When I started as a clinical finance manager back in 1998, I had the privilege of attending a conference on the partnering relationship between sponsors and CROs. While my main incentive was to visit an exotic city on company dime, I did come away from the conference with the following conclusion: if the relationship between sponsors and CROs was a marriage, each side would be better suited for monastic life.

In subsequent years, I have sought to explore and determine the reasons behind why this partnership is so challenging. I believe I have come to my enlightened answer: clinical trials are complicated. While simplistic and not as interesting as a determination that one side or the other is inherently evil, I’m quite convinced that this is the primary source of friction. With numerous complex moving parts that stubbornly insist on not adhering to plans, budgets, and timelines, management of clinical trials is a significant challenge for all parties involved whether working together or alone.

One of the biggest and most important challenges faced in the sponsor/service provider partnership is finance. This includes issues related to study budgets, payments, change orders, expense accrual estimates, and so forth. This article will focus on exploring some of the specific finance-related challenges characteristic of the partnership.

Sponsors are from Mars #1: “We’re working on the contract amendment, which should be done in the next few days…or months. In the meantime, don’t stop working!”

Rarer than a five-leaf clover is a clinical trial that goes as originally planned with no CRO change orders. As such, multiple change orders – many of which reflect increased scope of work and budget dollars – are common over the course of a trial. But while additional work is often required immediately (“Re-monitor those 100 sites right away!”), the change order covering that work could take significantly longer due to the sponsor’s internal budget approval and legal/contractual processes. In this situation, the CRO is caught in an awkward situation: if it refuses to do the work until the amendment execution, it potentially annoys the frantic timeline-conscious clinical team that also happens to award the contracts; if it does the work “at risk”, it risks not getting paid for non-contracted work performed. In a past company, one of our CROs performed a substantial amount of out-of-scope work at the behest of our lead clinical trial manager. This manager apparently promised that she would personally ensure the work would be paid for, even though the change order was still in process. Unfortunately, when the invoice arrived, the trial manager had departed the company. The new manager, deeming the invoice work out of scope and unnecessary, refused to approve payment. It took over five months of bickering before the matter was resolved and the CRO paid, and only after the CRO produced several past emails confirming the alleged unofficial agreement. So by offering a client some flexibility, the CRO received a massive headache, loss of goodwill, and almost the loss of significant money.

Sponsors are from Mars #2: “We demand that you give us your ‘A team’ (even though we’re only paying for a ‘Z team’).”

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A major reason a sponsor uses a CRO is to have headcount flexibility: rather than hire “fixed” headcount that would sit idly or need downsizing if workflow ebbs, the sponsor can simply outsource. But in order to meet the demands of multiple clients, a CRO also needs some operational flexibility. Depending on business needs, the CRO may shift personnel between different engagements. Of course, when sponsors perceive that their CROs are replacing “A team” personnel with those of lesser quality mid-trial, they get quite agitated. To be sure, it is often in the best interests of the CRO to move high performers to their most important (i.e. most revenue-generating) clients. But that’s arguably not more outrageous than sponsors moving to a cheaper or better CRO (granted this rarely occurs mid-study). Interestingly, per my observation, sponsors who succeeded in negotiating the most margin-squeezing deals are the ones who protest loudest when the CRO changes personnel. In any case, it’s not necessarily outrageous or unethical when CROs allocate personnel according to business interests and needs.

Sponsors are from Mars #3: “Of course we’ll pay your invoice! We just need to review thoroughly and process…which shouldn’t take more than a few months.”

