1. Public Procurement – Supporting Responsible Business Conduct

Public procurement refers to the many ways in which governments plan, source and manage the acquisition of goods, services and works using a range of contractual arrangements and purchasing tools. It operates across all levels of government in order to deliver goods, services and works for citizens. Approximately 63% of public procurement occurs at the sub-national level, with almost 134 000 authorities at local and regional level across the OECD (OECD, 2019[1]).

Public procurement is a strategic instrument and lever for achieving government policy goals. These goals can include stimulating innovation, promoting green public procurement and the circular economy, supporting access to public procurement contracts for small and medium sized enterprises (SMEs), or promoting Responsible Business Conduct (RBC) in global supply chains. Used strategically, public procurement can deliver goods and services necessary to accomplish a government’s mission in a timely, economical and efficient manner, making economies more productive and increasing trust in public institutions.

Across OECD countries, public procurement represents 12% of gross domestic product (GDP) on average (OECD, 2019[1]). Governments are the largest purchasers of goods, services and works in many industries and, therefore, a key source of demand in those sectors (see Figure 1.1). Public procurement has a strong impact on all forms of public service delivery, as reflected in sectoral spending, from health to environmental protection, public order or economic affairs.1 This buying power gives governments a strong lever for promoting more responsible production and consumption of goods and services. This, in turn, promotes sustainable growth, ensures value for money and helps governments meet commitments under the 2030 Agenda for Sustainable Development, notably Goal 12 (Responsible Consumption and Production).

The OECD Recommendation of the Council on Public Procurement is the overarching OECD guiding framework that promotes the strategic and holistic use of public procurement. It is a reference for modernising procurement systems and can be applied across all levels of government and state-owned enterprises. The Recommendation addresses the entire procurement cycle while integrating public procurement with other elements of strategic governance, such as budgeting, financial management and other forms of services delivery. The Recommendation, adopted in 2015, has been a source of inspiration for a number of other international standards, such as the Methodology for Assessing Procurement Systems (MAPS), the European Recommendation 2017/1805 on the professionalisation of public procurement, the Compendium of Good Practices on the Use of Open Data for Anti-corruption Across G20 Countries, and the G20 Principles for Promoting Integrity in Public Procurement (OECD, 2019[2]).

“Value for money” is a fundamental principle underpinning public procurement. It guides public procurement decisions and actions to focus on the “most advantageous combination of cost, quality and sustainability to meet defined requirements” (MAPS, 2018[3]). The economic argument (cost and quality) has been brought to the forefront of government considerations given budget pressures and citizens demanding accountability for public spending. However, for more than a decade now, value in public procurement increasingly focusses on the sustainability dimension, including more frequently objectives beyond cost and quality like environmental objectives. This is to ensure that goods and services do not unduly harm the environment.

Value for money also increasingly includes social considerations such as respect for human rights, labour rights including non-discrimination, and gender mainstreaming, as well as promoting economic opportunities for long-term unemployed people, minorities and people with disabilities. These considerations have primarily focused on citizens, within national boundaries.

In recent years, there has been growing awareness of the potential risks of human and labour rights abuses in global supply chains, especially risks related to child labour, forced labour or modern slavery and human trafficking. While public procurement can make a positive contribution to economic, environmental and social progress, if not used strategically, it can also be linked to adverse impacts on people, planet and society. This has resulted in growing calls for governments and business to take greater responsibility for their purchasing decisions and actions.

Responsible Business Conduct (RBC) acknowledges and encourages the positive contributions that business can make to economic, environmental and social progress. It also recognises that business activities through global supply chains can result in adverse impacts on people, society and the environment. The OECD Guidelines for Multinational Enterprises (MNE Guidelines)2 are the most comprehensive international standard on RBC. They provide non-binding recommendations from governments to business on key areas of business responsibility, including workers’ rights, human rights, environment, bribery, disclosure, etc. The MNE Guidelines align with other international instruments on RBC, including the UN Guiding Principles on Business and Human Rights and the International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at Work, the ILO Conventions and Recommendations referenced within the MNE Guidelines, and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. See Box 1.1 for a definition of RBC.

These international instruments all recommend that business should carry out risk-based supply chain due diligence to avoid and address adverse impacts associated with their operations, supply chains and other business relationships. Like business, public procurement agencies face similar challenges to avoid and address adverse impacts in global supply chains. Given the power of public procurement to act as a lever for change, there is a growing expectation3 that governments uphold RBC commitments in their role as an economic actor, through public procurement.

