The Evolution of Outsourcing Contract Management Coming of Age
Andy Parrett
Keywords
Contract management, Outsourcing, Standard operating procedures (SOPs)
The contract management role in clinical development outsourcing is still a relatively young profession. It was conceived in response to the rationalisation of pharmaceutical company workforces and the rise of the CROs and, given that these developments have been ongoing for only around thirty years, we should not be surprised that contract management remains an emerging discipline.
As it stands today, the nature of the role can vary significantly between pharmaceutical companies. In small companies the idea of a dedicated contract management resource may seem like an expensive luxury, such that clinical operations personnel undertake their own outsourcing activities in what procurement professionals might call ‘end-user purchasing’. Many large companies, meanwhile, have witnessed their contract management teams grow from embryonic end-user beginnings into cost-sensitive resource management functions, often closely aligned to, or merged with, an established company procurement team.
For me, however, the most exciting developments in the role are occurring in today’s small to mid-sized companies; for it is in companies where enough growth has occurred already to invest resource in developing contract management solutions, but enough flexibility remains to adopt contemporary best practices, that the real advances are being driven. Thus, Contract Managers at mid-sized companies or committed end-users at small companies are often leading the way in determining the next steps in developing the profession. We have seen this trend at the Pharmaceutical Contract Management Group (
www.pcmg.org.uk), which celebrates its fifteenth birthday this year.
The PCMG as a catalyst for change
The PCMG was initially established in response to the frustrations of perceived poor service provision, and its early members had a primary agenda to share intelligence on the CROs they were using. However, the vision of the organisation changed rapidly to one of providing a forum for developing best practice outsourcing solutions. Those members with the time and flexibility to adopt the lessons learned within the PCMG forum have therefore found themselves (perhaps by accident) at the vanguard of defining a new profession and making the role a necessity, not a luxury, in clinical development outsourced projects. The key word there is ‘projects’…
I mentioned that large companies often take the step of merging or
aligning their clinical contract management team with their existing
procurement function. Handled well, this can benefit the organisation
at least through achieving a centralised oversight of purchasing
activities. Handled badly, however, it can result in too much emphasis
on savings at the point of transaction because that is often at the
heart of what procurement teams are used to deliver. Services for
projects, especially big projects with joint teams and multiple
stakeholders such as those in clinical development as distinct from,
say, manufacturing, aren’t something you can purchase like that. There
is too much uncertainty around scope, responsibilities, outcomes and
relationships to orchestrate certain and meaningful cost savings at the
point of purchase. At the PCMG we have realised this for some time and
so the spotlight for best practice in this forum has gradually shifted
away from tools and processes focused solely upon CRO selection, cost
negotiation and contract execution to include areas where the Contract
Manager can add value after the ink has dried. Despite its name,
therefore, this has made the PCMG an organisation just as relevant to
operational personnel who work routinely with CROs as Contract Managers
themselves. Meanwhile, we have witnessed the Contract Manager role
evolve from one with interests in operational delivery to one without
and then back again (Figure 1).
This
reengagement of interests in post-contract operational delivery
shouldn’t be considered a backward step. It does not reduce the
Contract Manager’s ability to fulfil his/her front-end contracting
responsibilities; it enhances it. For when a Contract Manager shares
accountability for delivery, rather than just ‘throwing it over the
fence’, he/she will care more about getting the right CRO and right
contract in place up-front.
Development of SOPs
While catalysed
by the PCMG, the evolution of the Contract Manager role has been a
natural one. For many companies it may have begun with the ‘Early
Contract Manager’ establishing two new processes: one for outsourcing
and one for contracting. In Figure 2, I’ve given these processes the
arbitrary names Vendor Bidding SOP and Contract Management SOP
respectively. I’ve heard it argued that, as long as ICH GCP
requirements for the allocation of responsibilities are captured
somewhere in operational or QA SOPs, then documented processes for the
Contract Manager activities aren’t needed. This is lazy thinking:
successful organisations document their processes wherever they add
value. Think of SOPs like a cookbook: while an experienced chef may
deliver very successfully without one, the novice needs a recipe to
refer to. Mistakes get made when the operator lacks the experience or
the instructions to follow and this logic applies just as readily to
the activities of a Contract Manager as a CRA or a Study Manager.
