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According to the Executive Focus classifieds section of the April 8th Economist issue (print only), UNICEF is searching for a new Director of the Supply Division. Given the critical role that UNICEF plays in the procurement of pharmaceuticals and health products for the developing world - particularly vaccines - such a management transition could open the door to binding, long-term procurement contracts, which would help stabilize the vaccine market by reducing a major source of risk to suppliers.

Chapter 7 of Making Markets for Vaccines: Ideas to Action discusses the challenges of UNICEF's current system and describes the policy changes that need to take place (reproduced below). Hopefully the new leadership will take this on.

Update, 5/1/06: An additional job posting for the Chief of Immunization (P5) at the UNICEF Supply Division has appeared in the International Herald Tribune.

The need for long-term contracting

UNICEF’s usual procurement award for most commodities is a “long-term arrangement.” Under a long-term arrangement, UNICEF and manufacturers agree to the commercial terms for products, such as prices, delivery schedules and packing requirements, so that when an order is placed, it can be delivered rapidly. Past long-term arrangements have typically had a duration of one to two years, but they can last as long as fi ve years. UNICEF also provides the vaccine industry with forecasts for vaccine requirements (in three- or four-year increments), but these are indicative only (that is, they do not form an enforceable contract).

The challenge UNICEF faces is compounded by the fact that it is buying vaccines for 100 countries each year and that it is constrained by public sector purchasing regulations. The procurement decision for such a large number of countries, and making up such a large part of the market, creates a different relationship between buyer and sellers than would a procurement contract for a single country.

During our industry consultations, the point was made repeatedly and forcefully that the lack of binding contracts, and particularly binding long-term contracts, makes it difficult for potential suppliers to invest in long-term productive capacity, which would increase supply, permit greater reliability of supply and reduce the price. The result is higher prices for developing countries, lower use and occasionally supply constraints.

Aware of this concern, UNICEF has moved toward longer contracts where possible. But it appears that UNICEF is constrained in its ability to sign multiyear purchase agreements because its funding streams are typically guaranteed annually. In a recent procurement, the Vaccine Fund was able to give UNICEF multiyear funding “in trust” to support a multiyear contract. This arrangement involved setting aside money for future payments.

Donors and UNICEF need to work together to establish whether there is some way to enable UNICEF to enter long-term contracts, either by amending the rules governing UNICEF’s financial position or by fi nding other possible fi nancing mechanisms, such as underwriting agreements or promissory notes.

This situation also highlights the urgent need for reliable demand forecasts. Initiatives like the Accelerated Development and Introduction Plans for pneumococcus and rotavirus vaccines are attempting to recognize the pivotal importance of having an accurate forecast of demand. Improving accuracy in this area would be an important contribution to reducing risk for all parties.

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.