Many goods and services purchased by public buyers are produced through global supply chains which are fragmented, opaque and complex. Many supply chains originate in or pass through countries with a poor record of implementing global standards on human rights, women’s rights, labour rights, corruption, and environmental protection. There is a significant risk that public buyers become linked to human rights abuses, corruption and environmental degradation in global supply chains. In recent years, it has come to light that public contracts are at times linked to serious human and labour rights violations such as forced labour, modern slavery, human trafficking, child labour as well as negative environmental impacts.4 Governments need to ensure that their purchasing decisions are not linked to adverse social and environmental impacts. The progress report on the implementation of the OECD Recommendation of the Council on Public Procurement (OECD, 2019[2]) shows that only 50% of OECD countries have developed strategies to assess, prevent and manage risks in the public procurement cycle.

The concepts included in international instruments on RBC, notably the MNE Guidelines, can be summarised in eight RBC objectives in a public procurement context (hereafter “RBC objectives”). These eight RBC objectives form the basis of analysis for the purpose of this report. They include: the environment, human rights, labour rights, minority considerations, people with disabilities, long-term unemployed people, gender considerations and integrity (see Box 1.2 for detailed definitions).

This report takes stock of current practices by a selection of OECD and non-OECD governments on integrating RBC objectives into public procurement regulatory and strategic frameworks as well as ways in which these governments are implementing RBC objectives in purchasing practice. The report highlights the role that risk-based due diligence in supply chains can play to reinforce government efforts to model and support responsible business behaviour through public procurement. It encourages public procurement policy makers and practitioners to build on collaboration within their own government, between governments and with external stakeholders, including the private sector, civil society and social partners. Finally, it identifies possible avenues to increase the impact of public procurement strategies to promote RBC objectives and achieve sustainability commitments.

The Report is structured as follows.

  • Part I, Section 1 (this section) addresses the concepts of strategic public procurement that enable the inclusion of RBC objectives and supply chain due diligence into public procurement.

  • Section 2 analyses the uptake of the eight RBC objectives within public procurement regulatory and strategic frameworks and examines the scope and practical application of such frameworks. The section also examines mechanisms that support the uptake and monitoring of RBC objectives.

  • Section 3 analyses the implementation of RBC objectives in public procurement, focusing mainly on the practices of Central Purchasing Bodies (CPBs) and sets out how to incorporate these objectives in the procurement cycle. It also explores the application of RBC objectives to subcontractors as well as the extended supply chain. Finally, this section addresses the actual and potential role of other stakeholders in the greater uptake of RBC objectives in public procurement.

  • Section 4 summarises the main conclusions and includes recommendations to policy makers and procurement practitioners on actions to promote RBC objectives in public procurement. Recommendations may be of interest to OECD National Contact Points for RBC (NCPs) and companies supplying goods and services to governments to better understand the evolving concept of strategic public procurement and RBC.

  • Part II includes country fact sheets for each of the respondent countries to the survey. The country fact sheets contain information about the strategic or regulatory framework in the country to support RBC objectives in public procurement, approaches to be applied during the public procurement cycle, and good practices applied in the respective country.

Data in this Report comes from the OECD Survey on Leveraging Responsible Business Conduct through Public Procurement conducted between November 2019 and February 2020. The objective of the survey was to take stock of the existing national regulatory and strategic frameworks, and their application in practice. The survey was sent to the 49 Adherent countries5 to the MNE Guidelines, to public procurement policy makers as well as Central Purchasing Bodies (CPBs). A total of 28 survey responses were received from policy makers – 27 from OECD countries (Australia, Belgium, Canada, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Israel, Italy, Japan, Korea, Latvia, Lithuania, Mexico, Netherlands, New Zealand, Norway, Poland, Slovak Republic, Slovenia, Spain, Sweden, and Switzerland), and 1 from a non-OECD country (Ukraine). 20 CPBs responded: Seventeen CBPs represented OECD member countries (Belgium, Canada, Chile, Costa Rica, Denmark, Estonia, Finland, France, Germany, Iceland, Italy, Korea, Mexico, New Zealand, Norway, Slovenia, Sweden) and 3 responses from non-OECD countries (Brazil, Peru and Ukraine). The survey also solicited perspectives from stakeholders from companies, industry associations, trade unions and civil society.

Public procurement is governed by regulatory and strategic frameworks to ensure that contracting authorities use public funds in a fair and open manner, to achieve efficiency and value for money through sound planning, design and delivery. Government purchases fall within the scope of domestic (national or sub-national) public procurement regimes and may be subject to general law (e.g. administrative, contract, environmental and anti-corruption laws). Depending on their monetary value, subject matter and prior government obligations, government contracts may also be subject to international and regional regimes. The Agreement on Government Procurement (GPA) within the framework of the World Trade Organisation6 is an example for international public procurement rules. Examples for regional regimes include the European Union’s Procurement Directives. Free Trade Agreements (FTA) can have a bearing on public procurement as well. Examples for FTA with public procurement provisions include the Comprehensive and Economic Trade Agreement (CETA)7 between Canada and the EU, the FTA between the EU and the Republic of Singapore8, or the North American Free Trade Agreement (NAFTA)9, as well as various other bilateral FTA.

