to improve working conditions in international supply chains. In addition, enterprises can just tick the ’no risk’ box, so if the procurer is not aware of common risks, there will be no plan of action and no risk analysis. The Dutch government should provide training, tools and information of risks at sector and country level. Another point of concern is monitoring compliance with the contract terms. The government does not sample or measure the effects of this policy.

Evaluating these experiences has led to suggestions for implementing social criteria: imposing requirements on both the award criteria and contract performance clauses, a system of checks and balances to acquire insight into results, and ensuring that civil servants know how to identify human rights risks and understand international standards on corporate social responsibility. The OECD guidelines for multinational enterprises and UN guiding principles state that companies must exercise due diligence by identifying human rights risks and taking measures on them. To ensure a level playing field, the contractual requirements should impose human rights due diligence under the OECD and UN guidelines, which contain a broader understanding of corporate social responsibility: protecting public health, avoiding corruption and paying local taxes. Linking public procurement to corporate compliance and engagement with international standards could play a key role in developing a strategy to support social and inclusive progress globally.