Circular Economy Product Design Obligation
Embeds ‘Repair, Reuse and Recycle’ concepts in procurement / supply agreements for the benefit of the client, end consumer and environment.
What this clause does
Incentivises manufacturers by including the ability to earn a bonus for using recycled materials and circular manufacturing. Purchasers can ensure that the design and manufacture of products aligns with responsible consumption and production and contributes to achievement of their net zero transition plan. The resulting products will ultimately be more competitive.
Recitals
(A) The Parties hereby acknowledge that a primary consideration for the design and manufacture of the product is to ensure, as far as possible, that the product can be reused, repaired and/or recycled at the end of its life [and to reduce its carbon footprint].
(B) The Parties [have signed up to the Race to Zero and] acknowledge their common intention to:
(i) achieve their respective organisational net zero targets; and
(ii) align with the objectives of the Paris Agreement (in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels and achieving net zero or net negative emissions by 2050 or sooner).
(C) The Parties agree to pursue (B) in a manner that promotes a just transition to a low carbon economy and results in at least a 7%* reduction of greenhouse gas emissions year on year.
* [The ‘Carbon Law’; and J. Rockström et al., A roadmap for rapid decarbonisation, Science 355.6331, 1269-1271 (2017).]
Clauses
[Drafting note: Capitalised terms relate to either a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]
1. Design obligations
1.1 The Manufacturer shall prepare [or procure] a design of the Product to deliver the Specification for the Client by [insert timings]. In creating [or procuring] the design for the Product, the Manufacturer shall[, and shall ensure that any of its contractors and subcontractors shall,] use all reasonable endeavours to satisfy the Circular Design Requirements.
1.2 The Circular Design Requirements are to:
1.2.1 minimise [so far as reasonably practicable] the volume of resources needed to manufacture the Product [and design the product with the aim of reducing its Carbon Footprint];
1.2.2 maximise [so far as reasonably practicable] the volume of secondary raw materials derived from Recycled sources used to manufacture the Product;
1.2.3 ensure [so far as reasonably practicable] that the Product is not coated with, does not contain or is not otherwise treated with chemicals or treatments which prevent or make it harder for the Product to be Recycled when it becomes an End-of-Life Product;
1.2.4 ensure that the Product shall not contain any microplastics (or plastics which are capable of degrading to form microplastics), glitter, [insert other harmful/ banned materials], and/or any other harmful materials made known to the Manufacturer by the Client and specified in Schedule [●];
1.2.5 ensure [so far as reasonably practicable] that the Product shall contain a minimum [●]% constituent [components/ parts]* that can be safely, easily** and at an economically viable cost disassembled, removed, refurbished, replaced or repaired; and
1.2.6 document any know-how and learnings created during the design process of the Product, and the rights in such documents, know-how and learnings shall be owned by the Client pursuant to clause 1.6.
* [Drafting note: You may wish to specify priority components/ parts relevant to the Product - rather than a ‘minimum [●]%’ of components/parts - which shall be capable of being ‘safely and easily’ disassembled. For some products, it may be more prudent to specify those components/ parts which are most likely to be in need of disassembly, removal, refurbishment, replacement or repair. For an example of this, see EU Regulation 2019/2021 which sets ecodesign requirements for electronic displays. The regulation includes separate sections on:
(i) ensuring ease of disassembly (which applies to the whole product, not just a percentage of it);
(ii) which parts must be capable of removal and repair/ replacement by consumers or professional repairers; and (iii) which additional parts must be capable of repair/ replacement by at least professional repairers.]
** [Drafting note: You may wish to expand upon the meaning of ‘easily’ here, relevant to the type or complexity of the Product. It may be that some parts should be readily replaceable by a consumer with basic tools (e.g. a battery) but other parts can only realistically (and perhaps safely) be expected to be replaceable/repairable by a professional with specialist tools.]
[1.3 To the extent that the Manufacturer determines, acting reasonably, that it cannot fulfil the Circular Design Requirements* [in clauses 1.2.[●] - 1.2.[●]] because either [the/those] Circular Design Requirements jeopardise the Specification or the Specification prevents [the/those] Circular Design Requirements from being fulfilled, or fulfilled without entailing excessive cost, the Manufacturer shall promptly make this known to the Client and identify which particular Circular Design Requirements are an issue. The Client shall then decide whether to:
1.3.1 proceed with the Specification, acknowledging that those identified Circular Design Requirements will not be fulfilled; or
1.3.2 amend the Specification, and request that the Designer attempts again to fulfil [all of] the Circular Design Requirements against the amended specification.]
[This process shall be repeated until the Final Design is achieved in accordance with clause 1.4].**
* [Drafting note: You should note that if the Product is manufactured for the Client by another party (e.g. the Manufacturer) and then the Product is ‘own branded’ by/on behalf of the Client, then under EU product laws that will likely result in the Client (and not the Manufacturer) being deemed the manufacturer for product compliance purposes.]
