Supply Chain Risks - New PPN takes a firm stance on Modern Slavery
The UK has often been at the forefront in introducing legislative and regulatory change to seek to end modern slavery in supply chains. For example, the Modern Slavery Act 2015 (the Act) made the UK the first country to require large businesses to produce a statement each year setting out the steps they have taken to ensure their businesses and supply chains are slavery free, or a statement that they have taken no steps to do this. On 26 March 2020, the UK became the first country to publish a Government Modern Slavery Statement setting out the steps the Government was taking to identify and prevent modern slavery in its own supply chains.
Increasingly, we have also seen the principles of the Act reflected in public sector and Government contracts, where imposing provisions on suppliers to take serious and effective steps to identify and root out modern slavery in their supply chains (for instance, through monitoring and reporting arrangements or facilitating site visits and audits) are now very typical.
Procurement Policy Note – Tackling Modern Slavery in Government Supply Chain (PPN 02/23), together with its associated Guidance for Commercial & Procurement Professionals (the Guidance) (which were published in February 2023) reinforce the Government’s commitment to tackle modern slavery crimes. Under PPN 02/23, modern slavery is an umbrella term that encompasses the offences of slavery, servitude, forced and compulsory labour and human trafficking and, in the context of public procurement, suppliers are most likely to encounter forced or compulsory labour as a form of modern slavery. In fact, PPN 02/23 goes further than its predecessor PPN 05/19,1 by asserting a strong stance and the adoption of new approaches and processes to ensure modern slavery risks are identified and managed effectively in supply chains. The objective is greater supply chain visibility, the approach is risk-based, and the spotlight is on both existing contracts and new procurements.
PPN 02/23 applies to all Central Government Departments, their Executive Agencies and Non-Departmental Public Bodies and NHS bodies. However, it advises that other public sector contracting authorities may wish to apply the approach set out in the PPN.
In this blog, we consider the four specific developments in the Guidance and the relatively short timeline for implementation.
Four key areas
1. Identify and manage risks in new procurements
Contracting authorities must review operating procedures and processes in line with the Guidance and must assess “high risk” industries especially vulnerable to forced labour, including the cotton, PPE and polysilicon sectors.2 A risk-based approach is fundamental to ensure action and areas of concern are identified from the outset. Risks must be considered from the pre-procurement planning and early market engagement stage, right up to the awarding and subsequent contract management phases. In particular, the Guidance includes example model questions contracting authorities may wish to ask suppliers during a procurement about their supply chains (for example, at early market engagement or Selection Questionnaire stages) and example contractual KPIs to monitor progress in managing modern slavery risks during the contract delivery phase.
The Guidance suggests “high risk” factors are reliance upon low-skilled labour, high numbers of seasonal or agency workers, and dangerous or physically demanding work. In contrast, procurements are likely to be “low risk” if they bear only one characteristic. Particular regard must be afforded to industry type, supplier location, commodity type, and then consideration of the workforce, operation of the supplier, and business model. High risk procurements will be subject to enhanced requirements and greater Government scrutiny, including an obligation on bidders to detail their supply chain members and submit self-declarations.
The ultimate threshold of risk is left to the determination of the contracting authority. However, as an example, the Guidance suggests that a PPE procurement for rubber gloves with suppliers using labour recruiters, could be considered high risk. This is a low threshold and implies that the scope of the test has broadened.
Whilst risk perception is imperative, the Guidance emphasises the careful balancing exercise between acting upon risks, and a proportionate approach based upon the specific risks identified. SMEs and VCSEs should not be deterred from bidding. The Procurement Planning Checklist3 included within the Guidance is useful in examining the key issues which should be considered prior to launching a procurement, as well as addressing proportionality overall.
2. Assess existing contracts
On the theme of risk, contracting authorities must risk assess existing contracts, including call-offs from framework agreements. The Guidance encourages recognition of the adverse consequences of insufficient or ineffective action, and contracting authorities are encouraged to apply strengthened contract management, and to work with suppliers when they are mid-contract. The Guidance describes regular supplier meetings as an example of strengthened contract management where the contract is high risk. In these meetings, the supplier would be expected to provide updates on how they are meeting requirements, and actions could be set to address instances or concerns of modern slavery.
SMEs and VCSEs will have less time and resources to spend on contract management, therefore the overall assessment should be proportionate and free from burdens, as opposed to “gold-plated”. If measures were not implemented at the time the contract was entered into and subsequent risks were identified, then both parties should address shortfalls and consider contract variation.
In addition to supply chain visibility, supply chain mapping is relevant when dealing with a high or medium risk supplier; this can be determined to establish precise risk. The Modern Slavery Assessment Tool4 can be used to identify and address the supplier’s existing models. Mapping relationships and carrying out research into any previous reports of issues is advised. As before, supply chain mapping should be used proportionately to avoid unnecessary bureaucracy being imposed upon SME and VCSE suppliers.
3. Take action when victims of modern slavery are identified
The Guidance includes robust advice on excluding suppliers from a procurement where there is sufficient evidence of violations. Contract termination is a last resort, as this may leave victims even more at risk. Instead, proactive, efficient and open collaboration is encouraged, and a blueprint remediation plan for handling such occurrences should be prepared in advance. Immediate action is encouraged; however, in some industries a longer-term approach may be acceptable, owing to the way in which operations are structured.
The Guidance also highlights training and raising awareness of modern slavery as a key objective. Contracting authorities should train commercial and procurement staff. The Guidance also encourages completion of the Chartered Institute of Procurement and Supply Ethics Test, to enable consistent and thorough understanding ethical aspects of modern procurement, such as sustainability concerns and propriety in upholding standards. Individuals must be confident in identifying the red flags, for example where a supplier charges onboarding fees and confiscates identity documents.
Contracting authorities must align themselves with these updates by 1 April 2023. Whilst risk-management should not be onerous, this PPN raises the stakes from the 2019 rulebook.
The objective is clear: proactive understanding and risk assessment throughout all key stages. This is in line with the theme of greater transparency within supply chains and proactivity instead of reactive practices.5 It is hoped that organisations will take these enhanced measures seriously, to eradicate the all too prevalent practice of modern slavery.
1Tackling Modern Slavery in Government Supply Chains
2PPN 02/23 Tackling Modern Slavery in Government Supply Chains
3Update to Tackling Modern Slavery in Government Supply Chains 2023 - Guidance
4Modern Slavery Assessment Tool
5Article: Supply chain bottlenecks: ‘It’s been nuts’