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| Pix Credit Pablo Picasso Artist and his Model (1963) |
Martijn Scheltema, a co-chair of the European Working Group (EWG) or Responsible and Sustainable Supply Chains, which has produced for consultation a Zero Draft of a (the) Zero Draft for Consultation: The European Model Clauses (EMCs) for Responsible and Sustainable Supply Chains (July 2024); and a Commentary to the Zero Draft for Consultation European Model Clauses (EMCs) for Responsible and Sustainable Supply Chains (July 2024), along with an Introduction to the Zero Draft for Consultation: The European Model Clauses (EMCs) for Responsible and Sustainable Supply Chains (July 2024), has distributed a reminder that the consultation period has been extended to 15 January 2025.
The European Model Clauses (EMCs) are a set of model clauses designed to align with the EU Corporate Sustainability Due Diligence Directive (CSDDD), which entered into force in July of 2024. The clauses are the product of the European Working Group (EWG), which is composed primarily of European legal experts from practice and academia. A preliminary version of the EMCs was released for consultation in October 2023. Feedback from this initial phase informed the development of the current "Zero Draft", which is currently being workshopped through an inclusive consultation process coordinated by RCP with the financial support of the Initiative for Global Solidarity (IGS) which is implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH on behalf of the German Federal Ministry for Economic Cooperation and Development. The consultations aim to ensure that the first official version of the EMCs (the EMCs 1.0), which will be published in 2025, is the product of an inclusive, balanced, and legitimate process. By participating in the consultation process, stakeholders can ensure that their perspective is considered in the final EMCs.
Martijn reminds all interested entities and individuals that if you have not yet given feedback on the clauses, you have a couple of days left to provide it. Your input is highly appreciated.
That is an excellent idea.
The EWG is developing the EMCs to serve as a key reference for the European Commission as it prepares the guidance on model contractual clauses contemplated under Article 18 of the CSDDD. The guidance and the EMCs are distinct instruments that are being developed independently, but the EWG is cooperating with the Commission to ensure that the instruments are in alignment. (Responsible Contracting Project )The Project and its products are rich and deserve close attention. At the same time, having been hardened into a "Zero Draft", it is unlikely that anyone is interested in making fundamental changes--so the most useful interventions at this point are at the margins--refining the text of clauses; pointing out interesting examples or issues that might be included in the commentary; catching contradictions and textual coordination issues, and the like. Though of much more limited scope and impact, it is still important work that may produce a much better product to be consumed by the European Commission, and thereafter, in its own right. It is also extremely useful for efforts at coordination between this project and the US analogue--the American Bar Association Contractual Clauses Project for which David Snyder, a member of the EWG, serves as Working Group Chair.
The Zero Draft provides a fairly straightforward framework. It consists of a Definitions sections plus five articles (mutuality of obligation, remediation measures, remedy, monitoring, and dispute resolution with stakeholders. The Commentary to the Zero Draft includes some interesting commentary from European Member States, mostly concerned about the coordination of the Zero Draft with whatever it is teach has legislated for itself. The basic impulse, drawn loosely from the UNGP and its progeny, is both well worn and relatively well understood within a broad spectrum of interpretation and application that virtually all actors, in their own ways and as a function of their own normative starting points, may agree is useful (my early wrestling with its core elements here). That is the trick though, to make sense of the EMC project, and to be most useful for the perfection of its project, one must be aligned with the core premises and normative principles around which it is constructed and which it attempts to express in its text. To their great credit, the drafters have been quite transparent on that score.
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| Introduction to the Zero Draft p. 2 |
The "big bang" of this effort, and its animating spirit is "the presumption that buyers move from representations and warranties to human rights and environmental due diligence. The reason for this is that two reasons exist to enhance operational effectiveness and enforced legal requirements." (Commentary to the Zero Draft ). Indeed, "the regime of representations and warranties, with their accompanying liability—if they are not true, there is breach—is unrealistic and ineffective. Frequently, this regime is thought to lead to what is called a “tickbox” or “checkbox” approach to supply chain management in which buyers require a laundry list of representations of compliance from their suppliers." (Ibid., p. 3). Private law (contracts) become instruments of public purpose that exceeds the scope of the core relationships in markets--to engage in transactions in which factors of production are brought, consumed or produced in exchange for something of value. "Contracts can be considerably more effective in delivering better human rights and environmental outcomes than they have been, and moving toward this outcome is the goal of this project." (Introduction to the Zero Draft for Consultation, p.3) The object, then, is to bring these mundane disaggregated transactions back into the heart of structures for the fulfillment of public policy through the management of private law. Here one speaks not just of management in terms of improvement, but management with a much more ambitious and transformative aim for private law embedded in the conception and expectations of and in contract (together with the reform of its relationship to tort).
Contracts are integral to corporate practice and to regulating global business operations, and
increasingly address environmental and human rights issues in supply chains. Contracts can be a powerful tool to improve these practices, but their history is fraught. This project is an effort to improve contractual governance in order to better uphold human rights and environmental standards and implement appropriate due diligence in global supply chains. The approach seeks to build on the strength and reach of contracts whilst moving away from contractual practices that have so frequently proven ineffective (if not counter-productive) in practice. The goal is to make human rights and environmental standard. (Introduction to the Zero Draft for Consultation)
To that end, one has to embrace a specific way of interpreting the key documents on which this normative foundation is constructed, and then used, to elaborate the Zero Draft Framework. Within that framework, the basic innovation is to broaden responsibility and risk from supplier to supplier and buyer with respect to human rights and environmental due diligence, buyer responsibilities, and remediation (Ibid., 8-9).
