MSC - Marine Stewardship Council Consultation Document: Review of CoC Requirements for Subcontractors Consultation Dates: 11 September 26 October 2013 MSC Contact: Oleg Kisel Executive Summary FOR CONSULTATION This project aims to review Chain of Custody (CoC) requirements for subcontractors in order to make these requirements more clear, more consistently implemented, and more effective at managing traceability risks in the supply chain. The project was initiated in response to stakeholder concerns that the current requirements for subcontractors are confusing, inconsistently enforced, and can create traceability risks due to the fact that contract processing records for MSC products may never be audited. A number of options are proposed to address these issues, including changes into the Certification Requirements (CR) that will: Provide clarity on the specific processing records to be kept by companies using contract processing and those companies performing contract processing Be more specific on how certifiers should verify contract processing records during audits Together these changes will give certifiers better visibility into where contract processors are used in the supply chain, will help certifiers detect traceability issues related to contract processing, and will give certificate holders more clarity on the records they need to keep. Within this project, an additional change is also proposed that will clarify requirements around the use of financial agents by CoC certificate holders. Currently, agents that perform financial or logistical services on behalf of certified companies are sometimes not documented or certified (even if they technically take ownership of products). This has led to confusion for certifiers and certificate holders, as well as potential risks to the integrity of the CoC system. The proposed change will clearly define agents and will clarify that these operators do not need CoC certification provided they meet specific requirements and that all traceability documents have the certificate holders name and CoC codes. Purpose This consultation asks for stakeholder feedback on proposed changes to CoC requirements relating to subcontractors and agents. Stakeholders are asked to comment on the options, the implementation of these options, and any other factors to be considered in relation to the project. Background Currently, the CoC requirements for using subcontractors can be found in the CoC standard and various sections of the Certification Requirements (CR). Criteria 1.4 of the CoC standard states that organisations using subcontractors must be able to demonstrate that the requirements of the CoC standard are met by its subcontractors. In addition, the CR outlines several additional requirements for use of subcontractors, which can be summarized as follows: Companies must notify the certifier prior to the use of all subcontractors (except for subcontract transport or storage facilities). Companies need to have a signed agreement with most subcontractors (except transport companies) which requires the subcontractor to conform to all relevant requirements of the MSC CoC standard, and allows MSC and ASI access to the subcontractor s site and documents Companies must keep a record of all subcontractors used for MSC products (except transport companies), which includes the name, address and MSC products handled. Certifiers must always perform an onsite visit where product is processed or transformed by a subcontractor that does not have CoC certification. Key issues with current subcontractor requirements Although the CoC standard (criteria 1.4) requires organisations to demonstrate that any subcontractors handling MSC products meet the CoC standard, feedback from stakeholders suggests this requirement is inconsistently understood and enforced across the supply chain. Stakeholders suggest that more clarity is needed to help companies understand how to demonstrate that their subcontractors meet the CoC standard (particularly for contract processors), and how this should be verified by certifiers during an audit. Other key concerns related to the existing requirements are summarised below:
1) Companies must keep a list of all contract processors used (BD4.2.3.1) and must provide a mass balance if the contract processor is not certified (BD4.2.4.2). However, if the contract processor has their own CoC certificate, there is no requirement for the client company to keep a record of all MSC products processed by the contract processor on their behalf. These records may never be checked during an audit of the main certificate holder or the contract processor, and this is particularly true if the two companies have different certification bodies. This creates a traceability loophole that can threaten the integrity of the CoC system. 2) The CR provides very little clarity to auditors on how subcontractor requirements should be checked during an audit. For example, in section 17.4 of the CR (Evaluation) there are clear instructions for certifiers on how to verify conformity with BD3 (Requirements for Under MSC Assessment fish) but no instructions on how to verify conformity with BD4 (Requirements for use of subcontractors). Stakeholders want more clarity on which records should be checked during an audit, particularly related to contract processors. 