With effect from 2023, Germany is requiring companies to verifiably monitor compliance with international guidelines for the protection of human rights and the environment. Violations may result in liability claims. Globally active companies employing more than 3,000 people are the first in line, and starting in 2024, the circle will expand to include companies with over 1,000 employees. In parallel, work on a corresponding bill at the EU level is forging ahead. It is expected to exceed the German requirements and to be in place by the end of 2021. Corporate legal departments are being called upon to push implementation forward in good time, in cooperation with relevant business units − a time consuming task using analog tools, but one that’s resource-efficient with digital tools.
Tasks that involve more than the contract managers
The Supply Chain Act imposes specific requirements on the companies concerned:
- Drafting a policy statement advocating respect for human rights
- Establishing risk management, including preventive and remedial measures
- Conducting periodic risk analyses in the company’s own business divisions and those of its suppliers
- Setting up a complaints procedure
- Documentation and annual reporting
The Supply Chain Act thus generates a level of effort that goes far beyond adapting existing contracts, a task that is necessary in some cases. Besides the legal departments, implementing these measures primarily affects supplier management, risk management, and quality assurance. These departments are called upon to take action both during implementation as well as during the monitoring and annual reporting processes.
Modern contract management accelerates implementation while reducing workload
Businesses that leverage the capabilities of intelligent digital contract management will noticeably reduce the time required to implement the given requirements. That applies to implementation as well as to ongoing monitoring, provided that the intelligent contract management system supports the following core processes:
Locating and adapting the affected contracts
The first step is to identify which agreements apply. An intelligent semantic full-text search makes it possible to locate the contents of the entire contract archive – even from scanned documents – using user-defined keywords, such as clauses. Tabular lists with filter and search options enable users to systematically identify the contracts they’re looking for. These tools enable users to process the relevant agreements without having to conduct time-consuming research. Using a single clause library to adapt or amend contracts for compliance with the Supply Chain Act makes manual intervention superfluous, and integrates the departments concerned as well as third-party suppliers by means of automated review and approval processes.
Providing all stakeholders with access to extensive information in digital contract files
The most important document in any contract file is the contract per se, including any valid annexes. Storing all contract-related information, such as emails, in one location is a good practice to ensure efficient traceability and easier subsequent processing. The Supply Chain Act prescribes risk analyses including preventive and remedial measures and, in particular, transparent documentation of these measures, including annual reporting. In this respect as well, digital contract files constitute the logical “single point of truth.” With a view to prospective audits, required verification can be provided using any document type and any additional form fields for structured processing from a higher-level perspective.
Creating a holistic view
For ongoing monitoring, all framework agreements or master service agreements with suppliers need to be displayed in tabular form to create and maintain a complete overview. This helps to quickly determine where action is needed. From this perspective, users can dive right into the details of the underlying files seamlessly without changing systems. This enables the company to provide ad hoc information for annual reporting and audits.
The demand for digital solutions is mounting
This latest example from the Supply Chain Act highlights the strong need for products that provide digital solutions. According to a recent study by Horn & Company, some 80 percent of businesses have either scarcely or not at all tackled the Act’s practical implementation. The primary reason lies in the anticipated high level of effort, which is virtually unavoidable using conventional analog methods. Digital contract management can help, and any misgivings about how resource-intensive the switch might be are proving to be unfounded. A cloud-based standard application can be deployed immediately without elaborate setup, and delivers maximum support for compliance with human rights, sustainability, and environmental protection standards along the entire supply chain.
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