All of this is fair; and to some extent these decisions have already been decided at the European level at least in the form of the experiment in administrative interlinking that is the CSDDD (putting aside its worthy objectives). But then so may be a counter-vision that emerges from a different, and also plausible, reading, of the foundational normative texts--UNGP, OECD Guidelines for Responsible Business Conduct and perhaps with more difficulty the CSDDD (which itself reflects a quite specific European choice of baseline normative starting points. Certainly, certain sectors in North America and East Asia may view things differently--either in micro form (the interpretation and application of the framework within its own normative starting points), or in macro form (the construction of the system itself and its grounding norms--say, for example in both development and under a balancing risks, opportunities and impacts" standard standard of (ESG Along the Socialist Path: China's Long March to an Institutionalized ESG Reporting System; The Original Text of the New (Trial) Basic Standards 企业可持续披露准则——基本准则（试行）).
As such, one can no longer speak here of one's grandparents' private law, except in the past tense. Here private law is understood to serve a constituting objective; one like the constituting objectives of public law in the establishment of administrative organs. The point is to create a system of contractual provisions that establish an administrative system within which it is possible to embed economic activity within a human rights and sustainability maximizing regime. In contemporary language--it centers a human rights and sustainability impacts analysis system with and perhaps as the framing element of the calculus of economic activity through private law. Yet this is not an autonomous constituting private law--but a private law that can be intimately attached to and interlocked with the administrative structures of mandatory obligations that have been established in public law and administered through its state organs. It also centers something like a Brussels Effect--the notion that public law can radiate from one (important) legal center outward through supply chains, to manage norms and regulatory behaviors elsewhere--not through direct projections of public authority, but through the embedding of public mandates through private arrangements (but see here for a general caution of the effect of the "effect" in a related field). The EU's CSDDD plays a central conceptual role in this melding of public and private due diligence apparatus.
The CSDDD recognizes that contracts have an important role to play - as a key component of the human rights and environmental due diligence (HREDD) exercise - to contribute to fostering respect for human rights, decent working conditions, and sustainable environmental standards within global supply chains, although they are not the only means to undertake such HREDD. * * * Articles also envisage the possibility of requiring businesses to establish contractual provisions with their direct or indirect supply chain partners (Art. 10(2)(b) and 10(4) and Art. 11(3)(c) and Art. 11(5). Both provisions clarify that such contractual provisions may be accompanied by measures to support carrying out due diligence (Art. 10(3) and Art. 11(4), which are obligatory for SMEs (Art. 10(2)(e) and Art. 11(3)(f)). Although the CSDDD will apply only to large companies as defined, it envisions that human rights and environmental due diligence obligations will flow through to SMEs through contractual measures and include special provisions for them and notably the fact that, where measures to verify compliance are targeting SMEs, the cost of independent third-party verification shall be borne (fully or in part) by the buyer (Art. 10(5) and Art. 11(6)). (Introduction to the Zero Draft for Consultation, pp. 4-5).
That integration distinguishes the European from the American approach (Ibid., pp.11-12)). Fair enough--though one might expect push back from States that view these are indirect encroachments, and in extreme cases as threats to their national security, state secrets, and control of data and the normative baseline for State assets and populations within their control. That push back has started in the United States (among others see here), but there are heretics within emerging European orthodoxies (eg Draghi report). China is both linking, in terms of result generally, but through its own path, and subject to strict countermeasures for what it might consider to be interference with its own normative and legal orders applied to its own productive forces.
All of this works well, and as drafted, the EMCs are consistent with the vision of its drafters. For those who do not share that vision, individuals, enterprises, and states, there are always countermeasures--private law, legislation, and interpretive battles before courts. More generally the EMCs will face a set of challenges that any such enterprise would face irrespective of the normative choices built into the model clause language. I have organized my sense of these challenges in six points, challenges which may be inevitable and thus unavoidable: (1) complexity; (2) prolix ambiguities; (3) the Versailles effect; (4) the costs of administration; (5) the usual suspects; and (6) the power of setting the stage :
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| Monty Python pix credit here |
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| Pix credit Mauzaisse: Napoleon, Allegory |
2. Prolix Ambiguities. The problem with text is similar to that of children or other creations. Once they are born or made they become their own agents and can, in the hands of others, or through their own interactions, acquire a life of their own. One can develop all of the normative firewalls that one likes--but in the absence of a significantly powerful Holy Office and Discipline and Inspection apparatus, text may led behaviors in unexpected directions. That then produces incentives to reform or supplementation and the endless cycle of text-interpretation-reform-reinterpretation etc. The usual response, and the best one available to date is that the courts will serve some sort of coordinating role; in Europe that may be augmented by increasingly intrusive techno-bureaucracies especially as they meld their operations and cultures with their private entity counterparts. The effect is augmented where a framework is offered. Here that framework provides substantial space for discretionary deviation, but also tension with an ecology of mandatory measures which may cinstrain or direct text in particular ways. With multiple stakeholders engaged in battles over meaning and possibility, the possibilities of strategic behavior in which the attainment of the core objectives of text become sidelined might well grow. Yet that is precisely the risk that all contemporary efforts to develop substantial bureaucracies around a textual framework that is grounded in margins of appreciation (internal and external) now face. This is the prolixity effect from which there is currently no escape.
