3. Manage contract

The Regions’ National Secretariat for Sustainable Public Procurement and Adda Central Purchasing Body regularly call off auditors, for office audits, via Adda Central Purchasing Body’s framework agreement. The auditors can also be used by other contracting organisations, provided that you are eligible for call-off.

Audit and Advisory Services (external Swedish link)

Factory audits are not covered by the framework agreement and therefore need to be procured separately. The Regions’ National Secretariat for Sustainable Public Procurement has experience in such procurements and can be contacted if necessary.

You can also base your assessment on the monitoring results of other contracting organisations, such as government agencies. This often happens through cooperation and exchange of experience, which can help reduce costs and administrative burdens for both contracting organisations and suppliers.

The monitoring results of other contracting organisations can be requested as an official document. At the same time, certain information may be subject to confidentiality according to the Public Access to Information and Secrecy Act, such as suppliers’ partners, sub-suppliers and addresses. However, deviations are usually not considered trade secrets.

Similarly, other contracting organisations can request the regions’ audit reports, which then requires a corresponding confidentiality review. Adda Central Purchasing Body, on the other hand, is not subject to the principle of public access to information.

Before you use the results of another organisation, you should ensure that:

• the requirements correspond to at least the same level,
• the monitoring method is comparable, and
• the monitoring is up-to-date (carried out within the last three years).

If you base your assessment on another organisation’s monitoring, the supplier should be informed even if it already meets the requirements. This is because it is important to send the signal that you are monitoring the contract clauses.

Just as suppliers should use their leverage to prevent and mitigate adverse impacts, so should you. A close and ongoing dialogue with suppliers strengthens your leverage.

Dialogue is particularly important when dealing with severe deviations. These include forced labour, child labour, working conditions that pose a danger to life, serious environmental harm, grand corruption and attacks on environmental and human rights defenders. Suppliers are required to report if they have reasonable grounds to believe that a severe deviation is occurring in their own operations or supply chains. However, you should also monitor adverse impacts yourself through Swedish and international media and the Business & Human Rights Centre’s newsletter.

Dialogue is also important to ensure effective monitoring of policies and processes. If a supplier responds relatively well to self-assessment, dialogue may be sufficient to establish and monitor an action plan for identified deviations. It can also be valuable to engage in dialogue between audits, to emphasise the seriousness and ensure that deviations are addressed. This way you can avoid further audits.

Self-assessment means that the supplier provides a written account of their policies and processes based on the questions in a dedicated questionnaire. The questionnaire can be sent directly in Word format or uploaded to a digital platform.

When monitoring the regions’ prioritised purchasing categories, the secretariat often goes directly to office audits. This is because the suppliers’ responses are often lacking and it is more efficient to identify and address deviations from the contract clauses through an audit. Adda Central Purchasing Body also tends to go directly to office audits.

To facilitate the assessment of the supplier’s response, there is also an assessment template. It can be used to determine when an office audit should be carried out and when an action plan combined with dialogue may be sufficient to manage individual deviations. Overall, this means that it may be more relevant to use self-assessment for mature industries where you expect few deviations and less need for office audits.

In the procurement, you specified which tiers in the supply chain the supplier must be able to account for.

Prepare procurement

When monitoring, you can request information about these tiers, including legal names and physical addresses.

The transparency requirement is generally not monitored through office audits, other than asking the supplier to specify the final manufacturing factory for sample products. Instead, the requirement is used primarily when managing severe deviations, so-called incident management, to assess whether the deviation is linked to the subject-matter of procurement.

Severe deviations include forced labour, child labour, working conditions that pose a danger to life, serious environmental harm, grand corruption and attacks on environmental and human rights defenders.

Office audit

The purpose of office audits is to verify that the supplier has policies and processes in place to identify, assess, prevent, mitigate and remedy adverse impacts in its own operations and in its supply chains. Office audits are based on:

• interviews
• document review.

The interviews primarily target the supplier’s due diligence representatives. If necessary, employee representatives, such as union representatives or health and safety representatives, may also be interviewed.

The application of policies and processes is reviewed through sample products. The selection should be based on the risk of adverse impacts, volume and contract turnover.

The audit shall be documented and for this there is a template based on the seven process requirements in the contract clauses. The person carrying out the audit shall, in the template:

• Note whether there is a risk of severe deviations.
• If necessary, propose improvement measures based on this guidance.

At the end of the template, an action plan is compiled, where the supplier shall specify:

• How it intends to correct the deviation
• When the deviation must be corrected at the latest
• The person at the supplier who is responsible for implementing the measure

There is also a deviation management template for monitoring of the action plan. Often a follow-up audit is required, but sometimes it is sufficient to review updated documents or have a dialogue about deviation management.

Factory audit

The purpose of factory audits is to ensure compliance with the Supplier Code of Conduct in the manufacturing of a specific product. Factory audits are based on:

• interviews
• review of documents
• inspection of the factory, including any accommodation, and the surrounding environment.

Factory audits are primarily carried out if, during an office audit, through supplier reporting, or through external monitoring, a risk of severe deviations has been identified. These include forced labour, child labour, working conditions that pose a danger to life, serious environmental harm, grand corruption, and attacks on environmental and human rights defenders.

