To read more about how sponsor and vendor relationships are changing in a world where outsourcing is the norm, check out the
following articles:
Laying with the Lions by Brian O'Neill
Vendor Quality Assurance Audits: A Formula for Success by Carl Anderson, Cathy Tashiro, and Laurie Taddonio
Successful Outsourcing: Tracking the Evolving Use of Full-Service and
Niche-Service CROs by John R. Vogel and Kenneth A. Getz
A Clinical Development Solution Tailored for Biopharmaceutical Companies by Vincent Charlon
Master Service Agreements (MSAs) and Preferred Vendor Agreements have been used for years to provide pricing predictability
and consistency in contracting to outsourcing departments. While generally successful, the extent to which they ensure companies
are extracting maximum value from them is difficult to measure.
Increasingly, these Agreements include provisions that extend well beyond volume-based discounts and rate cards with negotiated
fees. Most organizations have created standard MSA templates that include performance requirements, metrics to track performance
of their providers, and penalties for noncompliance. In addition, provisions are frequently included that require both parties
to meet regularly to discuss the status of the relationship and address specific issues or concerns. This is one of the most
common methods of measuring the quality and consistency of service being provided by the preferred provider.
These Agreements also serve to streamline the contracting process associated with specific projects by eliminating the need
to renegotiate key terms for each study. In most cases, this provision is effective for both parties and expedites the execution
of contracts. 
Figure 1. Consolidation Creeps In: Subject Recruitment
|
While some companies formerly allowed exceptions when a business case seemingly warranted the use of a nonpreferred provider,
these requests are rejected more frequently in the context of these Agreements. The ad hoc selection of a provider has become
the exception to most standard processes, and compliance with these Agreements is generally very good, ensuring business is
going to the preferred providers as intended.
As a result, the process by which vendors are selected has become more rigorous, and in many cases has the cache of a formal
audit.
Rigorous and challenging process
In the current environment, there are no assumptions made regarding a provider's competence or capabilities in any area, even
if the sponsor has availed itself of these services in the past. While classic audits are conducted by the QA function of
both organizations, more and more purchasing decisions are preceded by site visits and live demonstrations of core processes.
PowerPoint presentations and marketing materials are still helpful in supporting these on-site evaluations; however, they
do not generally provide sufficient details regarding Standard Operating Procedures (SOPs) and other information required
by the sponsor. Final presentations are common during the process of identifying preferred vendors, and the costs associated
with bringing all the appropriate support personnel together for these meetings can be tens of thousands of dollars for companies
operating on a global scale. It is a significant investment for a provider to participate in this process; therefore, the
expenses associated with doing so should be contemplated in any Business Development or Sales and Marketing budget. The ultimate
cost of not winning is exclusion from the preferred vendor list for the term of the Agreements, which can extend for two to
three years and include automatic renewal provisions for the incumbent providers.
Another significant challenge for outsourcing professionals is the cost of switching providers for a particular service. If
the benefits of changing vendors are deemed to be only incremental, the time and cost associated with the transition may not
be justifiable in the current climate. It is critical for newer providers or those that have expanded or enhanced their services
to clearly differentiate themselves from incumbents to secure these key relationships. The current pace of mergers, acquisitions,
and licensing agreements poses a particular challenge in this area. As companies combine their pipelines and try to realize
other synergies expected from these transactions, the outsourcing function is often charged with selecting the best of breed
suppliers on behalf of all the merged entities.
While the value of existing contracts are contemplated during the due diligence process surrounding an integration, long-term
contract commitments of one party may prohibit near-term transitions to alternate, preferred providers of the other. Incumbent
providers should not take their preferred status for granted even in these circumstances, since most contracts allow for termination
for nonperformance or include changes in control provisions that provide the customer the option to terminate the Agreement
prior to its expiration. The most effective way to avoid difficult and protracted negotiations in these circumstances is for
all parties to communicate early and frequently during the transition process and to pursue legal remedies when disputes arise
only as a last resort.
