Shared-savings contract

Maximizing cost savings by sharing savings from pharmaceutical contracts with the managed care organization. 

Corbett C. J. and G. A. DeCroix. 2001. Shared-Savings Contracts for Indirect Materials in Supply Chains Channel Profits and Environmental Impacts. Management Science, Vol.47, 881-893. 

The contract is usually for a period ranging from 3 to 9 years, but in this case the amount payable to the contractor is the same or similar to the costs prior to contractor take-over. A further clause is added such that a proportion of the savings made by the contractor are returned to the client (perhaps 2-10 per cent of the previous annual costs). It may also be possible for any further large saving to be shared in agreed proportions between the two parties involved. 

A joint venture between Client and Contractor, which can be applicable to both traditional and integrated contracts, is the partnership or Alliance contract. In this type of contract the Client and the Contractor share one or more tasks in the process based on a best for project philosophy. This means that costs and risks are shared according to a predetermined division. The advantage is both parties share an interest to minimise risks and to find ways for cost savings. Another advantage is that, due to early Contractor involvement, the total project implementation time can be shortened since a number of activities can be executed in parallel instead of serially. Furthermore, the Client can draw upon Contractor s know-how and experience to get the necessary environmental licenses in place. 

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