IEH - Ethical Trading Initiative Norway

IEH and the Public Sector

Public procurement plays an important role in promoting better and fairer trade. Since 2007, IEH - Ethical Trading Initiative Norway has acted as a central advocate of ethical requirements in public procurement, and will continue to do so. Moreover, IEH intends to be a driving force behind developments in this area. This means that IEH and its members will explore opportunities, both legal and methodological, for going beyond the authorities’ minimum recommendations. The design and testing of qualification criteria is one example. Develop relevant tools and effective resources for follow-up is another.

Purchasing power carries responsibility

According to Statistics Norway, the public sector purchased goods and services for NOK 380 billion in 2010, equating to around 15 percent of GDP. In the EU, public procurements amount to 18 percent. Such sums carry great power, and great responsibility; a responsibility to ensure proper management of common resources. Nevertheless, we read about municipalities and other public authorities who purchase goods and services manufactured under indecent conditions, such as natural stone, hospital textiles, sports equipment, play apparatus, mobile telephones and PCs. The public contractor can do something about this if they decide to, and there is no lack of help and guidance to do so. Both IEH and Difi offer a range of resources and tools, free of charge. IEH also provides individual advice.

The legal basis

In 2008, the law firm Steenstrup Stordrange was engaged by the government to draft an opinion on the legal basis (in Norwegian only) for applying ethical and social requirements in public procurement processes. They concluded that requirements can be set at all stages of the procurement process, as long as the requirements are not formulated in a discriminatory manner. Until now, the requirements have only been applied as contractual conditions, as recommended by the authorities. For several years, IEH and some of its members have claimed that qualification criteria is possible and, not least, necessary. In addition, legal experts from the Swedish Association of Local Authorities and Regions are of the opinion that such criteria can be applied. IEH and Norway’s regional health authorities are exploring the opportunities available.

The Regulations concerning pay and working conditions in public contracts (ILO Convention No. 94), are a “shall requirement”, and regulate the purchase of services. In the case of goods, however, it is up to the customer - the public contractor - to set requirements regarding decent working conditions. An IEH survey from 2010 showed that only a minority of enterprises set good ethical/social requirements in contracts for goods. The reasons given are limited resources and little knowledge about ethical trade. Another explanation is a lack of management support. An important question is whether political and administrative leaders should be permitted to choose not to adopt responsible purchasing practices.

Clear message from the government

Since 2007, the government has repeatedly expressed clear expectations of the public sector. In action plans, reports to the Storting (white papers) and speeches by members of the government, the message has been that public bodies must lead the way in being responsible consumers who demand environmentally friendly products and goods which are manufactured in accordance with high ethical and social standards.

Although the majority have not yet risen to the government’s challenge, a few are taking the matter seriously. They are setting ethical/social requirements and follow-up on them in a structured manner. IEH is taking an offensive approach to the topic, politically and practically, and is developing methods and tools which enable public enterprises to work efficient on ethical trade issues. Nevertheless, the real heroes are those who translate words into action. There would be little progress without enterprises which are willing to test practical solutions and which want to explore the legal room for action. IEH is pleased and proud to have Norway’s leading ambassadors among its members.

Serious suppliers ask for requirements

It is not only politicians and organisations that want a more offensive public sector. Suppliers are also asking for requirements. IEH understands the disappointment of serious suppliers when price is the determinant factor or the most heavily weighted when awarding contracts.

Competition is good, but not at any price. Exposés have shown that suppliers who take ethical trade seriously have lost contracts to less socially conscientious suppliers because the price component is given greater weight when contracts are awarded. An increasing number of suppliers would like to see a greater emphasis on quality, delivery ability, social responsibility, etc. An excessive focus on price sends a negative signal to the supplier markets, and more people are asking themselves, “Should it really be unprofitable to promote decent working conditions?”, or, put another way, “Should it be profitable to gamble with workers’ rights and environmental considerations to win public contracts?” The fact is that suppliers who win public contracts and are then unable to fulfil ethical requirements at a later stage also helps to undermine the concept of fair competition. The requirement of equal treatment, a key principle in the procurement regulations, is under threat. Minister of Labour Hanne Bjurstrøm is one of those who have expressed concern about public procurement practices.

In other words, suppliers may well be rewarded for their commitment to ethical trade. Some public sector bodies are in favour of this. Suppliers’ investment in decent working conditions have not yet become a significant factor. IEH has been central in driving change for new requirements in this area.

“Impressive can do spirit, passion and commitment to getting the public sector to set ethical requirements and follow up on them.”

Kristiansand municipality

Qualification criteria – the next step

Ever more public contractors and suppliers are taking the view that ethical contract terms alone are insufficient. They want ethical/social requirements in the form of a qualification criteria. There are several reasons for this. Public authorities want to buy goods from suppliers who are working seriously to promote ethical trade, and a qualification criteria is one way of excluding suppliers who do not take an interest in promoting ethical trade in their supply chains. A qualification criteria also make follow-up less resource-intensive, as suppliers will already have reached a certain level with regards to ethical trade. Such requirements are also well-suited to one-off deliveries, where there are limited or no opportunities to conduct contractual follow-up.

The concept of qualification criteria is not new. In 2010, IEH prepared several draft versions of such a criteria, with the valuable assistance of Bærum and Stavanger municipalities. Some lawyers are sceptical about ethical as a criteria, while others take a different view. The fact that opportunities are available was clearly expressed at the conference "Ethical requirements in public procurements": challenges, opportunities and the way forward”, held in December 2011. In the same month, South-Eastern Norway Regional Health Authority and Sykehuspartner announced that they would be testing such a criteria early 2012. There are strong indications that other public sector bodies will follow suit.

Resource-efficient follow-up

Another trend relates to the development of appropriate, resource-efficient tools and cooperation and coordination in the context of supplier follow-up. A new and more efficient organisational model will take over in this area. Sweden’s regions and counties are already cooperating. In Norway, there is little cooperation between purchasers and enterprises. This is unfortunate for suppliers, who risk being subject to follow-up of varying quality. Greater coordination and cooperation, combined with capacity building, is needed and will ensure proper professional follow-up and the equal treatment of suppliers.

IEH has many years’ experience from the private sector regarding the development of methods and tools for following up on ethical requirements in the supply chain. This experience is easily transferable to the public sector. The aim is to facilitate proper professional follow-up that is also resource-efficient. You will find more information on guidelines, tools and courses in the menu on the left.

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Do you need guidance? Become a member of IEH!

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