As highlighted earlier, public procurement frameworks were originally designed to achieve the best value for money by encouraging open competition and non-discrimination between tenderers to drive down costs and obtain monetary savings. In this context, value was defined as obtaining the highest quantity or quality for the lowest price. Tender outcomes were based primarily on this cost-focused approach.

Nevertheless, in recent years, these public procurement frameworks have undergone a considerable shift from a purely cost-focused approach to a full life-cycle approach, including the consideration of environmental and social costs as part of total value for money. This shift also reflects citizens’ growing expectations towards their governments: citizens expect that public spending is both efficient and exemplary. This means that governments, in their expenses, should follow the principles of transparency and accountability, whilst contributing to societal well-being and preventing harm to people and the planet. Since the 1990s, public procurement has been recognised as a policy tool to achieve, for example, environmental goals consistent with broader policy objectives. However, this choice has historically been limited to criteria that could be directly linked to the subject matter of the public contract and included as an economic value (Stavenow, C., Sennström, L, 2013[4]). This means that any criteria used in the tender were required to relate to the procured works, supplies or services at any stage of their life-cycle, including production and trading. General company-wide policies, such as those on corporate environmental responsibility are not considered “linked to the subject-matter” of the specific contract as general corporate policies are too broad to be considered criteria.

These non-price objectives were initially defined as secondary or complementary policy objectives because they fulfilled secondary goals not necessarily directly related to the primary objective, the “subject matter” of the contract (Arrowsmith, Sue and Kunzlik, Peter, 2009[5]). Through these secondary or complementary policy considerations, governments can influence business behaviour. For example, some governments may place value on procuring goods and services from small and medium-sized enterprises (SMEs), businesses that invest in new or innovative products or services, or women- or minority-owned businesses. This approach is known as “strategic public procurement” and has been gaining prominence in the last 10 to 15 years (OECD, 2013[6]).

A second term associated with the pursuit of complementary or secondary public procurement objectives is Sustainable Public Procurement (SPP). SPP is a strategic approach that promotes the integration of the three pillars of sustainable development, i.e. economic development, social development and environmental protection. One of the earliest definitions of SPP from 2006, still applicable today, echoes the broadened concept of value for money. It defines SPP as 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, whilst minimising damage to the environment” (CIPS, 2008[7]).

In the context of public procurement, the term “strategic public procurement” is often used interchangeably with the term “Sustainable Public Procurement”, encompassing the secondary or complementary policy objectives mentioned above. This report will use “strategic public procurement” (SPP) throughout, as it is the most encompassing term. “Green” public procurement can be considered one of the first instances where the concept of value in public procurement was expanded (see Box 1.3).

Figure 1.2 illustrates the relationship between the concepts used in public procurement, where SPP is a foundational concept and concepts related to RBC, where the MNE Guidelines include many of these considerations. RBC objectives reflect the diversity of agendas and values of different stakeholders including policy makers, public procurement professionals, NGOs, business, workers’ representatives, trade unions, social partners and citizens (consumers). In addition, strategic public procurement differs from country to country. Issues such as the inclusion of indigenous people might be a priority for some countries, whereas addressing climate change, gender or favouring people with disabilities might be a priority for others.

Strategic public procurement includes many, but not all, aspects of RBC; and likewise RBC contains many but not all elements of strategic public procurement. Nevertheless, there is a strong overlap between the issues which both groups intend to address.

Public procurement can thus be viewed as a point where policy expectations converge, and where procurement authorities are called to balance competing demands (Martin-Ortega and Methven O’Brien, 2019[11]). This thinking is reflected in the OECD Recommendation of the Council on Public Procurement. The Recommendation provides guiding principles for countries on how to strike the right balance for public procurement systems that support both achieving value for money and furthering environmental and social objectives (OECD, 2015[12]). The Recommendation identifies the steps to be taken whenever such objectives are pursued (Box 1.4).

Taking this principle of balance into consideration, public procurement practitioners have developed methodologies and approaches to advance broader societal outcomes. For example, environmental considerations have been used to enhance energy efficiency, limit the use of chemicals and toxic substances, reduce waste and packaging, and encourage recycling amongst other environmental considerations (OECD, 2019[2]). In addition, environmental considerations have also increasingly been integrated into evaluations on public infrastructure projects. Box 1.5 highlights examples of tools that public practitioners in the Netherlands have developed to integrate environmental considerations into a public tender.

Public procurement has been recognised as a policy instrument to promote new employment opportunities, see an example in Box 1.6. This is done either indirectly through supporting SMEs to participate in public procurement opportunities, or directly through requiring suppliers to recruit long-term unemployed people, indigenous people, migrant groups, people with disabilities or young people (OECD, 2017[13]).

Public procurement can help advance gender equality as illustrated in Box 1.7. In the context of public procurement, it has been used to support the participation of women-owned companies in procurement opportunities and making equal pay between men and women mandatory for suppliers (OECD, 2019[15]) (Federal Office for Gender Equality[16]).

