Dive Brief:
- Medtech company Siemens Healthineers is suing a supplier that the health technology company claims stopped work on its end of a $40 million contract with the Department of Defense.
- The department in 2017 picked Siemens Healthineers to supply it CT scanners for battlefields. The company alleges Western Shelter Systems, subcontracted to integrate the devices into mobile shelters, quit work months after the contract was awarded. That hurt Siemens’ ability to fulfill the supply contract, the company said.
- Out of 24 contracted shelters ordered by the Defense Logistics Agency, “WSS failed to provide integration services for a single one,” Siemens Healthineers alleged. The company filed a lawsuit against WSS last week in federal district court in Oregon, seeking damages and attorney fees.
Dive Insight:
Siemens Healthineers — which is 75% owned by the tech conglomerate Siemens — said in its complaint that WSS’ failure raised the medtech company’s own costs and hurt its ability to supply the DLA, and that it continues to add costs for Siemens. WSS did not reply to Supply Chain Dive’s request for comment.
The company said that it “suffered damages in myriad forms” resulting delayed payments owed to the DLA as well as additional unit pricing costs Siemens Healthineers said it was “forced to incur” because it had to work with a replacement integrator.
In addition were repair costs on government-issued shelters that the company provided to WWS for testing, which WSS, according to Siemens, returned “badly damaged” after first refusing to return at all.
Problems between the two companies began almost immediately after the DLA selected them to fulfill its contract for CT scanners, with Siemens as the prime contractor. In mid-June 2019, Siemens issued its purchase order to WWS worth nearly $370,000 on equipment that was slated to be delivered to DLA by Sept. 25 that year.
But around the same time, WSS gave Siemens Healthineers a timeline estimating that it would not complete work until mid-October, forcing Siemens to negotiate with DLA, the company said in its complaint.
From there, the two companies haggled over financial details of the contract until WSS threatened to stop all integration work, which it ultimately did in January. Siemens terminated the contract with WSS in March 2020, saying that WSS defaulted on it.
The med tech company found another contractor to do the integrations but paid far higher prices than it would have under the WSS deal. Siemens said it “had no choice” but to do so because it faced default on its government contract without an integrator.
Siemens Healthineers’ role as prime contractor on a defense procurement initiative adds a layer of tension to the legal spat between the companies.
Similarly, Lockheed Martin recently sued Howmet Aerospace over the latter’s threat to stop supplying titanium products needed for Lockheed’s F-35 stealth military jet amid negotiations over what the aicraft maker called a “massive price increase.” The judge in that case issued a temporary order compelling Howmet to keep filling Lockheed’s orders to keep production on track.
