Thu, Jun 18, 2020

What to Consider When Procuring PPE in the COVID-19 Era

The COVID-19 pandemic is driving government organizations around the world to evaluate and consider how they are contracting with their existing and new distributors to receive personnel protective equipment (PPE) and testing kits. These distributors serve as a bridge between global government organizations and local equipment manufacturers, yet they pose significant risks related to their manufacturing standards and potential to engage in corrupt behavior to meet the ever-increasing needs of their clients. As such, these government organizations should conduct thorough enhanced due diligence (EDD) checks of their medical equipment distributors and manufacturers to ensure that regulatory standards and legal obligations within their supply chain are being maintained. Meeting this standard as part of an organization’s business model is imperative to identify unreliable PPE and medical equipment distributors and manufacturers. 

There have been several recent reports in the media of government organizations having to return PPE equipment and testing kits to manufacturers because they were deemed faulty or not at the requisite quantities needed to meet their government clients’ needs during the pandemic. In March 2020, the Dutch Ministry of Health, Welfare and Sport returned 600,000 faulty KN95 face masks to a Chinese manufacturer because they had insufficient filters or did not fit properly. Additionally, in April 2020, the City of New York paid a senior executive of a Florida car dealership $8.3 million for the procurement of more than 100 ventilators that were never delivered. In both examples, these government entities failed to consider the value of conducting EDD checks to ensure the integrity of the transactions they were involved in and the reputational risk they faced by acquiring and providing defective equipment to healthcare professionals on the front lines of the pandemic.

To conduct thorough EDD checks on distributors and manufacturers, organizations should first gather basic details on the entities involved, such as full legal names and jurisdictions of incorporation/registration. They should then use these details to conduct online corporate registration verification checks as well as news media and internet searches in English and any applicable local language to compare their purported capabilities against information found in the public domain and identify any major red flags. Organizations should then work with a due diligence services provider to arrange a site visit at the local manufacturer’s production facility to inspect the production process, perform a quality check on the PPE or testing kits to be purchased, and take photos of the machinery used to assess quality and suitability. If a manufacturer recently shifted its production activities to the manufacturing of PPE, the due diligence services provider should seek to confirm that the manufacturer has been authorized by local authorities to produce PPE and that it has updated its corporate filings to reflect these additional activities. That way you ensure that activities are being conducted legally with a view of complying with local standards and regulations.

The above two examples reflect the need for organizations operating during this critical time to assess the degree of risk that may exist in the relationships they maintain with global distributors and manufacturers operating within their supply chain. To address the safety and wellbeing of all who operate in the medical equipment industry, it’s imperative that these government organizations be viewed by their consumers as operating with credibility, integrity and transparency in regard to procuring PPE that meets industry standards. For these organizations to meet this expectation, using on-the-ground sources to evaluate and determine third and fourth parties is paramount. This unique perspective allows for an effective risk assessment of global partners. The medical equipment manufacturing and distribution market has become the new “wild west” during the pandemic. To avoid falling victim to fraud or broken promises, government organizations should collect appropriate information, assess the information subsequent to conducting an appropriate level of due diligence and make decisions that take into account what is in the best interest of the public that it serves.


Compliance Risk and Diligence

The Kroll Investigations, Diligence and Compliance team partners with clients to anticipate, detect and manage regulatory and reputational risks associated with global ethics and compliance obligations.