When Services Contracts are Thrust into the Public Eye

Procurement professionals often think of themselves as ‘behind the scenes’ members of the organization. This is even more true in the case of procurement teams focused on indirect spend. In one high profile story hitting the news right now, a procurement team may be about to find themselves thrust into the light – and not under happy circumstances.

In 2012, the New England Compounding Center was found to be at the center of a meningitis outbreak for selling tainted steroid injections. Dozens of people died as a result of receiving these shots, and hundreds more fell ill. As investigators looked into the facility, more and more information came to light about poor practices, insufficient government oversight, and unclean production facilities. In October, Reuters reported that NECC had “cut more than half of its workforce, affecting about 40 employees.”

NECC has closed, surrendered its license, recalled its products and declared Chapter 11 bankruptcy, but their legal troubles have only begun. The families of patients who received the tainted injections have started to sue for substantial sums of money – sums of money that NECC does not have. As a result, NECC is looking to make sure that any other organizations that might share responsibility also share the blame.

According to The Boston Globe, “The Framingham compounding pharmacy blamed for producing tainted steroid injections that have killed dozens of people across the country is pointing the finger elsewhere.”  On January 3, 2013, it came to light that NECC was looking for one of its suppliers to take responsibility for the unsanitary conditions in their production facilities. Apparently NECC had outsourced a specialized level of maintenance services intended for cleanroom facilities. Regardless of whether or not they were involved, that supplier is now being dragged into the spotlight – but the indirect consequences don’t end there.

When I first heard the story, my first thought was of the procurement group that selected that supplier. How thorough was the selection process? What service level terms were put in place? How clearly were the service requirements spelled out in the contract? One of the points of contention between the two companies is that the supplier used cleaning chemicals provided by NECC. That may be a detail that allows them plausible deniability should they be involved in a trial.

When we are putting contracts in place, it is hard to foresee a time when significant attention may be placed on them, but the possibility always exists. Even in this case, where an indirect services outsourcing decision ended up having very direct relevance on the product shipped by NECC with such tragic consequences. This story is a very real reminder of the importance of recognizing all facets of risk involved in any contract we put in place, and taking the extra time to make sure that out company, our customers, and employees are all kept from harm.

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