The Real Cost Of Sites Working Without An Enforceable Agreement: Why Your Site's Quality Of Earnings Is Suspect

By Kurt Mussina, CEO, Paradigm Clinical Research

Across the site landscape, it has been common practice to begin billable work before a clinical trial agreement (CTA) or master services agreement (MSA) is fully executed. Sponsors and CROs often ask this of sites. Meanwhile, CROs protect themselves with binding letters of intent (LOIs) or similar start-up agreements before they perform any billable work. Sites often don’t know any better or are overly eager to protect a relationship and consequently acquiesce to the pressure. The practice is rationalized as goodwill, competitive necessity, or simple pragmatism.

It is none of those things.

It is a business practice that trades unrecoverable labor and lost leverage for a hoped-for unenforceable benefit. Performing billable work in the absence of an enforceable agreement or binding interim authorization is more serious than just poor form. It is financially irresponsible and corrosive to the professionalization of the site industry.  It closes with the operating discipline that a well-run site business applies instead.  The discussion is focused on U.S.-based sites.  The accounting standards and regulatory guidance it relies on apply to U.S. operations.

The Practice, Plainly Stated

“Start of work” and “execution of agreement” are treated, in practice, as two separate and often distant events. A sponsor or CRO issues a nonbinding verbal or emailed go-ahead asking the site to get moving while contracts and budgets are still in negotiation. The site staffs the study, opens regulatory submissions, begins prescreening, etc. — all before an enforceable agreement exists that obligates the sponsor to pay for any of it.

Absent an enforceable agreement, there is no established contractual obligation on the sponsor or CRO to pay — only an accumulating uncompensated obligation on the site.

This is not a hypothetical edge case. It is routine in a market where trial start-up timelines are compressed, competition for allocation is fierce, and sponsors and CROs have learned that many sites will absorb the risk rather than risk the relationship.

Why It Happens

The incentives that produce this behavior are clear:

• Start-up timeline pressure: Sponsors and CROs reward sites that can demonstrate speed, and speed is easiest to demonstrate by not waiting for a contract.
• Relationship protection: No site wants to be the party that held up a study over contract terms, particularly with a strategic sponsor, CRO, or repeat customer.
• Competitive allocation: In multisite competitive enrollment studies, sponsors and CROs often allocate subjects to whichever sites are visibly furthest along, creating pressure within sites to work ahead of contracting.
• Optimism bias: Teams assume the agreement will close, so working ahead feels like a formality rather than a risk.

Each of these pressures is real. None of them changes the underlying fact: Work performed without an enforceable agreement is work performed without a defined payment obligation, a scope, a liability allocation, an indemnification structure, or a termination provision. The site is operating entirely on the sponsor's or CRO’s word, with none of the protections a contract exists to provide.

The CRA Pressure Factor

In practice, the pressure to start without paper is often applied directly by a CRA — frequently a junior one and nearly always one without the commercial experience to recognize what they are asking the site to carry. CRAs are evaluated on enrollment timelines and site activation speed, not on the site's contractual or financial exposure, so they have every incentive to push a site to start and no accountability for the consequences if the deal changes or falls apart. The pressure shows up in familiar forms: an email or call asking the site to start prescreening while they finalize the budget, an implication that slower-moving sites will lose future allocation, or a verbal assurance that the terms are basically agreed — an assurance the CRA typically has no authority to give. Sites feel strong-armed into complying, and too few sites feel they can say no without jeopardizing the study or the broader relationship.

A site that agrees to proceed without an executed agreement or a binding interim authorization — and is later left holding the cost when the deal falls through or the terms change — has no one to hold responsible but itself.

The Asymmetry Sites Face That CROs Do Not

CROs are clearly not naive to this risk. Properly managed CROs do not conduct billable work in the absence of some form of a binding agreement, typically a binding LOI or start-up agreement, with a sponsor.

Sites are rarely, if ever, extended this same protection by either the sponsor or the CRO. The result is structural market asymmetry: The CRO has addressed its own exposure to pre-agreement work, while the site is left to either a) accept the exposure without the same protection or b) attempt to negotiate equal footing.

Why It Is Poor Form

It converts a negotiation into a fait accompli — and not in the site's favor.

Once work is underway, the site has already sunk labor and other costs. As such, the site has far less leverage to hold firm on budget, payment terms, or scope than one that has not yet begun. Beginning work early hands away the single point of negotiating leverage the site will likely ever have.

It creates potentially unrecoverable costs if the deal falls through.

Studies are routinely delayed and cancelled. When that happens without an enforceable agreement or other enforceable right to payment, there is no contractual basis to invoice for time and costs already spent. The site bears the cost of every hour of coordinator, regulatory, and PI time, every IRB submission fee, and every piece of prescreening activity, unless and until it establishes some other basis for recovery. This is commonly how studies become loss-making for sites.

