Minimising Supply Chain Disruption During COVID-19

COVID-19 is having a profound impact on the way in which we live our lives and do business. Restrictions under the Health (Preservation and Protection and Other Measures in the Public Interest) Act 2020 (the Act) have closed all non-essential retail outlets and facilities in Ireland, which has forced organisations to adapt in order to preserve their supply chains.

The supply of goods can be affected by a number of variables such as workers in quarantine, decreased production due to staff adhering to government restrictions, lack of raw materials etc. The international nature of the pharmaceutical industry lends itself to disruption and all stakeholders in the supply chain can play a pivotal role in preventing and managing shortages of pharmaceutical products.

Businesses have an obligation to mitigate shortages by communicating with The Health Products Regulatory Authority (“HPRA”) who provide information on particular medicinal shortages via their website and other media platforms. The HPRA has defined a shortage as when “The supply of a medicinal product is inadequate to meet the needs of patients”. The onus is on all stakeholders in the supply chain to co-ordinate and mitigate the shortage and where possible identify a potential shortage and prevent it from becoming an actual shortage through good communication and adaptation.

For manufacturers, wholesale distributors and marketing authorisation holders (MAH) it is imperative that practical steps are taken in order to ensure that they can handle any disruption which may occur as a result of COVID-19. Communication between parties in a supply chain is key to bridging any gaps that may occur as any disruption may have legal consequences, with stakeholders likely to seek to delay or avoid performance (or liability for non-performance) of their contractual obligations, renegotiate key clauses in contracts or terminate contracts. The following should be considered in order to minimise disruption and reduce legal exposure.

Anticipate potential problems

If it becomes clear that a specific supplier may struggle to fulfil its contractual obligations, steps should be taken to try and mitigate that risk through active communication with the supplier and by engaging in contingency planning.

Businesses should be aware of how a supplier’s inability to fulfil their obligations may impact on their own legal position and adopt a legal and commercial strategy which will best limit exposure.

Flexibility in supply chain

Businesses should identify key suppliers and look to establish alternatives in advance of any issue arising. The location of suppliers is of particular importance as, should one route be closed due to COVID-19 restrictions, a contingency route is available to transport goods, thereby limiting disruption.

Inspect contracts

Businesses should review contracts in light of COVID-19 and the allocation of risk should be ascertained. What happens when a company is unable to perform its contractual obligations or if a counter party cites COVID-19 as a disruptor affecting its performance? What will the consequences of breach of contract be? If there is a force majeure clause, the drafting of the clause will determine whether COVID-19 qualifies as a force majeure event.

Are disruptions covered by insurance?

This will depend on the wording of the policy and businesses should now review those policies and carefully consider the coverage in place.

A pharmaceutical company being unable to source raw materials or Active Pharmaceutical Ingredients from its suppliers is unlikely to invoke a business interruption policy as these policies are normally predicated on physical damage. Due to the likely financial stress COVID-19 will put on the supply chain, credit risk insurance policies may be pertinent.

Conclusion

Businesses must now carefully consider each step in their supply chain to identify any potential disruption due to COVID-19 and the steps required to mitigate that disruption. Communication between parties in the supply chain is critical and will be a key factor in minimising legal exposure. Businesses who consider potential issues and develop a strategy to deal with inevitable disputes post COVID-19 will be in a better position, irrespective of whether the business is likely to be in breach of contract or seeking to enforce the performance of contract.

How we can help

If you have any queries or concerns, or would like to discuss the above in further detail or generally in relation to COVID-19, please feel free to contact David Scott in the Healthcare & Life Sciences Department of BHSM on 01 440 8300 / dscott@bhsm.ie.

This article is for general information purposes.  Legal advice must be obtained for individual circumstances.  Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.