CITY OF VANCOUVER

POLICY REPORT
FINANCE

 

Date:

February 7, 2005

 

Author:

Terry Corrigan

 

Phone No.:

604.873.7225

 

RTS No.:

4829

 

CC File No.:

6001

 

Meeting Date:

February 17, 2005

TO:

Standing Committee on City Services and Budgets

FROM:

General Manager of Corporate Services in conjunction with the Corporate Management Team

SUBJECT:

Sustainable and Ethical Purchasing Policy

RECOMMENDATION

CORPORATE MANAGEMENT TEAM (CMT) COMMENTS

The Corporate Management Team (CMT) supports the intent and purpose of the recommended Ethical Purchasing Policy (EPP) as it relates to the purchase of apparel and fair trade certified agricultural products. The CMT members cannot, at this stage, fully capture the full impacts that the implementation of the EPP as approved by council in principle on December 16, 2004 may have on the City’s operations.

The CMT recommends a cautious approach to implementation of the policy. It will take time for the City to build the internal capacity and acquire the expertise required to implement and manage the policy effectively. The objective in the first year will be to make steady incremental change in supplier relationships through communication and education. This approach allows suppliers to respond to social value criteria in a competitive bid environment. Staff will report back to Council at the end of this time period on the impact the policy has had on City operations and resources and whether it might be necessary to revisit the policy without contravening the EPP objectives.

The recommended policy could result in additional staff over and above the one full time permanent position requested in recommendation D above. This position will be dedicated to assisting staff in all City departments and boards to implement the policy by assessing the existing suppliers for apparel and agricultural products, communicating and training in key elements of the policy, communicating the expectations of the City to suppliers, developing the tools (bid and legal documentation, protocols for investigating complaints, etc.), working with suppliers to develop remedial action where necessary and reporting. Additional buying and inventory staff resources may be required to implement and administer in the major buying groups to develop specifications, deal directly with suppliers and investigate complaints.

Research to date has concluded that there will be an increase on cost of apparel and agricultural products used in City operations. In addition to the direct cost of staff and consulting resources of $88,000, Park Board estimates that its annual costs of food and apparel will increase by $246,000, ($185,000 for 2005). The impact on annual costs in other City departments is estimated at $284,500. ($151,000 for 2005, $201,000 for 2006 and $284,500 from 2007 on due to fact that the City has a contract for the provision of meals at Evelyne Saller Centre which does not expire until 2007.)

Development of Comprehensive Sustainable and Ethical Purchasing Policy – Phase II

The CMT supports the intent to proceed with Phase II, development of a comprehensive sustainable and ethical purchasing policy. It will be imperative to pursue this phase of work in an incremental fashion, given that we will need to review and evaluate our purchasing practices across the entire range of City purchases, including construction, equipment and professional services.

Implementation of the EPP for apparel and agricultural products results in an estimated $598,500 annual increase in costs ( both goods and services and staffing) to the City. We do not have the ability to predict even the range of cost and operational implications associated with a comprehensive sustainable purchasing policy. We do recognise that the costs for some items may actually go down, while in other cases we could be faced with a decision over whether purchasing a more expensive item is appropriate given our sustainability principles and objectives. It will certainly require additional resources for purchasing staff to work with the Sustainability Group to undertake the research and analysis needed to begin understanding what changes in purchasing might arise as a result of implementing this policy.

In this report we have outlined an approach that CMT believes will move us forward with Phase II and will enable us to carry out the research, analysis and staff education needed to advance sustainable purchasing practices and lead to the development of the comprehensive sustainable and ethical purchasing policy.

COUNCIL POLICY

Council policies indirectly related to the issue of sustainable and ethical procurement include:

PURPOSE AND SUMMARY

At its December 16, 2004 meeting council approved, in principle, the EPP and SCC recommended by the EPP Task Force and directed staff to report back on the following:

The CMT met to review the recommended policies of the EPP Task Force . This report provides comment and assessment of the implications for implementing the recommended EPP and SCC on City purchases of apparel and certified fair trade agricultural products and CMT’s recommended approach relating to Phase II. It provides recommendations for changes to the EPP and SCC recommended by the EPP Task Force to assist with the implementation of the policy. The report outlines a work plan for policy implementation and concludes by identifying some of the primary financial and human resource implications.

