Task Force on Purchasing Ethics and Policies Report and Recommendations
March 22, 2004
Task Force on Purchasing Ethics and Policies
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I. Task Force Charge and Composition I. Task Force Charge and CompositionIn May 2003 President Mary Sue Coleman issued the following directive: Task Force on Purchasing Ethics and Policies Charge The University of Michigan has a longstanding commitment to sound, ethical and socially responsible practices. To ensure that such practices are codified for the University’s vendors, I am appointing a task force to report back to me no later than the end of the fall term 2003. This task force shall undertake the following:
The task force should also consider federal and state regulations and enforcement processes in its recommendations about the role the University should play. I also would ask that the task force report periodically on its progress until the report is completed. The Task Force’s composition was as follows: Task Force on Purchasing Ethics and Policies Membership Chair Theodore St. Antoine, Professor Emeritus, Law School Faculty
James Levinsohn, Professor, Gerald Ford School of Public Policy; Professor, LSA Economics Department Staff
Dennis Poszywak, Assistant Director, Purchasing and Stores Students
Michael Medow, LS&A Junior Support Staff
Patrick N. Naswell, Assistant to the Chief of Staff to the President II. Background and Task Force ProcedureAn immediate stimulus for the creation of the Task Force was the concern that a University vendor was paying substandard wages and benefits. There were demands that the University should do business only with suppliers that adhered to proper labor standards and that followed sound environmental practices. The Task Force was formed to study the overall problem and make appropriate recommendations. At the same time, it was made clear the Task Force’s function was not to deal with individual cases but only with the general situation and broad principles. During the summer and fall terms of 2003 and the winter term of 2004, the Task Force held 17 full membership meetings at approximately two-week intervals, as well as a number of “subcommittee” sessions dealing with the drafting of the substantive standards and compliance procedures to be included in the proposed Code of Conduct for University Vendors. The early meetings of the Task Force were entirely private; the later meetings were open to anyone who wished to attend. A small number of students took advantage of the opportunity. In addition, public forums were conducted in the Michigan Union on July 10, 2003 and in the Michigan League on September 25, 2004, at which vendors, students, faculty, civic officials, public and private organizations, and other interested parties could submit their views on the issues presented in drafting the Code. Finally, throughout the drafting process, individual Task Force members discussed their progress with, and received reactions from, University Administration officials and student groups. In the course of their work, members of the Task Force studied and analyzed a wide variety of materials. These included:
When the drafting of the Vendors Code of Conduct neared its final stage, copies were shared with some three dozen major vendors and with representatives of student groups. About a dozen vendors responded, and there did not seem to be significant problems as long as the Code was deemed aspirational rather than contractual when it went beyond legal requirements. The student reaction also was generally positive. III. Major IssuesThe Task Force had to resolve several major issues during its deliberations. The central questions were:
1. Substantive Standards In deciding on the standards to be prescribed by the Code, the Task Force had to take into account several divergent considerations. Although university codes for licensees have become quite well accepted, there is generally a closer identification between a sponsoring university and a licensee producing wearing apparel or memorabilia, which often bear the name or logo of the university, than between a university and a vendor of relatively anonymous goods and services. Furthermore, in contrast to most vendors serving American universities, many licensees operate abroad in countries having no such elaborate a system of labor and environmental regulation as is true of the United States. Yet once it is recognized that a university may have a moral obligation to demand some minimum labor and environmental standards of its licensees, it becomes harder to deny that at least some analogous obligation applies with regard to vendors of goods and services that are essential for the university’s ongoing operations. Nonetheless, despite increasing scholarly attention to the subject, there is little precedent among American universities concerning substantive standards for their vendors generally. Apparently the University of Delaware comes closest to imposing mandatory terms and conditions in its procurement agreements to ensure the “rights and dignity” of its contractors’ personnel. Harvard also requires contractors providing various security, custodial, and dining services on the campus to pay overall compensation equal to that of the University’s comparable unionized employees. The Purchasing and Stores Department of the University of Michigan has the very practical problem of dealing with a large and varied group of vendors, which are often strongly resistant to substantial departures from their standardized contracts. Some vendors are the exclusive source of vitally needed goods. Negotiating variations can be time-consuming and costly. Vendors’ legal departments will scrutinize every line of proposed novel provisions. Ideally, from one perspective, Purchasing would like the maximum degree of flexibility in bargaining