Our suppliers and contractors are critical to our success and play a significant role in Hess’ day-to-day business operations, collaborating with us to promote efficient operations, maintain high standards of EHS performance, mitigate risks and create shared value. We rely on them to provide key goods and services and perform essential tasks. In 2020, we purchased approximately $2.8 billion in commercial goods and services from approximately 3,390 suppliers, whose workhours comprised approximately 70% of our total workforce hours.
We work collaboratively with many of our suppliers to review processes, procedures and data to help drive the right actions and foster continuous improvement. In 2020, we worked to strengthen our supplier relationships through enhanced engagements focused on increasing transparency, delivering mutual value and discovering improved ways of working together, especially with our most strategic suppliers. For example, we are actively working with suppliers to develop and implement new technologies that will help us meet our environmental goals, including exploring options for battery hybrid rig power to reduce emissions in the Bakken.
In response to COVID-19, Hess implemented a supply chain resilience assessment program through which we worked with suppliers to understand the impact of the pandemic on their operations, monitor potential operational risks and develop mitigation strategies. This effort included maintaining a dashboard of supplier operational status, risks and mitigation measures that was updated weekly.
While this section describes our general approach to engagement with our suppliers, these practices may differ in certain instances, if necessary, to comply with applicable local laws and requirements or if otherwise appropriate.
Effective supply chain management underpins our business and operational strategies. For example, supply chain management will play an important role in helping us achieve the new environmental, safety and DEI goals outlined in our updated EHS & SR strategy (see pages 9–11 of our 2020 Sustainability Report). It was also identified as one of our most important material issues in our refreshed materiality assessment (see the Approach to Reporting section of this website).
We continue to enhance our capabilities to understand the market and strategically manage our suppliers with cross functional teams that work collaboratively to reach safety, quality, delivery and cost targets.
Our Procurement 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 that establish clear expectations for our employees when engaging with suppliers. A central goal of our supply chain management system, including our Procurement Policy, is to help ensure that suppliers understand and abide by our high ethical, safety and other performance standards while helping us to avoid unexpected commitments and leverage our spend more effectively. In 2020, certain of our supply chain management processes were integrated into HOMS, as noted on page 14 of our 2020 Sustainability Report
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 antibribery, anticorruption and legal compliance review; and, as detailed below, a review of EHS performance and programs. In addition, our procurement staff reviews, where appropriate, potential suppliers’ insurance, tax and quality information. If discrepancies with our applicable requirements arise, the relevant function within Hess conducts an additional review and develops mitigation plans, as needed.
Contracts that involve higher risk, due to factors such as the number of workhours or the scope of 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, among other topics. As one part of the EHS review, we use recognized industry prequalification systems for our areas of operation in the U.S. and Europe. In Malaysia, we use a standardized process with a questionnaire based on the 14 HOMS elements. Further detail on our EHS related qualifications review during procurement can be found in the Safety and Health section of our 2020 Sustainability Report. Potential suppliers receive a grade based on this review, and where the grade does not meet our requirements, the supplier must develop an improvement plan before they can perform work for Hess. 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 operated assets, we perform periodic assessments of suppliers and help them develop improvement plans if we find any gaps in their EHS processes or performance.
We are working to improve how we integrate and collaborate with our supplier base so that we can plan more effectively, sense and respond more quickly to performance issues and eliminate waste and inefficiency across the value chain. We follow regular, predefined protocols for communication and collaboration to help ensure a coordinated approach to our operations. For example, we work to reduce inefficiency through interconnected workflows and by enabling proactive and integrated discussions with our key suppliers about performance gaps and innovation opportunities.
We recognize the value of engaging a diverse supplier base to bring innovation, agility and value to our business and to reflect our commitment to creating opportunity in the communities we impact. Intentionally expanding the diversity of our supply base is one of the pillars of our DEI efforts. In 2020, we established a task force of cross functional leaders to guide the development of our supplier diversity strategy and to provide recommendations on key actions needed to help ensure an impactful and sustainable program. In 2021, our activities will focus on developing a three to five year road map, establishing a supplier diversity implementation team and incorporating inclusion and diversity in our supply chain processes.
Supply Chain Transparency and Compliance
The companies that supply Hess with goods and services must comply with all applicable laws and regulations, including in areas such as EHS, conflicts of interest and anticorruption, and must maintain any applicable licensing or permitting requirements for their activities. Suppliers are also required to meet the expectations set forth in our Code of Business Conduct and Ethics and our 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, EHS and quality of materials and services. 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. For activities deemed as high risk, we utilize tools such as bridging documents to address potential gaps between the supplier’s EHS management system and Hess’ EHS requirements.
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 enterprise wide Security and Human Rights Policy.
If a security incident with human rights implications were to occur, a report would be 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 Hess related incidents where public or private security forces engaged community members in 2020, and no incident reports of this nature were filed. Global Security continues to utilize Hess’ incident management 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 by country, 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 require our suppliers to prioritize hiring local staff. Hess’ joint venture in Guyana also seeks to employ local nationals and support local suppliers. A continuing focus by the joint venture has been support for the Centre for Local Business Development. Since its opening in 2017, the Centre has held 42 supplier forums, assessed over 512 businesses’ strengths and weaknesses, registered nearly 2,700 businesses in a supplier portal and conducted the equivalent of more than 3,600 days of training. The trainings have covered the fundamentals of offshore oil and gas production, procurement and supply chain management, financial and human resources management, and safety, security, health and environmental topics such as waste management, incident response and air quality monitoring.
See more on Hess’ expectations and requirements for suppliers at suppliers.hess.com