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(Online-Artikel.de) - A view on contract management in life science industry

Why is contract management one of the business critical functions in life sciences companies ?

Today the contract management process is very often managed by different functions, e.g. Legal, Procurement, Contract Management, Finance and Licensing. They focus on different aspects of the process and with different levels of detail. Each function manages its information with function- or even site specific systems. Contractual obligations and due dates are managed manually and are not available in a consistent and structured format. This may lead to missed obligations resulting in substantial legal implications and financial losses. Information might get lost when responsibilities for a contract are transferred from one individual to another. Documents are managed individually by each respective department and with tools that differ vastly in their level of sophistication. Review and authorization process involving different sites and departments is unwieldy.

Examples of risks and issues of the current doing
Is your organization always able to management the following in a right manner?

• The first commercial sales is considered as the 2nd milestone. A milestone payment of € 2'000'000 will be due within 30 days. In case the milestone payment is not done in due time, the grant will be converted to non-exclusive.
• The FDA approval is planned for April 2011. This is considered as the 1st milestone. A milestone payment of € 1'000'000.- will be due within 30 days.
• Business partner grants an exclusive license, without the right to grant sublicenses, under the licensed patent to make, use and sell licensed products in the territory > Don't let manufacture by other company: There is no right !
• Territory shall mean North America and European Union, except Spain > Ensure that products only sold in the territory !
• This agreement shall commence on May 1st, 2009, the effective date, and shall remain in effect until the last patent listed in Annex I in each country has expired or lapsed. > Make sure not to pay for patents that are no longer valid !

So a change is needed ! When you are set up a new contract management process, you should focus on the following main items:

• Easy access to relevant, consistent up-to-date information about the entire contractual situation with an external/internal partner and all related documents
• Effective management of financial information and processes with respect to contracts
• Transparency about contractual obligations and their status
• Support in managing risks related to a contract
• Streamlined processes to avoid duplication of work and to ensure that all people who need to know are involved or at least informed about the conclusion of a contract
• Shorter processing time and increase quality for contract creation and administration
• Streamlined review and approval process

The following functions should be implemented on a new process
A good practice in contract management is setting up a process based on the structure case, agreement, obligation and event

Case Management
Case Management is the upper level of all activities

Agreement Management
Under the section Agreement Management all contracts, addenda and other contract relevant agreements and interpretations will be controlled.

Obligation and Event Management
Under the section Obligation Management upfront and milestone payment, penalty, royalty (based on territory, claim, sales volume), discounts and rebates (based on product and volume), reporting to other party and return material from a material transfer agreement should be handled. Contract Management Applications with risk managing & monitoring and event monitoring function supports the obligation management process.

Tobias Greissel, 65719 Hofheim, Germany