3. The Versailles effect. In an essay of 2000 I noted the disastrous consequences of the "Versailles effect"(Forbidden Cities).
Elites that wall themselves off (physically or virtually) within
structures of their own creation, where they exist in a world far
removed from others run the risk that they will be strangers in their
own land. Transposed to CSDDD and the EMC project, one might wonder the extent to which they will be most effective at the level of economic and governmental grandees. Tine will tell, of course, but the template fashionable since the 2007 financial crisis (see here) to develop reforms grounded in a "cram down" style of regulation and management is also embedded in the core of CSDDD itself. That tends might well be the Achilles heel of the European approach, one that, at its core sometimes appears to be based on the notion that the masses will follow their superiors (however that caste is constituted from European epoch to European epoch). On the other hand, it has worked well enough in this historical era, and its power is now enhanced by technology and social media. For the rest of us there is, as the Cubans have come to understand it, the informal economy and the unregulated veiled market. Related to this is the notion that contract are negotiated; absent regulation And mandating specifically worded text in contract, these provisions may be adjusted among the parties, and from that, generalized, it is possible that over time the "standard" language will drift. Of course, as between the parties to a contract, administrative officials with oversight authority, and the courts (which courts?), substantial interpretive spaces may develop, exacerbated by the national contexts in which they might arise (certainly outside of Europe, but even within it).
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| Pix credit Office Space |
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| Pix credit here |
6. The power of setting the stage. These are fundamental point of orientation. The response to all of them might be something like, "we have to start somewhere". And there is power in that. Like the UNGP themselves as an "end of the beginning" the act of starting somewhere sets the template and parameters within which what comes after can be better guided within the cognitive constraints that the initial effort imposes. That, more than anything, encapsulates the power of this project, whatever the always impermanent flaws in the transposition of good intentions into operational methodologies. And here, stage is set with the elaboration of premises around which it is possible to reconsider the use of contract to establish not just a bartering transaction but also institutions of governance between private entities, intertwined with State managers, so that contract no longer memorialized economic, but now incorporates the institutions of social and political activity, among actors and those affected by the interactions of participants in markets as producers and consumers. That is, in a sense, quite revolutionary when taken to its logical ends. Or, for a while at least, this may remain the window dressing on the estates of the elites.
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| Pix credit Trying To Get There” Choreographer Tyrone Aiken, Dancers Cast: 2020– Photo, Mike Strong |
All of this suggests both the richness of the text, the importance of the guiding ideology, and the pathways chosen to fulfill the objectives of that ideology as expressed in the EMC project, and on a broader scale within the trajectories of CSDDD and its fundamental ordering premises. But that richness is also deeply embedded in the micro-analytics that are the subject of the consultation, and that, itself is worthy of deep consideration. The EMC project nicely aligns with the European regulatory path and its normative substructures; it is a critically important intervention in the elaboration of the administrative system that will emerge from out of the CSDD framework (and then from there to be generalized as a template for governance within all sectors of regulation in Europe). Given its normative and methodological choices, it is a worthy project to make this effort as good as possible. Interested parties ought to take the opportunity to contribute to that effort. Others should take notice.
The text of the Zero Draft follows below.
Article 1 Mutual Obligations with Respect to Due Diligence in Supply Chains 3
1.1 Human Rights and Environmental Due Diligence (HREDD) 3
1.2 Sub-suppliers and subcontractors 4
1.3 Buyer’s Obligations to Implement HREDD 5
1.4 Grievance Mechanism 6
Article 2 Remediating Actual Adverse Impacts and Corrective Action 7
Article 3 Remedies 7
3.1 Notice of Default, Cure Period, and Breach 7
3.2 Exercise of Interim Remedies in the Event of a HREDD Default 8
3.3 Remedies Limitations 9
3.4 Indemnification and Comparative Fault 9
3.5 Termination and Responsible Exit 10
Article 4 Monitoring 10
4.1 Regular Monitoring 10
4.2 Monitoring without notice 10
4.3 Cooperation by Supplier 10
4.4 Costs of Monitoring 10
Article 5 Dispute Resolution with Stakeholders 11
5.1 Dialogue 11
5.2 Escalation mechanism 11
5.3 Non-retaliation 11
Adverse Impact: means a potential or actual Adverse Environmental Impact and/or Adverse Human
Rights Impact which one or both parties have either individually and/or jointly caused, or are directly
linked to through their products, services, and business relationships. A company is deemed to cause
an adverse impact when its actions or omissions on their own remove or reduce a person’s ability to
enjoy their human rights or cause a negative effect to the environment. A company is deemed to
jointly cause an adverse impact when its actions or omissions substantially contribute to or increase
the likelihood of an adverse impact caused by another entity such as a business partner, which
excludes trivial or minor contributions. A company is deemed to be linked to an adverse impact
when it has not caused or jointly caused the adverse impact, but the adverse impact is linked to its
operations, products of services.