contract terms. At the same time, however, the more a newly proffered provision simply reflects federal or state law, or even well-established University regulations, the less objection vendors will tend to have to including such a provision in a procurement contract. The University’s General Counsel urged that “the Code be a selection criterion for a vendor and not a contractual term.” Finally, a review of the scholarly literature and Website references indicates a growing interest in the use of universities’ economic leverage to secure salutary labor and environmental standards on the part of their contractors. That would be in keeping with the academic world’s traditional commitment to ethical and socially responsible policies and practices. In an effort to accommodate all these factors, the Task Force settled on a three-tiered approach to substantive standards in the proposed Code. First, the only mandatory contractual condition for University vendors would be the “Compliance with Law” provision. That would require vendors to comply with all applicable federal, state, and local laws and with all applicable University rules and regulations when on University premises. This reduces to the barest minimum what the Code would impose as a contract term. It is also existing University policy. Second, the Code would establish a set of “Primary Standards.” The University must “make every reasonable effort to contract” only with vendors meeting these standards. For the most part, these standards are merely elaborations of federal or state labor law, with a very few additions (primarily dealing with forced labor or harassment of employees) drawn from the current Code of Conduct for University of Michigan Licensees. Third, the Code would establish a set of “Preferential Standards.” These standards are emphatically aspirational in that the University must simply “strive to do business” with vendors who comply with them. The “Preferential Standards” deal with the “living wage,” international human rights, environmental protection, and foreign law. These standards are largely based on provisions in the Code of Conduct for University of Michigan Licensees; proposals from students and faculty members of the School of Natural Resources, PIRGIM, and similar environmental groups; and the United Nations’ Universal Declaration of Human Rights, sponsored by and ratified by the United States. The reference to compliance with applicable foreign law is included in light of the significant amount of business conducted by the University with firms operating outside the United States, particularly in Canada. As can be seen, the resulting pattern of substantive standards is nearly all in accord with the position of the General Counsel’s Office that the Code should establish vendor-selection criteria for Purchasing Services and not constitute binding terms in procurement contracts. The view of Purchasing, similarly, is that it should have no trouble taking into account the recommended standards for selecting vendors as long as those standards are not imposed as mandatory contractual conditions. The sole exception to that principle is the Code requirement that vendors comply with federal, state, and local law and with University regulations. That, however, as previously noted, is no more than established University policy. 2. Compliance Procedures and Enforcement Some codes of conduct include provisions dealing with enforcement measures, such as contract termination in the event of breach, and some do not. The Michigan Code of Conduct for Licensees and the Fair Labor Association’s Workplace Code do not cover enforcement. On the other hand, the Worker Rights Consortium’s Model Code, Delaware’s Mandatory Contract Terms and Conditions, and Harvard’s Contract Rider for certain on-campus suppliers all contain provisions on remedies for breach, including the right to terminate the contract. Some members of the Task Force felt that a Code without any provision for compliance and enforcement could amount to an empty gesture. But Purchasing was concerned that requiring particular enforcement measures to be included in procurement contracts would limit its negotiating flexibility and might lead to financial liability if there was a contract termination that later was ruled unjustified. In certain instances Purchasing may even wish to seek a clause entitling it to terminate an agreement at will, that is, for any reason within its discretion and not because of an alleged material breach by a vendor. After careful consideration and discussion, the Task Force decided not to include a provision on contract termination in the Code itself. Instead, as part of this Report, it would be recommended that any procurement contract provide, as a minimum, that the University could terminate a contract for a vendor’s material breach, including a breach of the “Compliance with Law” provision prescribed by the Code. At the same time, the Task Force concluded it would be worthwhile to have the Code incorporate a specific section on “Compliance Procedures.” On the positive side, this would stress the mutual value of a University-vendor “partnership” or ongoing relationship. It would also alert vendors and members of the University community to the steps to be taken if there were allegations that a vendor was failing to comply with the Code of Conduct. The procedure for handling claims should be fair, speedy, and efficient. An important recommendation by the Task Force is that a Purchasing Dispute Review Board be created to oversee and assist in securing compliance with the Code. This would parallel the existing Labor Standards and Human Rights Committee, which oversees the University’s Code for Licensees, and would constitute further assurance that the Code of Conduct for Vendors was meant to be taken seriously and was intended to be