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Responsible

Contracting

Project

Core RCP Principles

The three "Rs" of responsible contracting are:

 

  1. Responsible allocation of risks and responsibilities: Set aside supplier-only guaranties of perfect compliance in favor of a joint commitment to cooperate in carrying out human rights and environmental due diligence (HREDD)
     

  2. Responsible purchasing practices: Commit the buyer to engage in purchasing practices that can support effective HREDD
     

  3. Remediation first and responsible exit: If an adverse impact happens, provide remedy to victims and take measures to ensure the harm stops and does not reoccur before turning to traditional contract remedies (e.g., suspending payment and canceling orders). Exit should only be pursued as a last resort, taking measures to mitigate the impact. 

 

Implementing these core principles is crucial for transitioning from traditional to due diligence-aligned contracts. Typically, when buyers (e.g. brands, retailers) include human rights and environmental (HRE) obligations in their agreements with suppliers, they employ traditional contracting techniques that shift all the risk and the costs associated with upholding HRE standards onto the supplier. This is because traditional contracts focus on managing company risks, not HRE risks. Shared responsibility, not risk-shifting, is necessary to effectively manage complex risks in dynamic supply chains.

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Traditional Contracting

Representations and Warranties

Whereby the supplier must make an unrealistic and static promise that it is and will always be in perfect compliance with the buyer’s human rights standards, as set out in the buyer’s human rights policies and supplier code of conduct (the so-called "tickbox" approach). 

Responsible Contracting

Human Rights Due Diligence

Whereby both parties commit to take, in cooperation with one another, proactive and ongoing measures to identify, prevent, mitigate, account for and, where appropriate, remedy potential and actual adverse impacts in the supply chain. Human rights due diligence (HRDD) is dynamic, risk-based, and stakeholder-focused.

The main distinctions between traditional contracting and responsible contracting can be summarized as follows:

The shortcomings of traditional contracting include:

  • Representations and warranties whereby the supplier promises that it is and will remain in compliance with the buyer’s human rights standards, as set out in the buyer’s human rights policies and supplier code of conduct.

     

    Representations and warranties are static promises made by the supplier that there are not and never will be any adverse human rights impacts in their facility or supply chain. In other words, once this passive commitment is made, no further monitoring or measures are required. Given that it is virtually impossible for a supply chain to be entirely free of human rights issues, such promises are fictitious and may even place the supplier in breach of the contract on day one.

  • Supplier-only responsibility whereby the supplier alone is responsible for the human rights outcomes in its facility and supply chain.

     

    Supplier-only responsibility clauses do not reflect the reality of the supply chain relationship, whereby the buyer’s own behavior and actions – in particular their purchasing practices – can influence (negatively or positively) the supplier’s ability to meet the buyer’s own human rights standards.

  • Remedies (“damages”) flowing only between the contracting parties whereby remedies only flow from the breaching party (which, in traditional contracts, tends to be the supplier) to the non-breaching party (which, in traditional contracts, tends to be the buyer).

     

    Traditional contract remedies flow between the parties and not to the victims of human rights-related breaches – workers and community members. As such, they fail to account for harms to stakeholders beyond the contracting parties. In some cases, traditional contract remedies could even result in the buyer benefiting commercially from the breach.

Traditional Contracting

Supplier-Only Responsibilities

Whereby only the supplier is responsible for upholding human rights standards and, if anything goes wrong, only the supplier will be to blame and in breach. The buyer will (often) have the right to immediately terminate the contract and sue the supplier for damages.

Responsible Contracting

Shared Responsibility

Whereby the buyer and the supplier share responsibility for upholding human rights standards and both commit to avoid causing or contributing to adverse human rights impacts. The buyer commits to supporting the supplier's human rights performance, including through its purchasing practices (e.g., responsible pricing, assistance, changes, and exit).

Traditional Contracting

Traditional Contract Remedies

Whereby, if an adverse human rights impact is discovered, the buyer can immediately suspend payments, terminate the contract, and sue the supplier for breach, without giving the supplier an opportunity to cure or fix the problem, even when the buyer contributed to the impact through, for example, its purchasing practices. 

Responsible Contracting

Human Rights Remediation First

Whereby, human rights remediation, designed to ensure that the adversely impacted stakeholders are, to the extent possible, restored to the position they would have been in without the impact, comes ahead of traditional contract remedies. The buyer must collaborate in providing remedy to victims, especially if it contributed to the adverse impact. If either party wishes to exit the contract for whatever reason, they must do so responsibly by identifying and mitigating the adverse human rights impacts of their exit.

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