Meeting Contractual Obligations With Quality Agreements

“I have no contracts with my clients; just a handshake is enough.”

—Irving Paul Lazar, American talent agent

A contract relationship creates regulatory and fiduciary obligations. Within the supplement industry, a significant number of products (arguably the majority) are produced by contract manufacturers. Their role in manufacturing, packaging and, in some cases, distributing products so many of our industry sell, is vital. The expertise they lend in formulation and the ability to deliver goods is a critical part of the success of the industry.

When entering into an agreement with a contract manufacturer, the most focused word should be “contract.” The establishment of terms and conditions for performance is vital to the success of the arrangement. This should take place in two segments, if not two agreements. A supply agreement identifies the performance obligations of both parties for ordering, obtaining, compensation and ownership of inventories (components as well as finished products), delivery commitments and obligations, and payment terms. The quality agreement involves the quality aspects of manufacturing and how these regulatory obligations are fulfilled.

Quality agreements are common in the pharmaceutical industry and used to ensure the performance of any contracted entity used by one company adheres to the quality standards of the other. In the natural products industry, the quality agreement determines and assigns the obligations of the regulations found in 21 CFR part 111, otherwise known as the GMPs (good manufacturing practices), for the manufacture, packaging, holding and distribution of dietary supplements. If the arrangement is for a conventional food or cosmetic product, the same sort of agreement is sound business practice, while applying different GMP regulations or, in the case of cosmetics, manufacturing practice requirements. These obligations are spelled out within the regulations, and they should be memorialized in a quality agreement.

These quality agreements also spell out how controlled documents related to the products (master manufacturing records [MMRs], batch production records [BPRs], specifications, etc.) are handled. In other words, the assignment for maintenance of these records resides with the contract manufacturer, not the contract client. When regulatory inspection of the contract client occurs, the quality agreement points the inspector to the contract manufacturer for the documentation, rather than having the contract client maintain copies of such documents themselves. Regulatory obligations of the contract manufacturer include the need to maintain these records and, under the quality agreement, it can be the exclusive storage site. This is a part of the obligation spelled out in the preamble to the Final Rule on dietary supplement GMPs that the contract client “know the performance of” its contract manufacturer.

The quality agreement enforces the regulations as written, while further complying with the requirements to make documents available upon request. The contract manufacturer is obliged by the quality agreement to produce such requested documentation in a short period of time and may provide such documentation directly to regulatory authorities. While the expectation may be that the contract client keeps and maintains these records (as has been shown in inspection deficiency reports), the regulations make no such mandate.

Additional items contained in the quality agreement include the identification of formula ownership. Does the formula belong to the contract manufacturer or the client? Another provision involves the identification and delivery of formula requirements in a formal fashion, which provides clarity regarding everything from formula composition all the way through to packaging components. The level of detail in these documents affords the contract manufacturer clarity regarding expectations of the contract client while simultaneously affirming product presentation to the contract client. Such information should include whether there are specific, trademarked ingredients that must be included at specific levels in the formula and whether there are restrictions on what may be used in the formula. This may include limits on levels of contamination in products.

Beyond the handshake agreements of long ago, contract obligations can be used effectively to communicate while fulfilling regulatory obligations. This latter benefit derives directly from the documentation involved with the generation and implementation of quality agreements in concern with the supply agreement. The benefits derived flow to both parties.

As chief operating officer, Jim Lassiter oversees all consulting operations at Ingredient Identity. He has more than four decades of experience in quality control (QC), and government and regulatory affairs throughout the pharmaceutical, dietary supplement and natural product industries with organizations such as Nutrilite, Robinson Pharma, Irwin Naturals, Chromadex, the American Herbal Products Association (AHPA) and the Council for Responsible Nutrition (CRN). A respected author and speaker, Lassiter has served on numerous industry and trade boards.