A number of international policies and legal instruments, as well as high-level political calls (UN, G7, G20), encourage the integration of RBC objectives into public procurement. The revised GPA adopted in 2012 for example authorises technical specifications which “promote the conservation of natural resources or protect the environment”. It also includes environmental characteristics among evaluation criteria10.

At the EU level, steps towards integrating sustainability considerations in public procurement resulted in the 2014 European Directive on Public Procurement (Directive 2014/24/EU). The directive encourages EU governments to award (or reject) procurement contracts on the basis of social and environmental considerations. Governments are further encouraged to promote sustainable development by using a full life-cycle approach to assess the real cost of products, works and services.

Political support for integrating sustainability, notably environmental and social considerations, into public procurement has also gained momentum. SDG 12 on Responsible Consumption and Production specifically calls for the implementation of sustainable public procurement policies and action plans (SDG 12.7)11. In addition, a number of SDG targets have an indirect link to procurement, as the activities12 referenced in these targets are delivered using public procurement.

The adoption of the OECD Recommendation of the Council on Public Procurement in 2015 called on countries to ensure the strategic and holistic use of public procurement. In doing so, the Recommendation specifically defined the broader policy objectives to be pursued, including “sustainable green growth, [and], standards for responsible business conduct” (OECD, 2015[12]). In that same year, G7 leaders committed to strive “for better application of internationally recognized labour, social and environmental standards, principles and commitments (in particular UN, OECD, ILO and applicable environmental agreements) in global supply chains”13. The G7 Leaders Declaration recognised that governments and business have a joint responsibility “to foster sustainable supply chains and encourage best practices” 14, and called for tools to support public procurers in meeting social and environmental commitments.15 In 2017, G20 Leaders further undertook to “work towards establishing adequate policy frameworks in our countries” to “foster… the implementation of labour, social and environmental standards and human rights in line with internationally recognised frameworks”.16

In 2017, the International Organisation for Standardisation (ISO)17 released guidance 20400:2017 on Sustainable Procurement that provides guidelines for organisations implementing sustainable procurement in the public and private sector with regards to managing risks, addressing adverse sustainability impacts through due diligence, setting priorities, and exercising positive influence.18 More recently, the European Commission’s public procurement strategy “Making Public Procurement work in and for Europe”, adopted in October 2017, encourages public procurers to aim for “better value for public money”.19

There has been an increasing number of laws seeking to legislate due diligence, see Figure 1.3. This includes legislation addressing specific issues such as conflict minerals, bribery, modern slavery, child labour, as well as legislation targeted to specific aspects of due diligence such as non-financial reporting. While most of these laws are aimed at business, a few are beginning to cover public procurement (see section 1.6).

Intense competition within global trade often leads to downward pressure on prices, which in turn can lead to harsh working conditions to save costs, at the expense of workers’ health, safety and standard of living (Institute for Human Rights and Business (IHRB), 2015[19]) or of environmental standards. As these risks can occur anywhere in the supply chain, measures to prevent and address them should also focus on the entire supply chain.

One of government’s largest area of expenditure is economic affairs (16.3% of government expenditure) which includes the purchase of fuel and energy, mining, transport and communication (OECD, 2019[1]). This illustrates that governments are large buyers of products from sectors sometimes linked to forced labour, exploitation and environmental degradation, such as mining, agriculture and construction (Figure 1.4).

Severe risks such as environmental harms, child labour and human trafficking have been identified in the supply chains of building materials like concrete, wood, sand, asphalt and steel. Industries that produce natural stone, used for paving streets and squares, have also been linked to adverse human rights impacts in quarries (India Committee of the Netherlands, 2015[21]). There have been reports of human rights violations against people trying to protect their land and indigenous peoples’ rights during the development of large infrastructure projects (International Labour Organization, Organisation for Economic Co-operation and Development, International Organization for Migration and United Nations Children’s Fund, 2019[22]) (United Nations High Commissioner for Human Rights and the Heinrich Böll Foundation, 2018[23]).

Environmental and labour rights risks can occur in the information, communication and technology (ICT) industry (OECD, 2016[24]). NGOs have reported on public procurement of ICT equipment from suppliers that were violating labour rights in China (Electronics Watch, 2016[25]). Important components of ICT and health technology products contain gold, tin, tantalum, tungsten as well as cobalt. These materials may be sourced from mining operations associated with human rights abuses on workers, and communities linked to regional conflicts (Swedish Regions, 2019[26]). Among 39 large scale investments in agriculture analysed by the World Bank and UNCTAD, land tenure was identified as the most common cause of grievances for affected communities, particularly due to disputes over land over which communities had informal land use rights, and to a lack of transparency, especially on conditions and process for land acquisition (World Bank, United Nations Conference on Trade and Development, 2014[27]).

