Cut Your Outsourcing Risks

The pharmaceutical industry was provided with no guidance, however, to help it implement this guidance.

The Center for Chemical Process Safety (CCPS) of the American Institute of Chemical Engineers (AIChE) has issued "Guidelines for Process Safety in Outsourced Manufacturing Operations," which will clearly be helpful in this effort. AIChE has a 30-year history of involvement with process safety for chemical processing plants. The CCPS, a directorate of AIChE, was established in 1985 following Union Carbide's Bhopal incident to develop and disseminate technical information to help prevent major accidents.

The new guidelines describe techniques to assist the chemical processing and pharmaceutical industries in applying process safety concepts to toll processing relationships. CCPS issued the guidelines because recent incidents have shown the exchange of process technology and product safety information can be a major factor in contract manufacturing success. They are designed to improve the quality of tollers' production and packaging of contracted materials, as well to enhance the areas of safety, industrial hygiene, catastrophic incident prevention and off-site/on-site environmental responsibility. Although not directed specifically to pharmaceutical tolling, the guidelines are directly applicable to pharmaceutical activities.

The guidelines address basic issues involved in the toll processing decision, including the primary reasons for tolling such as equipment availability, process expertise, costs, logistical issues and environmental and product development concerns. They also cover the advantages and disadvantages of tolling and the nature of the toll processing arrangement.

Among the most useful aspects of the guidelines are the definitions of the scope of tolling activities and the terminology used in this area. An explicit definition of tolling as a process used "to provide manufacturing services for a fee by a contractor (the toller), to a company issuing (letting) the contracts for those services" is provided. The guidelines point out that tolling services can include reaction processes, formulations, lending, mixing and size reduction, separation, agglomeration, packaging/repackaging and other combinations of these activities.

Of perhaps equal significance, product involvement not constituting a tolling relationship also is identified and defined. For example, the guidelines note that handling or storage of the product such as warehousing, bulk storage or distribution through a terminal where no processing occurs would not in itself constitute tolling, but could be incidental to other tolling activities. For examples of two very different views on the part of the courts with respect to the strict liability obligations of parties purchasing toll processing services, compare Kalumetals Inc. v. Hitachi Magnetics Corp., 21 F. Supp. 2d 510 (W.D. Pa., 1998) with In re Napp Technologies, No. L-4233-95 (Bergen Cty. Superior Ct., July 14, 2000). The former court imposed strict liability in a tolling relationship, while the latter court refused to impose such liability on the purchaser of tolling services.

Significantly, the guidelines focus on how toll processing relationships should be handled. They address the joint responsibility of all parties involved in the tolling process to achieve safe and environmentally responsible performance. To achieve this goal, the guidelines address the details of the toller selection process, contractual considerations, unique aspects of start-up activities, operating concerns, and closure and audit considerations.