Which Type of Contract is Right for your Clinical Research Project?
November 5, 2012
You’ve chosen a contract research organization (CRO) to partner with on your next clinical research project or program, and now it’s time to sign a contract. It’s important to be familiar with the different types of contracts and payment schedules, so that you can have an open discussion with the CRO about which is the best fit for your company and your project. It’s always ideal to put a contract and payment schedule in place that is mutually beneficial for the CRO and the Sponsor.
The following is a description of the different types of contracts and payment schedules and when it’s best to use each.
Milestone Based Fixed Price Contracts
These are very typical contract forms which are used frequently for clinical research projects. As the name implies, the CRO offers the client a fixed price to complete the agreed upon scope of work. Therefore, if the CRO spends more hours than expected to complete a task, the CRO absorbs those additional costs.
If the scope changes, both parties agree on a price increase or decrease for the change. These contracts are referred to as milestone contracts because the payment schedules are made up of dollar amounts associated with pre-negotiated “milestones.” A billing occurs each time a milestone is achieved. For instance, in a contract that includes clinical monitoring, one of the contract milestones might be “Upon 50% Enrollment” – $X. In this case, we would bill $X on the date that 50% of the patients are enrolled in the study.
These contracts are generally used when the scope of work is well defined between the CRO and the sponsor, and the sponsor wants to have a high degree of certainty related to its necessary cash outlays.
Variable Price Fixed Unit Contracts
Unlike milestone based fixed price contracts, the total price of a unit based contract may vary. However, a fixed cost is agreed upon for all defined units. For instance, if the CRO is providing biostatistics services, they may agree to a price of $10 for each unique table that is delivered. In addition, they may estimate that they will provide 10 unique tables for a total price of $100. If during the course of the study, the client realizes that they will need 12 unique tables, they would be billed $120 without preparing a contract amendment.
Variable price fixed unit contracts are particularly useful when the scope of the contract may expand or contract based upon outcomes of the study.
Time and Materials Contracts
These are the simplest form of contract. In time and materials (T&M) contracts the CRO bills for actual hours at agreed upon rates. The roles and rates are defined in the contract. As an example, if a Clinical Data Associate (CDA) works for 10 hours on a T&M project and the agreed rate for a CDA is $10/hr, the client would be billed $100 dollars. T&M contracts generally have a contract cap that defines the limit of dollars that can be billed under that contract.
Time and materials contracts are very useful when the scope of the project is undefined.