The European Commission and AstraZeneca have recently become embroiled in a dispute about AstraZeneca’s obligations to deliver its vaccine to the EU. AstraZeneca notified the European Commission (Commission) that, due to production problems in its Dutch and Belgian plants, it would have to cut its supply to the EU by over 60%. This resulted in a public dispute between the parties whereby the Commission insisted that AstraZeneca has a contractual obligation to deliver the agreed volume of the vaccine and could not renege on those obligations. The Commission even went as far as publishing a redacted version of the contract to illustrate its point. However, AstraZeneca stated that it only had to provide its “best reasonable efforts” in respect of the timeline and volume of vaccine delivery. While this dispute is being played out in a public forum by two large players, it is likely given the scale of the vaccine rollout, that other disputes will arise between smaller players, such as those involved in the supply chain. 

The ongoing rollout of the COVID-19 vaccines presents unique challenges at various points in the supply chain. Manufacturers, shipping companies and distributors are practiced at managing the logistics of pharmaceutical products distribution, including handling, stock management and operating logistics management systems.  However, the scale and volume of the vaccine distribution is unprecedented and presents a unique challenge to supply chains. Furthermore, the Pfizer-BioNTech and Moderna vaccines in particular, present an additional challenge of maintaining extremely low temperatures throughout their supply chains. 

Parties

There are a number of parties involved in the supply chain responsible for delivering the vaccine to patients in Ireland. These include manufacturers/suppliers such as Pfizer, Moderna and Astra Zeneca, hauliers transporting the vaccines to shipping docks, shipping companies responsible for transporting the vaccines to Ireland, local distributors and hauliers responsible for delivering the vaccine to the purchaser, which in the case of the Covid-19 vaccines is the Irish state. In Ireland, the vaccines are delivered to the National Cold Chain Service Distribution Centre which then distributes the vaccine on behalf of the Health Service Executive. 

Temperature Maintenance 

The main challenge in delivering the early Covid-19 vaccines is that they must be stored at extremely low temperatures. The Pfizer-BioNTech vaccine must be maintained in high performance freezers between -80 and -60 degree Celsius, with the Moderna vaccine being stored between -25 and -15 degrees Celsius. Upon final delivery, these vaccines can be stored at temperatures of two to eight degrees Celsius, for up to five and 30 days respectively.

At each stage of the supply chain, from transporting the vaccine from the manufacturer’s plant to the final delivery location, the vaccine must be maintained at the recommended temperature. To demonstrate that this requirement has been complied with, the temperature will be monitored and recorded. 

Breach of Contract

Any failure to maintain the requisite temperature may consist of a breach of contract. This will be of upmost priority for the manufacturers, who may be liable for safe delivery of the vaccine under the main supply contract with the Irish State. However, the haulier, shipping company and distributor will also have obligations under their respective contracts with the manufacturers. Where one the parties in the supply chain does not provide the applicable service level as set out in their contract, such as late delivery or an overall failure by the manufacturer to deliver the volume of vaccine promised, it is likely that service credit provisions will be relied upon by the purchaser to reduce the overall sum it would otherwise be liable for. Service credits will usually accrue on a graduated basis up to a minimum threshold. If the supplier’s performance fails to meet that threshold, the purchaser may be able to recover additional damages.

If the service failure is substantial and/or repeated, the purchaser may assert that the supplier is in material breach of the contract. This would require a serious breach by the supplier, such as failing to monitor the temperature of the vaccines to render them useless upon delivery. A claim for damages could then be made by the purchaser to recoup its losses. However, in circumstances where quick delivery of the vaccine is priority for most states, it is likely they would be more focussed on ensuring an improved service rather than seeking damages for breaches of the contract. It is evident from the Commission’s approach to AstraZeneca’s purported non-compliance with its contract that it is focussed on accelerating the timelines and increasing the volume of vaccine supplied by AstraZeneca, rather than resorting to dispute resolution provisions in the contract.

Conclusion 

The unprecedented scale of the rollout of the vaccine is inevitably going to lead to supply chain issues for suppliers and other parties engaged in the manufacturing, transport and distribution of the vaccine. The clash between the Commission and AstraZeneca demonstrates that disputes can arise at a high level regarding timelines, volume of delivery and jurisdictionally. Parties involved in the supply chain should be cognisant of this possibility in carefully managing their roles in the supply chain.

Contributed by Patrick Murphy