After the sponsor’s accounting department receives and processes the invoice, it’s then forwarded to the appropriate group for approval. Depending on how long and complex the invoice is (and CRO invoices with several hundred pages of detail are not uncommon) and how busy the clinical team is, it could take anywhere from days to multiple weeks before the invoice is approved. If key team members had the audacity to take vacation, or if there are perceived discrepancies that need to be resolved, that could tack on more weeks. When the approved invoice is finally sent back to accounting, it awaits the next “check run”, i.e. when the next batch of vendor payments are processed and sent out. Then, assuming it’s a check, the payment is in the hands of the speedy US Postal Service. In the meantime, the CRO is in a negative cash balance situation, having already paid out the related salaries, expenses, and perhaps sizable investigator grant “pass-through” payments. While this is annoying and unwelcome for larger CROs, there could be dire operational ramifications for smaller CROs with tighter cash flow needs. Of course, CROs can mitigate the issue by implementing penalties for late payments. However, this is far from a perfect solution: many sponsors object to the penalty clause, and when circumstances arise such as prolonged billing disputes, the penalty timeframe goes into subjective flux.

Service providers are from Venus #1: “We just realized we did a whole lot of out-of-scope work. Sorry! Here’s the bill.”

Sponsors are often dependent on CROs to ensure that work performed falls within contract scope, and to notify them of pending out-of-scope risk. But CROs often fail to do so until significant out-of-scope activities have already been completed. This causes major headaches for the sponsor on several fronts. Firstly, the additional cost throws the trial budget out of whack. But even worse, seeking financial approval for this cost is more painful since it’s reactive rather than proactive. There’s a big difference between asking for additional funds because the team has proactively detected increased workload, versus asking for unbudgeted funds that the CRO has already incurred unbeknownst to the team. Finally, such scenarios can result in perceived deficiency of the company’s system of internal controls. While Finance has no direct control or visibility as to what activities a CRO is performing, the finance folks will nevertheless have to explain any resulting anomaly: why are expenses so much higher this month (i.e. when the out-of-scope expenses were recorded) relative to previous months? If the answer revolves around previously undetected prior period work performed, this sends up a red flag. Depending on the amount and frequency of occurrence, there could be uncomfortable audit and internal control ramifications.

Service providers are from Venus #2: “Provide a reasonable cost estimate for the work we performed this month? No we can’t.”

Companies are required to generate external and internal financial reports on a periodic basis. Because of set reporting timelines, companies often need to “book” expenses before invoices are received. As such, estimates are often utilized. While estimates can be produced using different methodologies, one common way is to simply ask the service provider for an estimate of the prior period’s expenses. Unfortunately, many service providers (a) can’t produce a reasonable estimate, (b) can’t produce one within the required timeframe, or (c) refuse to provide one altogether. When the provider can’t provide the data in a timely manner or refuses to provide, the sponsor often resorts to expense estimate methodologies that are often much less precise (such as taking the average of prior periods’ expenses, for instance). If these estimates turn out to be materially off course, the result could be embarrassment at best, and public financial restatement at worse. While some larger CROs are getting more adept at providing these expense estimates, it remains an ongoing issue.

Service providers are from Venus #3: “Going through our records, we realized that we forgot to bill you for stuff from two years ago! Sorry. Please pay us now.”

As I sat at my desk enjoying a java one day in a previous company, I received a sizable five-digit invoice along with an apologetic note from a CRO. While going through their books, the CRO discovered they neglected to bill us for work and expenses from a trial that concluded two years prior. Despite their regret, they expected payment as soon as possible. On our side, the issues were numerous. The amount was big enough to have budgetary implication, and there would be great fun explaining this one to management. Additionally, the two clinical people overseeing that trial were no longer with the company, so adequately vetting the payment would be problematic. Because the trial was closed, even the trial’s accounting code was no longer active. In the end, after much pain, effort, and debate, we paid the invoice – primarily because the CRO was still an important partner and we wanted to maintain a positive relationship.


To underscore my stated thesis, the one common denominator linking all of these issues is the super complex nature of clinical trials. This complexity leads to outrageous acts and oversights resulting in unauthorized work performance, egregious late payments and billings, and urgent demanding requests, finance-related or otherwise. Alas, until there’s a way to reduce clinical trial complexity, such challenges will always be a part of the process. But by recognizing the fundamental existence and nature of these challenges, the respective parties can achieve a greater empathy towards each other, which in turn will result in a more trusting and mutually nurturing relationship.