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Internal Adverse Environmental Impact: means an actual or potential adverse impact on the environment
resulting from the violation of one of the prohibitions and obligations pursuant to the international
environmental conventions listed in [the Annex, Part II of the EU Corporate Sustainability Due
Diligence Directive][the code of conduct [X] agreed upon by the parties to this Agreement].
Adverse Human Rights Impact: means an actual or potential adverse impact on protected persons
resulting from the violation of one of the rights or prohibitions listed in the Annex, Part I Section 1,
as enshrined in the international conventions listed in [the Annex, Part I Section 2 of the EU
Corporate Sustainability Due Diligence Directive] [ [the code of conduct [X] agreed upon by the
parties to this Agreement].
Agreement: means the commercial agreement between Buyer and Supplier which include some or
all of the sections hereinafter.
Buyer: means Party [X] to the Agreement.
Effective Date: means the date on which obligations set out in the Agreement become effective.
HREDD Obligations: means the Human Rights and Environmental Due Diligence related obligations
as set out in Article 1 and Article 2.
Human Rights and Environmental Due Diligence (HREDD): means an on-going, risk based process
that is appropriate to the size and circumstances of the parties implementing it to identify, prevent,
mitigate, cease, minimize, track and remedy Adverse Impacts as required by the EU Corporate
Sustainability Due Diligence Directive. The OECD Guidance and the United Nations Guiding Principles
on Business and Human Rights (UNGPs) supply the foundations for the HREDD Obligations set out in
the Agreement.
Goods: means the products or materials or services provided by Supplier.
Living Income: means the net annual income required for a household in a particular place to afford
a decent standard of living for all members of that household, taking into account country
circumstances. Elements of a decent standard of living include food, water, housing, education,
healthcare, transportation, clothing, and other essential needs including provisions for unexpected
events.
Living Wage: means the wage level necessary to afford a decent standard of living for workers and
their families, taking into account country circumstances and calculated for work performed during
normal hours. Elements of a decent standard of living include food, water, housing, education,
healthcare, transportation, clothing, and other essential needs including provision for unexpected
events.
OECD Guidance: means the Organization for Economic Cooperation and Development (OECD)
Guidelines for Multinational Enterprises (2023) and the OECD Due Diligence Guidance for
Responsible Business Conduct (2018).
OLGM: means the Operational Level Grievance Mechanism set out in Article 1.
Representatives: means the [officers, directors, employees,] agents and all subcontractors,
consultants and any other person providing staffing for Goods to Buyer required by this Agreement.
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C2 -
Severe Adverse Impact: means an actual Adverse Impact that is severe by virtue of its scale or
gravity, its scope (the number of individual or environmental interests affected), or its
irremediability.
SME: means a micro, small or a medium-sized enterprise, irrespective of its legal form, that is not
part of a large group, as those terms are defined in Article 3(1), (2), (3) and (7) of Directive
2013/34/EU.
Stakeholder(s): means the individuals or groups potentially or actually affected by an Adverse
Impact, such as workers and/or local communities and/or their representatives (e.g., civil society
organisations, non-governmental associations, and trade unions).
Supplier: means Party [Y] to the Agreement
HREDD Obligations:
1.1 Human Rights and Environmental Due Diligence (HREDD)
(a) Joint commitment to HREDD: Buyer and Supplier each covenants to establish and cooperate in
maintaining a HREDD process in connection with the Goods governed by the Agreement, in
accordance with the standards set out in the OECD Guidance. The HREDD process shall be
appropriate to each party’s size and circumstances. If Supplier is an SME, Supplier can opt to
establish its own HREDD process or to participate and cooperate in Buyer’s HREDD process as clearly
requested and instructed by Buyer.
(b) Stakeholder engagement: Buyer and Supplier must engage Stakeholders at each step of the
HREDD process set out in Clause 1.1. Such Stakeholder engagement must be on-going, responsive,
effective and conducted in a culturally appropriate format and in a manner that is free of
manipulation, discrimination, interference, coercion, and intimidation. The parties shall provide
Stakeholders with the information necessary for them to meaningfully engage in the HREDD process.
Buyer and Supplier may prioritize types of engagement according to severity and likelihood of
Adverse Impacts. Buyer and Supplier shall adequately document the Stakeholder consultation
process and outcomes to enable Buyer to comply with the relevant reporting requirements under
applicable law.
(c) Prevention action plan: Based on the identification of potential Adverse Impacts, Buyer and
Supplier shall cooperate, in consultation with potentially adversely affected Stakeholders, to prepare
and implement a prevention action plan (the Prevention Action Plan) to prevent or mitigate the
potential Adverse Impact(s) within a reasonable time.
(d) Obligation to provide information:
(i) The parties shall notify one another [within X days] [as soon as reasonably possible] upon
becoming aware of a Severe Adverse Impact occurring in connection with the Agreement
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(ii) Buyer and Supplier each shall [yearly][twice a year][regularly, as agreed] provide reports
on the implementation of their HREDD process(es). Such reports shall be forward-looking
and backward-looking for a period of [X] months and contain both qualitative and
quantitative information to the extent allowed by applicable laws.
(iii) Where Buyer seeks to implement HREDD measures such as, for example, questionnaires,
audits, certifications and scorecards, Supplier may, to the extent allowed by applicable law,
provide Buyer with a recent equivalent document, and Buyer shall accept such equivalent
document [or a portion of the equivalent document] to the extent that it meets the Buyer’s
minimum standards, unless Buyer reasonably considers that such document [entirely] fails
to satisfy Buyer’s minimum standards.