effective. (After a discussion between the chairs of the Licensee Committee and the Purchasing Task Force, it was concluded that the responsibilities of the Committee were sufficiently different and its current workload sufficiently heavy that, at least at present, it would not be wise to combine the functions of the two groups in a single body.) The new Purchasing Dispute Review Board would consist of a minimum of five members, including the Director of Purchasing or a designee from Purchasing Services, faculty, and students. The Task Force believes that the Dispute Review Board should itself work out most of the details of its own procedures. Certain basic provisions, however, would be included in the Code. That would also give general notice to vendors and members of the University community of the remedies available and the procedures to be followed. To minimize frivolous or excessive charges, complaints could only be filed with the Board pursuant to a resolution of a University-recognized organization. The Board would have investigatory powers, but to avoid too onerous a burden on its members, we would recommend that the Board require complainants to provide supporting evidence showing there is reason to believe the charges are valid. The Board would be entitled to make recommendations as to the action to be taken, all the way from “no action” to “termination of a contract.” But, most important, the Board itself would have no authority to act against a vendor on its own. Its recommendations would be forwarded to the University’s Executive Vice President and Chief Financial Officer, and it would be only at that level or above that any final decision on action against a vendor would be made. We realize that the United States has elaborate bodies of labor and environmental standards for business firms and long-established enforcement machinery for both sets of standards. An argument can be made that efforts to further these or similar standards by procurement policies on the part of private parties, public or private universities, municipalities, and the like are unnecessarily duplicative and could actually lead to conflicts in the administration of the law. The reality, however, as Congressional committees, courts, and scholars have attested, is that official legal remedies are often too slow and inadequate to achieve their goals effectively. See, e.g., “The Failure of Labor Law – A Betrayal of American Workers,” Report of Subcom. on Labor-Management Relations, House Com. on Educ. & Lab., 98th Cong., 2d Sess. (1984); “Delay, Slowness in Decision-Making, and the Case Backlog at the National Labor Relations Board,” House Com. on Governmental Operations, H.R. Rep. No. 98-1141, 98th Cong., 2d Sess. (1984); NLRB v. J.P. Stevens Co., 464 F. 2d 1326 (2d Cir. 1972), cert. denied, 410 U.S. 926 (1973); IUE v. NLRB, 426 F. 2d 1243 (D.C. Cir. 1970), cert. denied, 400 U.S. 950 (1970); P. Weiler, “Hard Times for Unions: Challenging Times for Scholars,” 58 U. Chi. L. Rev. 1015 (1991); F. Bartosic & I. Lanoff, “Escalating the Struggle against Taft-Hartley Contemnors,” 39 U. Chi. L. Rev. 255 (1972). There plainly appears to be a role in reinforcing legal standards for extralegal forces like universities, municipalities, and similar bodies, at least in the case of the more egregious violations. Since our proposal would leave to the highest University officials the final decision for action against vendors, the likelihood of any irresponsible conduct to the detriment of the University would seem to be nil. The Code also provides that the resolution of any dispute should be speedy and that confidential and proprietary business information would be respected throughout the process. We feel that all these various provisions, supplemented as they would be by the new Review Board’s own procedural rules, constitute a fair and appropriate balancing of the significant competing interests at stake in any such proceedings. IV. Conclusions and RecommendationsThe unanimous view of the Task Force is that the University of Michigan’s “commitment to sound, ethical and socially responsible practices” would find a fitting concrete expression in the adoption of substantive standards like those in the proposed Code of Conduct for University of Michigan Vendors. Except for the requirement of compliance with applicable law and University regulations, all these standards are purely aspirational – that is, they are vendor-selection criteria for use by Purchasing Services and not mandatory terms for inclusion in procurement contracts. If the University of Michigan is indeed the first in the nation to adopt such a comprehensive Code for vendors generally, it is a modest and cautious step – and we believe a most commendable one, in keeping with the best of Michigan’s leadership traditions. With final decisions on any enforcement action against existing contract vendors reserved for the highest levels of the University administration, we see little if any risk in the proposal. The President’s Task Force on Purchasing Ethics and Policies therefore unanimously recommends:
Respectfully submitted,
The President’s Task Force
Ann Arbor, Michigan ∗ Appendix A, prepared by Task Force Member Dennis Poszywak, sets forth extensive material comparing the procurement provisions of the University of Michigan and other universities. ∗∗ The Task Force wishes to thank all the University officials who consulted with us throughout our deliberations, and the vendors, students, faculty, civic officials, and other interested parties who generously took the time to convey their views on the issues before us at our two public forums and in oral and written communications. We are especially indebted to our indefatigable staff person, Patrick N. Naswell, Assistant to the Chief of Staff to the President, and to Executive Secretary Nancianna Girbach. |