Sustainable supply chain procurement based on smart legal contracts

It was surprising to discover the lack of information available to public sector procurers on sustainability data as we've gone through our journey on researching and designing solutions as part of our participation in the European Commission GovTech Bootcamp program.

Despite global and national increases in regulatory requirements, perceived importance of sustainable procurement, and ever-present threats being introduced by environmental impacts ranging from pollution to erratic and dangerous weather - the vast majority of procurers have virtually no measurement data available to them.

Understanding the problem

The following survey results by the 2022 UN Environment Programme Global Review demonstrate the single largest measurement available is just how many procurements have some kind of sustainability criteria at 33% of respondents. 24% have no measurements at all.

You can imagine this as having a room with four police chiefs, and when you ask how they monitor arrest performance, only one of them can tell you how many arrests total. One doesn't monitor at all. How did we get here?

Fortunately, we have this data too. The following survey results from the same UN report identify the strongest barriers to implementing sustainable procurement in organizations. The results have been truncated to the top 14 (over 23 reasons were given).

It's obvious there is no shortage of barriers. The challenges are numerous and diverse enough for there clearly to be no one-size fits all narrative or solution, and that makes perfect sense. It is a new and growing priority that has only had significant regulatory enforcement for the first time on our planet over the last decade.

Clearly, sustainable procurement just needs to be made easier to scope, implement, and track. As I continue to seek understanding of the problem and opportunities, I'm beginning to appreciate the start of a vision.

Meta procurement

Smart procurement is a somewhat loaded term. It can refer to procurement that is driven by social good, or by technology-driven automation and decision-making. We will distinguish from both by categorizing our segmenting our discussion into a sub-category of both called meta procurement.

A meta procurement is a solution concept design we're exploring at Combine DAO. The concept is driven by the goal of reducing the barrier to achieving complex outcomes by decentralizing the workflow logic of coordinating activities to the contract. Rather than a single, centralized organization responsible for complex activities - we divide responsibilities for stakeholders into roles that interface with a smart legal contract in a decentralized way.

A smart legal contract is a natural language contract that includes models to define concepts and things, as well as accompanying logic. Combine is developing open source smart legal contracts based on the Accord Project.

How it fits together

A large procurement will involve dozens of different stakeholders, parties, and actors. Coordination among those parties takes a tremendous amount of effort. Different software systems, different languages, different ways of working, different standards, and dozens of others of factors increase the complexity of coordination.

Instead of having them coordinate themselves, we will delegate workflows to one that is managed by a smart legal contract. The smart legal contract maintains the state of the workflow - not the individual parties. Each party simply interacts with it. For example, they may submit a purchase order, or a request for transport, directly to the contract which then coordinates backend logic.

Our scenario below will involve the following roles:

Supplier company: An authorized set of companies that can be used to purchase materials from.

Transport company: An authorized set of companies that can be used to move supplies.

Construction company: An authorized set of companies involved in construction activities.

Public administrator: A public sector organization or group that manage and monitor the smart legal contract.

Construction logistics meta procurement contract

An example meta procurement may be driven by a smart legal contract to coordinate the following:

1. Supplier vendor company certifies materials/products meeting sustainability standards. They are included as an authorized supplier within the contract.
2. A transport logistics company certifies sustainable fuels, practices, and fleet management. They are included as an authorized transport solution within the contract.
3. A construction company included in the contract orders from the other authorized parties. They also certify their practices.
4. The procurement administrator has complete situational awareness of the entirety of the supply chain and can monitor/extract performance details for regulatory reporting.

The example meta procurement above has the following key advantages:

Data can be transparently shared between parties

Since the smart legal contract holds the state of the procurement information, it can be queried by any party that is given permissions to read from it. This means that parties participating in the procurement activity can share information without needing to interface with one another - they just check the information in the contract. The information in the contract can also be automated to share to external systems.

Accountability for all parties is increased

If the smart legal contract is coordinating logic, it means that the parties must interface with it to accomplish their task. This removes the ability for any one party to deflect or neglect their responsibilities and lay blame on another. It ensures all parties are honest with one another about the current state of activity and performance data (costs, transport dates, etc.).

Responsibility for managing data is decentralized

Instead of an overreliance on a single vendor to understand their entire supply chain, the supply chain is instead contained within the smart legal contract. It avoids the need for a vendor or tender participant to invest a large amount of resources to understanding things that are outside of their expertise. Each party submits the information that is appropriate for them.

Sustainability compliance is directly monitored and enforced

The data relevant to the procurement administrators, public or otherwise, is always directly accessible. It doesn't require a technical understanding of the whole supply chain or how requirements are met - just that they are being adequately reported.

Furthermore, if there are contractual breaches, enforcement can be directly integrated into the lifecycle of the smart legal contract to employ sanctions or trigger relevant warning systems.

Meta procurement is an evolutionary opportunity

We're excited to explore the opportunity poised by the concept of meta procurements. We're also confident that the future of numerous markets lie in this same concept, where actors within an overall system are decentralized. It encourages competition, accountability, and integrates participants into data-driven processes without unfairly hampering their ability to run their own businesses and processes.

If you're interested in exploring it with us, don't hesitate to reach out to contact@combinedao.com to discuss it with us.