Another large area for government expenditure is healthcare (31.1% of government expenditure) (OECD, 2019[1]). Historically, there have been incidents of child labour in the surgical instrument industry (McVeigh, K., Janjua, H., 2018[28]) and cases of debt bondage in the medical gloves industry (The Diplomat, 2019[29]) (Apedo, 2019[30]). The COVID-19 pandemic has exposed further vulnerabilities in supply chains. At the same time, this pandemic highlights an ever greater need to incorporate RBC objectives in public procurement (see Box 1.8).

These examples show that the risk of adverse impacts on people and the planet are prevalent in many sectors where governments are large buyers. Many of these risks arise along the supply chain, including in the upstream segment. In this context, when procuring goods and services from sectors with high risk of adverse impact, governments need to identify, prevent or mitigate adverse impacts along the supply chain.

In many countries, government’s experience with strategic public procurement relates to the "doing good" component of RBC. This means aiming at achieving positive impacts for certain groups through public procurement, like purchasing from minority-owned suppliers or favouring businesses that employ long-term unemployed people. There is less emphasis on the preventative side, meaning implementing due diligence in public procurement to ensure that purchasing decisions are not linked to adverse impacts on human rights, labour rights and the environment, and extending due diligence actions along the full supply chain.

Exclusion (or debarment) regimes are a common feature of public procurement systems. Key international and regional procurement regimes, namely the GPA20, the Model Law on Public Procurement of the United Nations Commission on International Trade Law (UNCITRAL)21 and the EU’s Public Procurement Directives22 include such a mechanism. These regimes allow contracting authorities to reject suppliers following a negative assessment of circumstances related to their general status, such as a criminal offence or breach of professional ethics by the supplier. In doing so, contracting authorities are not required to link the exclusion specifically to the risk of the specific contract. Exclusions are also commonly imposed for non-compliance with social and environmental legislation. Under the EU legal framework, there are opportunities to explicitly exclude those that have a poor track record of environmental, social or labour law compliance or convictions for child or forced labour (Institute for Human Rights and Business (IHRB), 2015[19]). The Directive also allows EU Member States to establish additional grounds for exclusion in their national legislation. Several EU countries have established additional national grounds for exclusion, aimed at implementing legitimate policies, such as the protection of labour law and competition law (OECD, 2018[34]).

The exclusion of certain economic operators from public procurement procedures aims to protect the integrity of the process by preventing the participation of companies that are deemed to be undesirable partners for the public sector. Exclusion from public contracts also serves as a tool to ensure a level playing field. It prevents economic operators engaging in unlawful or other inappropriate activity from gaining an unfair competitive advantage. The grounds for exclusion extend to corruption and other areas of criminal activity, professional misconduct and other causes of a lack of professional honesty, solvency and reliability. To further strengthen potential positive impacts for business practices, the EU Directive also foresees a procedure commonly referred to as “self-cleaning mechanism” (Article 57). The self-cleaning mechanism allows excluded suppliers to rehabilitate themselves and re-enter into public procurement competitions. For self-cleaning to take effect, suppliers have to prove that they have paid compensation, collaborated actively with the investigating authorities, and taken internal measures (technical, organisational and personnel-related) to prevent future wrong-doing. This approach provides an economic incentive for the remediation of adverse impacts from business operations and proactive systems of risk management by companies to prevent, mitigate and remediate adverse impacts on the environment, on workers and communities.

However, procedures for exclusion of economic operators are not the same as implementing a risk-based due diligence approach as part of management decisions. Even if there are strict mandatory rules for the exclusion of the main contractor, contracting authorities usually do not have an obligation to apply these requirements to the whole supply chain (Martin-Ortega and Methven O’Brien, 2019[11]). In most cases, contracting authorities do not have information on all elements of the supply chain.

Expectations on RBC and responsible supply chains have not developed in a vacuum. The term “sustainable development” was first used by the Brundtland Report23 Our Common Future in 1987. Since then, the expectations on governments and companies to address environmental and social challenges have increased (Borowy, I., 2014[35]).

The OECD, the UN and the ILO have developed instruments that provide guidance on responsible business and due diligence.24 These instruments establish that all companies have the responsibility to avoid and address adverse impacts with which they are involved, including in their supply chains, while making a positive contribution to the economic, environmental and social progress of the countries in which they operate.

The 2011 UN Guiding Principles for Business and Human Rights (UNGPs) clarified the role of business to respect international standards in human rights and the role of government to protect human rights. The UNGPs indicated that a company’s responsibility to respect human rights extends beyond its own operations to the activities of business partners, including suppliers and subcontractors, wherever they are located (Martin-Ortega, 2017[10]).The UNGPs also specified that government responsibility extended to public procurement (United Nations, 2011[36]). UN Guiding Principle 6 states that procurement provides states, individually and collectively, with a unique opportunity to promote awareness of, and respect for, human rights by businesses including through procurement contracts. UN Guiding Principle 8 requires governments to ensure “policy coherence” across all governmental departments, agencies and other state-based institutions that shape business practices. This approach is supported by the OECD Recommendation on Policy Coherence for Sustainable Development, which calls on Adherents to strategically draw on public procurement as a means to manage synergies and trade-offs. It can also serve in integrating sustainable development into sectoral policies. A number of governments (as described in Box 1.9) are now applying these expectations throughout their supply chains, in line with international recommendations.

