Works, service and supply contracts (mln Euros)
In line with the Open Power approach, Enel considers its suppliers as part of a single team, with individual characteristics that enrich the portfolio of solutions provided, with respect for local peculiarities and considering diversity and innovation an added value. Greater integration and interaction with the outside world and with the different parts of the company, help the procurement process take on an increasingly central role in the creation of value in its various forms (safety, savings, timing, quality, performance, revenue, flexibility, risk reduction).
The cornerstones of the transformation being undertaken over these past years are based on:
- expanding the professionalism of the people involved in procurement activities (so-called “buyers”), using user-friendly technology, recognizing the contribution of each individual in a multicultural environment based on trust and passion;
- boosting integration and communication with internal customers, working together to define solutions capable of meeting the needs of the business;
- engaging suppliers right from the moment when a ‘need’ is born, listening to their offers and developing innovative approaches together.
The procurement process is managed through a matrix-style organization structure that allows experiences and specific skills to be shared, so as to be able to respond adequately and quickly to business needs. This model provides global units and local units, according to well-defined responsibilities and governance processes which, by identifying local needs, allow for common strategies and synergies aiming to optimize total costs.
This organization structure is completed by specific service units that oversee procurement processes and engaging with suppliers. Procurement procedures are conducted with respect for applicable laws and aim at guaranteeing the quality of services with the utmost respect for the principles of cost-effectiveness, efficiency, timeliness and correctness. Each award procedure is designed to guarantee the principles of free competition, equal treatment, non-discrimination, transparency, proportionality, and publicity. Furthermore, the principle of cost-effectiveness may come second to the criteria laid down in the invitation to tender, inspired by social needs, or the protection of health, the environment and the promotion of sustainable development. To maintain a circular economy, the “Circular Procurement” project has been launched and aims to track input and output materials from one’s business, have in-depth knowledge of the flow of material in terms of components, environmental impact and degree to which products can be recycled. Enel is working on the “Environmental Product Declaration” (EPD), a declaration that makes reference to the analysis of the product life cycle (Life Cycle Assessment - LCA), written in compliance with UNI EN ISO 14040 guidelines, and defined by specific rules for the product category to be certified (Product Category Rules - PCR). The EPD is a demonstration of Enel’s attention to highlighting the reduction of the environmental impact derived from its production cycle.
GLOBAL PROCUREMENT’S ENERGPEOPLE PLATFORM
The enerGPeople platform was launched in 2018 and helps highlight the work of each of the people engaged in the Global Procurement family, in keeping with the Group’s values, priorities and strategies. The platform was created to foster engagement, encourage a culture of recognition and help give notice to the unique contribution of each individual, as well as helping people be responsible when choosing results and actions that deserve to be rewarded. It is a place that provides visibility for the content connected to the person and the team (through projects), using a social and viral approach. Two communities have also been created: “should cost” and “design to value”, to strengthen the collaboration between the different work groups and boost the sharing of new competencies.
Processes for the evaluation and management of suppliers
Enel carries out structured analysis and monitoring of the procurement process. In particular, it carries out a risk assessment on 100% of the procurement merchandise categories. The main identified risks concern economic, environmental, social and reputational aspects.
91% of first-level suppliers, about 9,800 suppliers1, were considered critical suppliers due to their strategic nature linked to the company business, purchasing volumes, and the potential economic, social and environmental impacts.
The relationship between the Enel Group and its suppliers includes some crucial phases that aim to guarantee the selection of the best partners and the execution of the contracts in accordance with the highest sustainability standards.
1 First-level suppliers, the so-called “Tier 1”, are those with an active contract on December 31, 2018 for more than 25,000 euros.
A. Supplier qualification system
Enel has created a “Supplier Qualification System”, which allows for the accurate selection and evaluation of businesses that intend to participate in procurement activities. The evaluation looks at technical, economic and financial, legal, environmental, safety, human rights and ethics, and integrity requirements in order to guarantee the right level of quality and reliability when tenders are assigned in the energy sector.
Each supplier is qualified for one or more specific merchandise categories (MC) and eligibility for qualification is only granted to the supplier when all requirements are met. These requirements vary on the basis of the implications and specific impact associated with each group.
The qualification system was created in compliance with laws and regulations that apply to local tenders and tenders in the European Union, and is governed by a specific procedure representing:
- a guarantee for Enel, since it is an updated list of subjects of certified reliability (legal, economic and financial, technical/organizational, ethical and safety) on which to draw;
- the possibility, in compliance with the laws in force, for suppliers to be called on for procurement tenders organized by Group companies.
The approval process requires, also in compliance with the law in force, the presentation of a series of documents (self-certification regarding the possession of the general prerequisites, financial statements, certification, etc.) and, among other things, the adhesion to the principles expressed in the Code of Ethics, the Zero Tolerance of Corruption Plan and the 231 Model, the Human Rights Policy, and the UN Global Compact with specific reference to the absence of any conflict of interests (including any potential conflict). Contractors already included in the Enel Registry of Qualified Suppliers are constantly monitored, including through the use of external databases and with reference to events related to the company itself and to its main representatives.
