Supply Chain Contracting
A supply chain contract that shifts all responsibility to the supplier looks strongest on paper. It is also the one that fails first.
Why shifting responsibility does not protect the buyer
The established model is familiar: a sustainability annex attached to the contract, the supplier’s warranty that no human rights abuses occur, zero tolerance and a right to terminate with immediate effect. The model is built to protect the buyer — and that is exactly why it does not work.
- Due diligence cannot be transferred by contract.
A contractual assurance is one way of meeting the obligation, not a substitute for it. The responsibility stays with the buyer whatever the supplier has signed. - Zero tolerance buys silence.
A supplier who knows it will lose the contract if it reports a problem will not report it. The clause that was meant to generate information prevents it from arising. - Termination is a poor remedy.
When the buyer leaves, the worker stays. The harm is not remedied by ending the relationship — and the regulation requires remediation, not disengagement.
A contract written only to protect the buyer does not produce the information the buyer would need to protect itself.
What the regulation expects of contracts
The Corporate Sustainability Due Diligence Directive moves contracting practice away from strict liability towards due diligence. The shift shows in four places:
- Responsibility is shared, not shifted.
Contractual assurances must be designed so that responsibility is allocated appropriately and tasks are clearly divided. Obligations arising from due diligence cannot be passed on to a business partner. - Remediation before termination.
Suspending or ending a business relationship is a last resort. The partner must first be given the opportunity to correct the problem. - Costs are shared.
The buyer is expected to contribute through pricing and support — not merely to require investment from the supplier. - A contract is not proof.
A contractual assurance does not satisfy the due diligence obligation. The effectiveness of the measures must be assessed, and if they do not work, they must change.
The Commission is also required to issue guidance on model contract clauses, and European model clauses are being prepared. The practical conclusion is the same whenever they arrive: a contract template written to the old model is worth opening before a customer or a regulator opens it for you.
The same logic applies to purchasing practices: a contract term cannot oblige a supplier to do what the buyer’s own ordering behaviour makes impossible.
Where most companies start at the wrong end
The sustainability annex exists, but it is not a term.
The annex is attached, but nothing in the contract says what breaching it means. The obligation appears to be there; the consequences are not.
The clause is written as a warranty about the past.
“The supplier warrants that it does not use forced labour” records what the supplier claims today. It says nothing about what happens if something is found — and that is precisely what the regulation asks about.
The contract has a right to terminate but no right to information.
The buyer may leave, but has no right to the information needed to carry out due diligence. The wrong right for the wrong need.
The same set of clauses for every supplier.
A critical component supplier in a high-risk country gets the same text as the office-supplies vendor. The risk-based approach is nowhere visible in the contracts.
The contract is negotiated once.
The risk picture changes, the regulation changes, the supplier’s subcontracting chain changes — the contract text does not. The old template stays in force for years through renewed orders.
How we help
- 01 Renewing contract terms and the Supplier Code of Conduct
Terms that bind both parties, include a correction mechanism and reflect the level of risk. - 02 Contract process and compliance monitoring
How the clause lives through the contract term: who monitors it, what happens when something is found, and how it is documented. - 03 Training and workshops
For procurement and legal together. A contract term the buyer does not understand steers nothing.
Our contracting work is grounded in research on responsible contracting. The subject is also addressed by the international JARGONFREE research project, whose free Compass tool focuses on the gap between contract text and implementation in practice: jargonfree.fi.
Frequently asked questions
What is the difference between a warranty and an obligation?
A warranty concerns what is true at the moment of signing. An obligation concerns what will be done from then on — especially when something is found. Due diligence needs the latter.
Do all our contracts need to be reopened?
No. Start with those where the risk is highest and the contract term longest — and build the new model into the template used in your next tenders.
Is a Supplier Code of Conduct enough?
Yes, to the extent that it is part of the contract, something follows from a breach, and there is a mechanism for correction. As a stand-alone annex it does nothing.
Can due diligence be transferred to the supplier by contract?
No. A contractual assurance is a means of meeting the obligation, not a transfer of it. The responsibility remains with the company itself.
What should we know about model contract clauses?
That they are coming, and that they are built on sharing responsibility. A contract template should not assume the old model of shifting responsibility will survive.
Let’s look at what your contracts actually oblige.
The first conversation is free of charge. We go through your current contract template, the sustainability annex, and what follows from them when something is found.