Concurrent to the work of the EPP Task Force, staff in Corporate Services and the Office of Sustainability researched what would be required to develop a comprehensive Sustainable and Ethical Procurement Policy (SEPP). The EPP and SEPP would be interdependent policies which integrate the issues of economic, environmental, and social criteria as they relate to contracting for the supply of goods and services. Implementation of the EPP and development of the SEPP requires management through centralized resources. This report includes a proposed work plan for the development of a SEPP for the City.

BACKGROUND

On April 23, 2002 Council adopted nine Sustainability Principles as guidelines for creating a Sustainable Vancouver.

On April 8, 2004, Council declared "its intention to implement a Sustainable and Ethical Procurement Policy for the City of Vancouver before the end of the 2004 calendar year", and resolved that “appropriate City staff be directed to report to Council within two months of the passage of this resolution on questions related to implementation of such a policy for City purchases of apparel, coffee and related items”.

On June 22, 2004 Council received a report summarizing the implications of developing a Sustainable and Ethical Purchasing Policy. Council approved the following recommendations stemming from that report:

The EPP Task Force was formed in August 2004 and completed its work in November, 2004 with a report to Council and recommended EPP and SCC. At its meeting of December 16, 2004, Council passed the following resolution;

DISCUSSION

Recommended Modifications to the EPP and SCC

Staff is recommending the following changes to the wording of the EPP and SCC. The recommended wording changes have been reviewed with the EPP Task Force members at a meeting of February 4, 2005 and have agreed to the changes included in this report.

A) EPP

i) Section - Purpose

Recommended Change:

Insert the following;

Reason for Request:

ii) Section 2 – Implementation, Compliance and Monitoring

Recommended Change:

Add the following sentence to Section 2.1;

B) SCC

i) Section - Purpose

Recommended Change:

Insert the following;

ii) Section 5 – Freedom of Association

Recommended Change:

Last paragraph to read;

Section to read as follows;

Implementation Work Plan

The City will need time and resources to build the internal capacity necessary to implement and optimize the EPP. Efforts must be cautious and aim at making steady incremental change in supply chain relationships over time.

The City has a relatively small purchasing program as it relates to apparel and agricultural products and few resources to devote to implementation of a supplier compliance process. Annual apparel purchases are about $1.4 million - 48% by Vancouver Police Department, 39% by Fire and Rescue, and 9% by Engineering Services. The City purchases about $3.7 million in food each year. The principal corporate buyers of food are Parks and Recreation, which sells food products through park concessions and golf courses, and the Community Services Group, which provides meals at Carnegie and Evelyne Saller Centre and at Gathering Place. If the scope of the policy is to be expanded to cover other goods and services over time and if this policy will be the base upon which a more comprehensive sustainable policy will be built to encompass broader environmental and social issues, implementation must be carefully staged.

Implementation of the policy will be an ongoing process as capacity develops both within the City to administer and manage the policy, and within the marketplace as suppliers position themselves to meet and exceed performance standards and expectations. The following provides a general overview of the implementation work plan for 2005. This will be the process through which detailed procedures will be developed to operationalize the policy and build capacity within the City to manage ongoing implementation.

Work Plan

Complete

a) Assessing supply chain risks

September 30, 2005

b) Building internal capacity

July 31, 2005

c) Communicating with staff and suppliers

June 30, 2005

d) Developing implementation tools and procedures

November 30, 2005

e) Determining remedial action processes

November 30, 2005

f) Collaborating with others

Ongoing

h) Reviewing and reporting on progress

March 31, 2006

i) Coordinating with other City initiatives

Ongoing

Work on many of the activities will proceed concurrently, however depending on the complexity of each task, some will be accomplished sooner than others. A detailed description of each of the tasks in the work plan is as follows:

a. Assessing supply chain risks
Staff need more information on the nature of the existing supply chain for apparel and agricultural products and will build on existing work that details procurement activities, amounts and vendor distribution. Year one implementation of the policy will focus on new contracts, existing Tier 1 suppliers (direct suppliers to the City) and disclosure of supply chain and factory locations.

b. Building internal capacity
The City needs to build internal capacity to apply and manage the policy by orienting purchasing staff throughout the City to key elements of the policy and supporting procedures. Policy requirements will be identified and communicated with appropriate Service Groups. Training sessions with key buying and inventory staff will be coordinated to build understanding of the ILO core labour conventions, common labour and human rights abuses and the specifics of the EPP and SCC.

c. Communicating with staff and suppliers
The EPP is setting a new benchmark for City procurement and comes in advance of more comprehensive sustainable purchasing principles that will impact staff and suppliers over time. To be effective, it is necessary to develop and deliver a broad staff communication program to ensure understanding of the initiative.

