E-DRUG: How to control pharmaceutical traders/brokers? (10)
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Control of brokers- there are solutions!
This is a short note to begin answering some of the questions surrounding
the role of brokers in procurement. The final answers to questions are a
function of (1) the facts, (2) the countries where the broker and principals are located and (3) the relevant law and contract provisions. Thus this note can only offer some general guidance and assurance that in fact there are solutions to the problems that have been identified in pharmaceutical procurement and in particular those associated with brokers.
In my view and experience these problems fall into two categories. One is
the failure of the parties to identify the issues to accomplish the goals of the procurement and the consequent failure to document the decisions in the procurement documents most notably the contract. In this aspect one of the key needs is to incorporate well known and reliable methods such as usages of trade like Incoterms to address the needs of the parties. The second problem is that there are and will always be less than honorable people and companies. Their ability to behave dishonorably can be curtailed if not completely barred by incorporating standard methods into procurement contracts. This requires procurement entities to know these methods and to use them.
One method is the law itself which has long answered many of the questions
posed recently on the role of brokers. This is what this memo is about.
Brokers or agents have been active in domestic and international trade for
centuries. What can be done to ensure they deliver what is ordered has long
ago been addressed in national and international law. It is essential find
out how the law applies to your country context and to apply it to
procurement contracts.
In this memo I can only provide some general rule on agents and brokers
which cannot be relied on for your particular country and context, except to this extent. Most countries follow extraordinarily similar laws and norms on brokers. Unlike drugs and health laws which vary considerably across countries and thus current efforts to harmonize these, long ago trade or business laws to which brokers are subject were harmonized and made uniform. This means that traders, brokers, distributors, suppliers, and all of the commercial entities involved in procurement play by a set of well known rules. It is imperative the health systems learn and take advantage of these rules. If not then health procurement will be at a disadvantage and this need not be so.
The generally accepted approach to brokers allows me to share some basic
principles which most likely apply in your context. This space does not
allow me to provide all relevant information and accordingly I am exploring
an on-line conference to provide some training on the matter of brokers. I
would be keen to learn the level of interest in such as class. But
nonetheless here are a few pointers.
General principles on brokers:
1. Brokers are agents of principals. The term broker means the same as
agent.
2. Brokers act on behalf of principals who own the product. Brokers do not
own the product. Principals use brokers as a sales force.
3. Generally, the acts of a broker bind the principal whether the
principal's name is disclosed or not. This means that the MOH can claim
against the principal if there is a breach of contract. Practically to do
so means knowing the names of all involved. This can be required in the
tender documents. If a broker does not want to disclose its principals then
it will not bid. The broker can be protected by a non-circumvention
agreement used in standard practice.
4. Brokers and their principals are bound by contract terms and usages of
trade such as Incoterms or in other words the shorthand developed in trade
to govern how the deal goes. This is important because if the contract says ship by air and the broker ships by sea then there is a discrepancy which may be a fundamental breach or not. If it is a fundamental breach - meaning you did not get what you ordered, then there are grounds for damages as determined by the contract and applicable law.
In close, I hope this has been helpful to extent that readers are assured
that there are solutions that are well settled. These need only be deployed
in procurement. Finally, the law says caveat emptor which means "buyer
beware". The law puts the obligation on all concerned to know their rights
and obligations. One obligation of buyers is to ensure contracts and
procurement documents protect their interests. Happily there is ample
know-how to do so.
Again I invite questions and discussion on this issue.
Michele Forzley, JD, MPH
mforzley@comcast.net
1 301 565 0680