A supply chain contract is an agreement that structures the chain of suppliers and subcontractors. In our practice, we see that legal responsibility for what happens within the chain is growing significantly. ESG rules, sanctions legislation, and CSDDD make a well-considered legal approach to the supply chain indispensable. Anyone who fails to contractually strengthen their chain bears heavy liability for violations occurring many links down the line.
What is the legal problem?
Supply chains have many links in different countries. A misstep by a sub-sub-supplier can lead to reputational damage, fines, and legal liability for you as the main party. At the same time, you actually have little control over the entire chain. International rules regarding human rights, the environment, and sanctions require due diligence and accountability. Without cascading contracts, you run an unprotected risk.
What does the law say?
The EU Corporate Sustainability Due Diligence Directive (Directive (EU) 2024/1760, in force 25 July 2024) mandates supply chain due diligence for human rights and the environment, with phased implementation until 2029. The German Lieferkettengesetz (2021) and French Loi de vigilance (2017) are precursors. EU sanctions (Regulation 833/2014) and export controls (Regulation 2021/821) apply throughout the entire chain.
The EU Deforestation Regulation (EUDR, Regulation 2023/1115, applicable as of 30 December 2025 for large enterprises) prohibits the import of products from deforested land. Conflict Minerals Regulation (EU 2017/821) and CSRD (Directive 2022/2464) impose additional obligations.
What risks do companies face?
You risk fines under CSDDD (up to 5 percent of global turnover under Article 27) and local chain laws, civil liability for damage in the chain under Article 29 CSDDD, exclusion from public tenders, and reputational damage. Sanctions against parties elsewhere in the chain can render your finished products illegal. Without contractual cascading of obligations, you lack enforcement power over deeper layers.
Practical example from our practice
We advised a Dutch electronics company that purchased components from an Asian tier-1 supplier. A Tier 3 supplier was found to be using minerals from a conflict zone in violation of Regulation 2017/821. Under CSDDD, fines and exclusion from the EU market were imminent. Upon renegotiation, we incorporated the following: a Supplier Code of Conduct, a cascading clause up to Tier 3, audit rights via Nedap, termination upon violation, and certification via the Responsible Minerals Initiative. The subsequent audit confirmed full compliance.
What can you do?
Implement a Supplier Code of Conduct and incorporate it into every contract. Require transfer obligations to subcontractors (cascading). Incorporate audit, reporting, and termination rights. Align with CSDDD, EUDR, sector requirements, and sanctions. Work with certifications (OECD guidelines, ISO, sector labels). Train procurement on due diligence. See also our article on ESG obligations in commercial contracts.