How to create a comprehensive and transparent contract with your service provider

4th February 2016 (Last Updated July 18th, 2018 09:36)

Kathleen Kirby, Viridian Strategies, outlines factors to consider when drawing up a contract with a service provider

How to create a comprehensive and transparent contract with your service provider

transparent |tran'spe(?)r?nt, -'spar-|adjective

  • (of a material or article) allowing light to pass through so that objects behind can be distinctly seen.
  • easy to perceive or detect

Transparent is such a commonly used buzz word that has seeped its way from the professional conversations to personal ones. It is so often overused but the meaning remains strong: clear and able to see through, nothing hidden. When it comes to negotiating a contract, having a clear line of sight into the necessary requirements is paramount to the success of the relationship and the work performed. Both Sponsors and Service Providers have confidential information they need to protect but if the information is significant, relevant and would influence a different decision on the project, you need to find a way to share it.

Sponsors should care about being a good client. If the Service Provider is treated well, the chances increase that the Service Provider will perform at their best. And isn't that what everyone wants - to be treated fairly, to feel valued and to be respected? This is the same whether you are a Service Provider, a big pharmaceutical company, the medium size company or the very small start-up. In fact, when your development is supported by an outsourcing strategy, your success can depend on how well your Service Providers perform for you. A product can still fail while the project was executed successfully but to have failures due to poor planning and up front work is a shame for those patients out there waiting for treatments.

A phrase that has become common is "building the plane while you fly", which most people who hear it chuckle and then say "I've been there" or "That's us right now". Despite being in this situation, be sure you have a contract strategy for initiating appropriate start-up work while you finalize the scope and budget. This assumes you accepted the overall scope and budget up front but may need time to make adjustments, perhaps due to regulatory discussions or completion of feasibility.

The agreement negotiation should proceed on two paths: 1) the legal components and 2) the scope, budget and payment terms. The same principles for completion should apply to both, with only slight modifications. View the process for contract negotiation based on these four principles:

1) Do your work up front
2) Framework of the Agreement
3) Win : Win
4) Be......

Do your work up front

The Sponsor must truly understand what service itrequires and should only consider Service Providers who provide that service. Sponsors, get your internal team involved in defining the scope and be sure to identify who on your internal team is responsible for each area. And don't rush your preparation: measure twice, cut once. Jack Bergman had it right when he said, "There's never enough time to do it right, but there's always enough time to do it over." Don't be the one he was referring to.

Proper vendor selection is essential and Sponsors should be clear on the type of team they are looking for from their Service Provider. It is perfectly acceptable to request specific individuals and be prepared to name them in the work order. In fact, tell vendors up front this is a requirement.

Framework of the Agreement

Ask yourself if this is a one-off project (Terms & Conditions or a Service Agreement)or a long-term commitment (Master Service Agreement). Also decide what the budget is and which payment structure best suits the project (fixed price, unit service, fee-for-service). Lastly, determine whether change orders are acceptable. Change orders should not be a way to include work you did not think of because you rushed. Sponsors should make sure they take the time to thoroughly develop the scope and Service Providers should take time to make sure they understand the scope. After the trial has begun is not the time to clarify the work. Effective use of change orders really should be limited to work that was not anticipated, eg, regulatory feedback or a change in medical practice that requires a protocol amendment. If you need to get key work started but one aspect of the scope and budget is not yet clearly defined, then a change order can be agreed upon up front. We all love to hate them but change orders are a reality and having the discussion early on about how they are handled is important and should form part of your strategy.

Win : Win

Trying to squeeze as much out of an agreement as you can is not wise. In the end, you will pay either in time lost or added cost, or both. Back to the concept of treating the other party fairly - if you treat the relationship with respect by managing the Service Providers well you increase your chances of having a positive outcome.

It is reasonable and suggested, depending on the size and scope of the project, to discuss a rewards / penalty plan but important to keep in mind, it is not right for all projects and relationships. Be careful to implement a plan that both sides see as reasonable. For rewards, you may consider a team bonus to maintain continuity on the project or if milestone based, the goals clearly should be stretch goals that can actually be achieved and are meaningful to the Sponsor. Any penalty defined should be commensurate with the action. Examples might be for a delayed timeline where Service Provider was in control or for removing too many team members. It can be a fine line between incentivizing a team or demotivating them if they feel their hard work will not be recognized. If done well, this can help both groups achieve their goals (Sponsors - don't forget to include this in your project budget).

Be...

Be open, be clear, be willing to compromise, be patient.

Sponsors should be open to hearing from their Service Provider if the project plan is not achievable. The Service Provider needs to be clear on their recommendations and what they can deliver, and the Sponsor must be clear on Company goals so together you can build a plan that works. Both parties need to be willing to compromise on those things you can. And be patient with the process. You need to drive the negotiation but know some things do take time. These approaches will help form the basis of trust, which is essential for success.

For important discussions, whether an MSA, the scope and budget, or a change order, conduct those discussions face-to-face if possible. This is especially important when working through sensitive topics. While you are negotiating an agreement to support a project, treat the agreement completion as a project - agree on the steps and build a timeline. This helps to align expectations on both sides and potentially avoid controversy later.

Be sure to take the following into consideration:

Sponsors:

  • You should know Key Opinion Leaders and critical details about your patient population, share what you know
  • You have likely spent a great deal of time planning the project - share those details with Service Provider
  • Don't cut timeframes when you are a year+ out from study start

Service Provider:

  • Ensure that PM has been involved in bid prep & defense and will also be involved in work order development
  • Think first before you tell a Sponsor "we can get a preferred site up in x days"
  • If the Sponsor timeline is not achievable, say so and then present an alternative

Combined team

  • To support the team, build in a Senior Oversight Committee that can help when the team hits an impasse with an issue.
  • Strong teams develop their plans and forecasts early in the project - all plans and forecasts - tendency is the jump right into the work - remember, don't rush

In the space of knowledge, take time to learn what you don't know. And if this is all new to you, consider taking a negotiation course and connect with someone who is very experienced at negotiating agreements to mentor you along the way. Be sure to understand expectations both internally and with the other party - no one wants surprises when it may have an impact on the timeline and budget. And then take time to reflect on the experience - a well-organized "lessons learned" discussion can strengthen the path next time. Lastly, be prepared to skin your knees a bit - even the most seasoned individual hits a bump from time to time when negotiating.