3) During the project consultation, an additional issue was raised regarding use of non-certified agents. These companies provide marketing, logistical, or financial services on behalf of the certificate holder, and may sometimes take legal ownership of the product. The CR is not clear on whether these companies need their own CoC certification, and therefore in some cases they are currently treated as subcontractors. More clarity is needed on whether agents must have their own CoC certification or whether they can be classified as subcontractors. The existing subcontractor requirements are also scattered throughout the CoC standard and CR, which makes it difficult for certifiers and companies to understand what they need to do (and to verify) for the use of subcontractors. The MSC will address this larger issue of restructuring during the CoC standard review in 2014/15. In the shorter term, the MSC will issue guidance documents for companies including how to manage subcontractors. The MSC will also ensure that all subcontractor requirements are reflected in the MSC audit checklist, which will give more clarity for certifiers on how to verify conformity with these requirements and document findings. Considerations Through the course of project development, the MSC has consulted with internal and external stakeholders including the Technical Advisory Board Working Group (TAB WG), Supply Chain Working Group, certifiers, CoC certificate holders, and representatives of other standard setting organizations. To help inform this project, research and benchmarking was done to compare how subcontractor requirements are handled by other standard setting organizations (FSC, Fairtrade, GlobalGap, Rainforest Alliance Network, UTZ, BRC, Soil Association, KRAV, Freedom Food). Overall, stakeholder feedback suggested that: The primary responsibility should be on each certificate holder to ensure subcontractors follow requirements and comply with the CoC standard More consistency is needed on how certifiers should verify conformity with subcontractor requirements during an audit and how to record this information Clear guidance is required for companies and certifiers on what process to follow where contract processors are used Stakeholders were also consulted on additional issues related to subcontractor requirements, including use of Table B3 ( Risk assessment for interim certification/subcontractors ), assessment of traceability risks during storage and transportation, and the timing of audits of non-certified contract processors. Based on initial consultation feedback from CoC-certificate holders and and certifiers, it was not recommended that these issues should be put forward for further consultation at this point. Stakeholders agreed that Table B3 should be redesigned, but recommended that this work should be combined with the upcoming CoC standard review in 2014/15. Recommendations To address issues #1-3 above, the following changes are proposed. The detailed text changes proposed for the Certification Requirements can be found in the corresponding Annexes A-C. Proposed Change #1: Introduce new requirements into Annex BD of the CR that specify which records need to be kept for companies using contract processors, and which records must be kept by CoC-certificate holders that provide contract processing services. Proposed changes to the CR would require companies to: 2
Record all volumes and processing dates of MSC-certified products handled by a contract processor, or processed on behalf of a certified company Keep an updated list of all contract processors used, which includes the CoC code (if certified) and date of the most recent certifier audit (if not certified) Refer to Annex A for the proposed CR text for this recommendation Proposed Change #2: Introduce new requirements into section 17.4 of the CR which give more detail on how certifiers should evaluate conformity of contract processors. These requirements would be applicable during audits of certified contract processors and audits of companies using contract processors. Certifiers would be required to carry out a reconciliation of total raw material volumes and finished product volumes for a selected batch or (or batches) of certified product handled by a contract processor. The MSC audit checklist will also be updated to reflect these requirements and to ensure that certifiers are checking subcontractor records in a consistent manner. Refer to Annex B for the proposed CR text for this recommendation Proposed Change #3: Introduce a new definition of agents into the CR, classifying agents as companies that perform financial services on behalf of other companies. Introduce new CR clauses that allow agents to not require CoC certification provided they meet the definition and provided that all documents (invoices, etc) state clearly that they were issued on behalf of the certified company, and include the name and CoC certificate of the certified