Compliance with Laws

In procuring from a supplier you want the supplier to comply with any necessary laws, so there is no barrier to the work being performed or your ability to use the product or service. That always creates the issue of what laws need to be complied with. Different industries can be subject to different laws. Different cities, counties, states and countries all have different laws. Does the law of the location where the sales is made control the laws that must be complied with? What if the purchase is to be shipped or delivered to a different location? Do those laws also apply? Even different products can have different requirements.For example data communications equipment is subject to what’s called homologation requirements (meaning certification, confirmation of approval before it may be used with that locations communications network). The EEC also enacted the RoHS Laws (Restriction on Hazardous Substances) to prevent products that had hazardous substances from being imported into EEC countries. A supplier may not have needed to comply with those laws if they didn’t want to sell into the EEC or weren’t selling their product to someone that used it in their product who intended to sell it in EEC Countries.

Suppliers usually have three major concerns with any compliance with laws requirement. One is being able to know what the requirements are for every location that their product may be shipped to.The second is any change in a law can have a cost impact that may have not have been taken into account in the agreed pricing. The last is even if the price could be adjusted, could they or would it be economically feasible for them to implement all of the changes that might be required to comply?.

When you procure services the issue of compliance with laws is easier as the law of the location where the service is performed is the only law that would apply. Where it becomes complex is with products. With products you have multiple points that need to be taken into account: The laws of the location(s) where it’s produced; the laws of the locations where its delivered to; and the laws of the location of the end customer.

There are three different approaches to dealing with the issue of compliance with laws. Each has both pluses and minuses. One approach would be for the Buyer to spell out all the various laws that the supplier must comply with. If a Buyer is spelling out specific laws that must be complied with there are several risks. One is they may be requiring compliance when compliance is not required and that adds to their cost. A second risk is potentially limiting the laws that do apply. Any time you include a list you may be limited to only what you listed. The third issue is you need to keep track of any changes to those laws and if those specific laws are changed,you need to amend the agreement to update it.

A second approach is to leave it vague and very open-ended. In this the Buyer may require that the Supplier comply with all applicable laws. Suppliers do not like this as frequently they may not know all the locations where the buyer may be using or shipping the products into so it makes their risk of complying with laws higher and their burden to track the laws and changes to the laws greater. Many times their approach will be to try to limit the specific locations or countries to a limited number of countries that they already do business in where they have to manage compliance

A third approach is to have a form of combination of approaches where you specifically spell out specific laws or countries laws that must be complied with but include those only as examples so the requirements include but are not limited to those laws or locations listed to prevent the lists from being considered all inclusive.

While a Buyer may want to have the broadest coverage, there are many times where that may not be feasible, practical or cost effective. There are one hundred ninety-six countries in the world. I don’t know how many political subdivisions exist but than number has to be in the millions. All of those can be passing laws. What’s the best solution? This is similar to a problem I had when I was procuring power supplies. There were at least eight different voltages that were in use in the world and in remote islands off Japan other voltages were used. You also have two main frequencies 50 or 60Hz. Trying to design a power supply that would have worked in all locations would have been extremely expensive. So we made the business decision to limit the design parameters to only those locations where we knew we would have significant sales where we need the products to work at the right voltage and frequency. The same approach may be the best solution for compliance with laws. Focus on those locations where you know you will have significant sales. Suppliers will be happy complying with those as it means more sales to them. Then if you see significant opportunity in a new market approach the supplier to have them comply with those laws.