Can Risk-Based Contracts Enhance the Sponsor-CRO Relationship?

The sponsor-CRO relationship continues to shift toward alliances and partnerships. It is no surprise that there is an emergence of risk-based or performance-based contracts in clinical trials.  One would think this would be a winning proposition for both parties. However, the comments I hear from our clients on both sides seem counter-productive to the relationships they are trying to build.

On the surface, performance-based contracts seem attractive. The CRO is paid when meeting certain endpoints, such as first patient in, data monitoring complete, or database lock.  Sponsors have the right to request that contracts hold CROs responsible for what they promise along with some value-add or cost savings, with a provision for sharing in those savings as a condition of project award.

This approach is now quite common. However, it is still a one–sided contract. A more equitable contract is one in which not only does the CRO share in the risk, but the sponsor pays for achievement AND rewards for exceeding expectations.  Both parties have a vested interest in the outcome. The sponsor should be able to achieve goals faster and more effectively without feeling the need to micromanage the CRO. In turn, the added security of this type of contract allows the CRO to further invest in long-term delivery solutions for that sponsor. This could include such things as a dedicated workforce, reduced rates, and new technology.

Sounds ideal, right?  Unfortunately, the devil is in the details. What is a “reasonable” amount of risk? How is this risk shared? What portion of each payment should be at risk? Whose SOPs will be applied?   When it comes to negotiating, sponsors are reluctant to accept that if a CRO takes on greater risk, they should have more control in conducting the trial and the reward for success should be greater. Conversely, there is the perception that CROs who want more of these contracts are not always realistic on whether they can deliver.

What Could Go Wrong

As mentioned in a previous blog, issues with entering a true risk-sharing contract stem from deep-rooted attitudes that can set each party up for failure. This starts with the bidding process.

  1. Lack of trust:  Sponsors are not always forthcoming in sharing key information during the bidding process. It is not uncommon to see this as a strategy to evaluate the CRO’s knowledge and expertise.  Sponsors should routinely provide an open forum to answer CRO questions that could impact the proposal. Withholding information for the sake of testing the CRO’s capabilities is short-sighted. In the long run, it will only continue to feed the lack of trust.
  2. Unwilling to share control: Sponsors can be skittish about relinquishing responsibility of major milestones. However, if they expect the CRO to share in a larger part of the risk, the CRO should have a similar proportion of say in how to run the study.  Contracts should clearly define ownership of SOPs relative to the amount of risk assumed by each party.
  3. Avoiding bad news:  Often there is little or no provision to allow the CRO to provide constructive criticism or a contingency plan in the event of timeline or enrollment delays. Sponsors may not want to focus on possible issues. They may fear they will give too much away in the negotiation and allowing excuses by the CRO after signing the contract.  Besides, no one wants to admit that their study will have issues. Ultimately, sponsors benefit by presenting real potential risks as case studies in the RFP to see how the CRO would respond. Because both parties share the risk and reward, the proposal and contract are opportunities to openly identify potential issues. It is also an opportunity to document agreement on how to manage the bad news without judgment or confrontation.
  4. Lack of transparency:  Sponsors complain that CROs are not timely in providing status information.  CROs worry that sponsors are not forthcoming on what is happening on their end.  This behavior will help to unravel the best-intended contract.  Many sponsors and CROs have set up online “portals” for information sharing. However, these often are one-way exchanges of information and barely a step above traditional email.  To ensure more transparency, design a portal at the start of the study for real-time access by both parties. Tracked and shared information should mirror the contract provisions such milestones and SOPs.
  5. Unrealistic goal setting:  Sponsors do not always separate realistic from ideal expectations. Vendors commit to unrealistic terms to win the business and try to recoup with change orders. It is critical to not only specify an end goal but establish milestones that can be clearly measured.  Sponsors should never rely solely on historical data for milestones. They should incorporate the CROs own experience and contingencies in the contract as no project will ever have the identical issues.

Risk-sharing contracts can be rewarding and beneficial to all. There is no panacea. Each project and relationship is unique. But a proactive approach to bidding, contracting, and tracking performance can make a difference.

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