Provision Database

Issue Introduction: Product Supply

This issue refers to provisions that address volume and timeline commitments for the supply of medical products, as well as the actions that can be taken if those commitments are not met. It is particularly important to consider the need to include mitigation measures and compensation requirements in product supply provisions for circumstances where there is a risk of supply delays or shortages

Note: provisions related to supply price can be found under Affordable Pricing and Payment Structures. Provisions related to equitable access commitments to supply specific markets can be found under Territory Access Commitments.

Questions to consider when developing a product supply provision

  • What are the specific commitments made by the parties to supply and purchase the products?
  • What actions must be taken by the supplier to ensure that it can fulfil the committed supply volume?
  • What are the remedies for actual or potential supply failures?

Example approaches found in the MAPGuide

  • What are the specific commitments made by the parties to supply and purchase the product?
    • Product supply agreements in the MAPGuide usually include a commitment for the purchase of a specified volume of the product. In some cases the purchaser has an option to order more product if there is additional demand, or if the manufacturer has additional supply capacity available.
    • Some agreements in the MAPGuide include a specified delivery timeline, but others leave this to be defined after signature of the agreement. Timelines may consist of a final delivery deadline or a delivery schedule with the supply phased over a number of months. The MAPGuide also includes some provisions that give the purchaser the right of first refusal for earlier delivery dates if the manufacturer identifies that it can achieve an accelerated timeline.
    • In addition to agreements for the supply of finished products, the MAPGuide includes some manufacturing and collaboration agreements that have provisions for the supply of product components between parties. These provisions sometimes contain a demand forecasting mechanism which informs ongoing supply and purchase commitments between the parties.
  • What actions must be taken by the supplier to ensure that it can fulfill the committed supply volume?
    • Agreements in the MAPGuide sometimes use terms such as ‘commercially reasonable efforts’, ‘best efforts’, ‘best reasonable efforts’, or ‘reasonably diligent efforts’ (often accompanied by a specific definition of the term) to describe the level of effort that the supplier must make to fulfill its supply obligations.
    • Some advance purchase agreements for COVID-19 products contain terms aimed at securing early or prioritized access to supplies. For example:
      • The supplier provides a list of facilities that will be used for the manufacture of the product, which the supplier represents will be sufficient for the volume of the product ordered.
      • The supplier may not supply any quantities of the product to any third party in the agreement territory until the full quantity of the product under the agreement is delivered.
      • The supplier may not make any commitments that prevent it from fulfilling its obligations under the agreement.
      • The supplier is required to prioritize supplying particular purchasers unless there is an act of government or law that prevents it from doing so.
      • The supplier must consult with the purchaser on any decisions which may have a negative impact on supply.
    • Another approach found in MAPGuide provisions is a requirement for the supplier to provide a continuity or resilience plan that identifies critical points in the supply chain that enables manufacture of the finished product.
    • Some technology transfer or licensing agreements in the MAPGuide require the licensee to agree a product supply plan with the licensor and provide written updates on progress against that plan.
  • What are the remedies for actual or potential supply failures?
    • Some product supply agreements in the MAPGuide include penalties for failure to meet supply commitments, although they may also define exceptional circumstances outside of the supplier’s control (e.g., acts of government) under which a delivery will not be considered to be delayed. Examples of penalties include:
      • The supplier must reimburse the purchaser for any out-of-pocket expenses incurred as a result of delayed delivery.
      • Payments may be suspended if delivery timelines are not met.
      • The purchaser has the right to cancel the remainder of the contract if the manufacturer does not fulfill its supply commitments.
    • In contrast, the MAPGuide also includes some examples of purchase agreements for COVID-19 products between LMIC governments and industry which do not allow the application of late delivery penalties if delivery schedules are not fulfilled.
    • Another consideration found in some MAPGuide supply provisions is the application of a pro-rata or minimum supply volume in the event that the supplier is unable to meet its full delivery commitments.