Current need for action to convert supply contracts

1. As a result of the PIP breast implants scandal, the Commission Recommendations on audits and assessments carried out by notified bodies in the field of medical devices (2013/473/EU) and Implementing Regulation (EU) No. 920/2013 came into force at European level. According to Recommendation 2013/473/EU, notified bodies should in future carry out unannounced audits of medical device manufacturers on a regular basis - at least once every three years. These unannounced audits may also relate to critical suppliers and subcontractors of crucial importance. According to the recommendation, the contractual agreements between the notified body and the manufacturer should provide for unannounced audits to be carried out both at the manufacturer's premises and at the premises of its subcontractors or critical suppliers.

2. However, if the manufacturer makes a commitment to the notified body to ensure that unannounced audits can also be carried out at the premises of subcontractors and key suppliers, he must of course contractually pass on this commitment within his supply chain. The current contractual conditions of some notified bodies even stipulate that the certificate can be withdrawn if an unannounced audit cannot be carried out (whether at the manufacturer or at the subcontractor or key supplier). It is therefore strongly advisable to contractually secure the obligation to have unannounced audits carried out in relation to subcontractors and key suppliers.

3. If the key suppliers or subcontractors of critical importance are located in a country that requires a visa to visit, the manufacturer must ensure that the notified body can also visit them at any time. To this end, the recommendation stipulates that invitations from subcontractors or key suppliers must already be available when the contract with the notified body is signed. Even if this requirement of the European recommendation is likely to be difficult to implement in practice, it should nevertheless be contractually secured in the supply chain. And any additional solution that ensures that representatives of the notified body can easily enter the country in which subcontractors or key suppliers are located should be implemented, and the contracts between the manufacturer and the notified body should include the obligation for the manufacturer to provide ongoing information about the periods during which the products are not manufactured. This is intended to prevent unannounced audits being carried out at times when the product to which the certificate relates is not being manufactured. Therefore, if the manufacturer has relevant manufacturing steps carried out by an original equipment manufacturer (OEM), he must contractually oblige the OEM to inform him of the production-free times in good time or to look for an alternative solution in order to be able to fulfill his obligations to the notified body himself.

4. A clause that we regularly find in supply contracts contains the obligation of authorized distributors to inform suppliers of the names of their customers for the purpose of traceability of deliveries, for example if measures become necessary within the scope of the PMS. This is desirable from a medical device law perspective. However, statutory compensation claims of the authorized distributor analogous to Section 89b of the German Commercial Code may exist if an authorized distributor contains the obligation of the distributor to provide customer data. As the compensation claim is based on the turnover achieved, considerable payment claims can accumulate. Such latent payment claims can be avoided through clever contract drafting.

As the notified bodies are currently very strongly measured against the implementation of the aforementioned recommendation and the implementing regulation and are therefore required to pass on the obligations arising from these regulations to the market participants, we believe it is imperative for manufacturers to adapt the contracts within the supply chain to the increased legal requirements in order to permanently avoid problems with certification or certificate maintenance for their own products. This reason for amending contracts, which is comprehensible to the supplier, can also be used as an opportunity to optimize supplier contracts and contracts with distributors.

Please note our event on this topic: Designing supply contracts and quality assurance agreements correctly.