Frequent Company Pushbacks
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Click through to see all 23 frequent company pushbacks and sample responses.
1. How do I implement responsible contracting principles with my hundreds of suppliers? What if I can’t afford to implement this across my supply chain?
HREDD is a risk-based process and different business relationships carry with them varying levels of HRE risk. Those business partner relationships that carry the most risk of severe adverse impacts should be prioritized for the incorporation of the Core Responsible Contracting Principles. [1] This will generally involve an evaluation of the scale, scope, and irremediability of various risks by country, sector, and company,[2] with higher risk companies the initial target for responsible contracting efforts. Lower risk business partner relationships can be integrated into a responsible contracting model over a longer timeline. In other words, the HREDD contents of the contracts should differ from relationship to relationship based on the risk levels involved.
What is critical to understand about HREDD and the laws that are making HREDD a legal requirement is that it does not expect perfection, but rather continuous improvement. In other words, you will not be expected to overhaul all of your contracts or your business processes overnight or all at once, but rather to prioritize those HREDD-related “upgrades” that will allow you to respond effectively to the most severe HRE risks present in your supply chain. Ideally, over time, you will have it set up so that all HRE risks in your supply chain(s) are identified, mitigated, addressed, and prevented, but HREDD is pragmatic and allows for prioritization. [1] See also, UNGP 24: “Where it is necessary to prioritise actions to address actual and potential adverse human rights impacts, business enterprises should first seek to prevent and mitigate those that are most severe or where delayed response would make them irremediable.” [2] For additional resources, see https://www.unpri.org/human-rights/how-to-identify-human-rights-risks-a-practical-guide-in-due-diligence/11457.article 2. What do the new HREDD laws say about contracts?
The proposed CS3D and the LkSG explicitly refer to contracts as a type of preventive measure—an important component of a larger HREDD process. As such, contracts (along with other preventive measures) must be appropriate in design and implementation to effectively address the HRE risks involved. Appropriateness can be established by considering factors such as the commercial context for the transaction, your company’s proximity to a potential adverse HRE impact (you may cause, contribute, or be directly linked to an adverse impact), the severity of the HRE risks at issue, the likelihood that they will materialize into actual adverse impacts, the size of the contract, and the leverage your company has—or could have—to influence your counterparty’s HREDD processes (e.g., are you a key or reputationally important client for this supplier, how much of their output do you purchase, how central is this relationship to your own operations?). To be appropriate, contracts should be supported by and formalize responsible purchasing practices, including providing business partners with reasonable support and assistance to implement HREDD-related obligations, according to the partner’s capacity and both parties’ relationship to the HRE risks at issue. Additionally, as preventive measures, contracts must be regularly monitored for effectiveness, meaning that you will be expected to revise and adapt your contracts to better identify and address HRE risks over time, especially if risk levels change for whatever reason (e.g., in the event of a pandemic or a war). 3. Am I responsible for ensuring that my suppliers comply with responsible contracting principles in their own contracts? What if my company implements responsible contracting with our suppliers and subcontractors, but the latter don’t want to, or fail to?
Under the responsible contracting model, HREDD-related commitments should be made and shared by both parties, meaning that each party assumes responsibility for conducting its own HREDD across its own supply chain with its own suppliers and subcontractors and for cooperating with business partners to support an effective HREDD process, including by disclosing any (actual and potential) adverse impacts. This responsibility should cascade across the supply chain, meaning that the supplier would be expected to share HREDD responsibilities with its own suppliers and subcontractors, including contractually. Note, however, that cascading does not mean transferring or shifting responsibilities from one party to the other. Rather, it means that due diligence responsibilities—and associated costs—are at all times shared by your company and the businesses that are part of your chain of activities. 4. So am I now locked into my supplier relationships or does responsible contracting allow me to terminate a contract with a “bad” supplier?
