Global supply chains are long and hard to see into. A product may pass through dozens of suppliers and intermediaries before it reaches a customer, and problems anywhere in that chain, from unsafe factories to forced labor and environmental damage, can become your problem. Disruptions such as the COVID-19 pandemic made those dependencies obvious.
Governments have responded with supply chain due diligence laws. Germany's Supply Chain Due Diligence Act, in force since January 2023, was one of the first broad examples. The European Union has since adopted its own Corporate Sustainability Due Diligence Directive, whose scope and timing have been revised since adoption. This post, first written ahead of the German law and updated for 2026, explains what these laws ask of companies and how contract management helps meet them. It is general guidance, not legal advice.
What does the German Supply Chain Due Diligence Act require?
The act sets binding standards for large companies to protect human rights and the environment across their supply chains. It targets risks such as forced labor, child labor, human trafficking, unsafe working conditions, discrimination and environmental harm. It applies to companies above an employee threshold with their head office, principal place of business or a branch in Germany, and that threshold was lowered after the first year. Check current scope with counsel.
In practical terms, in scope companies must adapt their compliance, purchasing and contract drafting processes. Their core duties include:
- Risk analysis and management: identify and assess risks in their own operations and among direct suppliers, and among indirect suppliers when there are signs of a problem
- A policy statement: publish the company's human rights strategy
- Preventive and remedial measures: act to prevent violations and to end or reduce them when they occur
- A complaints procedure: give affected people a way to raise concerns
- Documentation and reporting: record what was done and report on it
Failure to comply can lead to significant fines and exclusion from public contracts in Germany.
Why contracts are central to due diligence
A policy statement does not bind a supplier. A contract does. Due diligence expectations become enforceable when they are written into supplier agreements and tracked after signature. That makes contract management one of the most practical tools for compliance.
Clauses to include
- A supplier code of conduct covering human rights and environmental standards
- A duty to pass equivalent requirements down to the supplier's own suppliers
- Audit and information rights, including site visits and document requests
- Prompt notice of violations or risks, and cooperation on remediation
- Training commitments where risks are high
- Remedies, including suspension and termination for serious or repeated breaches
Steps to take now
- Map your direct suppliers. Build a complete list with locations, business type, products and contract owners.
- Assess risk. Rate suppliers by country, sector and workforce, and decide where to look further down the chain.
- Review existing contracts. Find which supplier agreements lack due diligence clauses, starting with high risk suppliers.
- Update templates. Add approved clauses to your supplier templates so new contracts are compliant by default.
- Assign obligations. Give each due diligence commitment an owner, a date and an evidence requirement.
- Track remediation. When a violation is found, record the plan, the owner and the follow up until it is closed.
How contract management helps
| Due diligence duty | How contract management supports it |
|---|---|
| Risk analysis | Supplier and contract data in one place, linked to risk ratings |
| Preventive measures | Approved clauses in every supplier template |
| Remediation | Obligations and action plans tracked with owners and dates |
| Documentation | A full record of clauses, evidence and decisions for each supplier |
| Reporting | Portfolio views of coverage, gaps and open actions |
In Aavenir, Aavenir Atlas finds supplier contracts that lack due diligence clauses, Contractflow keeps new agreements on approved language and ComplianceNext maps regulatory duties to contracts, owners and evidence. On ServiceNow, this can sit alongside your existing governance, risk and compliance processes. A person approves every AI result.
Common mistakes
- Treating due diligence as a one off questionnaire rather than an ongoing process
- Adding clauses to new contracts but leaving existing high risk suppliers untouched
- Writing audit rights into contracts and never using them
- Tracking violations by email, with no owner, deadline or record of closure
- Ignoring indirect suppliers even when there are clear signs of a problem
Each of these leaves a gap between what the policy says and what the company can prove. Regulators, customers and investors increasingly ask for the proof.
Because these laws continue to evolve, design your process so that contract language and obligations can change without a full renegotiation cycle. Keep due diligence clauses in a central clause library, link each clause to the obligations it creates and review both whenever the rules or your risk assessment change.
The bottom line
Supply chain due diligence laws move human rights and environmental commitments from policy into contracts. Map your suppliers, put the right clauses in every agreement, assign the obligations and keep evidence. That is how you show compliance, not just claim it.