Five important legal trends for supply chain professionals

Supply chain management has become a legal risk management exercise.

The pressures are familiar: Disrupted shipping routes, volatile input costs, heightened scrutiny of labour practices and growing expectations around Indigenous and local procurement. What has changed is the degree to which these issues now carry legal consequences.

For supply chain professionals, the challenge is to recognize when a procurement, contracting or operational decision has legal risk built into it – and to address that risk before it becomes a dispute, compliance issue or reputational problem.

Here are five legal trends supply chain professionals should be watching.

1. Supply chain transparency is becoming a compliance obligation

Ethical sourcing is no longer only a corporate responsibility issue. In Canada, larger companies are now required to report annually on forced and child labour risks in their supply chains under the Fighting Against Forced Labour and Child Labour in Supply Chains Act, which took effect in 2024.

The first round of reporting showed how broad the issue may be. Approximately 5,650 companies submitted initial reports in 2024, and roughly 38% identified parts of their operations or supply chains that carried a risk of forced or child labour.

That does not mean every organization has a problem in its direct supplier base. Often, the harder question is what happens further down the chain. Raw materials, foreign manufacturing, subcontracted labour and tier two or tier three suppliers may all create risks that are difficult to see without a deliberate review process.

Supply chain teams should be prepared to show that they understand where their goods and inputs come from. That may involve supplier mapping, stronger vendor codes of conduct, audit rights, supplier certifications and training for procurement staff.

The practical message is simple. Organizations that cannot trace their supply chains may find it harder to manage compliance, contractual and reputational risk.

2. Procurement is being used to advance Indigenous and local participation

Procurement decisions are increasingly being assessed through a broader lens than price, availability and technical capability.

The Federal Government’s mandatory 5% Indigenous procurement target requires every Federal department to have at least 5% of the value of its contracts go to Indigenous-owned businesses. Provinces such as Alberta and BC, along with many other businesses and organizations, are also developing goals or programs to increase participation by Indigenous, minority-owned and local suppliers.

This trend is especially relevant in Western Canada, where energy and infrastructure projects may involve Indigenous equity participation, community benefit agreements or local procurement commitments.

For supply chain professionals, these initiatives can affect how procurement processes are designed. A large contract that works well for an established national supplier may be inaccessible to a smaller Indigenous-owned business unless the opportunity is unbundled or subcontracting pathways are built in. Bid criteria may also unintentionally screen out qualified vendors if they are not reviewed with supplier diversity in mind.

Organizations should consider whether they have a reliable way to identify qualified Indigenous and diverse suppliers, track procurement spend and support new vendors that may not have worked within their systems before.

Done well, this is not just a compliance exercise. A broader supplier network can improve resilience, support project relationships and build goodwill in the communities where work is being done.

3. Standard force majeure clauses may not do what businesses expect

Force majeure clauses received renewed attention during the COVID-19 pandemic, but they remain important in the face of fires, floods, geopolitical turmoil, cyber incidents and other disruptions.

The key issue is that a force majeure clause is not a universal escape hatch. A 2022 B.C. Court of Appeal decision involving a woodchips supply agreement after a fire has recently shown how. The supplier relied on wording that allowed delivery to be “discontinued or curtailed,” but the Court held the clause allowed deliveries to be suspended without liability – not that the supplier could permanently terminate the agreement.

That distinction matters. A clause that pauses performance is not the same as a clause that allows termination. A clause that covers fire may not address a pandemic, government lockdown, cyberattack, labour disruption or border closure. A clause that excuses delay may not address increased costs.

Supply chain teams should review key contracts against real-world scenarios. What happens if a primary supplier shuts down for six weeks? What happens if transportation routes are unavailable? What happens if a cyberattack prevents shipments from being processed?

The answer should be clear from the contract. If the intended remedy is suspension, termination, alternative sourcing, price adjustment or some combination of these, the agreement should say so.

4. Cost volatility needs to be addressed before the contract is signed

Inflation, commodity price swings, fuel costs, tariffs and exchange rates can quickly change the economics of a supply agreement.

Canadian law does not generally allow a party to cancel or renegotiate a contract simply because the deal has become unprofitable. A supplier locked into fixed pricing may still be required to perform, even if fuel, labour or material costs have increased significantly. A buyer may also face pressure from suppliers seeking surcharges or price increases.

That creates risk on both sides. Suppliers may be exposed to margin erosion or losses. Buyers may face instability if a key supplier can no longer perform economically.

The better approach is to address volatility directly in the contract. Depending on the deal, this may include fuel surcharge provisions, price-escalation clauses, index-based adjustments, shorter pricing periods, renegotiation triggers or termination-for-convenience options.

5. Contract management must reflect the duty of honest performance

Supply chain relationships often depend on long-term co-operation. Things like forecasts, purchase orders and delivery schedules all require parties to rely on what the other side says and does.

Canadian law now places real weight on that trust. Since the Supreme Court of Canada recognized the duty of honest performance in 2014, courts have continued to reinforce the principle that parties must not lie or knowingly mislead each other about matters directly connected to a contract.

If a company has made a decision that will materially affect a supplier, buyer or logistics partner, it should avoid acting as though business will continue as usual.

Recent cases show that courts are prepared to impose serious consequences when parties mislead their contractual partners. In one 2024 Ontario case, a commercial landlord decided not to proceed with a transaction but continued negotiating with the buyer as though the deal remained on track. The Court found this conduct breached the duties of honest performance and good faith. In another 2024 Ontario case, a buyer that misled a seller was held liable for $15.5 million in lost profits.

This does not mean parties need to disclose every internal discussion or negotiating position. But it does mean they should avoid false assurances, misleading explanations or conduct that hides a decision the other party is entitled to understand. Train teams to assume that emails, texts and internal messages may later be reviewed in a dispute. When ending or changing an agreement, follow the contract carefully, be clear about the basis for your decision and avoid creating a misleading paper trail.

Contract terms still matter. Clear termination rights, notice requirements and change provisions can reduce uncertainty. But those rights should be exercised honestly and consistently with the contract.

Building legal risk into supply chain planning

These five trends point in the same direction: Supply chain risk and legal risk are increasingly connected.

Transparency obligations require better visibility into suppliers. Indigenous and local procurement initiatives require more deliberate procurement systems. Disruption risk requires contracts that match contingency plans. Cost volatility requires commercial flexibility. Good-faith obligations require careful communication and disciplined contract management.

For supply chain professionals, plan for and mitigate legal risk early. Review contracts before disruption occurs. Know suppliers before a reporting deadline. Consider procurement goals before a Request for Proposal is issued. Train teams before an email becomes evidence in a dispute.

Organizations that treat legal risk as part of a supply chain strategy will be better positioned to manage disruption, protect relationships and compete in a more accountable market.

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