Global Utilities Companies too trusting of suppliers

26 Jan 2015

Global utilities companies are being warned to tackle risks associated with their suppliers, after many admitted awarding contracts to main contractors without having critical information about how they do business.

The global utilities industry supply chain is developing fast with an ever increasing emphasis on innovation and efficiency. This is driven by sector developments such as a near-record $310 billion investment in renewables alone.

Yet despite the high profile, often safety critical nature of the work, research shows many utilities firms are failing to carry out basic due diligence on suppliers.

One in three utilities companies said they issue tenders or contracts to main suppliers without having an anti-bribery and corruption policy in place. About one in five firms do not have their main suppliers’ financial reports before procuring goods or services and one in 10 do not have health and safety policies for their main suppliers.

In addition, utilities companies are open to further risk because they are not checking the information that is provided by suppliers – either via desktop checks or on-site audits.

More than half of utilities companies said they did not conduct basic checks, such as internet research or making telephone calls, to check anti-bribery and corruption information provided by their main contractors. About one third did not check health and safety policies and one third did not verify financial reports. The figures were lower still for physical audits.

The market survey was commissioned by Achilles, which manages supplier information and supply chain risks on behalf of more than 400 power and utilities firms across the world. It was carried out by independent research company IFF – which interviewed 65 supply chain professionals not linked to Achilles from power and utilities companies in the UK, USA, Spain, Latin America and the Nordics.

Tom Grand, Achilles UK Regional Director has responsibility for Achilles UVDB, a UK-based supplier information community, used by the majority of utilities firms to pre-qualify suppliers, manage risks, audit suppliers and ensure compliance to regional and EU rules. He said utilities firms which took a relaxed approach to checking suppliers’ credentials were risking their reputation and opportunities to improve their businesses.

“It is concerning to see that one in three utilities companies does not have bribery and corruption policies for main suppliers. In a safety critical industry, it is vitally important for utilities firms to carry out effective due diligence on suppliers. Tackling bribery and corruption and ensuring health and safety are mandatory and companies that fail to do so are risking financial and reputational damage. In our experience working in the utilities sector, the best practice approach for buying organisations is to carry out due diligence proactively – screening suppliers in advance of awarding a contract.”

Audits

The research also found almost one third of utilities companies did not conduct any supplier site visits to check contractors were operating in accordance with statements made in their health and safety, anti-bribery and corruption, and financial documents.

In total

  • 42% of utilities companies globally did not perform health and safety audits;
  • 66% of utilities companies globally did not carry out checks on financial reports; and
  • 75% of utilities companies globally did not perform anti-bribery and corruption audits.

Tom Grand added:

“Without a site audit, utilities companies are trusting that suppliers are acting in accordance with their own policies. It leaves them open to paying ‘lip service’ to being responsible.”

“We estimate that businesses worldwide are spending US$60 billion on managing information about their suppliers – yet this survey shows this spend is ineffective.”

“In our experience it is up to 10 times more efficient if businesses establish standards of suppliers and then work collaboratively to share the administrative burden of gathering, managing and updating supplier information.”

EUROPE

The survey found that many large businesses in Europe failed to carry out basic desktop and physical checks:

Holds suppliers’ information before awarding contract ‘Desktop’ checks on suppliers’ information On-site audit of supplier information
Financial Reports 10% failed to gather suppliers’ information 32% failed to check suppliers’ information 65% failed to audit suppliers’ information
Health and safety policies 7% failed to gather suppliers’ information 44% failed to check suppliers’ information 36% failed to audit suppliers’ information
Anti-bribery and corruption policies 33% failed to gather suppliers’ information 64% failed to check suppliers’ information 69% failed to audit suppliers’ information

USA

The survey found that many large businesses in the USA failed to carry out basic desktop and physical checks:

Holds suppliers’ information before awarding contract ‘Desktop’ checks on suppliers’ information On-site audit of supplier information 
Financial Reports 33% failed to gather suppliers’ information 56% failed to check suppliers’ information 44% failed to audit suppliers’ information
Health and safety policies 22% failed to gather suppliers’ information 44% failed to check suppliers’ information 56% failed to audit suppliers’ information
Anti-bribery and corruption policies 11% failed to gather suppliers’ information 56% failed to check suppliers’ information 78% failed to audit suppliers’ information

LATIN AMERICA

The survey found that many large businesses in Latin America failed to carry out basic desktop and physical checks:

Holds suppliers’ information before awarding contract ‘Desktop’ checks on suppliers’ information On-site audit of supplier information
Financial Reports 31% failed to gather suppliers’ information 37% failed to check suppliers’ information 75% failed to audit suppliers’ information
Health and safety policies 6% failed to gather suppliers’ information 12% failed to check suppliers’ information 44% failed to audit suppliers’ information
Anti-bribery and corruption policies 44% failed to gather suppliers’ information 56% failed to check suppliers’ information 81% failed to audit suppliers’ information

 


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Rebecca Bantoft

Global Head of Corporate Communications & Events

  • +44 (0)1235 838134
  • +44 (0)7931 374627
  • rebecca.bantoft@achilles.com

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