Three main areas of analysis are envisioned:
- Health and Safety: The “Safety Self Assessment” questionnaire was introduced by Enel as a simple means of communicating the crucial requirements for joint growth to its suppliers and has become, as of July 2018, an integral part of the sustainability requirements when qualifying for MCs that pose a Health & Safety hazard;
- Environment: environmental criteria for the evaluation differ depending on the merchandise group and the risk level associated with each MC, on a scale of 1 to 3. For MCs considered an environmental hazard ISO 14001 Certification or equivalent is always required and at the end of 2018 about 62% of qualified suppliers was in possession of said certification. Furthermore, for these merchandise categories, an on-site audit at the contractor’s sites/worksites is always included. Enel has introduced a specific evaluation of environmental requirements, in addition to the routine inspections, within the scope of the qualification process for access to the Enel Registry of Suppliers;
- Human rights: On a conservative approach, Enel evaluates suppliers on human rights issues regardless of the risk level, by means of a specific questionnaire that looks at the potential supplier’s profile in terms of inclusion and diversity, safeguarding the privacy of its employees, verifying its own supply chain, forced or child labor, freedom to associate and form collective contracts and the application of fair working conditions (including adequate salaries and hours worked).
Only by achieving a positive overall evaluation may individual suppliers be included in the Registry of Suppliers (or remain therein if they have already qualified previously) and be invited to participate in the Group’s procurement activities. The assessment is required of both new and qualified suppliers.
Should the evaluation be negative the request for qualification is rejected and the supplier cannot be invited to tender for the Group. The evaluation of the individual sustainability requirements contributes to the business’s overall eligibility evaluation for inclusion in the Enel Registry of Qualified Suppliers. Should enrollment in the Enel Registry be rejected due to a negative evaluation of one or more sustainability requirements, the supplier may present a new request for qualification at a later date.
Over the course of 2018, 100% of qualified suppliers were evaluated on the basis of social, environmental and safety criteria2, the total number of suppliers with a contract still active at the end of 2018 is about 2,700, while the total number of active qualified companies is about 6,300. The table below reports the percent advancement of qualified suppliers for the three aspects
2 New suppliers for 2018 with an active direct contract with a value of > 25,000 euros amounted to over 10,731, around 23% of whom are qualified.
% QUALIFIED SUPPLIERS
(1) The human rights analysis, during the qualification phase for suppliers, was adopted starting in 2017.
B. Tender process and contracting
During 2018 over 6,000 invitations to tender were launched, 4,000 of which were online.
In particular, online negotiations have prevented the printing of about 1 million pages, reducing the environmental impact of these activities.
Enel’s commitment to introducing considerations for sustainability into tender processes has continued, through the introduction of a “K of sustainability” factor.
The so-called “Library” used to catalog the “Ks of sustainability” has been perfected and can be used during the tender phase by the various procurement units, consistently with the various CMs.
Three main categories are envisioned:
- environmental Ks: for example, possession of ISO 14001 certification, waste management, EMAS certification – circular economy;
- safety Ks: for example, possession of OHSAS 18001 certification;
- social Ks: for example, hiring personnel who are unemployed/on subsidized layoff/in worker mobility or young people starting their first job.
Since 2016, new operating procedures have been defined and adopted at the Group level regarding integrity requirements for suppliers, with the aim of consolidating the existing control system through more incisive action to contrast corruption, especially by: defining specific criteria for the documentary verification of integrity and legal requirements that are homogeneous and can be applied to the procurement process (from the qualification phase to awarding the individual contract); defining operating verification procedures, aimed at enhancing the prevention instruments available and impacting, in a rational, organic and determined manner, any aspects related to corruption issues and the factors that favor its spread; promoting a widespread culture of respect for rules and ethics. An artificial intelligence system was subsequently integrated in the process as a tool for the analysis and mitigation of risks to reputation or the environment, social risks, etc., which, through verification from open sources allows for the continuous selection and monitoring of suppliers.
Enel has defined specific contractual clauses, included in all contracts for works, services and supplies that are updated periodically to take into account regulatory changes and to follow best international practices. The General Conditions of Contract consist of a general part, containing the clauses applicable in all countries, plus the Country Annexes, containing the specific clauses applicable in each individual country in question. Regarding the sustainability of the supply chain, Enel demands of its contractors/service providers and subcontractors, among other things, respect for and protection of internationally recognized human rights as well as respect for social and ethical obligations in the following areas: protection for child labor and for women; equal treatment; prohibition against discrimination; freedom to form unions, gather and be represented; forced labor; health; safety; care for the environment; health and hygiene conditions; as well as legality, retribution, security contributions, insurance and taxes. In addition, suppliers are expressly asked to undertake the adoption of the principles of the Global Compact and to guarantee that these are met when carrying out all their activities, whether executed by their own employees or by subcontractors.