A similar strategy will be required of suppliers. The City will need to work closely with its Tier I suppliers to ensure they ‘drill deeper’ into the supply chain and create awareness and understanding of the policy requirements at the secondary supplier and subcontractor level. Supplier communications, at all levels, can be enhanced by developing an orientation fact sheet that outlines the EPP and its implications for them.

d. Developing implementation tools and procedures
Staff capacity needs to be supported by clear and simple implementation tools and procedures to meet the goals of the policy as well as a plan for implementation. Staff will prioritize early implementation efforts on strategic vendors (e.g. high value contracts), new vendors and others as identified above. Some of the specific priorities of the required procedural framework include:

Wherever possible these procedures will integrate with existing specifications and processes for purchasing apparel (e.g. safety / product performance), will be developed in consultation with internal stakeholders and supported by training.

e. Determining remedial action processes
Initially compliance monitoring will be complaint driven. The experience of other organizations suggests that many suppliers will have at least minor transgressions with the EPP and SCC. Accordingly, a key policy goal, and element of implementation, is engaging with suppliers to improve workplace practices and conditions so they meet the basic SCC standards.

The City Manager (or designate) will determine whether violations of the EPP exist and the required remedial action from suppliers. Staff will create appropriate processes and protocols for communicating with suppliers on any material EPP transgressions that may come to the City’s attention.

f. Collaborating with others
There is immediate benefit from working with other municipalities who share common suppliers to coordinate monitoring efforts. Staff will continue to monitor national or international monitoring programs through whose membership suppliers are independently assessed for performance.

g. Reviewing and reporting on progress
Staff will coordinate a review of policy and report on year one implementation that will generally assess the impacts of the policy on City operations, resources, implementation progress, comment on the work plan for ongoing implementation, supplier reaction and any potentially unintended consequences and costs.

h. Coordinating with other City initiatives
Implementation of the EPP and the City’s ongoing sustainability initiatives need to be closely integrated. Staff has identified a work plan to develop broader sustainable purchasing principles as a Phase II activity.

The scope of these policies is very large, potentially affecting all City operations and affecting purchasing decisions of all goods and services. The development and implementation of these policies must also be aligned with the values of other initiatives such as the 2010 Olympics Sustainability objectives, the City of Vancouver Sustainability objectives and the Vancouver Agreement DES revitalization program.

Phase II - Comprehensive Sustainable Purchasing Policy

City Council has directed staff to develop a comprehensive Sustainable Purchasing Policy that will represent a balanced consideration of all environmental, social and economic objectives.

Crafting and implementing a Sustainable and Ethical Purchasing Policy will present a considerable challenge to the City. Most purchases now reflect a balance between price, performance and value added criteria. In many respects the City is already demonstrating leadership in sustainable purchasing. We are downsizing our fleet vehicles, where appropriate, and are helping transform the market for micro cars by lobbying for their availability in Canada. In a similar vein, the City has joined with several partners to begin creating a regional bio-diesel fuel procurement and distribution network. Our commitment to green buildings has helped to accelerate market acceptance of green buildings, and to demonstrate that sustainable building design, construction and operation are cost effective as well as environmentally and socially superior.

These examples illustrate the excellent opportunities we have already incorporated into a sustainable purchasing framework, and we expect to see more and more opportunities arise. It will be important to monitor the implementation of the Energy Efficient Purchasing Policy, and learn from those experiences as we move toward achieving Council’s goal of incorporating social, environmental and economic considerations in the procurement of all goods and services.