** [Drafting note: To avoid having to rely on clauses 1.3 and 1.4, the Client and Manufacturer should try to agree on the deliverability of the Circular Design Requirements, as far as possible, ahead of signing the contract. If that is achieved in part, you might consider adjusting clause 1.3 to carve out the already agreed upon Circular Design Requirements (see bracketed wording in clause 1.3 above). If the parties reach advance agreement on all Circular Design Requirements, it may be preferable to remove clauses 1.3 and 1.4 altogether.]
1.4 The Final Design of the Product shall be the design that either:
1.4.1 satisfies the Circular Design Requirements and the Specification; or
1.4.2 does not satisfy all of the Circular Design Requirements but which the Client has approved pursuant to clause 1.3.1 and satisfies the Specification.]
1.5 Without prejudice to the foregoing and notwithstanding anything to the contrary elsewhere in this Agreement, the Product shall be compliant with the requirements of all applicable laws, including any applicable ecodesign or circularity laws, that are in force at the date of this Agreement or which it is known at the date of this Agreement will be in force by the time relevant units of the Product are ready to be delivered by the Manufacturer to the Client, in any jurisdiction in which the Client intends to market or use the Product, as listed in Appendix [●].
[Drafting note: It may be that there is an adequate compliance with laws clause already included in the main agreement that the provisions of Alex’s Clause will be inserted into. That being so, this clause is included as a prompt to consider: (a) existing applicable laws; (b) known pending laws; and (c) the desirability of aligning with the Manufacturer as to the markets on which the Product will be sold/used for this purpose.]
1.6 All rights anywhere in the world (including all intellectual property rights, copyright, design rights and know-how rights) in the Design IP shall immediately vest in the Client and the Manufacturer shall promptly provide to the Client all copies in its possession of the Design IP. To the extent that such rights in the Design IP do not vest in the Client, the Manufacturer hereby assigns such rights to the Client with full title guarantee.
1.7 The Manufacturer shall, and shall use all reasonable endeavours to procure that any third party shall, promptly execute and deliver such documents and perform such acts as may be required to assist the Client in registering any Design IP.
2. Manufacturing obligations
[Drafting note: If the Manufacturer has resource limitations or different national circumstances to the Client that make it hard for the Manufacturer to comply with the obligations in this clause 2, consider drafting provisions detailing the support or resources the Client will provide the Manufacturer to help it comply. Consider adding an obligation for the Client to work with the Manufacturer to rectify Manufacturer’s breach of the obligations. Consider, too, adding in provisions that impose minimum standards on Manufacturers to implement ethical working practices and minimum wages for workers (specific to the national circumstances of Manufacturer) to avoid the negative unintended consequences of the Manufacturer complying with this clause.]
2.1 The Client hereby grants to the Manufacturer a non-exclusive, royalty free, non-transferable, non-assignable [worldwide] licence to use the Design IP in the Final Design to perform its obligations under this clause 2.
2.2 The Manufacturer shall manufacture[, or shall procure the manufacture of] the Product in accordance with the Final Design. In manufacturing the Product, the Manufacturer shall[, and shall ensure that any of its contractors and subcontractors shall,] satisfy the Circular Manufacturing Requirements.
[Drafting note: Where any or all of the manufacturing obligations are subcontracted, this clause should ensure similar terms are contained in any subcontract (as in Owen’s Clause (Net Zero Target Supply Chain Cascade).]
2.3 The Circular Manufacturing Requirements are to:
[Drafting note: Consider adding provisions to address the water-intensiveness of production, the distance that different raw materials are transported and the environmental costs of different components.]