(iv) Each party may request additional HREDD-related information, so long as such requests
are sufficiently defined, limited in scope, and necessary for the requesting party to
effectively carry out its own HREDD Obligations under the Agreement and under applicable
law. This includes requests by Buyer to Supplier to disclose information concerning the
location and identity (including the names) of Supplier’s sub-suppliers and subcontractors.
(v) Buyer and Supplier each have the right to refuse requests for HREDD-related information
if such requests would compel the disclosure of trade secrets or other protected intellectual
property. In such situations, the refusing party must provide alternative sources of
assurance, such as a credible third-party certification, regarding matters such as the
provenance of the Goods, and other inputs involved in manufacturing the Goods.
(vi) The parties shall use the information obtained under this Section solely for the purpose
of meeting their respective HREDD Obligations under the Agreement and to meet the
requirements of applicable laws. They shall keep such information confidential except as
required by applicable laws.
(e) Independent obligations: For the avoidance of doubt, each party is independently responsible for
upholding its HREDD Obligations under this Agreement, and a failure to do so by one party shall not
relieve the other party of its HREDD Obligations.
(f) HREDD Contact Points: Supplier and Buyer shall each designate a member of staff as a Human
Rights and Environmental Due Diligence contact point (“HREDD Contact Points”) to receive HREDD-
related information and administer the HREDD Obligations under this Agreement. [The HREDD
Contact Points shall collaborate with Stakeholders in order to identify a Stakeholder representative
with whom to form a HREDD monitoring committee (“HREDD Monitoring Committee”) charged with
monitoring, in an on-going and collaborative fashion, the implementation of the HREDD Obligations
under this Agreement.]
1.2 Sub-suppliers and subcontractors:
(a) HREDD Responsibilities Across the Supply Chain: As part of meeting its HREDD Obligations,
Supplier shall use its best efforts to ensure that each of its sub-suppliers and subcontractors and
each of their sub-suppliers and subcontractors acting in connection with the Agreement engage in
and support the HREDD process set out in this Article and Article 2. Where appropriate based on the
length and scope of the commercial relationship and the HREDD risks involved, the relationship
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between Supplier and a sub-supplier or subcontractor shall be materialized in a written contract that
includes HREDD obligations appropriate to the size and circumstances of both parties. Supplier shall
keep records of such written contracts and of any failed attempts to agree to such contracts and
make them available to Buyer upon request, in accordance with Section 1.1(d) (Obligation to provide
information).
(b) Subcontracting by Supplier: Supplier may only subcontract to a subcontractor if Supplier has
conducted satisfactory HREDD on such subcontractor, such subcontractor has formally agreed to
support Supplier’s HREDD process, and, if appropriate, such subcontractor has formally agreed to
conduct its own HREDD process, in accordance with Section 1.2 (a) (Cascading HREDD
responsibilities). [Supplier shall promptly inform Buyer of any subcontracting prior to awarding the
subcontract and Buyer may refuse such subcontracting if it has a clear and well-founded HREDD-
related concern regarding the subcontractor.]
(a) Responsible Purchasing Practices: To satisfy its HREDD Obligations, and as part of its HREDD
Obligations, Buyer shall engage in responsible purchasing practices and only impose fair, reasonable,
and non-discriminatory obligations on Supplier. Such responsible purchasing practices include those
indicated in Sections (b) - (g) below. [Buyer shall seek to obtain feedback from Supplier [through the
HREDD Contact Point] on its purchasing practices [annually][twice a year].]
(b) Reasonable Assistance: If either party reasonably determines that Supplier requires assistance to
meet the parties’ respective HREDD Obligations, Buyer shall provide reasonable assistance to the
extent that doing so is economically feasible and appropriate in light of the HREDD-related risks at
issue. Reasonable assistance may include, among other things, financing and cost-sharing [to the
extent legally permitted], assistance to secure financing, Supplier training, upgrading facilities, and
strengthening management systems.
(c) Pricing:
(i) Buyer and Supplier shall collaborate to agree on a price that accommodates the costs
associated with implementing HREDD and upholding responsible business conduct, including
the payment of a Living Wage or a Living Income and health and safety costs. If the payment
of a Living Wage or a Living Income is not immediately feasible, then Buyer and Supplier
shall commit to a progressive pricing schedule to pay a Living Wage or Living Income within
[__months][__years].
(ii) If there is a material increase in input costs that increases the risks of Adverse Impacts,
Buyer and Supplier shall collaborate to agree on alternative terms to mitigate such risks and
prevent the occurrence of actual Adverse Impacts. Such alternative terms may include,
among other things, price and payment term adjustments, advance payments, credit
facilities, schedule changes, and extended contract terms. Buyer may require Supplier to
provide documentation of the increase in input costs.
(d) Commercial Terms (Payment and Delivery): Buyer shall collaborate with Supplier to agree on
commercial terms, including payment, transfer of ownership and risk of loss, and delivery terms,
that will support the parties’ performance of their HREDD Obligations. Buyer and Supplier each
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agree not to vary the commercial terms of the Agreement unilaterally and to avoid retroactive
changes to the commercial terms to the extent such changes would undermine the HREDD process.
