Integrating Human Rights Due Diligence (HRDD) Into Model Supply Chain Contracts

This paper discusses an effort of creative lawyering by a Working Group of the Business Law Section of the American Bar Association to help enable business clients to prevent and mitigate human rights abuse in their supply chains. A Working Group of the Business Section of the American Bar Association has drafted suggested clauses for supply chain contracts (“Model Clauses”) that are uniquely crafted to address this problem.Typically, a procurement lawyer for a large multinational buyer will seek to draft supply chain contracts to minimize the buyer’s legal liability. Doing so involves specifying various representations and warranties regarding the supplier’s performance, violation of which will entitle the buyer to the full range of contract remedies. However, due to the increasing need for all companies to perform human rights due diligence in their supply chains—a global standard of conduct that is increasingly being reflected in law—a top-down, compliance-based representations and warranties approach is highly problematic when it comes to addressing the problem of supply chain human rights abuse. Such an approach has been shown to be ineffective and even counterproductive because it does not address the problem of buyer contribution to human rights impacts through its purchasing practices.As a result, the Model Clauses would move the contract regime from a representations and warranties contract regime to a shared responsibility regime based on human rights due diligence, in alignment with the authoritative 2011 UN Guiding Principles on Business and Human Rights (“UNGPs”) and the cognate provisions of the OECD Guidelines for Multinational Enterprises (“OECD Guidelines”). In addition, the Model Clauses would commit both parties to engage in responsible sourcing practices that do not undermine their contractual human rights performance duties. Finally, the Model Clauses would condition remedies for contractual breaches of human rights performance duties between the parties upon remediation of adverse human rights impacts to affected stakeholders.This paper examines the responsibilities of buyers and suppliers through the lenses of the UNGPs and the OECD Guidelines. It explains the intertwined legal and business reasons why contract parties may choose to align their supply chain contracts with those global standards. It shows how the provisions of the would align with those standards. It concludes by providing guidance to corporate lawyers on their professional responsibilities with respect to advising their clients on the drafting of supply chain contracts