A Quality Agreement (also known as a Technical Agreement, and in this context the terms are interchangeable) is a written contract that is required whenever a company is outsourcing an activity covered by the Good Manufacturing Practice ("GMP") Guidelines. It sets out the GMP responsibilities of each of the parties.
A Quality Agreement is primarily drafted by quality control or quality assurance representatives of each of the parties, and legal advice may not always be sought. However, there are a number of legal issues to be aware of when drafting or reviewing a Quality Agreement.
In almost every case of outsourcing GMP activities there will also be a commercial agreement covering the outsourced activities, such as a "Manufacture and Supply Agreement". This Commercial Agreement is typically drafted by legal and business development personnel and does not go into sufficient detail to satisfy the principles of GMP.
Why is a Quality Agreement required?
The requirement for a Quality Agreement is set out in the ICH Good Manufacturing Practice Guide, and also in the European Guidelines for Good Manufacturing Practices.
The ICH Guide provides that: "There should be a written and approved contract or formal agreement between the contract giver and the contract acceptor that defines in detail the GMP responsibilities, including the quality measures, of each party".
The European Guidelines for GMP provide that: "A Contract should be drawn up between the Contract Giver and the Contract Acceptor which specifies their respective responsibilities and communication processes relating to the outsourced activities. Technical aspects of the Contract should be drawn up by competent persons suitably knowledgeable in related outsourced activities and Good Manufacturing Practice."
In addition, the European Guidelines for GMP provide that: "The Contract should describe clearly who undertakes each step of the outsourced activity, e.g. knowledge management, technology transfer, supply chain, subcontracting, quality and purchasing of materials, testing and releasing materials, undertaking production and quality controls (including in-process controls, sampling and analysis)."
Relationship between the Commercial Agreement and the Quality Agreement
It is important to understand the relationship between the Quality Agreement and the Commercial Agreement. Both documents set out responsibilities of the parties with respect to the same overall activity, for example, the activity of product manufacturing or product testing.
A Commercial Agreement and the associated Quality Agreement are not "stand alone" documents because the activities that they each relate to are the same – they merely address different elements of those activities. For example:
- a Commercial Agreement for GMP manufacturing cannot stand alone because, as set out above, those GMP activities need to be covered by a Quality Agreement; and
- a Quality Agreement for GMP manufacturing cannot stand alone because the parties should have set out their legal rights, obligations, and liabilities with respect to that manufacturing in a Commercial Agreement. Failure to do so can result in considerable legal and financial risk.
Occasionally a quality representative or legal advisor will suggest that each document should be drafted so that it stands alone and can be read and interpreted without reference to a second document. Although this is generally true of a legal document, it is not the best approach in these circumstances.
What to look for from a "legal" perspective in a Quality Agreement
It is not always necessary to get legal advice on a Quality Agreement as a lawyer will not usually be able to advise on the actual detail of the Quality Agreement. However, there are several issues to be aware of from a legal perspective:
The Commercial Agreement should always refer to the Quality Agreement. It is important that the Quality Agreement also refers back to the same Commercial Agreement. There are several reasons for this, for example (i) a person reading one of the documents should be told where to find the other document that relates to the same activities; and (ii) in the event of a breach of the Quality Agreement, it should be clear which Commercial Agreement sets out the legal liabilities of the parties. For the reasons set out below, legal liabilities should not be dealt with in the Quality Agreement.
It is acceptable for a single Quality Agreement to relate to the activities being conducted under more than one Commercial Agreement provided that the Quality Agreement contains appropriate references. Where this is the case, it is even more important that the Quality Agreement does not contain "legal" terms (as described below).
It is common for both the Commercial Agreement and the Quality Agreement to include provisions that relate to the same subject matter, for example, audit rights or technology transfer. Preferably, there should be no duplication and one of the documents should simply refer to the provisions contained in the other agreement, instead of repeating or restating the same provisions.
If both agreements contain provisions relating to the same subject matter, these must be carefully considered in the event that one of the agreements is subsequently amended.
It is important that the Commercial Agreement and the Quality Agreement are consistent because they are both applicable to the same activities. In practice this means:
- the parties to each of the agreements should be the same. Where there are several related legal entities in a company group, the same legal entities should be party to each of the related Commercial Agreement and the Quality Agreement. It is common for difficulty to arise regarding who the appropriate contracting parties are. This can be overcome in several different ways. Typically, the Quality Agreement should conform to the Commercial Agreement, and if a different legal entity is responsible for quality matters, the contracting party can subcontract these quality matters to the appropriate affiliate company;
- where the same words and phrases are used in each of the documents, these should have consistent definitions. It is preferable for the definition of a word or phrase to be set out in only one document and for the other document to refer to that definition;
- the products to which the documents relate should be the same. This is usually dealt with in a definition of "product". Typically, it is preferable for the relevant products to be described in the Quality Agreement and for the Commercial Agreement to refer to the Quality Agreement. However, this is not always appropriate and consideration needs to be given to ensure that the scope of each of the agreements is consistent; and
- the duration of each of the agreements should be the same. The Quality Agreement should not contain independent termination provisions but should be stated to become effective and terminate on the same dates that the Commercial Agreement becomes effective and terminates.
No "legal" or "commercial" terms in the Quality Agreement
Finally, the purpose of the Quality Agreement is to allocate GMP responsibilities. It is not intended to set out the commercial relationship between the parties. Therefore it should not include "legal" terms, for example:
- confidentiality terms,
- intellectual property terms,
- indemnities, or
- limitations of liability.
It should also not include strictly "commercial" terms, for example:
- forecasting, or
- terms for delivery.
All of these terms should be in the Commercial Agreement. If these terms are also included in the Quality Agreement there is a risk that they will be inconsistent with the Commercial Agreement or may become inconsistent with the Commercial Agreement if one of the documents is subsequently amended.