(e) Order Changes: For any material change of an order requested by Buyer, the parties, including
the HREDD Contact Points, shall discuss and consider the potential Adverse Impacts of such change
and take action to avoid or mitigate such potential Adverse Impacts. Such action may consist of, for
example, adjusting the price or the production timeline for the order. [No changes shall be made to
an agreed order after production has begun]. [If the order change results in Buyer using __% less of
Supplier’s capacity than originally [projected][agreed], Buyer shall pay Supplier for the unused
capacity]
(f) Excused Non-Performance by Supplier: If Supplier[‘s HREDD Contact Point] provides reasonably
satisfactory evidence that an Adverse Impact is likely to occur because of a requested order change
or a change of circumstances materially affecting Supplier, and if the parties cannot agree on a
solution that avoids this Adverse Impact, then Supplier may elect to cease manufacturing the order
or its performance of the Agreement. In such a situation, Supplier’s performance shall be excused
and it shall not be in default of its obligations under this Agreement.
(g) Positive incentives: Buyer shall establish clear and transparent benchmarks to assess HREDD
performance. [Buyer shall seek to obtain feedback from Supplier [through the HREDD Contact Point]
on the benchmarks [annually][twice a year].] Where feasible given Buyer’s other commercial
commitments and market demand, Supplier shall be rewarded for HREDD performance that meets
or exceeds the benchmarks, for example by prolongation of contracts or assignment of new orders if
Buyer needs to source Goods. When determining whether to continue or expand the commercial
relationship, Buyer shall give weight to HREDD performance [equal] [as well as] to criteria such as
quality, price, and timely delivery.
1.4 Grievance Mechanism
(a) Operational-Level Grievance Mechanism (OLGM): Buyer shall maintain an accessible, legitimate,
and adequately funded and governed non-judicial OLGM to receive and address Stakeholders’
concerns and grievances regarding Adverse Impacts. Supplier [may] [shall] establish its own OLGM.
Buyer and Supplier shall actively communicate the existence of the OLGM[s] to Stakeholders.
(i) [Buyer][Buyer and Supplier] shall [each] have and uphold an OLGM policy to ensure that
the OLGM[s] meet the effectiveness criteria set out in UNGPs 29 and 31 and prevent
retaliation against Stakeholders who make use of the OLGM[s]. Stakeholders must be able to
safely (and anonymously, if appropriate) report their concerns and grievances at a local
level.
(ii) Stakeholders bringing concerns and grievances through the OLGM[s] shall be entitled to
appropriate follow-up and, if appropriate, to meet with the HREDD Contact Points and other
relevant Buyer and Supplier representative(s) to discuss the Adverse Impacts at issue and a
way forward for addressing such Impacts.
(b) OLGM Reporting Requirements: [To the extent allowed by law,] [Buyer shall inform Supplier]
[Buyer and Supplier shall inform each other] about the functioning of the OLGM[s] by providing
[annual] [semi-annual][monthly][__] written reports, describing, at a minimum, the number and
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nature of grievances received and processed over the reporting period, the extent of the
consultations with Stakeholders, and all actions taken or planned to address such grievances.
(c) Relationship to Other Mechanisms: [Buyer][Buyer and Supplier] shall ensure that Stakeholders
have access to the OLGM[s] regardless of whether they have filed or intend to file a grievance
through another grievance mechanism or to commence legal proceedings. Likewise, use of the
OLGM[s] shall not be a prerequisite for filing grievances in other mechanisms or for initiating legal
proceedings.
Article 2: Remediating Actual Adverse Impacts and Corrective Action
measures including a corrective action plan.
(a) Corrective Action Plan: If Supplier caused or jointly caused the actual Adverse Impact, Supplier
shall, in consultation with adversely affected Stakeholders, prepare, share with Stakeholders, and
implement a corrective action plan, the Corrective Action Plan, to remedy the actual Adverse Impact
within a reasonable time. In situations where Supplier did not cause or jointly cause the actual
Adverse Impact, Supplier shall cooperate in implementing any Corrective Action Plan that Buyer may
develop.
The Corrective Action Plan should:
(i) ensure that the affected Stakeholders are, to the extent possible, put in the position they
would have been in had the actual Adverse Impact not occurred;
(ii) enable remediation that is proportionate to the actual Adverse Impact, noting that such
remediation could take the form of apologies, restitution, rehabilitation, and financial or non-
financial compensation;
(iii) ensure that the actual Adverse Impact in question does not recur and that additional
Adverse Impacts are prevented.
(b) Buyer contribution: If Buyer jointly caused the actual Adverse Impact by failing to meet its HREDD
Obligations, it shall contribute to remediation by providing adequate financial and non-financial
assistance to support the preparation and implementation of the Corrective Action Plan, that is at
least proportionate to its contribution.
(c) Buyer obligations: Regardless of whether Buyer jointly caused the actual Adverse Impact, it shall
provide adequate assistance, including expertise, financial, and technical assistance to prepare and
implement the Corrective Action Plan.
(d) Responsible Exit: In any termination of this Agreement, whether due to a failure by a party to
comply with this Agreement, the occurrence of a severe Adverse Impact for which there is no
reasonable expectation of prevention or remediation, or the occurrence a force majeure event or
any other event that lies beyond the control of the parties, the terminating party shall consider the
potential Adverse Impacts of exit and, in collaboration with the other party, as possible and
appropriate, take measures to mitigate such Adverse Impacts.