The 2015 OECD Recommendation of the Council on Public Procurement recommends that governments integrate risk management strategies for mapping, detecting and mitigating risk throughout the public procurement cycle (OECD, 2015[12]). The Recommendation contains guiding principles that assist governments in developing risk assessment tools to identify and address threats to the proper functioning of the public procurement system, and publicise risk management strategies such as red flags and whistle-blower programmes (Box 1.10). To support the implementation of the Recommendation, a web-based platform, the OECD Public Procurement Toolbox, includes a comprehensive checklist for implementing the risk management principle.25 The toolbox includes country examples on risk assessment tools to identify and address threats to the proper functioning of the public procurement system as well as on promotion of risk management strategies26.

The MNE Guidelines27 were last updated in 2011, and include the recommendation that business carry out risk-based due diligence to avoid and address adverse impacts in their operations, their supply chains and other business relationships. The 2018 OECD Due Diligence Guidance for Responsible Business Conduct (OECD Guidance for RBC) explains in plain language how to implement the due diligence recommendations of the MNE Guidelines. The main body of the OECD Guidance for RBC describes the due diligence process and supporting measures in a step-by-step fashion28. In addition, practical actions are included in each step to further illustrate ways to implement, or adapt as needed the supporting measures and due diligence process. The OECD Guidance for RBC helps businesses to understand and implement due diligence for RBC as foreseen by the MNE Guidelines. It also seeks to promote a common understanding amongst governments and stakeholders on due diligence for RBC. The OECD due diligence framework has been developed in close collaboration with business, industry groups, supply chain experts, civil society, workers representatives and trade unions, international organisations and policy makers active in the field of responsible business and supply chain due diligence.

Sector guidance encompassing the due diligence framework has also been developed by the OECD in several areas including minerals (2011), agriculture (2016), and garment and footwear (2017). While the risks and mitigation actions described in this guidance reflect the specific challenges and nuances of the sector in question, the overall due diligence approach across sectors is the same. The OECD has launched implementation programmes with business and stakeholders for each of these sectors, to promote an increased understanding of due diligence. These implementation programmes enable learning and testing of the due diligence framework. In turn, they have helped improve an understanding of how due diligence works in practice.

The due diligence process includes six measures as described in Figure 1.5. These are (1) to embed RBC into policies and management systems, to undertake due diligence by (2) identifying actual or potential adverse impacts on RBC issues, (3) ceasing, preventing or mitigating them, (4) tracking implementation and results, (5) communicating how impacts are addressed; and (6) to enable remediation when appropriate.

The OECD due diligence process enables buyers (including public buyers) to put in place a risk-based system to identify and address RBC risks in global supply chains. It should be noted that risk in the context of due diligence refers to the likelihood of adverse impacts on people and the environment that the organisation causes, contributes to or is linked to via a business relationship. It thereby goes beyond risks that affect the organisation itself but rather focuses on risk of adverse impacts related to people, the environment and society (i.e. an outward-facing approach to risk).

The OECD recommends that due diligence be commensurate to the risks found in the supply chain. This means that due diligence actions should be proportionate to the severity and likelihood of the adverse impact. When the likelihood and severity of an adverse impact is high, due diligence should be more extensive.

The due diligence process also enables prioritisation. Where it is not feasible to address all identified impacts at once, an organisation should prioritise the order in which it takes action based on the severity and likelihood of the adverse impact. Once the most significant impacts are identified and dealt with, the organisation should move on to address less significant impacts. Box 1.11 summarises the essential characteristics of due diligence which provides additional guidance for how organisations should tailor the six measures of the framework.

Governments are expected to lead by example by implementing the same expectations in areas where they are economic actors29 (International Labour Organization, Organisation for Economic Co-operation and Development, International Organization for Migration and United Nations Children’s Fund, 2019[22]). As large buyers, governments have the purchasing power to set standards that can shift markets towards more responsible business behaviour and levelling the playing field for suppliers who strive to respect human rights, labour rights, environmental requirements and other responsible business standards. The 2019 OECD report Reforming Public Procurement takes stock of progress to implement the 2015 OECD Recommendation of the Council on Public Procurement. The report found that countries had advanced with regards to RBC and public procurement. Around a third of countries measured to what extent public procurement processes had results on at least some dimension of responsible business conduct. Around half of the countries incorporate objectives related to RBC in award and selection criteria for some purchases (OECD, 2019[2]).