2.3.1 keep accurate records of the origin and volume of raw materials that it uses [and its relevant contractors and subcontractors use], and make these records available to the Client on request;
2.3.2 accurately demonstrate and trace the origin and journey of the raw materials referred to in clause 2.3.1 above, including details of Recycled content, that the Manufacturer uses [and its relevant contractors and subcontractors use] to manufacture the Product through the supply chain of such raw materials, and provide this information to the Client on request;
2.3.3 minimise [so far as reasonably practicable] the volume of resources required to manufacture the Product and the volume of GHGs emitted during manufacture of the Product; [Drafting note: Consider adding here more specific detail on the types of resources used to manufacture a particular product or impose thresholds that manufacturing parties should aim to stay below]
2.3.4 maximise [so far as reasonably practicable] the volume of materials derived from Recycled sources used to manufacture the Product;
2.3.5 minimise [so far as reasonably practicable] the loss through disposal or destruction of raw materials during the manufacturing of the Product;
2.3.6 first Recycle any waste materials created from the manufacturing of the Product before proceeding with any other form of disposal;
2.3.7 the Client has the right to inspect the Manufacturer’s premises and records [at reasonable times and on reasonable notice][, and the Manufacturer shall use best endeavours to procure access for the Client to the premises and records of any of its relevant contractors and subcontractors for the same purpose,] to ensure that the Manufacturer is, and its contractors/subcontractors are, complying with these Circular Manufacturing Requirements and to verify the amount of any bonus payable to the Manufacturer pursuant to clause 2.6; [and]
2.3.8 within [●] days of [request by the Client/ first supply of the Product to the Client], the Manufacturer shall issue a signed declaration of conformity [in the form appearing at Appendix [●] to the Client confirming that the Circular Manufacturing Requirements have been fulfilled for the Product[; and]
2.3.9 [the [Client] [and] [Manufacturer] shall [jointly] purchase a quantity of carbon credits equal to the amount of [annual/ quarterly] Residual Emissions associated with the Carbon Footprint, from a project that has been verified in accordance with [insert name of voluntary standard]. [Carbon credits jointly purchased under this clause [2.3.9] shall be purchased in the following proportions:
(a) Client: [●]%
(b) Manufacturer: [●]%]
2.4 Breach by the Manufacturer of any aspect of clauses 2.2 or 2.3 above shall be a material breach of this Agreement and permit the Client to terminate the Agreement in accordance with clause [●]. This is without prejudice to any other termination rights of the Client under this Agreement.
2.5 [Following the sale of any unit of the Product by the Client to its customers, the Manufacturer shall provide the after sales assistance set out in clauses 2.5.1 and 2.5.2 to the end customers of such units of the Product, free of charge, for [insert term/ [●] years from the date of supply of the relevant unit to the end customer]. The Manufacturer shall:*
2.5.1 operate or procure the operation on its behalf of a ‘take back and treatment’ scheme in the country in which the relevant units were purchased by the end customer, whereby the Manufacturer will ensure that end customers can easily return to [it/ a designated service provider] any End-of-Life Products. As part of the ‘take back and treatment’ scheme, the [Manufacturer/ designated service provider] shall receive the End-of-Life Products, remove (insofar as is possible) those constituent components and constituent parts from the End-of-Life Products that can be Reused or Recycled and Reuse or Recycle the removed components and parts accordingly;** [and/or]
2.5.2 operate a repair scheme, whereby it uses all reasonable endeavours to repair any faulty or worn out Product (or component or part thereof) prior to the Product becoming an End-of-Life Product. [Where the Manufacturer reasonably considers that a faulty Product (or component or part thereof) is irreparable and during the period prior to the Product becoming an End-of-Life Product, it will replace the faulty or worn out Product (or component or part thereof).]***
* [Drafting note: The costs of the schemes and any fee payable to the Manufacturer for providing them will need to be dealt with in the Agreement. The parties should also consider any implications for a just transition when negotiating whether these obligations sit with the Manufacturer or the parties that import the products into the relevant jurisdiction.]
** [Drafting note: Consider how this requirement interacts with any requirements in the relevant jurisdictions for manufacturers/ importers to operate a take back or other recycling collection scheme and amend this requirement accordingly.]
*** [Drafting note: Consider any requirements for repair schemes that apply in the relevant jurisdiction and ensure that this wording is consistent with those. For example, in the UK and EU consumers of certain products such as refrigerators or washing machines have a right to repair. See also Ecodesign for Energy-Related Products and Energy Information Regulations 2021 (SI 2021/745), and Commission Regulation (EU) 2019/2023 of 1 October 2019 laying down ecodesign requirements for household washing machines and household washer-dryers pursuant to Directive 2009/125/EC of the European Parliament and of the Council, amending Commission Regulation (EC) No 1275/2008 and repealing Commission Regulation (EU) No 1015/2010.]
2.6 The Client will pay to the Manufacturer a bonus equal to the following amounts for the volume of [materials derived from Recycled sources that the Manufacturer can demonstrate it and its contractors/subcontractors use to manufacture the Product/ verified GHG reductions made as a result of adopting the Circular Manufacturing Requirements]:
2.6.1 [●] tonnes to [●] tonnes, £[●];
2.6.2 [●] tonnes to [●] tonnes, £[●]; and
2.6.3 more than [●] tonnes, £[●].
3. Manufacturer reporting requirements
3.1 [Within [●]/ By [DATE] and [annually] thereafter], the Manufacturer shall provide the Client with:
3.1.1 a report (the Product Carbon Footprint Report) prepared by a Climate Professional [to internationally recognised standards to measure, manage and demonstrate carbon credentials/ the GHG Protocol Product Life Cycle Accounting and Reporting Standard/ the BSI PAS 2050:2011] detailing:
(a) the Carbon Footprint of the Product, and
(b) the impact that adhering to the Circular Manufacturing Requirements [and the interim targets outlined in clause 3.3] [has/ has made] on the Carbon Footprint of the Product; and
3.1.2 a report prepared by an appropriately qualified and experienced environmental consultant detailing the Recycled content of the Product, the amount of raw materials saved as a result of adoption of the Circular Manufacturing Requirements and the amount of waste materials created during manufacture of the Product that are recycled.