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Article 3: Remedies
3.1 Notice of Default, Cure Period, and Breach
(a) Right to Cure and Breach: Failure to satisfy an HREDD Obligation shall constitute a default,
“HREDD Default”, which must be cured by an enhanced Prevention Action Plan in the case of a
potential Adverse Impact or by an enhanced Corrective Action Plan in the case of an actual Adverse
Impact. If the HREDD Default is not cured by the defaulting party within [an appropriate period][X
days][Y weeks][a period agreed by the parties in the Agreement ] after receipt of a written notice
from the other party, such failure to cure shall constitute a breach of this Agreement.
(b) Cooperating in Cure: The parties shall cooperate in good faith to cure the HREDD Default.
(c) HREDD Default with an Actual Adverse Impact: For the avoidance of doubt, if a HREDD Default
leads to, or is otherwise associated with, an actual Adverse Impact, curing such HREDD Default will
require, at a minimum, preparing and implementing a Corrective Action Plan as indicated in Article 2
on remediating Actual Adverse Impacts.
(a) Cumulative Remedies: Remedies shall be cumulative, non-exclusive of, and without prejudice to
any other remedies provided hereunder or by applicable law.
(b) Interim remedies: Interim remedies are those remedies that can be exercised by the non-
defaulting party during the cure period for a HREDD Default, “Interim Remedies”. A party’s exercise
of Interim Remedies shall not be construed as constituting a waiver of its rights. Interim Remedies
include, without limitation:
(i) Demanding adequate assurances from the defaulting party of cure or due performance in
conformity with this Agreement. Such assurances shall be fair, reasonable, non-
discriminatory, and appropriate to the parties’ size and circumstances.
(ii) Demanding that the defaulting party take active measures, such as the immediate
cessation of activities that could aggravate existing or create new Adverse Impacts. Such
measures may include Supplier’s termination or removal of employees, if permissible under
applicable law, and/or other Representatives in accordance with applicable laws, placing its
supplier(s) or subcontractor(s) on notice of an Adverse Impact that the parties reasonably
believe was caused or jointly caused by such supplier or subcontractor, requiring those
entities to take corrective action to remedy the Adverse Impact, and, if it becomes clear that
remedy is not forthcoming or that continuing the relationship will aggravate or create
additional Adverse Impacts, terminating the contract or affiliation with the sub-supplier(s) or
subcontractor(s).
(iii) Suspending payments, whether under the Agreement or other agreements, until the
non-defaulting party determines, in its reasonable discretion, that the defaulting party has
taken appropriate remedial action, as indicated in Section 3.1 on Breach and Notice of
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Breach. [Suspension of payments will not be available to a party that jointly caused the
Default by failing to meet its own HREDD Obligations.]
(iv) Obtaining damages caused by the HREDD Default, provided, however, that if the other
party caused or jointly caused the Default, damages shall be reduced proportionally to that
party’s contribution.
(c) Rejection of Nonconforming Goods: In the event of an actual Adverse Impact that Supplier
individually or jointly caused that renders the Goods nonconforming goods that cannot be released
or sold in the European market because of applicable European regulations, “Nonconforming
Goods”, Buyer shall have the right to reject such Nonconforming Goods and the costs associated
with such rejection, including but not limited to the costs of disposing of the Goods and finding a
replacement contract with another supplier, shall be borne by Supplier unless Supplier is an SME or
unless both Buyer and Supplier jointly caused the actual Adverse Impact at issue by breaching their
respective HREDD Obligations. If Buyer jointly caused the actual Adverse Impact at issue, then the
costs associated with rejection must be borne by both parties proportionally to their respective
contributions.
(a) Rejected Nonconforming Goods: Rejected Nonconforming Goods must be managed
responsibly to avoid waste and, if the Nonconforming Goods are, in whole or in part, sold in
another market if appropriate and authorized by the Buyer, the proceeds should be
channeled to the adversely impacted Stakeholders or donated to a charity.
(b) Relationship of Rejection to Corrective Action: For the avoidance of doubt, Buyer’s right to
reject the Nonconforming Goods under this Section operates independently from its HREDD
Obligation to cooperate with Supplier to prepare and implement a Corrective Action Plan
under Article 2.
(c) Timely Notice: Notwithstanding any provision of this Agreement or applicable law, Buyer’s
rejection of any Nonconforming Goods shall be deemed timely if Buyer gives notice to
Supplier within [8 days][a period agreed by parties] [a reasonable time] after Buyer’s
discovery of the nonconformity.
3.3 Remedies Limitations
Buyer and Supplier acknowledge that:
(a) No Benefit from Adverse Impacts: Neither Buyer nor Supplier shall benefit from an Adverse
Impact. If damages are owed that would result in a benefit to Buyer or Supplier, such amounts
should go toward supporting the remediation set out in Article 1 on Grievance Mechanisms and
Article 2 on Remediating Actual Adverse Impacts. A “benefit” means being put in a better position
than if the Agreement had been performed without an [actual] Adverse Impact.
(b) Priority Use of Funds: If there are insufficient funds to pay damages and complete the
remediation processes set out in Article 1 (Grievance Mechanisms) and Article 2 (Remediating Actual
Adverse Impacts), remediation shall take priority.
