ANALYSIS: Supply Chain Norms Are Returning, But With a Twist

June 8, 2021, 9:01 AM

The pandemic has wreaked havoc on global supply chains. Now, organizations in the process of reconstituting their supply networks are being challenged to address not only product resiliency and dependability, but also sustainability and human rights at multiple levels in the process—even those outside their direct control.

Investors, consumers, and employees are increasing pressure on companies’ senior and procurement management to effect social and environmental change throughout their supply chains. Whether in the form of biodegradable packaging, a reduced carbon footprint, or commitment to fair labor standards and responsible sourcing, companies are increasingly expected to use their purchasing power to pursue socially responsible goals.

Revised in March, the American Bar Association’s project on Model Contract Clauses to Protect Human Rights in International Supply Chains (MCCs) is an innovative and bold initiative “to integrate human rights due diligence into every stage of the supply contract and operationalize the shared responsibility between buyers and suppliers for the human rights performance of their contract.” Rather than placing all responsibility on the supplier for human rights performance, the MCCs spread this responsibility around and commit the buyer to implement responsible purchasing practices—including, for example, considering human rights impacts of contract modifications.

A comparison of certain provisions of conventional and MCC 2.0 contracts is displayed below.

Perhaps most striking, the MCCs allow for the parties to permit the human rights protections of the agreement to be enforced by every buyer and supplier in the chain, whether or not in privity of contract with a party. Such a provision underscores the importance of interdependence of all chain parties—not only to improve the quality of their product but also the process by which it is created and delivered.

Whether and how quickly version 2.0 of the MCCs become widely adopted remain open questions. If they are, they will usher in a major change in the function of international supply chains.

Bloomberg Law subscribers can find related content on supply chain developments on our In Focus: Remaining Operational and Transactional Intelligence Center resources.

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