According to the contract clauses, the supplier shall enable the contracting organisation to, on its own or through a representative, conduct audits of any sub-suppliers. This means that the supplier should include corresponding requirements in its supplier agreements. In practice, however, it can take time to gain access to a factory, even when such contract clauses are in place. Close cooperation is therefore important to ensure that the sub-supplier participates in the audit. The requirement should be understood as requiring the supplier to use its leverage and work to enable access.

Factory audits can cover all commitments in the Supplier Code of Conduct, but broad audits risk failing to capture all deviations. At the same time, traditional audit methodology is not always adapted to detect, for example, state-imposed forced labour or debt bondage. Therefore, the audit should focus on the identified severe deviation. The auditors should also have expertise in the specific area concerned.

During a factory audit, interviews are conducted with factory management, workers, and worker representatives, including trade union representatives. It can also be valuable to interview civil society organisations with insight into the factory.

If the audit concerns severe environmental harm, grand corruption, or attacks on environmental and human rights defenders, it is particularly important to speak with civil society organisations and people in the surrounding community.

The auditor shall also review policies and guidelines, especially for recruitment, as well as documents such as contracts, payroll records, schedules, timecards, and overtime compensation.

Finally, the workplace, accommodation and recreational facilities, shall be inspected, including the security around the factory and any restrictions on movement. In cases of serious environmental harm, the surrounding community shall also be inspected.

Factory audits shall be documented, and for this purpose a template based on the Supplier Code of Conduct is available. The template can be adapted if the audit focuses on a specific severe deviation.

The auditor shall clearly indicate if a severe deviation has been identified, including the need for remedy. There is also an option to provide improvement suggestions to factory management.

Next to last in the factory audit template, an action plan is compiled, in which the manufacturer shall specify:

• how it intends to correct the deviation
• when the deviation must be corrected at the latest
• the person at the manufacturer who is responsible for implementing the measure

At the very end, a remediation plan can be compiled, in which the manufacturer shall specify:

• whether any special procedure is to be used
• planned consultations with affected rights-holders and their representatives
• how it intends to restore the affected rights-holders to the situation they would have been in had the adverse impact not occurred, and enable remediation that is proportionate to the significance and scale of the adverse impact
• when the remediation must be completed at the latest
• the person at the manufacturer who is responsible for the remediation.

You can also choose to use other methods for monitoring, which are more tailored to the specific risk to be monitored or your budget, such as origin verification, open data and databases.

Origin verification

To verify the origin of a raw material, you can use origin verification. The method is based on isotope analysis and can be used as a complement to the supplier’s own data, particularly for raw materials such as meat, cotton and wood.

Open data

Open data involves reviewing publicly available, unstructured information online, such as social media posts where rightsholders report on risks in the workplace or society, and public documents.

The review can be done manually or with the help of AI.

Examples can be found at Globalworks, including monitoring commissioned by the Swedish metropolitan regions’ traffic administrations.

Globalworks

Databases

A third method is to use databases. Here are four examples:

Action plans are most often developed in connection with office audits and factory audits, but can be established directly after self-assessment or during incident management, which is often based on dialogue. Feel free to use the action plans provided in the audit templates.

In the action plans, the audited company shall specify:

• how it intends to correct the deviation
• when the deviation must be corrected at the latest
• the person at the company who is responsible for implementing the measure.

The proposed measures and time frames shall be approved by you, who shall also check that the measures are proportionate to the severity of the deviations.

A liquidated damage is a way of agreeing in advance on compensation for a deviation from the contract clauses. For buyers, the provision on liquidated damages makes it easier to determine the penalty, while it provides the supplier with clarity about any costs in the event of deviations.

According to the contract clauses, you have the right to request liquidated damages if the supplier:

• is not reporting severe deviations
• does not participate in monitoring
• fails to establish a time-bound action plan
• does not manage deviations in accordance with the established action plan.

In the case of framework agreements, a call-off suspension can also be used, which means that you have the right to exclude the supplier from call-offs as long as the circumstances persist. The relevant circumstances are the same as for the imposition of a liquidated damage. A call-off suspension may therefore be used if the supplier:

• is not reporting severe deviations
• does not participate in monitoring
• fails to establish a time-bound action plan
• does not manage deviations in accordance with the established action plan.

This also applies during the time you are investigating a potential ground for the call-off suspension.

During a call-off suspension, you also have the right to call-off from another framework agreement supplier or, if there is none, to procure the framework agreement subject-matter from another supplier.

Ground 1

You have the right to terminate the contract if the supplier:

• does not report severe deviations
• does not participate in monitoring
• fails to establish an action plan
• does not address deviations in accordance with the established action plan.

A termination on this ground requires reasonable notice. It is difficult to assess in advance how long reasonable notice is, and this therefore needs to be assessed on a case-by-case basis.

Ground 2

You also have the right to terminate the contract if you are entitled to the maximum liquidated damages, or if a call-off suspension has been in place for a specified number of months. In this case, you may terminate the contract with immediate effect.

Ground 3

Finally, you have the right to terminate the contract if you have demonstrated that a severe deviation is occurring in the supplier’s operations or supply chains, and the party responsible for the severe deviation does not take immediate action to prevent and mitigate it.

A severe deviation is considered demonstrated if there is sufficient evidence or consistent sources to reasonably establish (with a probability of over 50%) that a severe deviation has occurred.

In this case too, you can terminate the contract with immediate effect .