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3.4 Indemnification and Comparative Fault
(a) Indemnification: Unless it is an SME, a party shall, in case of a breach of the HREDD Obligations,
indemnify, defend and hold harmless the other party and its Representatives, affiliates, successors
and assigns (collectively, “Indemnified Party”) against [any and all] losses, costs, and damages[,
liabilities, deficiencies, claims, actions, judgments, settlements, interest, and costs or expenses
associated with Nonconforming Goods, including, without limitation, the cost of storing, rejecting,
returning, and exporting Nonconforming Goods, reasonable attorneys’ fees, and audit fees that
would not have been incurred but for the breach.
(b) Comparative Fault: Notwithstanding Section 3.4(a) (Indemnification), a party’s obligation to
indemnify shall be reduced in proportion to the degree that the Indemnified Party caused or jointly
caused the breach. If the parties['HREDD Contact Points] do not agree as to the degree of
contribution, they will proceed to resolve the issue through the dispute resolution process set out in
Article 5 (Dispute Resolution With Stakeholders).
(a) Termination: The terminating party may terminate this Agreement after giving reasonable notice
to the other party of its intent to terminate because of a [material] breach or uncured Default under
Article 3.1 (Notice of Default, Cure Period, and Breach).
(b) Responsible Exit: In the event of termination, Article 2(d) (Responsible Exit) applies. If
termination is pursued because of a violation of HREDD Obligations, the terminating party shall
evaluate whether termination would either help to prevent additional Adverse Impacts or aggravate
such Impacts. If termination would aggravate Adverse Impacts, then Buyer will consider not
terminating.
(c) No prejudice to other rights or obligations: Termination of this Agreement shall be without
prejudice to any rights or obligations accrued prior to the date of termination, including, without
limitation, payment that is due for acceptable or conforming Goods that were partially or completely
manufactured by Supplier prior to termination.
4.1 Regular Monitoring
The Buyer, or its Representatives, has the right, after providing reasonable written notice to
Supplier, to audit or inspect the workplace(s) of Supplier to monitor whether the Supplier is meeting
its HREDD Obligations. Supplier has the right to refuse such monitoring if it can provide Buyer with
equivalent information, as indicated under Article 1.1(d) (Obligation to provide information), or if it
can demonstrate that it is already participating in an effective mechanism for addressing HREDD
Obligations.
Buyer may carry out an inspection without notice if there is credible, reliable information that there
are significant risks of Severe Adverse Impacts in Supplier’s workplace(s).
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4.3 Cooperation by Supplier
Supplier must cooperate in such monitoring in accordance with applicable laws, including by
providing access to its facilities, workers, and documents, as relevant, for Buyer to conduct Human
Rights and Environmental Due Diligence. Supplier shall not retaliate in any way against Stakeholders.
If Buyer exercises its monitoring rights under the Agreement and Supplier is an SME, Buyer shall bear
the cost of the monitoring activities. If Supplier is not an SME, the costs shall be borne by
[Buyer][Supplier][jointly, in a measure agreed by the parties]. If an actual Adverse Impact occurs, the
procedures set out in Article 2 on Remediating Actual Adverse Impacts shall apply.
The Corrective Action Plan set out in Article 2 contemplates establishing and, if necessary, using a
dialogue-based dispute resolution mechanism that is compliant with UNGP 31 and that involves an
independent facilitator and allows adversely affected Stakeholders to file grievances. The
mechanism must also allow for representation by civil society organisations and other relevant
associations representing the interests of adversely impacted Stakeholders. This dialogue-based
dispute resolution mechanism requires the participation of both Buyer and Supplier. It may be
established at the time the Corrective Action Plan, as part of that Plan, or it can be a component of
the OLGM[s], or of some other dialogue-based mechanism maintained by a third party, provided
that such mechanism meets the criteria set out in UNGPs 29 and 31.
[If national law allows arbitration on human rights issues:] If a grievance is not resolved between one
or both parties and the Stakeholders referred to in Section 5.1 in the dialogue based process
referred to in Section 5.1 [within a reasonable period proportionate to the nature and the salience of
the Adverse Human Rights Impact][within X months], then the grievance shall be settled by
arbitration in accordance with [the Hague Rules on Business Human Rights Arbitration][ arbitration
rules] (the “Arbitration Rules”) in effect on the date of this Agreement. The arbitration shall be
administered by [arbitral institute] and the number of arbitrators shall be [one][three]. The seat of
arbitration shall be [X]. The language of the proceedings shall be [language]. The award shall include
compliance with the Corrective Action Plan as contemplated by Section 2.1.
[If national law does not allows arbitration on (certain) human rights issues, then for these issues:] If
a grievance is not resolved between one or both parties and the Stakeholders referred to in Section
5.1 in the dialogue based process referred to in Section 5.1 [within a reasonable period
proportionate to the nature and the salience of the Adverse Human Rights Impact][within X
months], then the grievance shall be settled by [competent national court of the State in which the
Adverse Impact occurred].
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5.3 Non-retaliation
Parties shall not take any adverse action against any person on account of such person having
spoken to parties’ representatives, supplied information or otherwise having cooperated in any
fashion with parties or their representatives or with dispute resolution referred to in Section 5.2.
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