Corporations, govt institutions delay payment to pharma cos, industry requests no late penalty on POs

FIDMI has written a letter to corporations and government institutions informing about difficulties faced by the industry and asked for an extension of 90 days in the delivery period of supplies after the lockdown is withdrawn

Amidst the nationwide lockdown in the country, the pharma industry is struggling to maintain continuity in the supply of medicines across the country. It is already facing several issues such non-availability of raw materials/APIs or is having to procure them at a much higher value, shortage of ancillary supplies, and difficulties in getting the workforce to resume the operations, which have disturbed their financial wellbeing significantly.

On the other hand, they are facing difficulties in receiving payments from different governments and corporations on their purchase orders (PO) placed before the novel coronavirus pandemic begun in the country. Additionally, the clause of late supply penalty on purchase orders of government and institutional orders is compounding the industry’s problems.

To address these issues, The Federation of Institutional Drug Manufacturers of India (FIDMI) has written a letter to various corporations and government institutions including Managing Director of Chhattisgarh Medical Services Corporation (CGMSC); Commissioner, Commissionerate of Animal Husbandry, Maharashtra State; Director-General of Health Services, Central Procurement Agency, Delhi; Managing Director, Telangana State Medical Services and Infrastructure Development Corporation (TSMSIDC); Deputy Director of Health Services (E&S), Department of Health & Family Welfare, Government of West Bengal; and  Central Medical Stores. It informed about the difficulties being faced by the industry and requested them to make payments on time. The letter also asked for an extension of 90 days in the delivery period, after the withdrawal of the country-wide lockdown without imposing any late supply penalty on purchase orders. FIDMI’s letter also mentioned that the coronavirus outbreak has been declared by the Ministry of Finance a force majeure situation.

It is to be noted that Medical Supplies Corporations of Kerala and Odisha have understood the situation of manufacturers during the COVID-19 scenario and already extended the delivery period, whereas other institution like TNMSC, RMSCL, UPMSCL, BIMSICL, GMSC, CGMSC etc., have not given any extension on the delivery period in spite of various representations made by pharma associations and manufacturers.

Kuldeep Gupta, Secretary-General, FIDMI and Director, Vivek Pharmachem India informed, “Due to extended lockdown in the country, the manufacturers who are in rate contract/supplier with various corporations and government institutions are heavily affected due to various factors. The manufacturers are already suffering from interest costs, electricity costs, salaries, wages and other costs even during the lockdown. Along with this, the authorities are threatening to impose further penalties on the suppliers if the goods are not supplied within the original timeline.’

“Also, the guidelines that have been released by the MHA only apply to people/ industry who are currently categorised in the green districts. In case, the manufacturer/employee/supporting industry is in a red hotspot location, they are not allowed to leave the place. Recently, in Baddi, a few coronavirus-positive cases got detected and the entire industrial area was sealed. In such cases, the supporting industry is also shut down and the entire production cycle collapses. Supplies are to be made to different consignees located in states. Nowadays, all state procurement corporations have warehouses at district levels and all manufacturers have to supply goods to designated warehouses only. The quantities at such warehouses are extremely small, in lots of one carton to 100 cartons. This becomes another difficulty since only full truckloads are operating currently. It is not feasible to rent an entire truck for such small quantities. Manufacturers have requested to supply goods at one warehouse in full lorry load. But no relaxation has been given, so, due to non-availability of transport, the manufacturers are only able to deliver around 20-25 per cent production to respective institutions. We, as manufacturers, have also requested to charge a certain reasonable percentage for additional costs that the authorities may have to bear, however, they are not ready for the same,” he added.

Explaining the financial issues being faced by the industry, Gupta said, “Due to shortages in the availability of materials and overall uncertainty in the market, the raw material is available on advance payment basis. The Corporations and Government Institutions are not clearing our long due pending payments, which are already payable, due to this manufacturers are facing extreme liquidity problems and it keeps on getting difficult to purchase raw material, packaging material, interest costs, electricity costs, salaries, wages and other costs even during the lockdown. In this situation, we have appealed to corporations and government institutions to take care of their suppliers during such strenuous times by making on-time payment and provide an extra delivery period of 90 days after the withdrawal of countrywide lockdown without imposing late supply penalty for above-mentioned purchase orders. None of the manufacturers is refusing to supply the purchase orders but considering the extreme situation prevailing in the country right now, we are asking for an extended duration to supply the goods.”

AG Prasad, Vice President – Sales and Marketing, Glenmark said, “In public health, the procurement is done thru national bidding. Rate contract is offered to the most competitive bidder. Inordinate delay in payments blocks the working capital of the companies. Companies have to pay heavy interest to the banks, this badly affects the balance sheet of the companies.”

He continued, “There are many top pharma companies showing keen interest in supplying their products to government institutions. The companies have created exclusive teams to cater to public health requirements. But inordinate delay in payments and indifference towards quality manufacturing practices dampens their spirit. Delay in payments is common with state insurance corporations (ESIC). As per the ESIC rate contracts, the purchasing authorities are supposed to clear payments within four to six weeks of supplies but payments are delayed over a year.”

Reportedly, the governments are not releasing payments to pharma companies on their purchase orders because they have diverted the funds to COVID-19 essentials.

An industry insider informed that many state governments have diverted regular funds for buying medicines to purchase COVID-19 testing kits, sanitisers, ventilators PPE, masks etc. Many vendors of these items have been made advance payments. However, this has resulted in non-payment to medicine suppliers of essential medicines for cardiac care, diabetes, school health, mental health, antibiotics, and child health programmes. These suppliers are suffering and facing a huge financial crunch for working during these challenging times and supplying products on time.”

He also updated that most of these COVID-19 products have been bought at inflated prices from cronies without inviting even short term tenders under the guise of Disaster Management.

[email protected]
[email protected]