Compliance with law provisions

In this episode of DLA Piper’s ‘Better Contracts’ podcast series, Mark Dewar, Conor McEneaney and Nicole Nartallo draw on their extensive experience of contract drafting and negotiation to discuss the intricacies of compliance with law provisions in commercial contracts. The podcast explores the significance of these provisions for both suppliers and customers, emphasising the need to fully consider the implications of what is being agreed and ensure that the compliance cost and risk is allocated appropriately.

Understanding compliance with law provisions

Typically, a ‘compliance with law’ provision is a contractual commitment from one party that the actions it takes under the contract will adhere to applicable law. It is often treated as contract boilerplate, but a failure to give the obligation due consideration could result in a party bearing more risk and expense under a contract than it may realise.

The podcast starts with a discussion of these provisions in the context of commercial contracts and touches on a number of factors that should be considered, including:

• which laws must be complied with, and by whom (eg will the supplier have to procure compliance from other parties in the supply chain?)
• the scope of the provision (eg whether it applies only to performance of the contract or to individual deliverables also)
• the geographical scope of applicable law and the specific laws relevant to the services or products being supplied (with insight on how this can be approached in multi-jurisdictional projects), and
• the allocation of costs for compliance.

Focusing on customer and supplier considerations

Our panel goes on to discuss key considerations from each of the customer’s and the supplier’s perspective, offering insight into potential issues and negotiating positions, and highlighting particular concerns in highly regulated sectors.

The speakers note the importance for both parties of clearly defining ‘applicable law’ in the contract – in particular, whether it covers only black letter law or includes codes of practice and regulatory guidance – and agreeing how changes to applicable law during the term of the contract will be addressed.

Faced with an ever-changing legal and regulatory landscape, businesses will want to future- proof contracts in as far as possible; whilst compliance with law provisions can play a significant role in helping to do that, each party needs to understand its exposure under the contract to changes in law.

For further guidance on contract law questions across more than 45 jurisdictions, please see DLA Piper’s Global Contract Laws: a comparative guide (registration required).