The Tamil Nadu Medical Services Corporation (TNMSC)'s policy of charging penalty from the manufacturers for not complying with supply orders within the stipulated period executed in their tender contracts is forcing many manufacturers withdraw from participating further tenders, it is learnt.

According to industry sources, 80 per cent of the suppliers from Chennai and Madurai have moved away from participating in tenders for the last 10 years and the remaining few companies are also contemplating to withdraw from the tender process with the government. The imposition of fine for breach of contract puts the industry often into a vicious circle and it becomes hard for them to manage or survive the situation sooner or later.

When the Corporation was started in 1995, about 100 pharma manufacturers from Tamil Nadu alone had participated in the tenders in order to supply medicines to the Corporation’s requirements. The number of suppliers have now reduced to 15 and showing a decreasing trend.

When contacted, industry doyens in Chennai said on condition of anonymity that the government policy of charging penalty from the manufacturers for default of supply after the deadline given by the Corporation is an unfriendly, unsupportive and inhuman activity of a government in a democratic set up. They said no company would deliberately delay the supply, but due to some kind of technical hurdle, shortage of power supply, delay in procuring raw materials or because of some other unexpected problems, if the companies fail to fulfill the tender conditions, they are fined as punishment. Despite several representations to the Corporation by the manufacturers’ association, no industry-friendly measure or support from the authority’s side has come up so far, the manufacturers complained.

The corporation is procuring medicines worth around Rs.300 crore every year for government supply in which more than 60 companies from across the country contribute to. According to industry sources, the Corporation gives a period of 60 days time to the companies to supply the quantity of medicines it demands from each company. If the company is supplying a part of the quantity on the 61st day, a fine of 0.5 per cent of the cost of the remaining quantity (non-fulfilled order) is charged. If the supplier takes one more month to execute the remaining quantity, he has to pay a penalty of 15 per cent of the total cost of the non-executed promise. This imposition of fine is increasing to 30 per cent after 90 days, said the managing director of an SSI pharma manufacturing unit.

In Tamil Nadu there are about 450 pharmaceutical manufacturing companies and most of which are small scale enterprises and working on bank loans and government support. The companies are giving employment to thousands of people and if the Corporation procures all the required quantity of drugs from the companies in the state, more employment opportunities can be created here and the amount spent on procurement of drugs by the Corporation would go to the state’s own companies.

“There is stiff competition in the industry. Just to get the orders from the government, we are quoting very little profit margin at a rate of three to four per cent only, which cannot be considered as a profit. If we are unable to comply the tender conditions within the time limit, the penalty amount for the non-fulfilled quantity would exceed the total cost of products supplied already, i.e., we are facing a big loss in the business deal with the government. So we request the government of Tamil Nadu to give us more time by extending the deadline to 90 days from the present 60 and quash levying fine of liquidated damages. This will help the manufacturers a long way in supplying the tender quotes and thereby to survive all predicaments due to power shortage or technical impediments,” said the supplier who was fined a big amount last year.