Model Contract Clauses Version 2.0

Model Contract Clauses Version 2.0 and the Responsible Buyer Code

Executive Summary

Model Contract Clauses Aligned for Human Rights Due Diligence
The human rights performance of global supply chains is quickly becoming a hot button issue for
anyone concerned with corporate governance and corporate accountability. Mandatory human
rights due diligence legislation is on the near-term horizon in the E.U. 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 or
Western consumers, is on the rise. There can therefore be little doubt that the face of global
corporate accountability for human rights abuses within supply chains is changing. The issue is
“coming home,” in other words.

Why do contracts matter?
Contracts are an expression of the parties’ expectations. How supply contracts are negotiated, the
terms they contain, and their performance—how buyer and supplier play out their contractual
relationship—affects how well the human rights of workers and often whole communities are
protected. Aggressive contracting, characterized by unfairly one-sided or oppressive terms, tends
to promote oppositional rather than cooperative buyer-supplier relationships. This can generate
undue commercial pressure on suppliers, exacerbate human rights risks, and undermine the
buyer’s ability to meet its own human rights commitments. On the other hand, better contracts
and better contractual practices can generate better human rights outcomes.

What does a “good” or human rights due diligence-aligned contract look like?

To align with international business and human rights norms and expectations, set out in the UN
Guiding Principles on Business and Human Rights (the UNGPs) and the OECD Due Diligence
Guidance for Responsible Business Conduct, contracts must be revised to reflect the parties’ own
human rights commitments and standards and provide a clear process for upholding them. Such
revised contracts would better protect the parties and other stakeholders, including workers, who,
although not party to the contract, are at risk of being adversely impacted by it. Revised contracts
would also begin to satisfy the growing body of legislation requiring human rights due diligence
and public disclosure relating to human rights abuses.

In 2021, a working group formed under the auspices of the American Bar Association Business Law
Section published a set of model contract clauses, the MCCs 2.0, to help buyers and suppliers
redesign their contracts to better protect human rights in their supply chains. MCCs 2.0 are the
first model contract clauses that attempt to integrate the principles contained in the UNGPs and
the OECD Due Diligence Guidance into international supply contracts. The MCCs translate these
principles into contractual obligations that require buyer and supplier to cooperate in protecting
human rights and make both parties responsible for the contract’s human rights performance.

Some of the key MCCs 2.0 obligations include:

(1) Human Rights Due Diligence: buyer and supplier must each conduct human rights due
diligence before and during the term of the contract. This requires both parties to take appropriate steps to identify and mitigate human rights risks and to address adverse human rights impacts in their supply chains.
(2) Buyer Responsibilities: buyer and supplier must each engage in responsible sourcing and
purchasing practices (including practices with respect to order changes and responsible exits). A fuller description of responsible purchasing practices is contained in the Responsible Buyer Code of Conduct (Buyer Code), also developed and published by the Working Group.
(3) Remediation: buyer and supplier must each prioritize stakeholder-centered remediation
for human rights harms before or in conjunction with conventional contract remedies and
damage assessments. Buyer must also participate in remediation if it caused or contributed
to the adverse impact.

Conventional contracts compared to contracts that incorporate MCC 2.0

How to use MCCs 2.0 and the Buyer Code?
MCCs 2.0 are designed to be used by buyers and suppliers operating in any industry. They are also
modular, meaning that a company can select and adapt the MCCs it wishes to include in the
contract. Alternative text is often provided, with extensive footnotes providing counsel with
research and resources that might be useful in making drafting decisions.

A company interested in adopting the MCCs would, as a first step, take its human rights policy
(usually, an anti-trafficking policy or a supplier code of conduct) and include it in the contract as
an additional, binding, schedule. The MCCs refer to this as “Schedule P” (P for policy). The Working
Group does not take a position on what Schedule P should or should not contain, however it has
prepared a document outlining the “Building Blocks for Schedule P” for companies that have not
yet developed their own human rights policies.

The parties may also wish to include the Buyer Code as an additional schedule to the contract. The
Buyer Code 1.0 has been drafted by the Working Group and is referred to in the MCCs as “Schedule
Q.” Reference to the Buyer Code is already built into the MCCs, and the two are therefore designed
to work together. However, a party can adopt the MCCs without adopting the Buyer Code.
Conversely, the Buyer Code can be adopted independently from the MCCs.
The parties would then incorporate the MCCs in their master contract or purchase order materials
after adapting them to their industry, human rights risk exposure, and other factors relevant to
their circumstances.

Beyond the contracting parties, MCCs 2.0, Schedule P, and the Buyer Code are also relevant to a
range of other stakeholders interested in promoting human rights in supply chains (e.g.,
government agencies, procurement bodies, industry associations, investors, civil society
organizations, international development organizations, and consumer groups).

If you are interested in finding out more about how you or your organization can use or work with
MCCs 2.0, please contact one of the leaders of the Working Group:
David V. Snyder, chair (dsnyder@wcl.american.edu)
Susan A. Maslow, vice chair (smaslow@ammlaw.com)
Sarah Dadush, leader of the Principled Purchasing Project (s.dadush@rutgers.edu)