Figure 2 Processes of the Modern Contract Manager.
Following
the establishment of the first two SOPs, the natural course for the
evolution of best practices is to remain focused on pre-contract
activities to begin with. CRO ‘qualification’ SOPs (yellow in Figure 2)
should ideally be separated out from ‘selection’ SOPs (pink), such that
while QA and senior management stakeholders may play a role in
determining which CROs are placed onto an Approved Vendor List (AVL),
it remains the decision of operational stakeholders as to which
particular CROs are initially considered and subsequently awarded work.
Further, the PCMG has seen a trend over the past 5 years where the
Contract Manager is increasingly surrendering his/her decision-making
rights in both qualification and selection processes to become solely a
facilitator. I would recommend this approach as best practice.
So far, so good but, as already mentioned, to really
add value the ‘Modern Contract Manager’ must provide services beyond
the execution of the contract. To some extent, it is likely that the
Early Contract Manager is already dipping his/her toes into the water
here, perhaps taking responsibility for invoice management and change
order development. These are the germinal activities of a Project Scope
Management SOP, which should describe what tools will be applied to
forecast spend and track payments and how the Contract Manager will
liaise regularly with the Study Manager to review scope and timelines
against the contract. The proper application of a tool such as a
Forecast Earned Value & Invoice Tracker (FEVIT) can enable accurate
monthly snapshots of spend versus milestone payments so that accruals
can be assessed and budgets controlled. (If you would like a free copy
of a generic FEVIT spreadsheet tool for your company, please contact
me.)
The establishment of a Project Scope Management SOP
inevitably provides a forum for more regular communication with the
Study Manager on CRO performance issues and thus plants the seed for
the development of the final process presented in Figure 2:
Relationship Management. The key elements of this process include the
development of a system for collecting performance and relationship
metrics and enabling conflict deterrence and continuous learning. The
process feeds back into a number of the established processes, as
indicated by the arrows in Figure 2, which show how the set of
processes connect with each other throughout the vendor management
lifecycle.
Relational contracting
It is
fitting that the final piece in the evolution of the process jigsaw for
the Modern Day Contract Manager is a Relationship Management SOP,
because by the time it is in place he/she has become a true ‘relational
contracting specialist’. This is quite a different animal from the
traditional procurement professional, whose focus has historically been
purchasing commodities and generating savings at the point of
transaction. Relational contracting represents an understanding that
project risks cannot be outsourced but must be managed by the sponsor
through the application of project management methodologies contained
within the processes I have described. This engenders a ‘total cost of
ownership’ philosophy that shifts focus onto minimising cost throughout
the lifecycle of spend rather than just in up-front negotiations.
I have mentioned that in recent years some large
pharmaceutical companies have seen their clinical development contract
management teams merge with their traditional procurement functions and
this is likely to be an increasing trend in the future. The precise
structure and policies surviving each departmental merger will vary
between companies and, sadly, will probably depend more on the people
and politics involved in each case than any sensible rationalisation,
to begin with at least. However, such a merger can be positive provided
that the relational approach that has evolved out of clinical
development outsourcing teams is allowed to persist and flourish.
A model consisting of a centralised sourcing
department, responsible for global, transactional purchasing and
limited oversight of hubs conducting local, relational purchasing is,
in my view, the best practice solution for pharma procurement functions
and should represent the most likely future working environment of the
Contract Manager in clinical development outsourcing. It is reassuring
to think such a future holds a vital part to play for the still
emerging Contract Manager role and further exciting prospects for the
PCMG in both driving and reflecting the development of a very valuable
and rewarding profession.
Andy Parrett (andrew.parrett@btinternet.com) is Chairman of the Pharmaceutical Contract Management Group (PCMG).
