Transformation of enterprise contracting in life sciences

Transformation of enterprise contracting in life sciences – focus on standardization and people

Pharma companies have a major opportunity to transform their legal contracting processes – but to make it happen they need to change their mindset and get a little more tolerant of risk. That was one of the key messages we heard on 9 November, when EY hosted the second in its series of round tables discussing enterprise contracting in life sciences. Bringing together senior representatives of several major pharma multinationals and drawing on insights from the 2021 EY Law Survey (in collaboration with Harvard Business School), the panel tackled the question of how the industry can improve its contracting process from a different angle. At the top of the list: making more intelligent use of standardization.

Standardizing processes, the panelists agreed, can enable faster, more efficient contracting. As one panelist put it: “the power of standardizing allows so much efficiency into the process … which is critical to where we're all heading.” With standardization, companies can unlock time and talent that is currently tied up in unnecessarily complex contracting processes.

Right now though, pharma is “over‐prioritizing risk aversion and under‐prioritizing the purpose of the agreement,” another panelist argued; “it just slows down the agreement.” Not doing things can be more valuable than doing them: one client recounted that their company had adopted a single standard nondisclosure agreement, no longer creating tailored agreements for specific procurement activities, “because we don’t believe there is any value added through them.” Many agreements are “over‐negotiated” by legal teams who put risk mitigation above all else. For some agreements, this level of caution is excessive; for other agreements it’s wholly appropriate, and companies should ensure it’s here that they focus on risk mitigation.

While companies often insist on maximum risk mitigation as the default, by pursuing this approach, many of the benefits of standardization will be missed out on. The industry needs to accept that “pleasing the client doesn't necessarily mean making a different decision for each client,” because “sometimes the standardized agreement is … maybe not perfect, but good enough.” While the industry has started on the road to this transformational change, companies are at different stages of their journey. The panelists shared initiatives their companies are working on, from developing template governance committees and contract management platforms, to putting together a fair contracting framework with patients. Ultimately though, all panelists agreed that making reformative changes to the contracting process is about more than the processes and standardization: it’s about people.

Finding the right people to drive transformation

One theme that came up loud and clear from the discussion is the need to get the right people working together on the reform of contracting.

Finding the right outsourcing partners. “I am more and more viewing our outsourcing partners as an extension of our team and looking to ensure they feel that way as well,” commented one panelist. All agreed on the need for “different talents, backgrounds and capabilities” to build the new approach to contracting, reaching beyond the organization itself. As this discussion made clear, the outsourcing conversation has moved on from simply focusing on cost savings. Panelists suggested that outsourcing could help to address process change in deeper ways; one noted that their company has worked to establish “KPIs so that our partners bring innovation to us: bringing that external expertise into your process is going to drive different thinking and drive innovations.”

Ensuring you have the right internal and external talent. Companies need to work on their talent management strategies to ensure they have the right people tackling contracting reform, and that they “include them in meetings with the business, so they really understand the goals of the company and how what they're doing is critical.” Panelists concurred on the importance of managing talent better, whether internally or externally.

Bringing the whole organization on the journey. Most important of all, these efforts to change the way contracting works have to become a company-wide effort.

Bringing people on the journey should include getting teams involved in the contracting process to recognize that doing less through standardization can also mean doing more rewarding work: “once you get them to understand that the workload they're keeping is actually more interesting than what they were doing before,” it becomes easier to get buy in from those stakeholders.

Another panelist emphasized the need to establish this alignment early on in the process: “Everybody needs to be marching to the same drum, we need those upfront alignment discussions to understand why we are going through the change, and why it is important.” While new technologies, for example, can help drive the change, panelists noted that “it's really important that we have the right mindset and the right culture and the right plan in place, and technology only comes into play once we figure that out.”

The end goal, the conversations about how to get there and the strategic approach and tactical steps needed will not be the same for every company. As one panelist observed, “obviously you need to know your organization, and what's the right fit for your organization; I don't think there's a one-size-fits-all approach.”

Nevertheless, the discussions in this and the previous EY roundtable have already helped to identify common challenges and potential solutions for enterprise contracting reform across the life sciences industry. The third roundtable in the series, planned for early in 2022, will aim to continue these fascinating and valuable cross‐industry discussions.

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