Manage contract

It can be effective to collaborate with other public buyers when carrying out monitoring. If another public buyer has already monitored your supplier based on the same requirements, you should first take note of that result. To be able to do this, the following is needed:

• The other public buyer’s contract clause is at least at the same level as yours
• The other public buyer has a similar monitoring methodology.
• The monitoring have taken place within the last three years.

If you approve a supplier based on another public buyer’s monitoring, it is important to inform the supplier about this so that they know that you are monitoring the requirement.

For the categories covered by the regions’ national coordination, the National Secretariat for Sustainable Public Procurement is responsible for coordinating with Adda Central Purchasing Body, to check whether monitoring has already been carried out. Summaries of the audits are available to everyone.

When carrying out monitoring, it may be appropriate to engage external auditors with experience in sustainable supply chains, especially for office and factory audits. For factory audits, it is often required.

Many regions have their own framework agreements for monitoring. For nationally prioritised suppliers, auditors are procured centrally by the National Secretariat for Sustainable Public Procurement.

You can also use Adda Central Purchasing Body’s framework agreement for audits (in Swedish).

Adda Purchasing Center Framework Agreement – Audit and Advisory Services

Excerpt from the contract clause
Supplier shall, within [two (2)] weeks of [contracting organisation’s] request, participate in a dialogue on how Supplier complies with its commitments and the due diligence process.

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

Dialogue is particularly important if there are signs of severe deviations. Suppliers are required to report if they have reasonable grounds to assume that a severe deviation is occurring in their own operations or supply chain, but you should also monitor actual and potential adverse impacts yourself. One way to do this is to subscribe to the National Secretariat’s newsletter and Adda Central Purchasing Body’s external monitoring. You sign up via this link and by emailing hallbarhet@adda.se.

Dialogue is also an important tool for ensuring effective monitoring. If a supplier responds well to the self-assessment, a dialogue can be sufficient to set an action plan for identified deviations.

It can also be valuable to have a dialogue between an office audit and a follow-up audit, to emphasize the seriousness and ensure that deviations are addressed. It is common for suppliers to not have addressed all deviations at a follow-up audit, even though the action plan is based on their suggestions and timeframes. You can avoid additional follow-up audits by having a dialogue between audits.

Excerpt from the contract clause
The supplier shall, within [four (4)] weeks of [the contracting authority’s] request, provide a written account of its due diligence process.

The first step in the follow-up is for the supplier to provide a written account of its policies and processes to ensure compliance with the code of conduct. For this purpose, there is a self-assessment form based on the seven steps of the due diligence process – the so-called process requirements.

You can send the form to suppliers in Word format. Within the regions’ national collaboration, the distribution and assessment are managed by the regions’ office for sustainable procurement through a digital platform.

To facilitate the assessment of the supplier’s response, the regions’ office for sustainable procurement, in collaboration with Adda Inköpscentral, has developed an assessment template. It helps determine when an on-site audit is needed and when an action plan and dialogue may be sufficient to address individual deviations.

In the procurement documents, you specified which tiers in the supply chain the supplier must account for. During monitoring, you request the legal names and physical addresses for these tiers.

Companies are facing increasing demands from governments, consumers, civil society organisations and other stakeholders to increase transparency in their supply chains, not least from legislation in the EU and the U.S. This is driving new tools to track supply chains, which is also important from a supply perspective.

For minerals from conflict-affected and high-risk areas, many brands are using the Responsible Minerals Initiative’s reporting templates, either in Excel or digital format. These templates are available to anyone. Similar tools exist for commodities such as rubber and palm oil.

Responsible Minerals Initiative

Office audit

It is common for suppliers’ self-assessments to be incomplete or to reveal shortcomings in policies and processes. If this is the case, an office audit may be required to ensure that the supplier complies with the contract clause. Office audits are based on:

• interviews
• review of documents.

The interviews primarily focus on the supplier’s staff responsible for due diligence. If needed, worker representatives, such as trade union representatives or safety officers, may also be interviewed.

The application of policies and processes is reviewed through spot checks. The selection should be based on risks of negative impact in the supply chain, as well as on volume and turnover.

The audit must be documented, and for this purpose, a template has been developed by the regions’ office for sustainable procurement in cooperation with Adda Inköpscentral. The template is based on the seven process requirements in the contract clause. The person conducting the audit should use the template to:

• note whether there is a risk of serious non-compliance
• propose corrective measures based on this guidance.

At the end of the template, an action plan is compiled, in which the supplier must specify:

• how it intends to remedy the non-compliance
• by when the non-compliance must be remedied
• the person at the supplier responsible for ensuring that the action is carried out

The regions’ office for sustainable procurement, in collaboration with Adda Inköpscentral, has also developed a deviation management template for monitoring the action plan. In some cases, a re-audit is required, while in other cases it may be sufficient to review updated documents or hold a dialogue regarding the handling of the non-compliance.

