Implementing Human Rights Protections in International Supply Contracts

A working group formed under the auspices of the American Bar Association (ABA) Business Law Section has published “Version 2.0” of the Model Contract Clauses for International Supply Contracts. Drafted with pro bono assistance from Linklaters, these set out a human rights due diligence regime and suggest a framework for upholding human rights in supply chains.

What are the MCCs?

• The MCCs, first published in 2018, are customizable contractual provisions on human rights drafted by the Working Group and designed to be inserted into supply contracts, purchase orders and other procurement documents.
• MCCs 2.0, drafted with the pro bono assistance of Linklaters, are meant to assist companies in implementing corporate human rights policies in their supply chains in a manner that is both legally effective and operationally pragmatic. 
• Read our article on the MCCs 1.0 here.

What do the MCCs 2.0 address?

• Building on the previous version which suggested human rights obligations might be cascaded to suppliers, the MCCs 2.0 address the fact that adverse human rights impacts at the supplier level can often be rooted in the buyers’ own purchasing practices, particularly ambitious timing demands, pricing pressures, poor forecasting, last-minute order modifications, and unplanned exits.
• Bearing in mind that companies are in different places with respect to their human rights commitments and the responsibilities they can undertake, the MCCs 2.0 use a fully modular approach. This method allows companies to choose and adapt the clauses so as to reflect their positions, exposure to human rights risk, objectives, and industry-specific needs. 
• In addition to helping align contracts with human rights due diligence principles, the MCCs can also be adapted to advance broader environmental, social, and governance (ESG) goals. 

What updates were made in the MCCs 2.0?

• The most consequential change made in the MCCs 2.0 is that it is suggested buyers now share with their suppliers and sub-suppliers a contractual responsibility to ensure respect for human rights, including through human rights due diligence. 
• The MCCs 2.0 are the first contract clauses of their kind to incorporate principles set out in the UN Guiding Principles on Business and Human Rights and OECD Due Diligence Guidance for Responsible Business Conduct. 
• Like the MCCs 1.0, the MCCs 2.0 continue to seek to cascade human rights obligations throughout the supply chain; address issues of mitigation and remedies; and manage the risks and exposure of buyers through appropriate disclaimers. 

What are the key provisions of the MCCs 2.0?

• Human Rights Due Diligence: the MCCs 2.0 replace the Representations and Warranties in typical contracts with requirements that parties identify and address adverse human rights impacts through human rights due diligence.
• Supplier and Buyer Responsibilities: the MCCs 2.0 require commitments to uphold human rights from buyers as well as suppliers and requires that buyers engage in responsible purchasing practices such as responsible exits and paying for any goods produced by the supplier before termination.
• Remediation: the MCCs 2.0 identify goods produced in contravention of applicable human rights standards as “Nonconforming Goods;” classify the production, distribution or delivery of “Nonconforming Goods” as a breach of contract; and prioritize the remediation of human rights harms alongside typical contractual remedies.
• Dispute Resolution: the MCCs 2.0 contain clauses on dispute resolution (whether via litigation or arbitration) as well as on operational-level grievance mechanisms (as recommended under the UN Guiding Principles on Business and Human Rights). 
• Responsible Buyer Code of Conduct: the MCCs 1.0 included a Schedule P setting out suggested human rights standards to be applied to suppliers. The MCCs 2.0 also include a new Schedule Q, termed the Responsible Buyer Code of Conduct, suggesting responsible purchasing practices that the buyer might commit to abide by.

Linklaters’ Business and Human Rights practice has been at the forefront of advising on emerging soft law and other standards in relation to human rights. We have extensive experience helping businesses navigate the rapidly evolving landscape in this area, including by advising on human rights policy commitments, governance of human rights risks and impacts, and undertaking human rights impact assessments in relation to new business relationships and ventures. More information can be found on www.linklaters.com.

View the MCCs 2.0 toolkit at: https://www.americanbar.org/groups/human_rights/business-human-rights-initiative/contractual-clauses-project/.