AMERICAN BAR ASSOCIATION

Model Contract Clauses
To Protect Workers In
International Supply Chainswww.themekongclub.org
The Mekong Club | Model Contract Caluse To Protect Workers In International Supply Chains

Author: Katie Gearing
1Introduction
The American Bar Association (ABA) Business Law Section Working Group undertook
an extensive project to help buyers and suppliers redesign their contracts to better
protect human rights in supply chains, with a focus on a cooperative approach withshared responsibility.
This toolkit provides an overview of the ABA Model Contract Clauses (Versio n 2.0)
(MCCs). We are not seeking to reproduce the clauses or guidance notes here, but
simply to guide Mekong Club members to the relevant sections of the MCCs andrelated materials and highlight some of the key provisions.

BackgroundAs the ABA Working Group explain in their
Executive Summary Executive Summary:Model Contract Clauses and theResponsible Buyer Code“The human rights performance of global
supply chains is quickly becoming a hot
button issue for anyone concerned withcorporate governance and corporate
accountability. Mandatory human rights
due diligence is on the near-term horizon in
the EU. Consumers and investors worldwide
are increasingly concerned about buying
from and investing in companies whose
supply chains are tainted by forced or
child labor or other human rights abuses.
Government bodies such as U.S. Customs
and Border Protection are increasingly taking
measures to stop tainted goods from entering
the U.S. market. And supply chain litigation,
whether led by human rights victims orWestern consumers, is on the rise.”This issue is in other words ‘coming home’. The MCCs and related materials producedby the ABA Working Group are intended to assist companies of all sizes and industries
to integrate human rights due diligence principles into every stage of the supply
contract process and operationalize the shared responsibility between buyers andsuppliers for the human rights performance of their contract.
2The Mekong Club | Model Contract Caluse To Protect Workers In International Supply Chains2Model Contract Clause Overview
The MCCs are designed to align with the UN Guiding Principles on Business andHuman Rights (the “UNGPs”) and the 2018 OECD Due Diligence Guidance for
Responsible Business Conduct (the “OECD Guidance”). They seek to translate theseprinciples into contractual obligations that require both buyer and supplier tocooperate in protecting human rights and remediating harm.

Instead of the traditional approach of representations and warranties with related
strict contractual liability (which can lead to a “checkbox” approach), the MCCs seek
to establish a more pragmatic regime of human rights due diligence, requiring theparties to take appropriate steps to identify and mitigate human rights risks and toaddress adverse human rights impacts (based on a prioritisation approach).

In addition, the MCCs stress remediation of human rights harms over typicalcontractual remedies (like termination / monetary damages) and seek to move awayfrom remediation being solely the responsibility of the supplier (especially where thebuyer may have contributed to the harm).
Finally, the MCCs focus on “responsible exit” obligations, engendered by issues arisingfrom the COVID-19 pandemic.
We have summarized the key provisions from the MCCs in in the final section ofthis Toolkit, but if you would like to read the full report on the MMC initiative,
including the background to the project and a detailed description of theclauses with accompanying explanatory notes Full Report: The Model Contract
Clauses
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The Mekong Club | Model Contract Caluse To Protect Workers In International Supply Chains

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Human Rights Policy
The MCCs envisage that there would be a schedule to the contract setting out thecompany’s human rights policy or supplier code of conduct (referred to as “ScheduleP”). The ABA Working Group does not take a prescriptive stance on what Schedule
P should include but provides guidance that can be used as building blocks for thosecompanies which do not have their own policy in place, or those that want to revamp
their policy to better align with the principles of the MCCs.
The detailed guidance on How to Create a Human Rights Policy – Schedule P
Building Blocks can be accessed here:

Responsible Buyer CodeAs mentioned above the MCCs embody a shift towards shared responsibility between
buyer and supplier. The ABA Working Group therefore felt it was important tohighlight the human rights standards that the buyer is expected to follow. This is in
the form of a code of conduct (referred to as “Schedule Q”), which is designed to plug a
gap in the supply chain governance area. Although many companies have committed
to respect human rights in their general corporate policies, there are few (if any)
examples of buyer specific codes.
References to the Responsible Buyer Code are built into the MCCs and the two aredesigned to work together, but it is of course open to companies to adopt the MCCs
without adopting the Buyer Code, or to include their own form of Buyer Code andadapt the provisions accordingly.
The full text of the Responsible Purchasing Code of Conduct (Version 1.0) can beaccessed here

