Contract – Manufacturing Service Agreement
After business development and sales activities in CDMO industry, the ultimate goal of these commercial activities will be concluded into a legal form of the commercial partnership, so called ‘manufacturing service agreement’.
The standard structure of a manufacturing service agreement in the pharmaceutical CDMO industry includes several key elements to ensure clarity and comprehensiveness in a partnership between a manufacturer and a client.
Based on studies over 50 biopharmaceutical CDMO contracts in major companies, there is a structured way of covering various requirements to fulfil both parties (or more parties).
The following primary components are summary of the most common elements of the service agreements. The elements collectively ensure that the manufacturing service agreement is comprehensive, legally sound, and provide a clear roadmap for the partnership between the manufacturer and its clients.
1. Definitions and Interpretations
- This section defines key terms used throughout the agreement, ensuring both parties have a clear understanding of the terminology.
2. Scope of Services
- Details the specific services will be provided, including manufacturing, testing, and delivery of the product. It outlines the responsibilities of both the manufacturer and the client in the execution of the project.
3. Project Plans and Timelines
- This section includes detailed project plans with timelines for each phase of the project. This section ensures that both parties are aligned on the expected milestones and deadlines.
4. Pricing and Payment Terms
- Specifies the pricing structure, including costs for manufacturing, raw materials, and third-party testing, etc.
- Payment terms, such as invoicing schedules and methods of payment, are also detailed here.
5. Change Orders and Amendments
- Describes the process for making changes to the scope of work, including how change orders are initiated, documented, and approved.
- This section also covers how amendments to the agreement are to be handled.
6. Intellectual Property
- Outlines the ownership and use of intellectual property developed during the project.
- This section ensures that both parties’ rights are protected and clarifies how IP will be managed and utilised.
7. Confidentiality
- Establishes the confidentiality obligations of both parties, detailing how proprietary information will be protected and the duration of confidentiality commitments.
8. Warranties and Liabilities
- Covers the warranties provided by the manufacturer regarding the quality and compliance of the manufactured products. It also details the liabilities of both parties in case of breaches or defects.
9. Quality Assurance and Compliance
- Ensures that the manufacturing processes meet agreed-upon quality standards and comply with relevant regulatory requirements.
- This section includes details on quality audits and control measures.
10. Termination and Exit Strategy
- This section describes the conditions under which the agreement can be terminated by either party and the process for winding down the project.
- This includes handling of materials, final payments, and transition support.
11. Dispute Resolution
- This part outlines the methods for resolving disputes, including negotiation, mediation, and arbitration processes.
- This section ensures that there are clear procedures in place for addressing conflicts.
12. Miscellaneous Provisions
- In this section, various clauses such as force-majeure, governing law, and notices can be included. These provisions cover the general legal framework governing the agreement and any additional terms that do not fit into the other sections.
Depending on the location (country or state) of the legal parties, different format may be used. The standard CDMO manufacturing service agreement framework above can be used as a structured way to build a solid and clear path for the service agreement with enough legal coverage between the manufacturer and clients in the pharmaceutical CDMO industry.
About the author
Juha Kim is a CDMO business consultant and business operations strategist. Equipped with latest studies and business practices, he is building frameworks in the world’s renowned CDMO companies based on his experiences leading various projects in Lonza as a Director, Operations Finance and Business Development Korea roles during the time.
He is also a founder of Korea-Switzerland BioPharma Network (KSBPN) and Korea Pharma Biotech Directory (KPBD) to help establishing business opportunity leads in both directions.
