US discontinues purchase of ventilation equipment Philips, end of contract

The U.S. government has terminated a contract for the supply of ventilation equipment by Philips. The Dutch technology company mentions this in a statement. No reason is given in the statement.

In April, the Americans signed a contract for the supply of 43,000 ventilation equipment from Philips, mainly intended to ventilate corona patients in intensive care. The delivery was to take place in stages until December of this year.

But the U.S. government is now putting an early end to this. The Dutch company will finish the deliveries, which were planned for this month. After that it will stop. The Americans had already reserved the right to terminate the contract prematurely without giving a reason.

Hundreds of millions of euros

Philips is the largest supplier of respirators to the U.S. government. They are all produced in factories in the US. In total, the company delivered 12,300 respirators to the Americans at the end of this month. This means that the supply of the remaining more than 30,000 machines has been cancelled. In total, the contract was worth 646.7 million dollars, about 543.5 million euros.

Exactly how much money Philips is losing is not yet clear. What is certain, however, is that the impact on the company’s income will be considerable. Whereas Philips previously assumed a “modest growth” of the profit for this whole year (compared to last year), the profit now remains at the same level, according to a spokesman.

Deal controversial in the US

It is not clear why the U.S. government no longer wants to take the respirators. Philips top man, Frans van Houten says nothing about it in the statement.

A possible factor is that the deal to supply the machines has become controversial in the US due to an investigation by the American investigative journalism platform ProPublica. This would show that Philips is paying the government too much for the machines.

According to ProPublica, a subsidiary of Philips received millions of dollars in subsidies years ago to develop 10,000 cheap breathing devices that could be used in a pandemic.

The company has so far not delivered those devices. In the deal concluded by Philips in April, the devices would be four times more expensive than the cheaper one still being developed.

In response to the publication, the U.S. government ordered an investigation into the contract with Philips. This led to a report which, according to the platform, stated, among other things, that the device that Philips was now selling for a higher price would be virtually the same as what it would deliver for a lower price according to the earlier plan.

Philips itself contradicts the allegations. In a reaction to the publication, Van Houten said last month that the company is cooperating with the investigation and “does not recognize itself” in the conclusions. According to him, not all information provided by Philips was included in the report.

“I want to make it clear that Philips did not at any time raise prices to take advantage of the crisis”, said Van Houten. On the contrary, according to the top man, the U.S. government has received substantial discounts on the devices, despite the higher production costs due to the fast delivery.

According to Philips, the earlier contract for cheaper devices is not comparable to the current deliveries, because it is a product as part of a research project that is still under development.

Hearing

What information has not been used in the U.S. government report is not what a Philips spokesman now wants to say. That should become clear in two weeks’ time, when the company has been invited to speak at a hearing in the US to give an explanation.

In any case, Philips still has doubts about the conclusions from the report, says a spokesperson. “That report was published by Democrats. That same day a press release was issued by Republicans, who contradict the conclusions of that report. That shows there’s a political dimension to it.”

‘Disappointed’

Topman Van Houten says to be disappointed with the termination of the contract, especially considering “the enormous effort” of the company to deliver the devices quickly. “To this day we have delivered what we promised,” says Van Houten. He points out that Philips has invested heavily in production, which has quadrupled, due to the high demand for respirators.

Van Houten: “We hired hundreds of new colleagues for our factories in the US and asked our suppliers for a huge extra effort, all in response to the covid-19 pandemic