Several legal frameworks have closed the link between governments as economic actors by introducing public procurement requirements into RBC regulations or vice versa. The Australian Modern Slavery Act as well as the United Kingdom (UK) Modern Slavery Act make specific reference to public procurement. The Australian Modern Slavery Act (2018) requires businesses based in or operating from Australia with annual consolidated revenue of AUD 100 million or more to prepare annual modern slavery statements. These statements detail how they assess and address modern slavery risks in their supply chains. Statements will be published on a publically accessible online register. The Act also requires the Australian government to publish an annual Modern Slavery Statement covering both Commonwealth public procurement and investment activities. The first statement is due to be published in 2020 (Australian Government, 2020[40]). The UK Modern Slavery Act (2015) includes requirements for large companies to report annually on the steps they have taken to prevent modern slavery in their operations and global supply chains. In 2020, the UK government decided to publish the first Government Modern Slavery Statement. The UK government’s efforts include building capacity across government and engaging suppliers. It also introduces incentives for government suppliers to improve their anti-slavery activity by evaluating social value. Alongside the US, Canada, Australia and New Zealand, the UK government also launched Principles to Combat Human Trafficking in Supply Chains. Ministerial departments are obliged to publish their own statements from 2021 onwards (UK Government, 2020[41]).

To implement RBC objectives, whether required by law or on a voluntary basis, some governments have developed support mechanisms for contracting authorities. In September 2020, the UK published a Procurement Policy Note (PPN 06/20) Taking Account of Social Value in the Award of Central Government Contracts. For the UK, social value should now be explicitly evaluated by all central public procurement units (related and proportionate to the subject-matter of the contract). The policy note gives concrete choices of social value policy outcomes that can be applied in new procurement.30 Guidance on including social value in UK local government procurements was published by the Local Government Association in December 2019, as part of their Social Value Toolkit for District Councils. Another example of a practical tool supporting contracting authorities in implementing RBC objectives is provided in Box 1.12.

With government leadership, public procurement can contribute to a more resource-efficient economy, encourage the development of new, sustainable products and services, and promote responsible ways of production and consumption benefiting society as a whole. Box 1.13 details an example for an encompassing view. The example illustrates how national and international stakeholders can work together to impact society and economy through public procurement on an international level.

Strategic public procurement, or sustainable public procurement, has been increasingly pursued by governments and is firmly rooted in the practices of public procurers. Beginning with “green” public procurement, strategic public procurement has increased in scope to encompass all three pillars of sustainability (environmental, social and economic aspects of sustainability).

Public procurement and RBC pursue similar objectives, albeit from different perspectives. In public procurement, the initial impetus has been to boost strategic objectives like environmental protection or specific objectives such as support for SMEs. RBC standards aim to support positive actions and avoid harm, notably through applying a risk-based due diligence approach in global supply chains. Public procurement practices stand to gain from this risk-based approach which can help public buyers identify, prioritise and address risks in global supply chains to prevent and mitigate adverse impacts and meet broader sustainability goals.

Opportunities to increase collaboration between public procurement and RBC policy makers and practitioners exist. This could include a stronger integration of stakeholder perspectives into the development of frameworks. In addition, existing due diligence tools could be adapted for use in public procurement. Finally, policy makers and practitioners in public procurement and RBC could work together to increase the uptake of RBC objectives as a whole in public procurement policies and specifically implement risk-based supply chain due diligence in public procurement.

References

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← 1. Comprising infrastructure, transport, communication, energy, and research and development (R&D)

← 2. The MNE Guidelines are referenced in a range of other OECD instruments that reinforce the interlinkages between RBC and these other areas, including: the G20/OECD Principles of Corporate Governance; the Guidelines on Corporate Governance of State-Owned Enterprises; the Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence; the Policy Framework for Investment; the Recommendations of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions and the Recommendations of the Council on Public Procurement.

← 3. The UN Guiding Principles on Business and Human Rights clarify that all states are expected to ensure protection of and respect human rights in their role as economic actors. This aspect of the state duty to protect human rights – the “State-Business Nexus” – covers policy areas such as management of State-owned enterprises, export credit, official investment insurance, and public procurement. The UNGPs emphasise that states should both integrate human rights due diligence in the activity of entities in charge of these areas, as well as incentivise due diligence by business with which the State conducts commercial transactions (Guiding Principles 4-6). As part of this, Governments should ensure policy coherence between commitments to the Sustainable Development Goals (SDGs) and their human rights obligations. This includes using their control and leverage as economic actors to promote respect for human rights.

← 4. (The Diplomat, 2019[29]) (Hall, 2020[43]) (DanWatch, 2013[44]) (SwedWatch, 2020[45]) (Difi, 2018[46]) (British Medical Association (BMA), BMA Medical Fair and Ethical Trade Group and European Working Group on Ethical Procurement, 2016[47])

← 5. 38 countries are OECD countries and 11 are non-OECD countries.

