Hahn Law Firm

A Robust Compliance Program Streamlines Supply-side Contract Negotiations and Administration

Having a robust compliance program makes good business sense.  This blog article discusses one of many reasons for this:  A robust compliance program simplifies supply-side contract negotiations and follow-through contract administration. 

There's a trend for Buyers to negotiate for contract language binding Suppliers to specific compliance-related covenants. Wise Buyers have good reasons for this: There are upticks in government agency enforcements. The substantial fines paid focus the news spotlight on ethics and compliance. Buyer wants to stay in the good graces of government agencies. Buyer certainly wants to stay out of the headlines about ethics and compliance transgressions. Regulators may hold Buyer ultimately accountable for practices in its supply chain. Buyer may have internal policies designed to insulate it from non-compliance risk by requiring vendor agreements to include certain compliance-related language. Buyer may seek to shift compliance risk down the supply chain as much as possible. Buyer may want out of a contract if the Supplier has troubling compliance issues.

Buyer's proposed compliance-related contract provisions often require Supplier to agree to Buyer's own compliance policies and procedures, such as the Buyer's Code of Conduct, Buyer's Anti-Corruption Policies, etc. Buyer developed these policies and procedures so Buyer is comfortable with them. Buyer's proposed contract provisions may even include commitments to certain training, monitoring, reporting, etc., as part of a seven pillars approach to compliance suggested by the US Federal Sentencing Guidelines and the OIG Compliance Program Guidance for Pharmaceutical Manufacturers. Each Buyer's compliance policies and procedures, and the contract commitments it seeks, will likely be a little different or include different elements. Some Buyers use the compliance provisions as a platform to further a separate social agenda. For instance, one Fortune 100 company's good vendor policies include vendor commitments to local community support and service that are beyond any legal or regulatory requirement.

If Supplier simply signs on to all the various sets of compliance-related contract language proposed by various Buyers, it's easy to envision the morass for Supplier to abide by set 1 for Buyer A, set 2 for Buyer B, set 3 for Buyer C and so on. However, sophisticated Buyers understand this dilemma for Suppliers. If the Supplier demonstrates that it is serious about compliance, its program is robust and adhered to, the reasonable Buyer will agree to contract language acknowledging Supplier's compliance program, Supplier's adherence to it and limited to the points that are necessary for legal and regulatory compliance (rather than the points that further Buyer's separate social agenda). To conclude, Supplier's should consider the effort and expense of establishing and maintaining a strong compliance program well worth it. Legal and regulatory compliance issues in contract negotiations will be streamlined and so will contract administration once the contract is signed.

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