3.2 In the case of both reports referred to in clauses 3.1.1 and 3.1.2, the relevant Climate Professional and environmental consultant (as applicable) shall be appointed and paid for by the Manufacturer on terms approved in advance by the Client (such approval not to be unreasonably withheld or delayed) that include without limitation a binding legal duty of care in relation to the preparation of their report owed by the legal entity that is the employer of the relevant Climate Professional/environmental consultant to the Client.
3.3 [The Manufacturer shall [within [●] of the date of Product Carbon Footprint Report] provide the Client with an action plan listing any opportunities identified as a result of the Product Carbon Footprint Report to reduce the Carbon Footprint of the Product [with the accompanying cost of each opportunity] and [the parties shall agree on] a set of interim targets towards such reduction. The action plan will list actions to be taken by the Manufacturer in each quarter to meet the interim targets and reduce the Carbon Footprint.]
Definitions
Carbon Dioxide Equivalent means the standard metric measure to compare the global warming potential of various GHGs over a specified timescale. It allows a Carbon Footprint consisting of different GHGs to be expressed as a single number.
Carbon Footprint means the amount in tonnes of Carbon Dioxide Equivalent of GHG Emissions that will be released into the atmosphere as a result of the development, manufacture, supply, use and disposal of the Product.
Circular Design Requirements means the requirements at clause 1.2.
Circular Manufacturing Requirements means the requirements at clause 2.3.
Climate Professional means an appropriately qualified [environmental, sustainability consultant/ net zero consultant] with the skills and experience to diligently, competently and professionally prepare the Product Carbon Footprint Report as required by clause 3.1.
Design IP means the Product, the Final Design, any previous drafts or versions of the Final Design and any other documents, materials or information created by the Manufacturer in connection with its obligations under clause 1.
End-of-Life Product means a Product that:
(a) is irreparably faulty and can no longer be used by the end customer,
(b) is no longer desired by the end customer,
(c) is at the end of its useful life, or
(d) has performed its intended purpose.
Final Design means the final design of the Product, as determined by the Parties in accordance with clause 1.4.
GHG Emissions means, as the context demands, either:
(a) the Manufacturer’s emissions of GHGs related to this Agreement; or
(b) the [Clients/ Parties] emissions of GHG related to this Agreement.
In each case, emissions of GHG are classified as scope 1, 2 and 3 emissions by the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated periodically.
Greenhouse Gases (GHGs) means the gases that trap thermal radiation in the earth’s atmosphere. They are specified by the United Nations Framework Convention on Climate Change in Annex A to the Kyoto Protocol and may be updated periodically.
Manufacturer is [●], being the person who designs and manufactures the Product, or procures the design and/or manufacture of the Product, in accordance with the Final Design for the Client. [Drafting note: You may wish to tailor the definition of Manufacturer to suit the particular circumstances. For example, where a manufacturer contracts out the design work and/or manufacturing of a Product, but then “own brands” the end Product (thereby assuming the legal role of manufacturer).]
Net Zero Target a target to reduce and remove GHG Emissions, including by offsetting Residual Emissions, to achieve a balance between [the Client’s/ a party’s] sources and sinks of GHGs. The target must be achieved by [2050/ insert earlier date] and align with the goals of the Paris Agreement.
Product means the [insert description of product].
Product Carbon Footprint Report has the meaning given to it in clause 3.1.1.
Recycle(d) means a recovery operation by which waste materials are reprocessed into products, materials or substances whether for the original or other purposes.
Residual Emissions means the Manufacturer’s GHG Emissions that are emitted after all reasonable efforts have been made by the Manufacturer to reduce them. [See TCLP Glossary: Residual Emissions for definition options and explanatory notes.]
Reuse(d) means the use of materials, products or components that are not waste* again on [one or more] subsequent occasions for the same purpose for which they were conceived.
* [Drafting note: The concept of reuse under the Waste Framework Directive (2008/98/EC) is reserved for something that is not waste and suitable for direct reuse for its original purpose. Complying with UK and EU waste law and end-of-waste criteria is a specialist area and that parties using this wording should consider taking advice from an environmental lawyer to ensure that the circular design elements that they are proposing to introduce into their procurement processes or supply chain comply with law in this area.]
Specification means the description and proposed use of the Product, including the intended customer base of the Product and any specific requirements of the Product, as outlined in Schedule [●].
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