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Responsible management of contractors and suppliers

We safeguard integrity in our relationships with our suppliers and contractors, with decisive criteria that are organized into the following categories: environment, safety, ethical conduct and human rights. This year we conducted over 3,700 classification processes and 821 audits on suppliers and contractors.

We continue to enhance our policies and our system for managing the supply chain, to ensure that our contractors and suppliers conduct themselves in line with Repsol's sustainability commitments.

During 2011, we collaborated with 27,758 suppliers and contractors from 85 countries to carry out our activities

We have consolidated the process for reviewing our supplier management policies, begun in 2010. Following their approval in 2011, the changes introduced to strengthen our supplier rating process have come into effect, with guidelines that explain in greater detail our commitment to ethical conduct and respect for human rights in our supply chain.

We safeguard integrity in the company's relationships with its suppliers and contractors, with decisive criteria that address the environment, security, ethical conduct and human rights. We require compliance with internationally recognized standards, as will as with the current stipulations on security, the environment, ethical conduct and respect for human rights found in our company policies. When a supplier or contractor is not able to comply with these requirements, they are not authorized to take part in calls for tender, and cannot be awarded contracts.

Furthermore, our general conditions for purchasing and contracts include clauses requiring compliance with our policies and procedures, and with current legislation and international standards, such as the United Nations' Universal Declaration of Human Rights and the International Labour Organization's (ILO) Declaration on Fundamental Principles and Rights at Work.

As part of the Sustainability Plan 2012, we worked in 2011 on a proposal to enhance the general conditions for purchasing and contracts, with the inclusion of clauses that detail our demand for respect for human rights and ethical conduct. During the course of 2012, these clauses will be formally embedded in the general conditions for purchasing and contracts.

Integrating corporate responsibility into the purchasing and contracts model

The changes to our policies and management system related to ethical and human rights issues, begun in 2010, were fully implemented in 2011:

  • Inclusion in our supplier rating questionnaire of a specific section on "Ethics and Human Rights", covering basic questions in the case of low levels of criticality and more detailed questions in the case of suppliers that provide goods or services of a medium to high level of criticality.
  • Assessing ethical conduct and respect for human rights in rating processes subsequent to the new policy coming into effect.
  • Inclusion of a specific section in the audit guide, which is produced to assist with rating in areas of high criticality, for verifying aspects relating to working conditions, discrimination, freedom of association and child labor among others during visits or via documentary evidence.
  • Updating the list of countries and goods or services thought to pose the greatest risk of corruption and human rights violations. We are including this criterion in assessing the level of risk to our reputation that might be engendered by our relationship with suppliers or contractors.

All of these policy changes covering requirements depending on the level of criticality affect all suppliers and contractors in areas of low, medium and high criticality.

Likewise, in certain circumstances it may considered advisable to increase the requirements when rating a supplier, raising their level of criticality. This is a measure that is taken into account when entering into long-term contracts, with high invoicing volumes or with activities that could have a significant impact on nearby communities.

Rating of contractors and suppliers

Through its rating processes, Repsol gets to know its contractors and the mechanisms they have in place for conducting themselves in line with responsible practices.

This information is fundamental for us to be able to adequately manage the ethical, social and environmental risks inherent in the supply chain, which in turn allows us to identify opportunities for maintaining a relationship that generates value for both parties and for society.

Before beginning their commercial relationship with us, suppliers and contractors are obliged to pass through a rating process, according to the criticality of the goods or service that they are going to supply. This criticality is divided into four levels termed very low, low, medium and high and it determines the requirements of the rating process.

Supplier and contractor rating processes
  2009 2010 2011
Suppliers of goods:
Qualified 1,329 1,858 953
Provisionally qualified(99) 5 36 99
Not accepted 76 96 100
Provisionally disqualified - - 4
Services contractors
Qualified 2,451 3,190 1,991
Provisionally qualified 35 143 225
Not accepted 279 285 259
Provisionally disqualified - - 11
Suppliers of goods and service contractors
Disqualified 108

In 2011, the number of suppliers completing the rating or re-rating process fell. This was because in 2009 and 2010 a large number of ratings were carried out (covering more than 8,800 suppliers) and many of these ratings were still valid in 2011.

The number of processes resulting in a provisional rating increased. In a significant percentage of these cases, a considerable number of companies are performing less well than expected, in the context of the economic crisis we are experiencing. To avoid automatic rejection for this reason, we decided to offer a provisional rating, accompanied by monitoring of the economic and financial progress of the supplier or contractor.

In 2011, a total of 15 of our suppliers were provisionally disqualified, based on a negative assessment of their performance or for not reaching the minimum standards required during the rating process. The reasons were as follows:

  • Failure to fulfill the conditions of the order or contract: 11 suppliers
  • Unfavorable economic and financial situation: 2 suppliers
  • Legal conflict between the supplier and our company: 1 supplier
  • Disciplinary sanction: 1 supplier.

Additionally, a further 108 companies were disqualified indefinitely for committing serious breaches that justified the withdrawal of their rating. Given the repercussions of this disqualification, particularly its indefinite duration, decisions of this kind require the approval of the Purchasing and Contracts Functional Committee, the highest coordinating body in the company's purchasing and contracts area. The reasons for such disqualifications were:

  • Negative economic and financial situation: 96.3%
  • Technical or quality issues: 2.8%
  • Negative performance assessment: 0.9%

Control mechanisms

In 2011, 821 audits were carried out in 12 countries. Our purchasing and contracts policy requires audits of suppliers operating in areas of high criticality.

