The hundreds of details in a biopharmaceutical contract manufacturing agreement can be daunting, causing the specifics of how problems will be handled during a project to get lost in the shuffle. In the spirit of a good business relationship, no one wants to bring up the fact that problems might arise, just as the contract is being signed. Yet it is good business practice to include several clauses in the contract that spell out who pays for mistakes and problems ahead of time. In the complex world of biopharmaceutical manufacturing, few projects are untouched by problems, changes and surprises.

Based on a new pricing study published by HighTech Business Decisions, Biopharmaceutical Contract Manufacturing: Best Practices Pricing Study, assigning responsibility for specific types of problems ahead of time is the most important way to ensure problems are addressed and solved quickly during the course of the project. Without such agreements, the inevitable glitches that arise can cause lengthy delays as contractors and clients argue over responsibility. This article is based on a section of the report regarding best practices in problem solving in contract manufacturing relationships.

Participants in the study—46 biopharmaceutical production managers and contract manufacturers—were asked to discuss how problems, changes and surprises are handled. Although arbitrators have been brought in to settle disputes regarding unforeseen problems, contractors and their customers tend to work these things out, either upfront in the contract, or later as the problems come up. In general, if the problem can be traced back to the client, then the client is responsible. However, if the problem involves contamination, cGMP compliance, operator error or other items under the contractor’s control, then the contractor is responsible. Unfortunately, the issues are not always so black and white.

Assignment of Responsibilities: Client Perspective
The biomanufacturing directors at pharmaceutical and biotechnology companies tend to believe that, when a problem arises, the responsible party is the one that is at fault, and this needs to be determined by both parties. Therein lies the rub. Overall, as these directors see it, they are responsible for defects in the performance of the cell line. Some even say that they (the clients) are responsible if a suitable process cannot be attained or if there is no assignable cause for a failed process or batch. Based on responses from the client side, the typical areas of responsibility (and therefore payment) for clients versus contractors are listed in Table 1. Failed batches and problems with no apparent cause tend to be part of the gray area.

Table 1: Typical areas of responsibility as reported by clients
Client is Responsible	Contractor is Responsible
Performance of the cell line	Contamination of the run
Instability of the cell line from the client	Instability in the contractor’s master cell bank
Suitable process not attainable	Product does not meet specifications
Non-validated process	Operator error
Faulty precursors to the process as provided by the client	Non-cGMP compliance issues
No assignable cause, act of God	Failed batches
Contamination of the cell line sent by the client	Problems regarding the system control of the program
	Problems resulting from power outages, fire or flood
Courtesy: High Tech Business Decisions

Biomanufacturing directors, the clients, explain their positions below:

“If our company provides a biological system, such as a cell line, which is defective, then we assume the responsibility for the performance of the process. If there is a defect in the production run due to contamination, then the contractor would owe us another run.”

“If there is a defect, it is the contractor’s problem. For instance, they must pay if a fermenter is contaminated. If they do not match the specifications and product cannot be released, then they must pay. We have not had an experience where problems with biological systems were traced back to us.”

“It is the contractor’s responsibility for system control of the whole program. They are responsible for losses due to negligence or natural disasters such as fire. Early on, it is understood that things will go wrong and that’s why we pay on a ‘time-and-materials’ basis. If we were doing it ourselves, we know that all batches do not come out.”

“If you have a contaminant or an instability in the contractor’s master cell bank, this is clearly the responsibility of the contractor. The contractor should produce a new one without charging us. Another example of a defect would be if the contractor could not develop a suitable process in the timeframe of the development program. In one case, the product was toxic to the cells and we could not blame the contractor, so we reduced our expectations. We accepted a lower expression level and looked for another expression system. We could also remove the product during the production as a way to solve this problem. The customer pays for this. It is not a major problem. We base things on basic scientific principles. If a cell line is unstable when it comes from us, we would provide a new cell line.”

“If the contractor is not cGMP compliant, and we could not use the product, the contractor is deemed responsible. If the cell line is non-clonal, which means it starts as a heterogeneous mixed population of cells, it may produce different expression levels, and this would be our fault.

If the problem is a contaminant, we would be blameless by sterility testing: it would have been caused by the vendor.”

“There is a clause in our contract that states if any violation affects cGMP compliance, then it is the contractor’s responsibility, if procedures proceeded according to the validation plan. If there is no assignable cause, such as an act of God, the contractor is not responsible; we are. In terms of bio-logical systems, we find the fault does not apply to us. It is always caused by the contractor.”

“I believe it is our responsibility up until the scale-up phase of process development. After the scale-up, the responsibility for defects belongs to the contractor. We have a responsibility to pay for one test batch, but after that, we don’t pay for any failed batches.”