Besides this, suppliers must undertake to respect the principles found in the Enel Code of Ethics, or in any event, to aspire to principles equivalent to Enel’s when managing their business. Finally, it is specified that the “International Labour Organization” covenants are applied, or the applicable law in the country where the activities will be executed, if these are more stringent.
In these areas, Enel reserves the possibility of conducting any inspection and monitoring activity to verify compliance with the aforementioned obligations both by the contractor and by any subcontractors or others employed by the contractor for the execution of the contract and to immediately terminate the contract in the event that violation of said obligations are demonstrated.
It is important to underline that Enel constantly monitors current and potential risks related to the activity throughout its supply chain. For example, since 2016 internal analyses have been underway to verify that suppliers of products containing or using cobalt respect human rights: in-depth research and interviews with the main suppliers have been conducted and specific contractual clauses have been introduced. In addition, Enel actively participates in the Global Battery Alliance organized by the World Economic Forum.
C. Vendor Rating
The Vendor Rating (VR) is a tool used to verify the behavior and performance of suppliers during the execution of the contracts. The process is governed by a specific procedure. The VR is based on the objective and systematic collection of data and information about the provision of the goods or services covered by the contract. The data collected is then used to elaborate specific indicators, which include punctuality, quality, correctness and safety. These indicators are weighted and combined to produce the Vendor Rating index. Such information is then used for evaluating participating in calls to tender and/or the continuation of the contract in compliance with applicable law.
Over the past year 398 MCs and 2,423 contractors were monitored using the VR process (429 MCs and about 2,915 contractors in 2017). Over the course of 2018 the “Vendor Rating Transformation” project was carried out, and will be active, in a pilot phase, starting in early 2019. As part of this project the process was analyzed and the categories of analysis were reviewed, these now also include, besides health and safety and punctuality and quality, a specific category dedicated to social relations and labor rights.
Through the Supplier Qualification System, the VR System and the inspections carried out during the execution of the contract, Enel tends to minimize the possibility of withdrawal or termination of the contract. If during the execution of the contract Enel detects critical issues concerning a contractor’s behavior, an improvement plan can be defined jointly with the supplier, the implementation of the plan will be monitored constantly by Enel; for example, for workplace safety, a supplier was asked to update an internal policy to make the Stop Work Policy explicit and to update the method used for the reporting and analysis of accidents to include the appropriate KPIs in communications with the top management of the partner company.
Number of tier 1 suppliers
evaluated over the course of 2018(1):
Percentage of tier 1 suppliers evaluated to whom corrective actions were assigned
Percentage of suppliers evaluated with improvement corrective action plan whose ESG performance improved following the action plan
(1) The value includes the assessments made during the tender phase and the awarding of the contract.
Within each phase of the procurement process, specific commissions are identified, made up of representatives from both the procurement area and the Business Lines, with the task of assessing and monitoring supplier performance.
In particular, the following commissions were established:
- Qualification Commission;
- the Integrity Committee, which the Security and Legal and Corporate Affairs Functions also participate in, usually meets on a monthly basis or whenever a critical issue emerges regarding a supplier. Its aim is to share and analyze situations for which actions or sanctions are to be taken against the supplying companies.
In addition, specific units have been set up at the individual country level, the Contract Controls Areas, which have the task of carrying out checks to ensure the responsible management of the supply chain and assessing and managing the risks in relation to joint and several liability (to which contractors and any subcontractors are contractually bound). The controls envision an initial massive documentary analysis with the purpose of verifying the correct payment of social security contributions and the correct fulfillment of contractual obligations by suppliers.
Training and information
Over the past years Enel has organized numerous meetings with contractors on sustainability issues aimed at the exchange of ideas and approaches. Specifically, between June and September 2018 “Suppliers Day” events were held in Italy, Peru, Colombia, Spain, Romania and Brazil. On the dedicated Internet portal (https://globalprocurement.enel.com/it.html) Enel has reserved a specific section for the publication of articles and information on the main business and sustainability issues.
Additionally, in keeping with efforts to safeguard and raise awareness, especially about health and safety topics, and in an Open approach and the goal of fostering partnerships with suppliers, Global Procurement – within the scope of the SHE 365 project and in collaboration with HSEQ – launched a survey in 2018 for suppliers who work with merchandise categories considered to pose a safety risk.
In addition, Enel’s suppliers have available a single registration point, the “Open Supplier Portal” (www.globalprocurement.enel.com), which enables them to interact with all the companies of the Enel Group through one global dashboard and to use all the services available: respond to invitations for tenders, manage their own approval process, view their own Vendor Rating, ecc.