company. Refer to Annex C for the proposed CR text for this recommendation Together, the proposed changes #1 and 2 will give certifiers and companies clearer guidance on which records to keep for contract processors, and how these records will be checked during audits. These changes will ensure that a full record of contract processing is maintained for MSC products, which will help to address the traceability risks related to contract processing under the current CoC system. The proposed changes will also require certifiers to more consistently document their audit findings related to subcontractors, and will allow the MSC to verify and cross-check the records for contract processors when necessary. The additional requirements proposed relating to subcontractors could be seen as creating an additional burden on certificate holders, especially those with large numbers of contract processors. However certificate holders may realise that these new requirements help reduce the risk to them of using subcontractors, and produce greater commitment from their subcontractors to comply with requirements. The proposed change #3 will give more clarity on whether agents need to be certified and will make sure that if agents are not CoC-certified, there will still be a full record of traceability for MSC products. Consultation Questions Stakeholders are asked to provide feedback on the following questions: 1) Do the proposed requirements for the companies to keep records about contract processing look viable and easy for companies to follow? (Refer to Annex A) 2) Does the proposed audit process for certificate holders and contract processors look practical, and robust enough, to ensure that the risk for the traceability is reduced? Are they easy for certifiers to follow? (Refer to Annex B) 3) Do you support the proposed definition and requirements for agents? (Refer to Annex C) 4) Do you see any outstanding issues with subcontractor requirements which the MSC should address in the future? Who can comment? This consultation is open to any interested stakeholders Next steps 3
Following this consultation, new requirements and guidance will be drafted. This will be submitted to the MSC Technical Advisory Board for final approval in December 2013 Further Information Contact: Oleg Kisel MSC Product Integrity Manager oleg.kisel@msc.org 4
Annex A: CR Text for Recommendation #1 Proposed changes to the Certification Requirements BD4 (new text in bold) BD4 BD4.1 Requirements for the Use of Subcontractors Applicability BD4.1.1 Requirements in this section apply to applicants and certificate holders that use subcontractors or provide services as contract processors handling certified seafood BD4.2 Requirements BD4.2.1 The certificate holder shall apply to their certification body prior to use of a new subcontractor. This requirement is not applicable to certificate holders subcontracting transport companies or cold storage facilities. BD4.2.2 If an applicant or a certificate holder uses subcontractors (except transport companies) the applicant or certificate holder shall have a signed contract with all those subcontractors that require the subcontractor to: BD4.2.2.1 Conform to all relevant requirements of the MSC CoC standard. BD4.2.2.2 Allow the certification body and the MSC s accreditation body access to the subcontractor s site and to all relevant documentation. BD4.2.2.3 Acknowledge that they will conform to all reasonable requests for information from their client (the applicant or certificate holder), the certification body and the MSC s accreditation body. BD4.2.2.4 Allow the certification body to undertake further audit if a subcontractor is not independently certified for MSC CoC BD4.2.3 The applicant or certificate holder shall: BD4.2.3.1 Record the use of subcontractors, including their name and address, the nature and conditions of the contract and all relevant records of certified product associated with the subcontractor. BD4.2.3.2 For any contract processors handling certified products, the applicant or certificate holder shall also record: a) If the contract processor is certified, the CoC certificate number and its expiry date, or b) If the contract processor is not certified, the date of the most recent audit by the certification body, as per BD4.2.4.1 BD4.2.4 If the applicant or certificate holder subcontracts its processing activities of certified seafood to contract processors the applicant or certificate holder shall: BD4.2.4.1 Inform the contract processor that it will be audited onsite by the applicant s or certificate holder s certification body prior to the use of the contract processor if the contract processor is not certified independently. BD4.2.4.2 Provide a mass balance for each non-certified contract processor. BD4.2.4.3 Require the contract processor to keep records to allow the certification body to cross check with the applicant s or certificate holder s records. BD4.2.4.4 Provide details of all packaging produced, received and/or sent to contract processors. Keep updated records of all outsourced contract-processing of certified seafood including: a) Volumes of MSC-Certified products sent to and received from contract processors b) Product details c) Dates of processing d) Consignment documents e) Copies of invoices associated with material processed a) Be able to conduct a reconciliation for the certification body to demonstrate that the total packaging produced and used is consistent with the amount of MSC- 5
