Negotiate Fairly

Prepare for fair contract negotiations

Prepare to engage in processes that treat suppliers fairly and as partners in achieving sustainability. Start by identifying your most crucial sustainability value factors and critical questions to ask before you go into contract negotiation with suppliers. You need to make it clear in these discussions that sustainability is a priority by asking suppliers about their sustainability capabilities, past performance, and any details of their proposal that you do not fully understand. It is also an opportunity to hear their expectations relating to sustainability in the contract. This information will allow you to decide where and how suppliers will need to be supported in achieving contract sustainability goals.

Structure negotiations to deliver on sustainability in a mutually beneficial way

Structure negotiations so that the responsibilities, risks, and rewards of achieving sustainability outcomes are shared. Begin by understanding the supplier’s perspective on which cost factors could stretch them financially.¹ Then make sure to avoid high-pressure negotiation strategies that will compromise the supplier’s ability to meet social and environmental terms. These strategies include, promoting cost competition or imposing short deadlines.

You can also incentivise sustainability innovation and performance during negotiations by proposing a “gain sharing agreement” where suppliers receive payment in exchange for performance improvement, such as reduced GHG emissions.² The distribution of benefits would need fairly negotiated.

Another key consideration at this stage is risk-sharing related to foreign exchange or commodity price fluctuations. Especially for smaller suppliers with limited hedging capacity.

EXAMPLE: Marks and Spencer (UK) ringfences labour costs

Marks and Spencer (United Kingdom) developed a “Cost Price Model tool” to ringfence labour costs. This meant labour costs were marked as a separate fixed cost and excluded from price negotiations allowing suppliers to pay living wages.³

EXAMPLE: Undercompensated suppliers unable to meet compliance requirements

In the fashion industry, more than 20% of suppliers indicate that less than 80% of the orders received from retailers or brands were priced to cover the cost of social, environmental, quality, and other compliance requirements.⁴

Build partnerships and engage in open dialogue

Create the conditions for mutually agreed sustainable performance expectations by starting negotiations with a partnership mindset and encouraging supplier input on draft contracts for mutual sustainable commitments.⁶ The final version should reflect all sustainability commitments in the winning tender. Consider also supporting suppliers (e.g., SMEs) to understand contracts by simplifying language, subsidising legal resources, designing fair and reasonable delivery terms, and including fair exit terms.