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Government Contract Update Focuses on Human Rights: FAQ

Submitted by: Kelly Eisenhardt

Posted: Mar 04, 2015 – 06:00 AM EST

Tags: human trafficking, supply chain, labor rights, business

 
Kelly_eisenhardt

This is the most recent article in our series on Supply Chain Sustainability. For more articles, go to
http://www.csrwire.com/blog/series/75-supply-chain-sustainability-special-focus/posts

Human rights regulations and transparency requirements continue to be an emerging trend worldwide. Many companies are seeking legal advice in order to identify reporting requirements and to build risk mitigation strategies.

Sarah Altschuller is an attorney at Foley Hoag LLP, one of the first law firms to develop a practice assisting clients with corporate social responsibility, international risk management, and globalization strategies. The CSR practice group’s clients include governments, multilateral institutions, and members of the extractive, manufacturing, agribusiness, financial services, and high technology business sectors.

What are some of the specifics of the new amendments to the Federal Acquisition Regulation and how will these changes impact businesses?

In late January, the U.S. Government released final amendments to the Federal Acquisition Regulation that are intended to strengthen existing prohibitions and requirements related to human trafficking.  These requirements, which go into effect on March 2, are applicable to all federal contractors.

Prior to the new amendments, federal contractors were already prohibited from engaging in severe forms of trafficking and from using forced labor.  Under the prior rule, companies, and their subcontractors, had to have procedures in place to notify employees of these prohibitions.  The new amendments strengthen these prohibitions, in part by clarifying which specific activities are prohibited.  For example, with the new amendments, federal contractors and their subcontractors are explicitly prohibited from charging recruitment fees or from confiscating of employees’ identity or immigration documents.  

Notably, there are now heightened requirements for federal contractors engaged in contracts that involve work being performed outside the United States that exceeds $500,000 in value.  These contractors will need to develop detailed compliance plans to address the risks of human trafficking in connection with the work that is being performed for the U.S. Government.  They will also need to certify that they have performed due diligence on their own activities and the activities of their subcontractors.  Ultimately, they will need to certify that (a) neither they or their subcontractors are engaged in any trafficking activities or (b) if trafficking activities have been identified, they have taken appropriate remedial action.

What are some ways that federal contractors can begin to evaluate the risks of human trafficking in their own operations and in their supply chains?

Companies should evaluate their federal contracts and assess the nature of the work and the nature of the workforce for each specific contract.  They should look at the locations where work is taking place and the types of goods and services that they acquire through the use of subcontractors.   Key issues that a company should consider include its relative reliance on labor recruiters, especially for low-wage workers, as well as the legal protections that exist in the specific countries in which work is being performed.  Companies should also evaluate their use of subcontractors, especially in countries at higher risk for trafficking.  Based on a review of these factors, a company can begin to assess its relative risk profile and develop plans to prioritize its due diligence and compliance efforts.

The new FAR amendments do not call for a “one size fits all” approach to compliance.  Companies should develop compliance plans that are appropriate to the nature and scope of their operations.  

What resources are available for companies seeking to assess risk?

Various agencies of the U.S. Government produce reports that may be useful to companies seeking to assess the risks of trafficking in their supply chains.  Examples include the annual list of goods produced by forced labor published by the Bureau of International Labor Affairs at the U.S. Department of Labor.  The Bureau of International Labor Affairs also publishes information on efforts by specific countries to address the risk of forced labor.   Other good resources include the Trafficking in Persons report produced each year by the U.S. State Department as well as the State Department’s annual human rights reports.

Notably, the State Department’s Office to Monitor and Combat Trafficking in Persons, has asked Verité, a non-governmental organization, to produce guidance on the risks of human trafficking in supply chains, with a focus on the risks associated with federal contracting.  Verité has already released its initial report and will be publishing more information later this year.

In assessing their specific circumstances, companies should also consult with civil society organizations and counsel with knowledge specific to the nature of their supply chains and the location of their operations.

Will the FAR amendments present similar challenges to federal contractors as the conflict minerals rule presented to companies required to file reports with the Securities and Exchange Commission?  

The new FAR requirements obviously address very different issues -- human trafficking as opposed to the source of conflict minerals contained in a company’s products.  That said, from a compliance perspective, some of the challenges are similar.  Companies are being asked to evaluate risks associated with the activities of not just their primary subcontractors but also subcontractors and suppliers many tiers down their supply chains.  This comes at a time when many companies continue to have relatively little visibility down their supply chains

Companies complying with the conflict minerals rule must seek to identify the source and chain of custody of specific minerals down to the mine site.  This may require assessing and tracking information through many tiers of a product supply chain.  Similarly, federal contractors will need to evaluate -- and be held accountable for -- the labor practices of subcontractors and suppliers at the lowest tiers of their supply chains. 

As these new requirements go into effect, it will take companies time to begin to map out the actors and the risk factors at various levels of their supply chain.  Outside of certain industries, many companies do not have immediate access to this information. 

How is data collection being managed by companies that need to be compliant with the FAR amendments?

It is still very early in terms of corporate evaluation of the impacts and requirements of the new FAR amendments.  That said, one thing that companies do not want to do is reinvent the wheel.  Many companies have systems in place to evaluate information with regard to their subcontractors and supply chains and there is interest in leveraging these systems to accommodate the new data requirements.  It is important to remember that federal contractors have already had to comply with prohibitions on the use of forced labor, as well as import prohibitions on goods produced with forced labor. 

In evaluating the new amendments, some companies are looking to their anti-corruption risk management programs as a potential source of information regarding trafficking-related risks.  Studies have shown that there is a high correlation between countries and regions where corruption-related risks are high and places where there is a higher risk of human trafficking.  Companies may be able to use existing compliance programs therefore to assess specific human rights risks, such as human trafficking.  This will require evaluating the current internal inquiries and reporting channels and making modifications as necessary.    

Beyond compliance with the FAR Amendments, how else should companies be thinking about the risks associated with human trafficking?  

Human trafficking has received a lot of attention in recent years and many companies are starting to realize the extent of the problem and the likelihood that trafficking may exist somewhere in their supply chains.  Very few multinational companies can realistically state that there is no risk that their activities may be linked to human trafficking through their diverse business relationships and supply chains.

At this time, through a range of voluntary standards and mandatory requirements, companies are generally being asked to be more transparent about how they are assessing and managing human rights-related risks, and therefore companies should expect to be asked by a range of stakeholders how they are responding to the risks of human trafficking associated with their operations.  These questions may come from investors, employees, consumers, and policymakers.  Companies should be prepared to describe how they are conducting due diligence on these issues and how they are responding to identified risks. 

This is the most recent article in our series on Supply Chain Sustainability. For more articles, go to
http://www.csrwire.com/blog/series/75-supply-chain-sustainability-special-focus/posts

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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