The instinctive objection is that the site could sue. A site that staffed a study in reliance on a sponsor’s or CRO’s verbal go-ahead may have a reliance-based claim, such as promissory estoppel. But promissory estoppel is a litigation theory built on detrimental reliance not a substitute for a defined payment right established before the work begins. It is fact-specific, jurisdiction-dependent, and costly to assert, and the available remedy may differ materially from the economics the site expected under the contemplated agreement.

Nor does the mere possibility of such a claim solve the accounting problem. Whether the underlying promise and surrounding circumstances create enforceable rights sufficient to satisfy Accounting Standards Codification (ASC) Topic 606 is itself a matter of applicable law and requires a fact-specific analysis. A site cannot simply assume that a potential future promissory estoppel claim establishes the contract existence criteria or an enforceable right to consideration for revenue recognition purposes. A site whose payment position depends on proving detrimental reliance after the fact is precisely the site this paper is concerned with: one that began work without first establishing a clear enforceable right to payment.

It removes the protections the contract exists to create.

A CTA or MSA is the instrument that allocates liability, defines indemnification, sets payment terms and timing, establishes termination and wind down provisions, and protects confidential and proprietary information. Work performed before an enforceable agreement has no assurance that CTA or MSA protections are actually in force. If a study subject is harmed, if a dispute over data ownership arises, or if the sponsor or CRO simply declines to pay or cannot pay, the site has no assurance of contractual standing to fall back on absent some enforceable instrument.

It trains sponsors and CROs to expect free risk absorption.

This is the practice's most corrosive long-run effect. It is not a one-time cost, and it sets a precedent. A sponsor or CRO that successfully gets pre-agreement work once will demand it again and again. Sites that accommodate the demand are not protecting the relationship. They are instead teaching the other party that an enforceable agreement is optional and the site's labor is free until proven otherwise.

It undermines the professionalization of the industry.

The clinical research site industry has spent the past two decades trying to move from a cottage industry of individual investigator practices to a professionalized, institutional-grade, equal party to sponsors and CROs. Institutional-grade parties do not conduct billable work without an enforceable agreement. This is a baseline discipline in every other services industry, from law to construction to enterprise software. Sites that work ahead of an enforceable agreement signal that they are still operating as a cottage industry, unable to hold a commercial line, and willing to absorb risk that a more disciplined party would not.

Financial And Regulatory Compliance Exposure

The case against proceeding without an enforceable agreement is not just a business ethics argument or a negotiating posture argument. Beginning activities before the applicable commercial and GCP requirements are satisfied can create direct financial reporting and regulatory exposure that exists independent of whether the deal ultimately closes or the site ultimately gets paid.

Revenue Recognition And Financial Reporting

In plain terms: Performing work does not, by itself, entitle a site to recognize revenue. ASC) Topic 606 requires certain contract existence and revenue recognition criteria to be satisfied. A site business that recognizes revenue without meeting them is inviting trouble, including questionable quality of earnings.

The rules themselves are specific. ASC 606 does not require a signed contract. The Financial Accounting Standards Board (FASB) is explicit that a contract can be written, oral, or implied by customary business practice. The operative test is whether the arrangement creates enforceable rights and obligations, including a determination that collection of consideration is probable.¹ Work must have an enforceable arrangement that satisfies ASC 606’s contract-existence criteria, whatever form that arrangement takes. Work performed where none of those arrangements exist fails the contract existence test. The performance of the work itself does not create revenue recognizable under ASC 606, or an ASC 606 receivable, absent an enforceable right to consideration, regardless of the volume of labor and expense the site has already incurred. What exists instead is uncontracted activity and incurred cost sitting outside anything that could be called an enforceable contract.

The accounting exposure is not the expense/revenue mismatch by itself. A company can properly incur costs before revenue qualifies for recognition. The exposure arises if a site recognizes revenue, records a receivable or contract asset, or otherwise treats the activity as contracted revenue without having actually satisfied ASC 606's contract existence criteria. That is the finding a controller or external auditor is trained to catch, and it is exactly the kind of pattern that surfaces in a lender's or investor's diligence on internal controls.

There is also a quality-of-earnings question here that the accounting framing alone does not capture. For a site business undergoing due diligence by a PE buyer, lender, or investor, the relevant questions are: how much revenue was recognized before an enforceable customer arrangement existed; how much pre-contract labor and other cost is expensed, capitalized, or subsequently impaired² when studies fail to be operationalized; how consistently management recognizes start-up revenue; and whether EBITDA and margins depend on optimistic estimates of ultimately collectible pre-agreement activity. What share of historical study starts involved work preceding enforceable payment terms is exactly the kind of number a buyer or lender will request. A site that cannot answer it cleanly is signaling an earnings quality problem.

For an institutional-grade site business, accrual accounting should be the baseline for management and financial reporting. Cash-basis accounting may be permissible for certain tax purposes, but it does not provide the period-based view of earned revenue, incurred obligations, receivables, contract assets, and contract costs required for meaningful Generally Accepted Accounting Principles (GAAP) reporting, lender oversight, investor diligence, or quality-of-earnings analysis.

