Our business partners, suppliers and contractors are critical to Hess’ overall success and our ability to maximize the efficiency of operations while minimizing operational risks. In 2017 we purchased approximately $4.7 billion in goods and services from more than 4,000 suppliers, whose workhours comprised nearly 70 percent of our total workforce hours.
We work collaboratively with these suppliers to improve performance and create shared value. We jointly review processes, procedures and data with suppliers to help drive the right actions and foster continuous improvement. For example, we continue to work with suppliers to implement Lean principles across our assets. Through Lean, we are finding new ways to integrate our efforts to create win–win solutions that eliminate waste and improve efficiencies. As part of that effort, we work with suppliers to develop standardized approaches – including standardized work instructions and material requirements – to various categories of maintenance jobs. This standardization and repeatability helps improve work efficiency and quality.
While this webpage describes our general approach to engagements with our suppliers, these practices may differ in certain instances if necessary to comply with applicable local laws and requirements.
We continue to enhance our capabilities to categorically manage our suppliers with a cross-functional team that works collaboratively to reach safety, quality, delivery and cost targets. Using this approach, our category management team members – representing critical organizational functions such as operations, engineering and finance – work together to create efficiencies while also building long-term, strategic relationships with key suppliers.
In 2017 we revised and improved our Procurement Policy to help us improve safety, minimize risk and standardize work throughout the organization. Our policy specifies who should participate in the evaluation of tenders, management of contracts and ongoing procurement of goods and services. It also includes code of ethics and conflict of interest guidelines and states that employees who violate the Procurement Policy are subject to disciplinary actions. The combination of our updated policy with other parts of our supply chain management system help to ensure that suppliers understand and abide by our high ethical, safety and other performance standards, while helping us avoid unexpected commitments and leverage our spend more effectively.
Hess follows a standardized approach to evaluate and measure the performance of key potential and current suppliers on the basis of total value, including safety, quality, delivery and cost. We have a centralized global system in place that houses contract templates and other key materials and manages the procurement process. We also use a central global electronic sourcing system to collect bids and evaluate suppliers. This system supports the efficient creation of online Requests for Proposals and encourages the use of best practices.
We employ a systematic prequalification and selection process to help ensure we are working with qualified and safe suppliers. Prospective suppliers are given a scope of work and environment, health and safety (EHS) expectations during the sourcing phase. Where appropriate, potential suppliers — as determined by a risk-based decision matrix — undergo a risk review, an anti-bribery and anti-corruption and legal compliance review and a review of EHS performance and programs. In addition, our procurement staff reviews where appropriate the potential suppliers’ insurance, tax and quality information. If discrepancies with our applicable requirements arise, the relevant department within Hess conducts an additional review and develops mitigation plans as needed.
Contracts that involve higher risk, due to either the number of workhours the supplier will work for Hess or the scope of that work, are subject to an EHS review during the procurement process that covers training qualifications, safety programs and performance, environmental management systems and measurement, and emergency preparedness and response. As one part of the EHS review, we use recognized industry prequalification systems for our areas of operation in the U.S. and Europe. Outside of these areas, we use a standardized process with a questionnaire based on our 14 EHS & SR management system elements.
When performed, the EHS review includes a review of a supplier’s training qualifications, safety programs and performance, environmental management systems and measurement, and emergency preparedness and response, among other topics. Potential suppliers receive a grade based on this review, and suppliers receiving a grade that does not meet our requirements must develop an improvement plan before they can contract with Hess. These formalized improvement plans are housed internally at the asset level using our existing EHS data system. Should an operational situation occur (such as an emergency) that requires the use of a supplier that has not completed the prequalification process or that has received an unsatisfactory grade, the asset vice president or director must approve the use of the supplier, and asset management must provide increased oversight.
At our Bakken asset, we perform monthly assessments of suppliers and help them develop improvement plans if we find any gaps in their EHS processes or performance.
Supply Chain Transparency and Compliance
The companies that supply Hess with goods and services must comply with applicable laws and regulations in areas such as EHS, drug and alcohol use, conflicts of interest and anti-corruption laws, and must maintain any licensing or permitting requirements with respect to their activities. Suppliers are also required to meet the expectations set forth in our Code of Business Conduct and Ethics and Hess’ Voluntary Commitments regarding labor and human rights. Standard contract clauses include requirements with respect to ethical business practices, human rights, social responsibility, business integrity, search and seizure, quality and EHS. For activities deemed as high risk, we endeavor to execute bridging documents – as appropriate – prior to contract execution where gaps exist between the supplier’s EHS management system and Hess’ EHS requirements.
In addition, clauses that cover federal contractor requirements are included in our domestic contract templates for suppliers. Contracts typically also include a requirement for suppliers to cooperate with all audits and inspections.
Our Code of Business Conduct and Ethics prohibits the use of local military or law enforcement personnel for activities in furtherance of our operations except where required by local authorities or in emergency situations. If the use of local military or law enforcement personnel is unavoidable, asset managers are required to seek prior approval from Hess’ Legal and Global Security functions.
In operating locations where security services are necessary, we contract for these services locally with support from our Global Security and Global Supply Chain functions. Contracts with security service providers include clauses covering security and human rights expectations. These clauses detail our requirements that security providers adhere to applicable international law enforcement principles, humanitarian law and human rights law. They also require our security service providers to communicate our human rights, social responsibility and ethical expectations to their employees and subcontractors, as well as demonstrate compliance. The aim of these clauses is to deliver a consistent message of performance expectations for security service providers across Hess’ operations. These expectations are detailed in our enterprisewide Security and Human Rights Policy and reaffirmed in our Security and Human Rights Toolkit, which can be used locally for training security personnel on human rights issues.
In the event of a security incident with human rights implications, a report is made to the head of Global Security. Reports are also issued for those occurrences, such as peaceful community protests, that highlight potential future risk to our operations. We are not aware of any incidents where public or private security forces engaged community members in 2017, and no incident reports of this nature were filed. Global Security continues to leverage our existing incident tracking system for reporting of security incidents.
Internationally we often prioritize local suppliers when performing under production-sharing contracts or other agreements with host countries. These agreements vary, but may include use of an approved supplier list, requirements for government approval of suppliers or threshold specifications for local companies or workers.
In Malaysia, for example, we use an approved vendor list that includes Malaysian-owned companies, and we also commit to holding our suppliers accountable to hiring local staff. In Equatorial Guinea, Hess worked with the government to identify qualified local suppliers and include them in tenders as applicable.
Supplier Engagement and Sustainability
Hess continues to engage with suppliers on issues that are important to our industry and our stakeholders. Since 2009 we have worked with current and prospective suppliers of hydraulic fracturing services to define acceptable fracturing fluid systems, including restrictions on the selection and use of certain chemicals. We require suppliers to publish fracturing fluid chemical composition and quantities via the FracFocus website. While the majority of chemicals are identified by unique identification numbers issued by the Chemical Abstracts Service (CAS) and are listed on the publicly available CAS Registry, we allow our suppliers to use generic names for proprietary ingredients. Our suppliers’ reporting, through FracFocus or otherwise, may therefore exclude details on chemicals protected by claims of confidential business information by our suppliers. Our close relationships with strategic suppliers and monitoring of the market also help mitigate risks of inferior chemicals being used for hydraulic fracturing activities.