Audits of suppliers and contractors
Country 2009 2010 2011
Spain 200 111 68
Argentina 659 610 689
Bolivia 9
Brazil 1 6
Chile 3
China 3 3 1
Ecuador 20 6 8
France 1
Germany 1 1
Italy 1 3 4
Japan 3
Mxico 1
Peru 37 41 26
Portugal 26 14 13
Russia 3
Trinidad and Tobago 5
United Kingdom 1
United States 1 3
Venezuela 2 1 1
Total 967 798 821

The fall in the number of audits in Spain and Peru compared to 2010 is due to the fact that many of the ratings of suppliers in areas of high criticality awarded in previous years remained valid.

Repsol conducts audits largely through contracted outside companies. We work with two companies in Spain, one in Argentina and for the Upstream business, one for Bolivia, Ecuador and Peru, and one for Portugal. In 2011, auditing firms carried out 803 of the audits. On some visits, Repsol staff were present, accompanied by the auditing firm. The remaining 18 audits were carried out exclusively by Repsol personnel.

Ethical and human rights audit

In 2011, with the changes affecting our policy on the management of suppliers coming into effect, a specific section on ethics and human rights was included in the rating audit of suppliers and contractors.

Now, when we carry out an audit, we verify in situ issues such as:

  • Respect for human rights:
    • Forced labor
    • Child labor
    • Discrimination and abuse
    • Working hours and remuneration
    • Freedom of association and collective bargaining
  • Ethical conduct:
    • Corruption
    • Fraud

Additionally, the policy allows for social audits of those suppliers and contractors where a high reputational risk is perceived. The overall aim of the audit is to verify the ethical conduct of these suppliers and their respect for human rights.

Apart from holding meetings with management, the audit also includes personal interviews with some of the company's workers. We have an audit guide that covers the scope of the visit, detailing the evidence that must be requested to prove compliance concerning the ethics and human rights issues mentioned above.

At the end of 2011, in order to gain experience in social audits of this kind, we set in motion a pilot trial, for which we carried out 10 audits. The companies chosen were in some cases direct suppliers of our company, with a contract and order; and in other cases we went further down the supply chain and audited subcontractors, that is, companies that supply our own suppliers.

Specifically, the audits took place in:

  • Spain: Two audits of direct suppliers
  • Morocco: One audit of a subcontractor
  • China: Two audits, both of subcontractor companies
  • Peru: Five audits of direct suppliers

To select the companies to be audited, we took into account the goods or services that these suppliers and contractors provide, focusing on those with a higher level of risk: Supply of work clothes, supply of footwear, cleaning companies, security services, service station maintenance services, infrastructure services and construction of exploration and production platforms.

A technical instruction document is currently being drafted, which will be completed in 2012, to define the action to be taken in the event that breaches regarding ethics or human rights are detected among our suppliers.

Performance assessment

Supplier performance assessment is the process of systematic and documented evaluation of the most significant aspects of the relationship between our suppliers and Repsol. Its goals are to:

  • Establish a benchmark that allows for continual improvement and decision-making with the greatest possible objectivity
  • Serve as a criterion for maintaining and modifying the given rating of suppliers or contractors
  • Select suppliers to take part in calls for tender

All suppliers in areas of high criticality are obliged to undergo at least one annual performance assessment.

It is essential to carry out supplier assessments where suppliers affect:

  • Quality: Functional aspects and/or the performance of the goods or service
  • Management: Operational and commercial aspects of the supplier and aspects relating to social responsibility.
  • Security: Of people or goods
  • Environment: As defined by current legislation and regulations
Assessments carried out 2009 2010 2011
Suppliers of goods 375 132 615
Service contractors 931 1,324 1,281
Total 1,306 1,456 1,896

In the 2011 policy review, the possibility of assessing aspects of social responsibility, including issues relating to ethics and human rights, was included as a criterion for performance assessment. In 2012, more emphasis will be placed on their inclusion in practice.

Measures to resolve the situation are established according to the gravity and frequency of any non-compliance detected, and formal warnings are given. If the situation continues, the contracts are revoked or decisions are taken not to renew them. In 2011, seven contracts were rescinded due to supplier non-compliance.

Managing failure to comply

Through the rating audits and assessments, it is possible to identify suppliers' failures to comply which affect the performance of their activities. The ultimate aim is that, once these issues have been identified, the suppliers will improve their processes within a set period of time.

The most commonly detected breaches during the rating audits are:

  • Insufficient documentary support for management systems
  • Lack of evidence of guidelines or support to ensure the company's commitment to corporate social responsibility
  • Lack of documentation pertaining to the company's general zero-tolerance policy on corruption. The procedures for applying this policy may not have been formalized or are not reviewed periodically to maintain their effectiveness or adapt them to the present situation
  • Failure of the anti-corruption policy to explicitly establish employees' obligation to report potential violations of the policy
  • Lack of a system or tool for complaints whereby employees can report violations of their working rights or cases of corruption or bribery
  • Lack of a procedure established to assess and select suppliers/partners that includes ethical, environmental and human rights standards similar to those of the company.

There were no instances in the suppliers we audited of practices involving forced or child labor, as defined the minimum working age established by national and international law. Neither did we detect instances of discrimination on the basis of gender, race, color, religion or other reasons.

(99) On some occasions a supplier may be "temporarily qualified" when it is found that it fails to comply with some minor requirement that prevents it from being classified as "qualified". This is a temporary situation that should be possible to remedy within a short period.