The qualification process and monitoring of suppliers

Revision of the environmental and social oversight in the supply chain 

In 2012, Terna launched a project to verify the level of coverage offered by the current qualification procedures for Group suppliers and procurement, compared to the ESG (environmental, social, governance) dimensions, with the purpose of identifying and proposing possible improvements.

The project, which falls under the sustainability objectives identified as priorities for 2012, is a response to the attention placed on the supply chain by the 231 Model, and in general to the increasing interest in rating companies on sustainability and SRI investors.

The study studied the following aspects in depth:

  • environmental - relative to both the impacts that the supplier generates during the realization phase of the product or the supply of the service (external impact), and on those which come under the corporate perimeter of Terna since they relate to      the utilization and end of useful life disposal phases (internal impact);
  • social - relative mainly to the subject of human rights, with particular reference to occupational safety and labour rights (i.e. trade union freedom, child labour, contribution compliance) by the supplier;
  • governance - relative to the actual or potential use of suppliers with operations located in countries more at risk in regards to transparency, corruption, legality, and violation of civil and political rights.

The main fields explored were:

  • During the tender award phase:
    • subjective requirements, decisive in terms of the supplier's admissibility, both during the qualification phase, and during the tender phase (competition);
    • objective requirements, considered for purposes of technical evaluation of the bids;
  • During performance phase:
    • verification of actual behaviour during the performance phase of the contract;
    • a sanction system.

At the conclusion of the analytical phase of the project, certain lines of action were identified in order to improve environmental and social oversight in the various fields potentially involved, through technical specifications in qualification of suppliers and through monitoring of tenders. The project will continue with the definition of an improvement plan and the priorities for 2013.

 

Scrupulous management of ethical, social, and environmental aspects in keeping with Terna’s policies is a condition for inclusion in the register of suppliers for companies that belong to the product categories subject to qualification.

The qualification process enables Terna to assess suppliers with regard to their observance of the law, their technical, organizational, and economic solidity, and their conformance with the ethical, social, and environmental requirements of Terna’s policy as expressed in the Company’s Code of Ethics.

Among other things, the qualification requirements include:

  • the application of conditions regarding rules and pay that are not inferior to those provided for by the collective-bargaining agreements applicable for the same kind of work;
  • the observance of laws regarding the protection of the environment and occupational safety;
  • the existence of documented procedures adopted for the protection of the environment and of the safety and health of workers. 

The qualification requirements are correspondingly more severe in segments where environmental and social aspects have particular significance. Suppliers are asked for ISO certifications or in any case the existence of documented procedures adopted regarding environmental protection and occupational health and safety.

At present, of all qualified suppliers, more than 50% have or are acquiring certification in the OHSAS 18001 safety field and over 60% have or are acquiring ISO 14001 environmental certification.

The purpose of the monitoring is to ascertain whether the requisites are maintained throughout the three years in which the qualification is valid. This monitoring includes the use of IT systems to continuously screen information, such as reports from Company departments, external sources, or news reported by the media. During 2012, the Company monitored 508 suppliers, registered directly on the new (operational as of February 2012) IT application, which is located on the Terna Qualification Portal.

During 2012, relative to the product categories of work contracts for which training of personnel is scheduled according to Terna specifications (see the next section on Work Contracts), the position of Quality, Safety and the Environment (QSA) Manager has been added. The introduction of the aforementioned professional permits a single individual to be identified within the contracting company, who is in charge of monitoring the improvement and proper application of activities relative to Quality, Safety and the Environment, serving as a single interface for Customer-Company.

In line with the objective to continuously improve qualifications, the last three-year period has shown a consistent increase in categories and qualified companies, as well as in monitoring activity carried out.

In the event their behaviour is no longer in keeping with the qualification requirements, suppliers may be warned or temporarily removed from the Register. In the most serious cases, cancellation is provided for. In 2012, following an analysis of non-compliance, 5 suppliers were temporarily suspended, while 4 were warned; on the other hand, no cancellations from the Register were recorded. The entire company qualification process, from the initial qualification to the monitoring of actual behaviour and the infliction of sanctions is entrusted to Terna's Company Qualification Committee, which consists of eleven members of top management and an external independent Chairman with proven legal and technical expertise.

PROCUREMENT AND SUPPLIERS

2012 2011 2010
Number contracted suppliers 1,951 2,314 2,316
  Procedures adopted for awarding contracts (1)
European tenders 71 51 53
Non-European tenders 23 35 35
Without tender 6 14 12
Qualification
Companies qualified for entry in supplier register (2) 373 353 260
Qualified categories 41 41 40
% qualified suppliers (3) 64 43 48
Number of monitoring 508 749 593
(1) This is the percentage of the amounts awarded, for 2011-10 the figure excluded non traditional activities (2) For 2011, considering also the associated qualified companies in the consortiums, the total of the suitable companies in the Register would come to 372. (3) Number of qualified suppliers out of the total number of suppliers with orders in amounts greater than 500,000 euro.