Contractually speaking

April 1, 2007
Beverley Whittaker
Pharmaceutical Technology Europe
Volume 19, Issue 4

Liability issues are often controversial, but much depends on the nature of the agreement.

Unlike the traditional outsourcing of 'back-room' functions, many purchases of outsourcing services relate to 'representative' activities such as sales and merchandising, and other activities requiring contact with patients and the public. They tend to involve a supplier providing a visible workforce.

The reputation of a purchaser is, therefore, associated with the actions of the service provider's staff. The potential purchaser of these services, therefore, must be confident in its provider. The focus of this article is on contractual issues that typically arise in these more outward looking services.

Staff issues

This is a key area and an agreement should deal comprehensively with personnel issues, including:

  • Experience, qualifications and general 'quality' issues.

  • How training is provided and paid for.

  • A right to require the removal of individual members of staff.

  • Controls on conduct, for example, by reference to a purchaser's employment handbooks or other contractual guidelines on behaviour, dress and so forth.

  • How bonuses will be filtered down to staff.

  • Rights to engage the provider's staff (considering relevant employment agency law).

  • Protection against the effects of Transfer of Undertakings Protection of Employment (TUPE) on termination.

This last point can be particularly problematic if the parties do not clearly agree what is to happen.

The services

When a service is being provided internally by employees, although staff may have job descriptions, it is unusual for there to be much detail about what their daily tasks consist of. One of the problems with outsourcing of all types is that the service description setting out the tasks of the service provider is often too vague.

Some services lend themselves to greater precision than others, for example, research and clinical trials. The position tends to be less clear with 'softer' services such as sales and merchandising. Sometimes the service can be described merely by reference to the resources to be provided, such as numbers of account managers and sales executives. Ideally, the agreement would specify what the purchaser actually requires.

Consideration is, therefore, needed of the activities that can be measured and targeted. For example, contact with a 'decision maker' may be required, rather than a simple site visit.

Compliance

Where teams are engaged to provide professional services such as assisting with clinical trials or are interfacing with patients, the agreement must be completely clear on how these activities must be conducted, such as obtaining any required consents, ensuring appropriate patient selection, accurate data collection and audit trails.

Key Points

Generally, the provider must ensure that its staff complies with all relevant codes and guidelines, such as the ABPI code, and guidelines of the General Medical Council (GMC).

Liability

The clinical trials disaster of the TGN1412 trial demonstrates what can happen when things go wrong. Appropriate legal protections should be included in the Agreement for loss or damage suffered by the purchaser as a result of breaches and other misconduct by the supplier's staff.

From the supplier's point of view, it is unlikely that it will be prepared to accept all liability arising from its default and will normally seek to include limitations on its liability, reflecting the degree of risk it is prepared to accept in return for the fees it is to receive.

Liability issues are often controversial, but much depends on the nature of the agreement. Some transactions are 'riskier' than others and proper debate is required to see what each party can sensibly accept rather than simply 'locking horns'.

The insurance position on the service supplier should also be checked and the supplier must undertake to carry the agreed levels of insurance.

Charges/savings

The agreement must clearly specify how the service charges are calculated. Charging structures vary, but a common one is an 'actual cost' basis whereby all costs in providing, for example, a salesforce and its accompanying equipment, are simply passed through to the purchaser, plus a management fee.

Alternatively, a fixed fee per member of workforce may be agreed, depending upon seniority and skills, and is inclusive of certain types of expenses.

The key is to try to ensure there are no surprises and that flexibility is realistically achieved ; for example, discounts are available and if reductions are required, charges are not penal.

Actual costs contracts can work well provided it is clear what is a properly recoverable cost and whether any agreed budget is in fact a maximum. This can be a particular issue regarding employee costs; for example, who bears the costs associated with redundancies or legal claims by the team?

If the purchaser does have to accept this type of cost liability, then it cuts deeply into one of the reasons for not wishing to take on a workforce itself directly.

Duration

To achieve flexibility, if the purchaser is required to commit to take a level of resource for a given period, then that period needs to be suitable and not overly tying. Watch in particular for automatic rollovers of agreements for set periods. You may also want to consider an express right to cancel and negotiate a cancellation fee if this is important to you.

Data issues

Use strong confidentiality provisions to protect all information provided to supplier's staff, whether on products, plans, working practices and so on.

If the service provider's staff have access to the purchaser's systems and databases (e.g., to upload data), appropriate IT security arrangements are required to limit any potential 'snooping' or damage.

The collection of personal information, whether from patients or other individuals, will have data protection implications. The purchaser must control the way in which data is collected, set out any requirements for obtaining specific consents and ensure that the service provider is appointed as a 'data processor' for the agreement; that is, so that it is only acting on behalf of the purchaser and has no right to itself manipulate or use the data collected.

Management

Finally, in any large-scale service procurement, the issue of ongoing management can be overlooked. Sometimes outsourcing can be seen as the panacea to end all problems. In fact, managing outsourced service providers can be a major activity in its own right. One of the main reasons for project failure is a lack of commitment by the purchaser to ongoing management. This can either leave a service provider disenchanted, in a desert, or over-powerful with no controls on it.

The worst examples of this can arise where payments against milestones are made — in poorly managed projects, the payments may be made as a matter of administrative course, rather than there being any assessment as to whether the milestone has actually been achieved.

Summary

There are many challenges surrounding the outsourcing of client-facing services, and while this should not put businesses off from making a commercially sound decision, thorough precautions should be taken to avoid potentially costly mistakes.

One of the key stages in the decision-making process should involve careful evaluation of possible areas of concern. These can then be addressed in the outsourcing contract, and typically include staff 'quality' issues training, TUPE, compliance and liability, confidentiality and many others. Planning is key to the success of any outsourcing project and should not be undertaken half-heartedly.

Beverely Whittaker is a partner at the corporate and commercial team of Stevens and Bolton LLP (UK).