A Comparison of Covid-19 Vaccine Contracts

In early 2021 the EU suffered supply shortages of a Covid-19 vaccine from AstraZeneca. The EU indicated that the supplier was in breach of its contract and that the company was favouring another customer, the UK government, to the detriment of the EU. Retaliatory action was promised, but the EU then backed down from this position. The following analysis of the two contracts demonstrates why they may have done so.[1]

The key features of the UK vaccine contract are shown in the figure below, which are then discussed in comparison to the EU contract.

LEGALLY BINDING AGREEMENT

The EU actually signed its contract on 27 August 2020, one day before the UK. However, the UK government had engaged with AstraZeneca from April 2020 and worked with them continuously for almost four months before the contract was signed. Documents were exchanged, details were discussed, £65m of government funding was provided, and the two parties worked closely together in joint liaison committees. Protecting UK supply was a central objective throughout. Since all the requirements for a valid contract were evident (agreement, consideration, capacity and intention) by the conduct of the two parties, a legally binding agreement was in place, even though a contract had not been signed. The signing of the contract was merely a formality.

CONTRACT SPECIFICITY AND EXPERIENCE

The contracts are roughly the same when it comes to their language and tone, but there is one key difference: the UK contract is, on some specific points, more detailed. The level of specificity is partially due to the legal systems they are based on. The UK contract is written in English law, which makes a judgment based on the exact wording of the contract. The EU contract is written in Belgian law, which focuses on whether both parties tried their best to deliver the goods and acted in good faith, which are more subjective and intangible.

It is the extra details that give the UK more leverage to ensure its contract is performed effectively. While both contracts say all parties will make their “best reasonable effort” to deliver the vaccine, the UK government is clearer in asserting its oversight of the agreement. The UK contract was written by people with significant experience of purchasing agreements, specifically drug-buying deals. The EU’s contract, by contrast, shows commercial naivety.

REMEDIES FOR BREACH

A stark example of the difference between the two contracts is a clause in the UK agreement stating that if any party tries to force or persuade AstraZeneca or its subcontractors to do anything that could hold up the supply of the vaccine doses, the UK government may terminate the deal and invoke compensation clauses. The clause is therefore likely to be judged as a condition or vital clause, thus enabling the dual remedies of compensation and termination.

The EU, on the other hand, is only able to withhold payments until the company delivers the goods, or until it helps find other producers to make the vaccine. The clause is therefore likely to be judged as a warranty or non-vital clause, which has weaker remedies and is surprising given the importance of timely delivery. Under Belgian law an aggrieved party can appoint another producer at the original supplier’s expense, but the problem is that, during the pandemic supply crisis, alternative suppliers who could produce the vaccines in a timely manner were not available.

SUPPLY CHAIN APPROACH

The UK contract makes it clear that the entire AstraZeneca supply chain had been considered, rather than just focusing on the delivery of the vaccines. The EU contract, by comparison, was more unclear.

The UK contract contains a commitment by AstraZeneca that the UK supply chain “will be appropriate and sufficient” for the supply of the doses the UK purchased. The UK contract also indicates the deal covers “other manufacturing facilities in Europe” (based in Germany and Netherlands) as well as the three in the UK. Therefore, when the supply problem arose, the two plants in Europe were not used to overcome the EU shortfall but continued to supply the UK.

CONTRACT OVERSIGHT

The UK contract is clearer as to how it will monitor the delivery of the doses, as well as what happens in the event of delays. The UK contract clearly states that AstraZeneca shall notify the UK government about any changes to the schedule and use its “best reasonable efforts to keep as close to the original” delivery schedule. The company also has 30 days to notify the UK ahead of its delivery about the number of doses it should expect. Once that happens, “AstraZeneca may not adjust the delivery schedule without the prior consent” of the UK government.   

The EU contract, by contrast, does not go into this level of detail about notification. In consequence, when AstraZeneca faced supply issues, it gave the EU little notice. It informed the Commission that the EU would receive at least 70 million fewer doses in the first quarter of 2021 just a week ahead of time. In February, the company still had not updated the EU on what it was able to provide them in the second quarter of the year. UK supply was clearly being prioritised.

Another factor is that the UK contract gave clearer powers to managers on the ground in executing and validating the contract, while the EU contract focused more on ensuring equitable distribution of the vaccines between each EU country.

The EU contract does say that the EU may suspend payments if AstraZeneca fails to deliver, and it does specifically state that AstraZeneca may not have any impending contracts that would hinder its ability to supply the EU. But it also states that if AstraZeneca’s performance is “impeded by any such competing agreements, AstraZeneca shall not be deemed in breach” of its agreement with the EU.  Combined with the EU waiving its right to sue AstraZeneca in the event of delivery delays, the legal consequences of not fulfilling the UK contract were greater than for the EU one.

CONCLUSION

A summary of the two contracts is provided in the table below.

In conclusion, it can be said that the UK had formed a binding agreement with AstraZeneca earlier than the EU, the contract wording was more detailed and specific, remedies for breach were stronger, the government had considered the whole supply chain, and contract overview arrangements were more robust.

[1] Adapted from: https://www.politico.eu/article/the-key-differences-between-the-eu-and-uk-astrazeneca-contracts/