By Debbie Dwyer, associate director of clinical outsourcing, Nektar Therapeutics, and Jonathan Lee, VP of development operations, Cidara Therapeutics
Apart from defining the expectations for FSPs (functional service providers), the pharma industry’s use of SLAs (service level agreements) has not been commonplace despite the tangible benefits these documents offer. In essence, the SLA defines critical metrics and levels of expectations for service, as well as outlines incentives and disincentives for meeting/missing those metrics and expectations.
But to avoid disputes between the two parties, it is essential that the expected level of service be clearly defined for each service provider in writing prior to initiating work.
START BY DEFINING METRICS
The initial conversation with a service provider should include a discussion of the metrics deemed critical to the success of the outsourced program or service. Those metrics should reflect your business requirements, be economical to measure (e.g., calculate performance) and report, and be simple to understand. Regarding the latter, everyone should agree that what needs to be measured can be easily written down. The Everest Group suggests following the acronym SMART when defining performance metrics:
- Specific: The SLA answers questions of who, what, when, where, why, and which.
- Measurable: The SLA should include specific criteria for measuring compliance.
- Achievable & Realistic: Unrealistic requirements are not conducive to good outsourcing relationships.
- Timely: Where appropriate, deadlines and time constraints should be noted.
Of course, for any outsourced program to succeed, you must have explicit endorsement (either active or vocal participation) of senior management and decision makers within each organization.
AVOID COMMON PITFALLS
When defining what is acceptable regarding your SLA, beware of pitfalls such as expecting more of your service provider than you may expect of your own staff or driving toward perfection. While these may be valid goals, you must bear in mind the inherent cost of each position. For example, if your internal team states it is critical for them to have final monitoring trip reports to review within five business days after the visit, that may not be the SOP timeline for the service provider. Therefore, your internal team needs to establish reasonable expected service levels and see how those expectations line up with the service provider’s capabilities.
Ultimately, you need to gain trust to put this type of agreement in place. To do so, have governance meetings on a regular basis and ad hoc discussions as needed. For any of these meetings, develop agendas, take detailed minutes, track follow-up items, and have someone in charge of delegating. Doing so ensures these discussions progress rather than becoming a time burden on an already busy workforce.
THREE SLA MODELS
In our experience, it is advantageous to incentivize your service providers to meet or exceed your expected performance levels. While global CROs may have experience with performance metric regimes, the SLA framework can still be far from standard and generally requires tailored solutions. The following are three examples of models we have utilized during our careers.
- Shared Incentive Pool
For a smaller-value agreement with, for example, a regional CRO or specialty vendor, we often implemented an agreement we called a shared incentive pool. In this scenario, both parties contribute to a pool that is paid out for key milestones but reduced for performance shortfalls in critical areas. The goal is to have the regional CRO focused on achieving/beating the milestones, but to do so in a way that does not compromise quality.
- Full SLA
A “full SLA” can be used for a larger-value agreement with a major CRO or global service provider. Within this structure, service levels are either critical performance indicators (CPIs) or key performance indicators (KPIs). The CRO will perform the services at or above the levels of performance indicated by the CPIs and KPIs. If the CRO’s performance falls below these performance levels, the CRO will promptly take the corrective actions. A CRO’s failure to meet a CPI results in a financial penalty (credit to sponsor), which escalates for major failures or repeated service failures. These penalties are automatically applied to the labor portion of monthly invoices.
"It is essential that the expected level of service be clearly defined for each service provider in writing prior to initiating work."
KPIs do not have financial credits associated with them, but are important as early-warning indicators regarding problems with meeting CPIs. KPIs and CPIs may be “promoted” and/or “demoted” at the sponsor’s discretion with 60 days advance notice. The agreement also may provide a bonus for completing milestones early, but does not provide a bonus for exceeding the performance service levels. Also, it should be noted that the bonus will not equal the potential financial penalty that the CRO can accumulate.
- Compact SLA
This is a “lighter” version of a full SLA; there may be fewer CPIs/KPIs and a smaller bonus regime focused on key metrics. The compact SLA is put in place with a CRO or specialty vendor when the value of the agreement is small. Still, the CRO will perform the services at or above the levels of performance indicated for the CPIs and KPIs. The same penalties of a full SLA apply.
SLAs ARE MUTUALLY BENEFICIAL
In reality, it is not in anyone’s best interest to apply disincentives when the agreedupon service levels are missed. The sponsor needs the service provider to deliver on its commitments, while the service provider needs a clear view of the sponsor’s expectations and expected revenue from each program. In summary, SLAs provide a framework and structure for:
- aligning the contracted services with the sponsor company’s requirements and expectations
- documenting acceptable levels of service and targeting specific outcomes required for each study
- highlighting the most critical goals and measurements
- focusing a service provider’s attention and resources on the desired outcomes
- monitoring the agreed-upon levels of service
- managing the consequences of any substandard performance.
Debbie Dwyer is associate director of clinical outsourcing at Nektar Therapeutics. She has more than 20 years’ experience in clinical operations and outsourcing.
With 25 years’ drug development experience, Jonathan Lee is currently VP of development operations at Cidara Therapeutics focusing on antifungal therapies.