Your third-party suppliers pose significant risks to your business. For instance, third-party data breaches are extremely common and usually very expensive. Meanwhile, negative press relating to greenwashing or other unsustainable practices can also be costly to brands, so supply chain management is critical for businesses looking to develop or maintain a positive image among consumers. AI (and AI-washing) also appears to be an emerging enforcement risk that warrants additional contractual protection.
Good contract management practices can help.
The Relationship Between Contract Management & Supplier Relationships
You should view your contracts as a relationship management tool that can help to make sure suppliers do what they promise and to protect your company from risks. Your business can mitigate some of the elevated risks it faces in terms of enforcement and reputational harm through its contracts, for example:
- Artificial Intelligence Exaggeration (AI-washing): Your contracts should require suppliers to be upfront about how they use AI, what it can and can’t do, any potential biases, and how any data it gleans from your relationship will be used to train the AI.
- False Green Claims (Greenwashing): Greenwashing is extremely widespread – and it appears to be attracting the attention of the Federal Trade Commission (which is expected to announce updated Green Guides later this year). If you want your suppliers to provide accurate information about sustainability claims, mandate it in your contracts, alongside details about how you will track and assess performance and consequences for breaches.
- Data Breaches & Technical Incidents: Make sure your contracts have clauses covering data security minimum standards and/or technical requirements, and what to do if there’s a breach, including a complete incident response plan. Your contracts should require suppliers to tell you immediately if a breach happens and include terms about who’s responsible for any damages. We’ve covered this in more detail here.
Good Practices For Contract Management
These are some good practices you can follow to address privacy, ESG (Environmental, Social, and Governance) concerns, and the emerging AI landscape in your contracts while maintaining best practices throughout the contract lifecycle.
- Digitize contracts.
Digital contracts are easier to access, automate, and audit. They can be easily reviewed on demand by team members or stakeholders, which means there’s a reduced risk of key dates being overlooked, such as those for contract renewal, performance audits, and the like.
- Use standardized contracts, where possible.
Standardized contracts reduce the time burden of negotiations while also reducing the risk of errors and/or omissions. Adopting template contracts also simplifies the automation of key tasks, like performance management reviews, and dates – such as contract reviews or renewals.
- Incorporate standardized clauses that reflect priority risks.
You should have a repository of template provisions that cover practices you expect relevant third parties to implement, such as data protection measures or specific sustainability requirements. These clauses should be very specific, clear, and adaptable to evolving regulations, consumer expectations, and business realities.
- Key date tracking and alerts.
Tracking key dates is essential for good contract hygiene. Ideally, your tracking solution would also allow for accountable parties to be alerted to upcoming key dates to trigger the relevant workflows.
- Manage incoming/outgoing provisions.
Your contract management solution should also provide visuals/reminders for integrating new or updated requirements into contracts that are up for review or renewal in the near term. Contracts should be catalogued in such a manner that team members can easily determine if they contain out-of-date provisions and whether these should be renegotiated immediately or phased in over time.
Prevailing practices change over time, and it’s important to have your commercial contracts reviewed periodically. Our attorneys are available to help.
Disclaimer
The materials available at this website are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this website or any of the e-mail links contained within the site do not create an attorney-client relationship between CGL and the user or browser. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.