Key concepts

In public procurement, contract clauses must relate to the subject matter of procurement, which means that they must have a clear connection to what is purchased. This is stated in Chapter 17, Section 1, second paragraph, of the Public Procurement Act, with reference to Chapter 16, Section 2, second paragraph, of the same Act:

“An award criterion is considered to be connected to the supplies, services or works to be purchased if the criterion in some way relates to the supplies, services or works at any time during their life cycle.”

This also means that public buyers can set requirements that take into account the entire supply chain. However, the responsibility for adverse impacts depends on whether the supplier causes, contributes to, or is linked to the adverse impact.

The OECD Due Diligence Guidance for Responsible Business Conduct defines the concept as follows:

“Due diligence is the process enterprises should carry out to identify, prevent, mitigate and account for how they address actual and potential adverse impacts in their own operations, their supply chain and other business relationships.”

Within the framework of the contract clause on due diligence for sustainable supply chains, due diligence includes identifying, assessing, preventing, mitigating and remedying adverse impacts on people, the environment and society in the supplier’s own operations and supply chains.

An actual adverse impact is an impact that has occurred or is occurring. Actual adverse impacts shall be subject to remediation.

A potential adverse impact is an impact that may occur but has not yet done so. Potential adverse impacts are the same as risks of adverse impacts. Potential adverse impacts shall be prevented or mitigated.

Prevention of adverse impact refers to actions taken to ensure that such impact does not occur. Mitigation of adverse impact refers to actions taken to reduce its extent, with any residual impact requiring remediation. Mitigation of the risk of adverse impact refers to actions taken to reduce the likelihood of a certain adverse impact occurring.

A supplier causes an adverse impact if the supplier’s activities on their own are sufficient to result in the adverse impact. The supplier will most likely cause adverse impacts in or in connection with its own operations.

A supplier contributes to an adverse impact if the supplier’s activities assist, facilitate, or encourage another party to cause it, or if the impact results from a combination of the supplier’s activities and those of other parties. The contribution must be substantial, meaning that responsibility does not arise for minor or trivial contributions. Contributions can occur in the supplier’s own operations or in the supply chain.

A supplier is linked to an adverse impact caused by a sub-supplier or another party, regardless of where in the supply chain it occurs. The linkage is defined by the relationship between the supplier’s products, services or operations and the adverse impact. Being linked is not the same as direct sourcing.

The board of directors are the people who manage the company on behalf of the company’s shareholders. The shareholders elect the board members at the annual general meeting or at a general meeting of shareholders. The board of directors is responsible for the management of the company’s affairs, including the payment of taxes and the submission of annual reports.

A supplier is the party that provides goods or services to the public buyer. The supplier is thus part of the public buyer’s supply chain. Suppliers are usually retailers, distributors or manufacturers.

A supplier’s own operations may include offices and administration, warehousing, transportation, manufacturing, etc., depending on whether the company is a retailer, distributor or manufacturer.

The supply chain is a sequence of activities or parties that provide goods or services to a company or a contracting organisation (source: ISO 26000).

A sub-supplier is any party that provides goods or services to the public buyer’s supplier, regardless of where in the supply chain the sub-supplier conducts its operations. This includes distributors, agents, intermediaries, manufacturers and extraction companies. Sub-suppliers are all the parties in the public buyer’s supply chain that are not first-tier suppliers to the public buyer.

Risk suppliers are first tier suppliers prioritised for further assessment on the basis of their supply chains’ risk profiles and not on the strength of their relationship with the supplier. The categorization shall be based on the entire supply chain’s operating context (e.g. presence of conflict or vulnerable groups, weak rule of law, high rates of corruption), the operations, products or services involved (e.g. high employment of informal work, use of hazardous chemicals, use of heavy machinery), or other relevant considerations.

Rights-holder consultation is an ongoing process of interaction and dialogue between a supplier and its potentially affected rights-holders, which enables the supplier to hear, understand and respond to their interests and concerns, including through collaboration. For the consultations to be meaningful, they shall be characterized by two-way communication and by the good faith of the participants on both sides. They shall also be responsive and on-going.

Rights-holders are individuals or groups who have specific rights in relation to specific duty-bearers. All people are rights-holders under the Universal Declaration of Human Rights. All people should also be considered active agents in the realization of their rights – both directly and through their representatives. Examples:

The UN has elaborated on the rights of indigenous peoples, women, national or ethnic, religious and linguistic minorities, children, persons with disabilities and migrant workers and their families. In situations of armed conflict, suppliers shall also respect the standards of international humanitarian law, especially in relation to civilians. In many contexts it is also useful to take into account other groups than the ones elaborated in the UN instruments, such as people with low social or economic status, street children or homeless youth, LGBTQIA+ people, refugees or asylum seekers and people affected by climate change.

There is no hierarchy in international human rights law. Human rights are treated as interrelated, interdependent and indivisible. It is nevertheless often impossible for a supplier to address all adverse impacts immediately or simultaneously. Therefore, suppliers shall prioritise the most significant risks based on likelihood and severity, where severity takes precedence.

Suppliers shall judge the severity of an impact by its scale, scope, and irremediable character:

• Scale refers to the gravity of the adverse impact.
• Scope concerns the reach of the impact, for example the number of individuals that are or will be affected or the extent of environmental damage.
• Irremediable character means any limits on the ability to restore the individuals or environment affected to a situation equivalent to their situation before the adverse impact.

Leverage is considered to exist where the supplier has the ability to effect change in the wrongful practices of the party causing the adverse impact.

Remediation and remedy refer to both the processes of providing remedy and the substantive outcomes that can counteract, or make good, the adverse impact. These outcomes may take a range of forms, such as apologies, restitution, rehabilitation, financial or non-financial compensation, and punitive sanctions (criminal or administrative, such as fines), as well as the prevention of harm through, for example, injunctions or guarantees of non-repetition.

Supply chain transparency is the disclosure of which sub-suppliers a supplier uses to fulfill the contract, including legal names and physical addresses. The number of tiers required depends on the complexity, risk, and maturity of the industry, with final manufacturing facilities being a minimum.

Transparency is different from traceability, which is the ability to track each tier in the chain, including providing verifications for the specific delivery.

Severe deviations refer to 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. The severe deviations are defined in the Supplier Code of Conduct.