AZ’s Covid contract and best efforts

UPDATE: AZ CONTRACT HAS NOW BEEN PUBLISHED – SEE NEXT ARTICLE ON THIS BLOG FOR DETAILS.

Much in the news at present about the pressure being applied by the European Commission, and national EU governments, on AstraZeneca in relation to the supply of its Covid 19 vaccine.

AZ’s CEO is reported to have said that AZ’s supply obligations are limited to “best efforts”; that problems in its EU-based manufacturing plants are delaying production; and that it is doing its best to solve those problems. The European Commission seemingly wants AZ to divert supplies from its UK manufacturing facility. AZ apparently can’t do this without breaching the terms of its contract with the UK government.

At this stage, the relevant contracts have not been publicly disclosed. But Twitter’s followers have found what may be a similar contract between the European Commission and Curevac AG, which (together with Bayer) is the developer of another potential Covid 19 vaccine, known as Zorecimeran, which is currently in development. Thanks to @spinninghugo for finding the contract. It is in the form of a master contract on behalf of all countries in the EU, and has attached to it a template order form, which individual EU countries may use to firm up their ordering requirements with the supplier.

For want of better information, let’s assume that the European Commission has signed contracts on very similar standard terms with all of its vaccine suppliers, including AZ, and all are made under Belgian law. What does the contract say about supply obligations?

The term that appears most relevant to the AZ CEO’s comments about AZ’s best efforts obligations is in the second paragraph of section 1.3, which reads:

On the basis of this APA, the contractor commits to use reasonable best efforts (i) to obtain EU marketing authorisation for the Product and (ii) to establish sufficient manufacturing capacities to enable the manufacturing and supply of the contractually agreed volumes of the Product to the participating Member States in accordance with the estimated delivery schedule set out below in Article I.11 once at least a conditional EU marketing authorisation has been granted.

“Reasonable best efforts” are defined in section 1.2:

‘Reasonable best efforts’: a reasonable degree of best effort to accomplish a given task, acknowledging that such things as, without limitation, the complex and highly regulated nature of the Product; the timely availability of raw materials, inventories and liquid funds; yield of process; the success of necessary clinical trials programs to support safety and immunogenicity data for the Product; the approval of the final Product formulation; contractor’s commitments to other purchasers of the Product; other reasons relating to the uncertainties of producing a new vaccine for a new disease with an mRNA platform for which vaccines have not yet been registered by regulatory authorities; and any other currently unknown factors which may delay or render impossible, contractor’s successful completion of the particular task, including without limitations, developing a suitable production process as may be required for a new strain of virus, ramping up capacity at contract manufacturing partners, meeting delivery schedules and obtaining the EU marketing authorisation may be beyond the complete control of the contractor, provided, however, that the contractor shall not be required to take any actions inconsistent with past practice, ordinary course of business, prudent and reasonable business behaviour and/or the contractor’s budget plannings at the date hereof.

IP Draughts has highlighted in red above some of the terms that seem to support AZ’s argument.

The contract is made under Belgian law, which is a civil law regime. IP Draughts is not qualified to comment on Belgian law, but civil law tends not to recognise a specific meaning for best efforts or similar terms, preferring to distinguish between so-called “contracts of means” and “contracts of results”; the former is similar to a best efforts obligation, where performance is not guaranteed. IP Draughts found it difficult to do word-searches of the contract document, so is uncertain whether these terms have been used in the contract.

Ultimately, the question that seems to be the main point of contention between AZ and the European Commission is whether the contract (or, perhaps, AZ’s “moral” obligations outside the contract) require AZ to divert supplies from the UK to the EU. If AZ has a contractual obligation to the UK government not to do this, and if the European contract includes wording such as that quoted above, IP Draughts’ impression is that AZ would not be in breach of contract to the Commission.

But this is all speculation, until the AZ contracts are publicly disclosed.