If, after giving them a reasonable opportunity, you realize that your business partner is unwilling to or incapable of participating in your HREDD process to address potential adverse impacts, then you may decide to switch to a different partner, depending on factors such as the severity of the HRE risks at issue, the availability of alternative partners, and the commercial significance of the relationship. In other words, termination may, depending on the circumstances, be the appropriate response. If an actual adverse impact has occurred and your business partner caused or contributed to it, and if, after giving them a reasonable opportunity and support to remedy the situation, you realize that your partner is unwilling to or incapable of providing remedy to affected stakeholders, then you may decide to terminate the relationship. The core of responsible contracting is to formalize processes for you to cooperate with your business partners in implementing HREDD to support the effective prevention of potential adverse impacts and remediation of actual adverse impacts. Where such cooperation cannot be achieved, and where the risk of severe adverse HRE impacts is aggravated as a result, disengagement may be the responsible choice. That said, as indicated in the UNGPs, the OECD Guidance, and the new HREDD laws, exit should be pursued as a last resort, not as a first stop. Furthermore, exit must be effectuated responsibly, by considering the HRE impacts of exit, taking appropriate measures to mitigate those impacts, and, where appropriate, providing reasonable notice to the business partner, and paying any outstanding invoices incurred prior to termination. 5. How can I maintain flexibility to change orders and suppliers when applying responsible contracting principles?
Needs often change in the course of the supply relationship. This is to be expected and accommodated in light of HREDD obligations and commitments. When material changes or modifications are necessary, the parties should cooperate to ensure that revised obligations are agreed to and performed in line with HREDD commitments. Changes should be discussed and negotiated (not unilaterally imposed) to ensure that they do not create or aggravate risks of adverse HRE impacts. For example, if a buyer wishes to materially increase the quantity of an order, they should discuss with the supplier to make sure that such an increase will not strain workers’ rights (e.g., lead to unpaid overtime or unhealthy or unsafe working conditions). If discussions reveal that the supplier needs more time to deliver the order, or a higher per-unit price to pay overtime, then the parties should negotiate to reach a HREDD-supportive compromise. Such cooperation should help prevent or mitigate adverse HRE impacts that may result from making material changes to the contract. Changing suppliers is in some ways more challenging under the responsible contracting model because one of its objectives is to foster longer-term, more stable, cooperative, and resilient relationships in the supply chain. As indicated above, however, where a decision is made to terminate a relationship, disengagement must be responsible. 6. What is a Responsible Purchasing Code of Conduct and why do I need one
The Responsible Purchasing Code of Conduct establishes the buyer’s commitment to uphold HRE standards and sets out the steps buyers can take to support positive HRE outcomes and effective HREDD, including through their purchasing practices. It promotes the shared-responsibility approach of the UNGPs and the OECD Guidance and can be used internally as a corporate policy document or, alternatively, it can be incorporated into the contract as a binding schedule. 7. My company already has a Supplier Code of Conduct. Why isn’t this sufficient?
Under the traditional contracting model, the supplier is typically the only party responsible for upholding the HRE standards contained in the contract and the Supplier Code of Conduct. Indeed, traditional supply contracts tend to shift HRE responsibilities—including the costs associated with meeting those responsibilities—onto the supplier, without providing financial or technical assistance, and without considering the buyer’s own role in creating or aggravating HRE impacts through its own purchasing practices (e.g., pricing, cost-shifting, providing assistance, changing orders at the last minute, changing commercial terms retroactively, canceling orders after manufacturing is complete, and exiting irresponsibly). Traditional contracts often require suppliers to guarantee (“represent and warrant”) that they have no actual or potential adverse impacts in their operations, which is unrealistic and not conducive to establishing cooperative or transparent relationships with your suppliers. Your Supplier Code of Conduct could be a great starting point, but it should be paired with a commitment by your company to behave in ways that support effective HREDD, including through your purchasing practices. This commitment could take the form of a separate Responsible Purchasing Code of Conduct (see above) or a new, joint code of conduct (e.g., Social Accountability International’s Buyer-Supplier Mutual Code of Conduct) that combines both your and your suppliers’ commitments to uphold HRE standards, acknowledging that the actions of both the supplier and the buyer may cause, contribute to, or be linked to adverse impacts. 8. What is the relationship of contracts to purchasing practices when it comes to preventing adverse HRE impacts?
Contracts are linked to purchasing practices in that contracts set the parameters for the commercial relationship, including elements such as price, deadlines, order modifications, penalties, and termination. Contracts are often drafted in ways that allow and formalize purchasing practices that actually exacerbate HRE risks and that make it harder to prevent or remediate adverse HRE impacts. Examples of such practices include prices that do not cover costs of production, including minimum or living wages, excessive penalties for delays (even when delays are caused by the company), and immediate contract termination in the event of any (potential or actual) adverse impact or imperfect adherence to a code of conduct. In setting the parameters of the commercial relationship and purchasing practices, contracts are a central aspect of due diligence. They must be designed to support effective due diligence processes, including through appropriate purchasing practices. |