certified fish purchased and sold. Be able to conduct a reconciliation of the total volumes of raw material inputs and finished products outputs for a designated batch, or group of batches, as requested by your certification body. BD4.2.5 If transport companies are used, the transport company shall: BD4.2.5.1 Not knowingly ship or receive product transported on vessels listed on RFMO blacklists. BD4.2.5.2 Transport product in sealed containers if practicable. BD4.2.6 If the applicant or certificate holder provides contract processing services of certified seafood the applicant or certificate holder shall: BD4.2.6.1 Keep updated records of all certificate holders for which contract processing services have been provided since the previous audit, including: a) Company name and CoC code b) Copy of signed agreement with the certificate holder, as per BD4.2.2 BD4.2.6.2. Keep updated records of all contract-processing services provided for certified seafood, including: a) Volumes of MSC-Certified products received from and sent to the certificate holders b) Product details c) Dates of processing d) Consignment documents e) Copies of invoices associated with material processed BD4.2.6.3 Be able to conduct a reconciliation of the total volumes of raw material inputs and finished products outputs for a designated batch, or group of batches, as requested by your certification body. 6
Annex B: CR Text for Recommendation #2 Proposed changes to the Certification Requirements (CR 17.4) (new text in bold) 17.4 Evaluation 17.4.6. For certificate holders which use contract-processors (certified and non-certified) and for certificate holders providing contract processing of certified products, the CAB shall: 17.4.6.1 Reconcile the total volumes of raw material input and finished product outputs for a batch or group of batches selected by the CAB. The CAB may conduct the reconciliation or may witness the certificate holder performing the reconciliation 17.4.6.2 Where non-certified contract processors are used, the reconciliation of total raw material input and finished product outputs shall include at least one batch from a non-certified contract processor 17.4.8.2 If the contract processor is not yet handling MSC certified products, the CAB shall conduct a reconciliation of total volumes of raw material inputs and finished product outputs for at least one batch of non-certified products processed and shall ensure that systems are in place that demonstrate conformity with the MSC CoC standard 7
Annex C: CR Text for Recommendation #3 Proposed Changes to CR Table AA1: MSC-MSCI Terms and Definitions and Table B2: Activity Scope Definitions (new text in bold) Table AA: Agent: a company which provides marketing, logistics, financing, custom clearance and other services on behalf of its client (a certified organisation) based on an agency services agreement. Section 17.1 Need for certification 17.1.2.7 The CAB shall verify if the applicant is an agent which provides marketing, logistics, financing, custom clearance and other services on behalf of its client (a certified organisation) based on an agency services agreement, and has no other direct handling of MSC-certified products outside of this agency role a) If the applicant only handles certified products in the role of an agent as per 17.1.2.7 then the CAB shall inform the applicant that CoC certification is not a requirement, provided that: i. All invoices and documentation for certified products which are issued by the agent contain the name and CoC code of the certificate holder on whose behalf the agent is acting ii. The buyer and seller for any transaction of certified products handled by the agent have valid CoC-certification Proposed Guidance Note: G17.1.2.7 1. Agents are not required to be CoC certified as long as the invoice issued by the agent contains the name of their client (CoC certified supplier) and the packing list contains a clear reference to the invoice that enables the MSC auditor to connect the two documents and trace the products back to the MSC certified supplier. 2. The auditor can verify the agent status and traceability of handled products based on: - Invoice Issued by the agent or contract signed by the agent on behalf of the clients (certificate holders). Invoice or Contract need to have certificate holder s COC number - Copy of agency agreement between the agent and the client (certificate holder) - Packing list or consignment documents containing the clear reference to the raised Invoice 3. Agency agreements between client (certificate holder) and agent need to have section confirming that agent agrees to comply with MSC standards and requirements. 4. Certificate holders have to notify CAB about use of the Agents and Agents shall be recorded under the category of subcontractors. 8