As noted by the City Manager in the administrative report dated June 15, 2004, “The scope of a Sustainable and Ethical Procurement Policy is very large, potentially affecting all City operations and affecting every purchasing decision of all goods and services. The development of a Sustainable and Ethical Procurement Policy must be aligned with values of other initiatives such as the 2010 Olympics Sustainability Objectives, the City of Vancouver Sustainability office objectives and the Vancouver Agreement's DES revitalization program. The City will need time and resources to build internal capacity to implement and administer a sustainable procurement strategy.”

The City of Vancouver purchases approximately $150 million of goods and services each year. While the Corporate Purchasing Division is involved in approximately 25 per cent of these purchases, there are six other major groups engaged in the remaining purchases. These groups include: Engineering Services, Community Services Group, Equipment Services, Vancouver Public Library, Vancouver Board of Parks and Recreation, and Vancouver Police Department. A purchasing policy based on the principles of sustainability will represent a major strategic shift in our business practices and will require resources to implement across the organization, including offering support to the sectors governed by boards other than City Council to adopt a similar policy.

We propose continuing to identify and pursue opportunities for expanding our sustainable purchasing practices, coupled with staff education and an expanded effort to research and analyse our purchasing practices. Such an approach would be phased as follows:

Through this work, the City should be able to move toward a comprehensive policy during 2005, outlined in the work programme in this Council Report. This move toward more extensive and comprehensive sustainable purchasing practices will present a big challenge to the City. Caution will help to ensure that the City can demonstrate leadership in this area while, at the same time, continue to provide excellent service to the citizenry.

The following chart indicates how the policy will fit with sustainability objectives and the current purchasing structure across the organization.

It is essential that the corporate purchasing division develop the internal expertise to take on responsibility for compliance monitoring, taking remedial actions, communicating to suppliers and stakeholders, developing documentation and evaluation criteria, and equitably assessing supplier performance. This will ease the work load for the major buying groups and provide a means of monitoring the policy’s effectiveness at ensuring that the values are being realized without compromising fiscal responsibilities or service levels.

Given the magnitude of the potential impacts of such a policy, a cautious and graduated approach needs to be adopted to ensure the City continues to operate effectively, and to serve the interests of its citizens and businesses.

Phase II Work Plan:

Staff proposes the following approach to the development and recommendation of a corporate comprehensive Sustainable Purchasing Policy.

Work Plan

  

Research and Development:

    § Analyze existing sustainable purchasing policies, and informal practices
    § Determine market readiness
    § Stakeholder consultation
    § Develop evaluation criteria/legal review
    § Draft policy and implementation framework

4th quarter of 2005

Report to Council:

    § Recommendation of the policy and its adoption
    § Analysis of resource requirements, operational impacts and cost implications

4th quarter of 2005

FINANCIAL AND HUMAN RESOURCE IMPLICATIONS

Financial implications
As part of the Council resolution of December 16, 2004, staff was directed to report back in early 2005 on the resource requirements for both implementing the Ethical Purchasing Policy and a work plan for developing a comprehensive Sustainable and Ethical Procurement Policy.

The implementation and ongoing administration of the EPP as well as the development of a comprehensive Sustainable and Ethical Purchasing Policy will require additional financial and staff resources and will also require budget adjustments to account for pricing premiums for apparel and agricultural products. This report recommends that Council approve a total of $71,000 increase in the 2005 Operating Budget without offset for staff and other resources required to implement the EPP policy, an additional $185,000 for the Park Board and $151,000 for all other City departments to cover the additional costs of apparel and agricultural products. (Annualized costs of $515,500 prorated over 2005.)

It is recommended that Council approve one full time permanent position in the corporate purchasing department at an annual cost of $68,000, subject to classification by the General Manager of Human Resources. The position will be responsible for implementation of the EPP in accordance with the work plan outlined in this report. The position will also be responsible for monitoring ongoing policy compliance, taking remedial actions, communicating to suppliers and stakeholders, developing documentation and evaluation criteria, and equitably assessing supplier performance. The position will assist the Sustainability Group in Phase II, the development and implementation of a comprehensive Sustainable and Ethical Purchasing Policy that incorporates broader environmental and social objectives. Additional resources may be required as the implementation of the policy progresses. Staff would report back to Council if additional resources were required.

