Why do we write 75-page contracts when we don’t enforce their provisions?
By John Strong, Chief Consulting Officer, Access Strategy Partners Inc
June 2023- The Journal of Healthcare Contracting
The New York Times reported in late February that foods commonly used in healthcare were manufactured in plants where underage migrant children were working. These companies included General Mills (cereal), Frito-Lay (snacks) and Quaker Oats Company. Has there been any news announcing enforcement action against these foodservice giants? None that I am aware of.
Now comes word that three McDonald’s Corporation franchisees in Kentucky are paying $212,000 in fines because the U.S. Department of Labor found 305 minors – some as young as 10 – working in their fast-food restaurants. One was operating the French fryers; others were found operating ovens and other dangerous equipment. One would hope that McDonald’s will do something about this. Clearly, they have lengthy written franchise agreements.
Are contracts just too lengthy?
Over the years it seems like healthcare contracts for goods, services and relationships have gotten exponentially longer. There are 50-to-100-page group purchasing contracts, and 50-page IDN and health system contracts. All of this is well intentioned, and designed to cover a wide range of ills, including employment of minors, use of sweatshops, environmental concerns, disbarment from federal programs such as Medicare and a host of other issues. Everyone along the supply chain claims that they care deeply about these issues and more. But who enforces the provisions of the contracts when violations surface? Concern for social justice suggests everyone should.
What happens when issues like these are exposed? Does anyone along the supply chain ever sit down with the offenders and enforce the provisions of their contracts to ensure compliance? Enforcement doesn’t necessarily mean cancelling contracts, but candid conversations between buyers and sellers are clearly required along with remediation plans that are acceptable.
Some years ago, I was part of a panel discussion that included an executive from Johnson & Johnson Consumer Products (now Kenvue). She explained to a surprised audience that her division did not write lengthy contracts for major retailers. Instead, there was a simple set of guidelines and expectations that both trading partners followed even for multimillion and even billion-dollar supply programs. Both trading partners believed this arrangement cut costs, added flexibility, and reduced marketing time and expense which could be passed back to the retailer – and customers. Disagreements were settled verbally as well. Is it a lack of trust across U.S. healthcare supply chain trading partners?
What are we doing?
In an age of supply chain resilience, are we doing ourselves any favors with contracts that are too long, take too long to create and execute, and just too expensive for all trading partners in the healthcare supply chain? Probably not.
Force majeure is a common diet in most supply contracts. Did that bring any substantive relief to buyers during the global pandemic? Arguably not. Buyers and sellers simply could not find products due to supply manufacturing disruptions and enormous swings in demand. Can we simplify terms such as these?
Likewise, anyone can be excused for not knowing about child labor violations or other issues. On the other hand, contracts need to be enforced. Without enforcement action, and communication, we will continue to see repeated violations of contract terms built at great expense – but little or no action around changing behavior. If we build contracts at great expense, are we only being politically correct in putting onerous provisions in contracts? Many terms and conditions are designed to bring meaningful change. If these are not enforced, however, there won’t be any real change. Just more expense.
Reducing complexity
In healthcare we continue to tout the use of Value Analysis. One of the key provisions of many value analysis programs is reducing complexity and time to process. As purchasers, are we following our own advice when it comes to the process in purchasing our own goods and services? What’s the value proposition of the lengthy contracts we have become addicted to writing?
Is it time to stop adding more administrative burden to the supply chain when it faces so many pressing problems already?
John Strong is a Co-founder and Chief Consulting Officer for Access Strategy Partners, Inc. In his role with ASPI, John consults with medical device manufacturers and medical products and technology companies on strategic planning, sales, education, marketing, national accounts strategy and more.
John is a 40-year veteran of the healthcare industry, with leadership experience in healthcare providers, suppliers and service providers, and group purchasing organizations. In 2011 the Bellwether League (Health Care Supply Chain Hall of Fame) inducted John for “his outstanding contributions over the years to healthcare supply chain management, development, innovation and leadership.” His experience and expertise include healthcare administration, entrepreneurship, national accounts contracting, group purchasing, the roles of CEO, President and board member, and healthcare industry consultant. John has developed and implemented programs that have generated hundreds of millions of dollars in value for his employers and clients.