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The Mekong Club | Model Contract Caluse To Protect Workers In International Supply Chains

4Key Clauses Highlights
1. Mutual Obligations with Respect
to Combatting Abusive Practices
in Supply Chains
The clauses in this section establish the fundamental obligations with respect tohuman rights due diligence and reflect the overall objective that the MCCs embody ashared approach between Buyer and Supplier. They include the following:- Both parties putting in place anappropriate due diligence process(having regard to size and circumstances),maintaining the same on an ongoingbasis and disclosing relevant information
to each other (1.1)- Requirement to consider human rights
impacts of any material modification
requested by Buyer or Supplier (e.g.
hanges to specification, order
quantities, timing) (1.3d)- General obligations under Schedule P(Human Rights Policy) for Supplier (and its
subcontractors), as well as commitmentsfrom Buyer to support Supplier by engaging
in responsible purchasing practices (1.2 / 1.3)

- Excused non-performance arising fromany reasonably unforeseeable industry wideor geographically specific event, which goesbroader than force-majeure (1.3e)- Responsible exit obligation whereby
parties are required to consider potential
adverse human rights impacts and employ
commercially reasonable efforts to mitigate
them (1.3f)

2. Remediating Adverse Human Rights
Impacts linked to Contractual Activity
The clauses in this section set out in more detail the requirements regarding
remediation, with a focus on measures to identify, stop and correct the harm,
including:- Prompt notification of any potential or
actual human rights violation (breach ofSchedule P) (2.1)- Cooperative investigation of any suchviolation (2.2)- Preparation of a remediation plan that is
proportionate to the adverse impact andincludes objective milestones (2.3)- Right to cure, so as to avoid further humanrights impact arising from termination forbreach (2.4)

5The Mekong Club | Model Contract Caluse To Protect Workers In International Supply Chains53. Rejection of Goodsand Cancellation
This section clarifies that a human rights
related breach under Schedule P may besufficient to give the Buyer the right to reject
the goods as ‘non-conforming’ even throughthe goods may otherwise conform tospecification. Further rights to cancel orterminate may apply subject to the‘responsible exit’ clause, unless the breach
relates to a ‘zero-tolerance’matter resulting
in automatic termination.

4. Revocation of AcceptanceThis section is only applicable to US law governed
contracts under the Uniform Commercial Code.

5. Non-variation of Mattersrelated to Schedule P
This clause reiterates the importanceof Schedule P and that any course ofdealing or other conduct relating tomatters covered by Schedule P would
not constitute a waiver or limit any
compliance requirement.

6The Mekong Club | Model Contract Caluse To Protect Workers In International Supply Chains66. Buyer Remedies
The clauses in this section highlightthat remedies must be understood in
conjunction with the commitment tohuman rights remediation, rather thandefaulting to termination of the supply
arrangement. They include thefollowing:- Rights to cease trading with certain
factories or subcontractors.
- Suspending certain payments until specificremediation action has been taken.
- Payment of damages, but only on theclear understanding that neither Buyer
or Supplier should benefit from a humanrights violation and damages should
instead be put to toward supporting
remediation .
- Return, destruction or donation (in somecircumstances) of non-conforming goods.

7. Disclaimers
This section includes disclaimers that effectively clarify that the Buyer takes on nocontractual duties beyond those expressly stated – thereby seeking to manage
the risk of Buyers who by virtue of the MCCs take on more responsibility inmanaging the supply chain.

8. Dispute Resolution Procedures
Alternative dispute resolution clauses have been provided which should be consideredin light of relevant clauses in the master supply agreement (or equivalent) and theparties customary approach to resolution of disputes. For companies that preferto litigate rather than arbitrate this remains an option, and various phases ofescalation are included.
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