It is also recommended that $20,000 be provided on a one time basis for consulting and other related services to support the implementation of the EPP and to provide technical expertise for the development of a Sustainable and Ethical Purchasing Policy.

It does not anticipate costs associated with independent verification of supplier performance (e.g., workplace auditing). These latter costs are difficult to forecast as it will depend on the number and nature of complaints received. Council will be asked to allocate more funding if required to finance these costs.

The implementation of the EPP will have the greatest impact on Community Services Group, Vancouver Police Department, Vancouver Fire and Rescue and the Park Board. These areas are the largest consumers of apparel and agricultural products.

The Park Board purchases approximately $50,000 worth of coffee each year and has experienced 6% (small purchase from retailer) to 30% (bulk purchase from manufacturer) purchase cost increase to switch to fair trade coffee. Other than coffee, there are over 275 agricultural products purchased by the Park Board amounting to $1.5 million. Most fair trade agricultural products are also organic. Organic agricultural products are consistently 10-30% higher than regular products. Since there is no data to assess the cost differences between regular and fair trade products, the estimated cost increase could be $225,000 by using 15% as a minimum increase. While the Park Board will try to recover the cost increase by increasing the charges to consumers, there could be a potential loss in sales revenue due to limited menu and customer preferences. Other than the increased costs, there are also contractual obligations such as lease/licence agreements in place that may not allow immediate implementation of the EPP policies. As part of the operating budget to fund other parks and recreation programs, Park Board relies on the rental revenue ($1,500,000) from the licensees to fund other programs. The incorporation of the requirements of ethnical purchasing policies in the new contracts as they come due may impact the amount of the rental revenue that can be generated.

The Park Board’s clothing purchases are approximately $65,000.00 per year. Without going to formal contract, it is difficult to assess the cost implications. Assuming 10% increase, this would show an approximate increase of $6,500.00 per year.

In summation, moving toward an ethical purchasing policy will cost the Board:
(a) Coffee $ 15,000
(b) Food items $ 225,000
c) Clothing $ 6,000
The total costs per year $ 246,000

Estimated costs resulting from the implementation of the Ethical Purchasing Policy on other City departments are as follows:
a) COV clothing and uniforms $140,000
b) Food – Carnegie and Gathering Place 54,000
c) Coffee – Carnegie and Gathering Place 7,000
$201,000

Currently Evelyne Saller Centre food/coffee services are under contract until 2007 on a fixed cost per meal program, therefore no immediate price increases will result. If Evelyne Saller Centre were to adjust the menu to reflect fair trade certified agricultural products, including coffee, their increase in food costs would be $83,500 per year. Food $76,000 and coffee $7,500 per year. This would bring the estimated annual impact on the City’s operating budget to $284,500.

Human resource implications

First, staff training and capacity building have been identified as the key human resource requirements in the early phase of implementation of the EPP. Over time, as the City further integrates sustainability considerations more fully into the purchasing process, additional capacity with expertise in social compliance will be required.

It is essential and more effective that the Corporate Purchasing Division develop the internal expertise to take on responsibility for compliance, taking remedial actions, communicating to suppliers and stakeholders, developing documentation, staff training, and equitably assessing supplier performance. It is recommended that to achieve Council’s objective, an additional full time staff position be added within the purchasing department in Corporate Services.

This role, in addition to addressing the issues identified above would be responsible for completion of the implementation plan as outlined previously in the report. The position, working with the Sustainability Group, would support the development of a comprehensive sustainable and ethical purchasing policy. The position would assist in building internal capacity by coordinating staff training and in monitoring the program.

As this is a ground-breaking initiative, the role of the Corporate Purchasing Division will be to help to develop and implement the program without compromising service levels and to report out on the progress of these policies.

Secondly, uniform and clothing committees are established City stakeholder groups that need to be engaged and consulted on the requirements of the policy and implementation procedures. Key staff from these groups will be participants in specialized training and education activities.

PRIORITY ACTIONS

The following are the key actions items required for effective implementation of the EPP:

CONCLUSION

A reasonable and cautious approach to the implementation of the EPP and appropriate resources is required to achieve Council’s objectives. During implementation direct suppliers will have to become partners in solutions.

APPENDICES

Appendix A – Ethical Purchasing Policy
Appendix B - Supplier Code of Conduct

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