← 6. The GPA is a plurilateral agreement within the framework of the WTO, meaning that not all WTO members are parties to the Agreement. At present, the Agreement has 20 parties comprising 48 WTO members. 36 WTO members/observers participate in the GPA Committee as observers. Out of these, 12 members are in the process of acceding to the Agreement. https://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm

← 7. Chapter 19, https://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/

← 8. Chapter 9, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22019A1114(01)&from=EN#page=55

← 9. Chapter 10, http://www.sice.oas.org/trade/nafta/CHAP-101.ASP#P.IV

← 10. Art. X.6, Art. X.9 GPA

← 11. https://sustainabledevelopment.un.org/sdg3

← 12. This includes for example achieving higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high value-added and labour-intensive sectors and promoting development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalisation and growth of micro-, small- and medium-sized enterprises, including through access to financial services.

← 13. Leaders’ Declaration, G7 Summit, 7–8 June 2015; Available at: https://www.g7germany.de/Content/EN/_Anlagen/ G7/2015-06-08-g7-abschlusseng_en___blob=publicationFile&v=3.pdf

← 14. Leadersʼ Declaration, G7 Summit, 7–8 June 2015; Available at: https://www.g7germany.de/Content/EN/_Anlagen /G7/2015-06-08-g7-abschlusseng_en___blob=publicationFile&v=3.pdf

← 15. Leadersʼ Declaration, G7 Summit, 7–8 June 2015; Available at: https://www.g7germany.de/Content/EN/_Anlagen/ G7/2015-06-08-g7-abschlusseng_en___blob=publicationFile&v=3.pdf

← 16. G20 Leaders’ Declaration: Shaping an interconnected world, Hamburg, 7/8 July 2017; Available at: https:// www.g20germany.de/Content/EN/_Anlagen/G20/G20-leaders-declaration___blob=publicationFile&v=11.pdf

← 17. ISO (the International Organization for Standardization) is a worldwide federation of national standards bodies (ISO member bodies). The work of preparing International Standards is normally carried out through ISO technical committees. Each member body interested in a subject for which a technical committee has been established has the right to be represented on that committee. International organizations, governmental and non-governmental, in liaison with ISO, also take part in the work.

← 18. International Organisation for Standardisation (2017) Sustainable Procurement – Guidance, www.iso.org/obp/ ui/#iso:std:iso:20400:ed-1:v1:en

← 19. European Commission (2017), Communication from the Commission to the Institutions: Making Public Procurement work in and for Europe, COM(2017) 572 final, https://ec.europa.eu/docsroom/documents/25612

← 20. The GPA does not have mandatory rules on exclusion, see https://www.wto.org/english/tratop_e/gproc_e/ gpa_1994_e.htm

← 21. UNCITRAL Model Law on Public Procurement, United Nation, 2014. UNCITRAL is an organ of the United Nations General Assembly established to promote the harmonisation and unification of international trade. The UNCITRAL Model Law on Public Procurement aims to encourage the uniform development of national procurement laws globally in line with the principles of competition guiding the WTO while also helping states to achieve “value for money” and avoid abuses in the procurement process (for instance, corruption). It informs the public procurement regimes of numerous states, the Organisation of Security and Cooperation in Europe, the World Bank, the African, Asian and Inter-American Development Banks and the European Bank for Reconstruction and Development. See https://www.uncitral.org/pdf/english/texts/procurem/ml-procurement-2011/2011-Model-Law-on-Public-Procurement-e.pdf

← 22. Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX: 32014L0024&rid=3

← 23. https://sustainabledevelopment.un.org/content/documents/5987our-common-future.pdf

← 24. Responsible Business Key. Messages from International Instruments, (International Labour Organization, Organisation for Economic Co-operation and Development, International Organization for Migration and United Nations Children’s Fund, 2019[22])

← 25. https://www.oecd.org/governance/procurement/toolbox/search/Checklist%2010%20Risk%20management.pdf

← 26. https://www.oecd.org/governance/procurement/toolbox/principlestools/riskmanagement/

← 27. The MNE Guidelines are recommendations addressed by governments to multinational enterprises operating in or from countries adhering to this instrument. They are the most comprehensive international RBC instrument, covering a broad range of issues including disclosure, human rights, employment and industrial relations, the environment, bribery, bribe solicitation and extortion, consumer interests, science and technology, competition and taxation.

← 28. In practice, the process of due diligence is ongoing, iterative and not necessarily sequential, as several steps may be carried out simultaneously with results feeding into each other.

← 29. These areas include trade and investment agreements, export credits, state-owned enterprises and public procurement

← 30. (1) helping local communities to manage and recover from the impact of COVID-19; (2) creating new businesses, new jobs and new skills; (3) increasing supply chain resilience and capacity; (4) effective stewardship of the environment; (5) reducing the disability employment gap; (6) tackling workforce inequality; (7) improving health and wellbeing; and (8) improving community integration

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