We caught up with Lawrence Heim of the Elm Consulting Group who presented at MetalMiner’s Conflict Minerals EDGE conference back in early May to get his take on the lawsuit. This is the second of a two-part interview. Read the first part here.)
MetalMiner: Could you elaborate on what you wrote in your recent blog post about the case, under the “Other Observations” section, particularly Covered Countries? What does that mean exactly? What is the underlying controversy?
Lawrence Heim: Complex interrelated questions are being raised around the definition and implications of “DRC Undeterminable.” Remember, the Undeterminable classification applies at a product level. If a company knows the source(s) for one metal (such as tantalum), but does not have definitive information for the other metals, is that product still considered “Undeterminable”? And is this based on whether material known to originate from the Covered Country actually financed/benefitted armed groups?
These are very important questions because:
- If the basis of the decision is simply the location of the mine – without regard for whether the ore actually financed/benefitted armed groups – this will have significant implications for downstream users of materials from verified conflict-free, in-region initiatives like Solutions for Hope, etc.
- It could be considered inconsistent with the two-year CMR audit deferral, by forcing companies to undergo mineral-level CMR audits for 2013, rather than product-level CMR audits beginning in 2015.
MM: Did the legal opinion offer any clarity in terms of contract manufacturing and service and repair operations (you mentioned that second one at our conference)?
LH: The way I read the opinion, the Court confirmed that contract manufacturers continue to be included within the scope of the rule as a “manufacturer.” Service/repair operations were not specifically addressed, so I don’t believe there is any change in direction there.
MM: Now that the legal questions appear settled, what (if any) recommendations do you have for manufacturing organizations?
LH: Fundamentally, for companies who have delayed programs and spending, it is time to move forward.
A controversial view on this point is that in some cases, companies who delayed may actually be in a more advantageous position than they would otherwise be. Early adopters ran into many problems because the processes, systems, information availability and infrastructure through their supply chains were in extremely early stages of development. This caused delays, significant inefficiencies and some cost increases for companies who had to deal with those problems. In the 11 months since the final rule was passed, there has been a great deal of growth in knowledge, awareness, uptake of common/shared information platforms and solutions. Slower-moving companies may therefore make more rapid progress towards compliance given these advancements. Quite simply, many supply chain actors are now better prepared and able to respond than they were a year ago. The 2011 Tulane University cost analysis predicted such developments and anticipated their impact on program efficiencies and costs.
Of course, this may not be the case universally, and companies still have to assess and implement their own internal systems, processes and strategies and engage suppliers/customers. Depending on the situation/setting, this is a lot to do in five months.