This is also where professionalization and compliance converge. Professionally managed site businesses — ones with a controller function, a proper close process, institutional ownership, lending relationships, etc. — are more likely to apply ASC 606 discipline and to be able to answer those diligence questions cleanly. Site businesses without this infrastructure are far more likely to recognize cash on receipt, track activity informally, or simply absorb pre-agreement costs without ever surfacing the control gap.

A sponsor or CRO that routes work to a site without this discipline does not inherit the site's ASC 606 or GAAP exposure. That compliance risk stays with the site. What the sponsor or CRO inherits instead is vendor risk: A site whose financial controls can't reliably track pre-agreement cost and commitment is also a site more likely to make enrollment, staffing, or continuity decisions under undisclosed financial strain and more likely to have a study disrupted by a cash problem it never flagged. That is where a site's commercial control weakness turns into the sponsor's or CRO's execution and patient-protection risk. Sponsors and CROs that select or continue to work with sites indifferent to 606 and GAAP discipline are not escaping a compliance question; they are taking on vendor risk they could otherwise have avoided.

GCP Documentation Requirements

ICH E6(R3)'s Principles and Annexes 1 and 2 state that the financial aspects of a trial should be documented in an agreement between sponsor and investigator/institution and that agreements with investigators, institutions, and other parties should be documented before initiating the activities.³ Initiating applicable trial activities covered by those agreements before that documentation could be identified as inconsistent with GCP expectations on sponsor audit or regulatory inspection — a compliance deficiency entirely separate from the underlying commercial dispute.

What Disciplined Practice Looks Like

• Do not allow billable activity without an enforceable agreement with binding scope and payment terms.
• Build internal contracting speed as a competitive advantage so that speed is achieved through process not through waiving the requirement for a binding agreement.
• Hold the line collectively and decline to work without an enforceable agreement, consistently, to change market expectations.
• Push for the same protections CROs already secure for themselves.
• Escalate past the CRA. When pressure to proceed without an enforceable agreement comes from a CRA, reach out to the sponsor's or CRO's contracts function or appropriate authority.

Conclusion

Billable work performed by the site ahead of an enforceable agreement is presented as flexibility, but it functions as an uncompensated transfer of risk and labor — extended on the CRO’s or sponsor's word alone. It weakens negotiating leverage precisely when leverage matters most, exposes the site to potentially unrecoverable financial loss, strips away every protection a contract exists to provide, and teaches the market that proper business discipline is negotiable. None of this is offset by the goodwill it is meant to buy and, as outlined, the stakes extend well past business ethics into financial reporting and GCP exposure.

The correct response to start-up timeline pressure is a faster, more disciplined contracting process, not the absence of an enforceable agreement. Sites that hold this line are not being difficult. They are behaving like the institutional-grade parties the industry has spent two decades trying to become.

Author’s note:  This paper was developed with drafting and editorial assistance from ChatGPT and Claude. The author directed the framing, reviewed and revised the content, and is responsible for publication judgment and final content.

References:

1. Financial Accounting Standards Board, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, §§ 606-10-25-1–25-2 (2014) (§25-1: a contract exists only where the parties have approved it and are committed to perform their respective obligations, rights and payment terms are identifiable, the arrangement has commercial substance, and collection of consideration is probable; §25-2: a contract may be written, oral, or implied by customary business practices, and enforceability is a matter of law).
2. Financial Accounting Standards Board, ASC 340-40, Other Assets and Deferred Costs—Contracts with Customers, §§ 340-40-25-5 through 25-8 and 340-40-35-1 through 35-6 (recognition of an asset for costs to fulfill an existing or specifically identifiable anticipated contract, where not governed by another applicable Topic; amortization and impairment).
3. International Council for Harmonisation, ICH E6(R3) Final Consolidated Guideline, §§ 3.5–3.6 (Financing; Agreements) (Principles and Annex 1 adopted by the ICH Assembly January 6, 2025; FDA final guidance for U.S. sites September 9, 2025; Annex 2 adopted June 3, 2026; consolidated final guideline issued June 16, 2026), providing that the financial aspects of a trial should be documented in an agreement between sponsor and investigator/institution, and that agreements with investigators, institutions, and other parties should be documented before initiating the activities.

About The Author:

Kurt Mussina is CEO of Paradigm Clinical Research. With nearly 40 years of experience across clinical research, CRO, CDMO, and biopharmaceutical industries, Kurt has built and scaled organizations, driven profitable growth, and fostered long-term relationships with sponsors, CROs, and the broader clinical research community.

Prior to Paradigm, Kurt spent nearly a decade with Fresenius Medical Care (FMC), where he built Frenova, FMC’s clinical research site business, and served as the company’s President. He previously served as President of Triangle Research Labs and Senior Vice President of Aptiv Solutions, which was acquired by ICON. His experience also includes executive roles spanning global commercial operations, research and development, and business development at some of the world’s leading contract research services providers.

Kurt began his career as a chemist with Teva Pharmaceuticals and Novartis. He later earned his MBA from Duke University and moved into leadership roles focused on biopharma operations and strategic partnerships.