Public spending cuts: a catalyst for advancing workers' rights?

Public spending cuts: a catalyst for advancing workers' rights?

It would be putting it mildly to say that Sir Philip Green and labour rights activists don't always see eye-to-eye on labour standards issues.Yet his recommendations as part of the government Spending Review to centralise procurement of commonly purchased goods provide a clear opening for addressing workers' rights in public sector supply chains.

Two decades' experience of implementing labour standards in private sector supply chains clearly shows that long term supply relationships, combined with a high degree of commercial leverage, provide the best conditions for buying companies to influence and support lasting improvements to workers' conditions. The larger contracts and strengthened relationships resulting from a more centralised government procurement system would therefore provide public procurers with very favourable conditions to do the same in their own supply chains, should they so choose.

Similarly, Green's call on government to review all major long-term contracts provides the opportunity to introduce labour standards criteria into the re-negotiated supplier contracts.

Likewise, the pressure to overhaul the systems for managing departmental expenditure opens up the possibility for embedding labour standards considerations into revised standard procurement procedures.

New EC guidance gives green light to incorporating labour criteria into public contracts

Of course many public authorities may well be discouraged from taking action due to perceived cost implications and concerns about legality under EC rules. Fortunately, the day before the Spending Review was announced, the EC published detailed guidance that explicitly confirms the legality of addressing these considerations at certain key points in the procurement process.

While the EC rules forbid public authorities from using labour standards criteria as a basis for selecting contractors (public bodies may not stipulate compliance with labour standards as part of the subject matter, technical specifications, selection criteria or award criteria for contracts), the guidance clearly states that they are allowed to:

• incorporate labour standards criteria into the supplier's contract as contract performance clauses,
• require the contractor to impose the same standards on their own suppliers (ie, sub-contractors),
• monitor their contractors' performance against these criteria, and provide financial incentives/disincentives for good/poor performance, and
• invoke breach of contact conditions if the contractor persistently fails to adhere to the agreed criteria.

Luckily, these steps are largely consistent with widely accepted good practice in implementing labour standards in supply chains, and private sector experience indicates that in any case, there is most scope for enforcing labour rights after the contract has been awarded to the supplier.

Recent government initiatives in several EU countries demonstrate that there is indeed room for manoevre. For example, early this year the Dutch parliament approved policies stipulating that all government bodies making large contracts/purchases must take steps to ensure that the contractors comply with the ILO's core labour standards; and in April 2009, the German government amended existing procurement legislation so that the law now explicitly allows for social as well as environmental criteria to be included in the contract clause of a tender.

Labour rights need not conflict with "Value for Money"

So, taking a proactive stance on labour standards in procurement is legally possible. But would it not conflict with the need to cut costs?

The answer is 'no', if the private sector's experience is anything to go by. In general, retailers and brands have not had to pay more for their products as a consequence of stipulating minimum labour standards criteria in their contractual relationships with suppliers. One key reason for this is that the labour criteria typically required of suppliers, such as those stipulated in the ETI Base Code, are for the large part already covered by national labour legislation and by a country's obligations resulting from ILO membership.

In other words, in most cases, all public procurers will be asking for is compliance with relevant national and international laws. And where wages have been found to fall short, joint retailer and supplier initiatives to increase wages have shown that, by making productivity improvements, this can often be achieved without increasing the cost of the product.

It is true that there are indirect costs involved: effectively monitoring and enforcing labour standards criteria takes both time and money. However, given that government departments are already required to enforce a range of environmental performance criteria for suppliers, adapting existing supplier monitoring systems to incorporate labour criteria need not be an overly onerous or costly exercise.

So yes, it may cost a little more overall. But with the growing clamour for accountability in public spending, it would presumably do no harm for the government to be able to reassure tax payers that their money will not be spent on goods produced under exploitative conditions.


About Ergon Associates

Ergon Associates specialises in consulting and advisory work on international labour rights. We work with public and private sector bodies to ensure that labour rights issues are responsibly addressed in their supply chains and investment relationships.

Useful links

Ergon Associates, Labour standards in public procurement: background paper for DFID Labour Standards and Poverty Reduction Forum, May 2007

Efficiency review by Sir Philip Green - key finding and recommendations, 11 October 2010

Buying social: a guide to taking account of social considerations in public procurement. European Commission staff working document, 19 October 2010

ETI public procurement resources

ETI's 1-day training course on public procurement



ETI's blog covers issues at the intersection of business, news and ethical trade. We welcome a range of insights and opinions from our guest bloggers, though don't necessarily agree with everything they say.