Factory audit

The purpose of factory audits is to ensure compliance with the suppliers’ 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 housing, 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 serious non-compliance has been identified, which includes:

• forced labour
• child labour
• working conditions that endanger life
• severe environmental damage
• large-scale corruption
• attacks on environmental and human rights defenders

According to the contract clause, the supplier must enable the contracting authority, either directly or through a representative, to conduct audits of any subcontractors. Therefore, the supplier must include this requirement in its supplier agreements. Despite contractual provisions, however, it can take time to gain access to a factory. Close cooperation is therefore essential to ensure the subcontractor’s participation.

Factory audits may cover all obligations in the suppliers’ code of conduct, but broad audits risk failing to capture all instances of non-compliance. At the same time, traditional audit methods are not always suited to detecting state-imposed forced labour or debt bondage. The audit should therefore focus on the identified serious non-compliance. Auditors should also have expertise in the specific area concerned.

The regions’ factory audits in the plastic glove industry in Malaysia
The three audits focused on the rights of migrant workers, particularly the risk of debt bondage. A British consultancy firm with specialist expertise in the subject was contracted. Each audit lasted two days and was carried out by a team of 5–7 people. The team included both men and women from Bangladesh, Myanmar, and Nepal to enable communication with migrant workers in their own languages.

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 and its risks. If the audit concerns severe environmental damage, large-scale 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 must 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, including housing and recreational facilities, must be inspected. The security around the factory and any restrictions on movement must also be reviewed. In cases of severe environmental damage, the surrounding community must also be inspected.

Factory audits must be documented, and for this purpose a template based on the suppliers’ code of conduct is available. The template can be adapted if the audit focuses on a specific serious non-compliance.

The auditor must clearly indicate if a serious non-compliance has been identified, including the need for remedy. There is also an option to provide suggestions for improvement to factory management.

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

• how it intends to remedy the non-compliance
• by when the non-compliance must be remedied
• the person at the manufacturer responsible for ensuring the action is carried out.

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

• how it intends to restore the affected person or persons to the situation they would have been in if the negative impact had not occurred, and ensure a remedy proportionate to the significance and extent of the negative impact
• by when the remedy must be implemented
• the person at the manufacturer responsible for ensuring the remedy is carried out.

You can also choose to use other methods for monitoring, which are more tailored to the specific risk to be followed-up or your budget.

Origin verification

To verify the origin of a raw material, you can use origin verification. The method is based on isotope analysis and is particularly effective 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 from government agencies. The review can be done manually or with the help of AI and can serve as an alternative to factory audits. Examples of open data monitoring can be found at Globalworks.

Globalworks

Government databases

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

Excerpt from the contract clause
In the event of a deviation from the commitments in the Supplier Code of Conduct (section 1) or the due diligence process (section 2), Supplier shall establish a time-bound action plan to be approved by [contracting organisation]. Supplier shall establish the action plan no later than [two (2)] weeks from [contracting organisation’s] notification of the deviation. The action plan shall be proportionate to the severity of the deviations and shall describe how the deviations will be addressed within the time frame.

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 in the audit templates.

In the action plans, the audited company shall state:

• 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 ensuring that the measure is implemented.

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.

Excerpt from the contract terms
If Supplier does not report in accordance with section 3, does not participate in monitoring in accordance with section 4, fails to take action in accordance with sections 5.1 – 5.2 or does not address deviations in accordance with the established action plan, [contracting organisation] has the right to impose a liquidated damage on Supplier. Liquidated damages amount to [___ SEK, excluding VAT] per commenced week the circumstances persist. The liquidated damage may be imposed for a maximum of [___ weeks].

A liquidated damage is a way of agreeing in advance on compensation for a deviation from the contract clause. For buyers, the notice 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 clause, you have the right to request a liquidated damage if the supplier:

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

Excerpt from the contract clause
If Supplier does not report in accordance with section 3, does not participate in monitoring in accordance with section 4, fails to take action in accordance with sections 5.1 – 5.2 or does not address deviations in accordance with the established action plan, [contracting organisation] has the right to exclude Supplier from call-offs for as long as the circumstances persist. The same applies while [contracting organisation] investigates a potential ground for call-off suspension. During the suspension period, [contracting organisation] has the right to call-off from another framework agreement supplier or, if such does not exist, procure the framework agreement subject matter from another supplier.

In the case of framework agreements, an 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. An suspension from call-offs can therefore be used if the supplier:

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

This also applies during the time you are investigating a potential basis 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.

Reason 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 basis 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.

Reason 2

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

Reason 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 .

Skills development

Identification and assessment of adverse impacts

Prevention and mitigation of adverse impacts

Monitoring

Incident management

Collaborations and consultations

External communication aims to inform the public, politicians, decision-makers and both existing and potential suppliers about your due diligence work.

• Highlight the work and especially your so-called impact stories .
• Be transparent, as this is the best way to show that you are serious.
• Show that you work systematically and have processes for managing deviations.

Internal communication aims to inform employees about how the operations work with due diligence, and contributes to:

• Increased skills and awareness of the work.
• Ensuring that policies and strategies are followed.
• Commitment and involvement of more employees.
• Further development of requirements and market strategies.