“The responsibility for defects is explicitly defined in the contract. Usually we will propose a subset of QC tests on a product as product-defining assays. If it passes in the contractor’s hands and ours, then it is accepted by us, no matter what happens subsequently. If it is contaminated by them, it is their fault. We negotiate problems tracked back to the biological system. If they get good QC results, but we get bad ones, then we argue. We once sent a production line that was contaminated, although this was not realized at the time, so it was sent in good faith. We paid for the clean-up.”

Negotiating Responsibilities
Responsibility and the party that must pay is typically not disputed when it is clear who caused the problem. Trouble begins when the fault is not clearly recognized and agreed upon, and the results are mixed. For example, if a product is produced, but with lower utility than expected, a lower price might be negotiated between the client and the contractor depending on cause. An arbitrator might be brought in. Sometimes the parties agree to split the cost, with the contractor paying for the labor involved while the client pays for the materials and time in the plant.

Sometimes batches fail. Some clients do not pay the contractor at all if the batch fails. On the other hand, clients might pay the facility fee regardless if the batch is successful or if it fails. The setting of ground rules around failed batches is essential upfront before the work begins. Although it would be easy to determine responsibility if failed batches were caused by the initial cell line from the client or from contractor operator error, process related deficiencies are not so easily analyzed. A process that has been run 10 times may have failed on the sixth run for no apparent reason.

Because of the difficulties involved in assigning responsibility, some clients have agreed to a “no-fault” clause in their contracts. Responsibility for defects is split 50/50. In these agreements, there is no argument over whose fault it was that a problem occurred. Both the contractor and the client pay equally to recover from the problem. This type of agreement encourages a team-like relationship, or partnership, with pressure on both parties to work together to fix problems as quickly as possible.

Several directors interviewed in the study remarked that responsibility for defects differs among contractors. In addition, the various clinical trial stages are handled differently. Contractors are less likely to take responsibility for defects in early clinical phase products, but are more likely to accept some risk with late clinical or commercial products, where the process is better defined. Typically, the clients tend to take most of the responsibility for problems in the development phases of production.

The payment method has a direct effect on who pays for problems as well. Those clients who pay on a ‘dollars per batch’ or ‘time and materials’ basis tend to pay, at least partially, for problems that arise. This method of payment is most often used for the early development phases of production. A client who pays on a ‘dollar per kg’ basis will not pay for a failed batch because no product was delivered. The ‘dollar per kg’ basis is typically used for the late clinical phase or commercial projects.

Assignment of Responsibilities: Contractor Perspective
In general, contractors tend to agree with the clients as regards assigning responsibility for problems. The contractors in the study also said that if a batch failure is due to contractor error—such as contamination, equipment failure, or operator error—the contractor pays for the failed batch. Typically, if it is not the fault of the contractor, the client pays for the failed batch. For example, if the project is a test of the strain, or the source of the problem is with the client’s biological system, the client pays. Many contractors get around this question by charging by the hour or time in the facility, not for milestones or batches, especially for early stage products.

Some contractors make it clear that there is a time for feasibility testing in the beginning of the project in which batches may fail, and this is expected and paid for by the client on a ‘time-plus-materials’ basis. Once the details of the process have been worked out, there should not be any failed batches. At that point, any failed batches would most likely be the fault of the contractor, and therefore paid for by the contractor.

The contractors explain their positions below:

“If the batch fails due to the biological system the client provided, then the client owns it. If a batch fails due to the operation of our facility, we own it. Resolving a situation sometimes involves sending samples to a third party test lab. Our clients are reasonable in this area.”

“The client pays for failed batches if the problem is with the biological system. That has happened to us; it was clear that was the problem. Eventually they agreed to that. It was early in the process and not a big disaster.”

“What we try to do is test the robustness of the system. For all tests, even if they fail, the client has to pay. Once we think we have tested the system, if it later fails, we pay the cost . . . We try to avoid that.”

“Anytime something fails, we do a failure investigation. These problems are worked out on a case-by-case basis. We go to arbitration. We have to have a process to deal with it. Usually the cause of the failure is clear. There was a case of a process that was transferred from in-house production to us. We did the first demo run and the demo succeeded. Then we took it to production, and the customer asked us to change the process from the demo run. It failed. We are governed by the terms of the contract: we had to work through it. They had to pay for extra time. That failure was client driven: they didn’t think it would fail.”

During the discussions, contractors mentioned several other factors that can lead to misunderstandings and difficulties in assigning responsibility for problems that arise. For example, clients often believe their processes are more developed than they actually are, which can lead to timing and pricing disagreements as well. To correct this, contractors are trying to improve their ability to judge clients’ processes, collect pertinent information from the client about the process beforehand, and help the client learn more about what is needed to develop their process. Other disagreements can arise over the time needed for quality assurance support for regulatory requirements and documentation.

The most effective client-contractor relationships are the ones where details of the relationship and how problems will be handled are spelled out upfront in the contract agreement. The unknown aspects of biopharmaceutical manufacturing can throw a curve ball to contractors and clients alike. Preparation and solid contract agreements can help both parties move quickly through the problem areas to a successful production.