Beyond Revenue Recognition: Rethinking CRO Contracting Through the CURED Shared Performance Contract

Contract research organizations (CROs) play a central role in modern drug development, with the global CRO market valued at approximately $59.8 billion in 2023.¹ Despite their importance, sponsors frequently report dissatisfaction with CRO engagements, citing cost overruns, excessive change orders, and limited financial transparency.²

Recent industry analysis³ has also highlighted revenue recognition challenges within CROs, including:

• Misalignment between cost-based revenue recognition and actual project progress
• Dependence on subjective estimates of completion
• Margin erosion resulting from cost overruns and forecasting inaccuracies

While often considered technical accounting issues, these challenges are fundamentally structural in nature, arising from the way CRO contracts are designed and managed.

This article argues that improving financial outcomes—including more reliable revenue recognition—requires revisiting the underlying contracting model and introduces the CURED Shared Performance Contracting (CSPC) approach designed to address these root causes.

Limitations of traditional contracting models

Traditional CRO contracting models—time and materials, fixed price, and unit-based pricing—create inherent misalignments between cost, progress, and value delivery.

Time and materials

Time and materials contracts reimburse actual effort but provide limited linkage between expenditure and outcomes. While flexible, they can lead to cost escalation and limited predictability for sponsors.

Fixed price

Fixed price arrangements offer budget certainty but transfer risk to the CRO, often leading to conservative pricing or reliance on change orders to recover unforeseen costs

Unit-based pricing

Unit-based pricing simplifies budgeting but equates activity with value. Many units (e.g. visits, calls) do not directly reflect meaningful progress, complicating assessment of project completion and value delivered.

Implications for financial management and revenue recognition

Across these models, a common issue emerges:

A disconnect between effort, observed progress, and financial outcomes

This disconnect creates a reliance on estimation when:

• Measuring project completion
• Recognizing revenue over time
• Forecasting costs and margins

As a result:

• Revenue may be recognized ahead of actual progress
• Forecast revisions lead to margin volatility
• Financial performance becomes sensitive to subjective assumptions

These are the same issues identified in recent discussions of CRO revenue recognition risk.

The CSPC model

To address these limitations, the CURED Shared Performance Contracting (CSPC) model introduces a framework based on:

• Joint risk assessment and scientifically costed contingency
• Transparent, effort-based financial management paying for actual hours as incurred
• Deliverable-based performance measurement
• Continuous tracking of cost versus progress
• Pain/gain sharing at project completion

Rather than relying on a single dimension (cost or activity), CSPC explicitly aligns:

Effort → Deliverables → Progress → Financial outcomes

Addressing structural drivers of revenue recognition Risk

Linking cost to observable progress

Under CSPC, financial reimbursement is based on the resource costs incurred by the CRO within the reporting month (actual effort), progress and costs are then mapped against clearly defined deliverables against the study timeline.

This creates a practical control mechanism:

• Costs incurred can be evaluated against observable outputs
• Progress is defined in terms of completion of deliverables, not activity levels

This reduces the risk that cost-based revenue recognition diverges from actual project advancement.

Reducing estimation uncertainty

Traditional models depend heavily on forward-looking cost estimates. CSPC mitigates this through:

• Upfront joint risk assessment and collaborative mitigation strategies.
• Robust, industry best practice risk and contingency modeling incorporating contingencies into the budget
• Continuous monitoring of actual cost versus planned

This enables a shift from fixed, often out of date, forecasting approach to dynamic, data-driven adjustments, improving the reliability of performance and financial reporting.

Improving margin stability

Margin erosion often arises when actual costs deviate from plan without early visibility. CSPC addresses this through:

• Ongoing comparison of actual effort versus planned performance
• Early identification of inefficiencies and deviations from the baseline
• Joint corrective action between sponsor and CRO

In addition, a pain/gain sharing mechanism ensures that:

• Cost overruns and savings are shared, not asymmetrically absorbed
• Both parties are incentivized to complete the trial as early as possible.

This moderates financial volatility and supports more predictable outcomes.

Enhancing transparency and financial alignment

CSPC introduces full transparency over cost structures and resource utilization. Sponsors gain visibility into:

• Cost drivers
• Resource allocation
• Progress against deliverables
• Future contingency needs

This reduces ambiguity in financial reporting and supports more informed decision-making throughout the study lifecycle.

Broader benefits beyond revenue recognition

While CSPC addresses several drivers of revenue recognition risk, its benefits extend more broadly across CRO-sponsor relationships:

• Reduced low level change orders focusing more on material changes to scope and improving operational efficiency
• Improved budget & outturn cost predictability, without rigid assumptions
• Enhanced collaboration, driven by shared incentives
• Greater accountability, supported by continuous performance tracking

By aligning incentives and increasing transparency, CSPC encourages joint problem-solving rather than contractual negotiation.

Discussion

The CSPC model reflects best practices adopted in other complex industries such a construction and infrastructure where the adoption of the NEC (New Engineering Contract) form of contract has seen transformational gains in client and supplier collaboration as well as greater adaptability and resilience to uncertainty.⁴

Importantly, CSPC does not seek to replace accounting standards or revenue recognition guidance. Instead, it improves the quality of the underlying information on which financial reporting depends.

In doing so, it addresses:

• The root causes of estimation uncertainty
• The misalignment between effort and value
• The structural drivers of financial volatility

Implementation requires a shift toward greater transparency and collaboration. However, the potential benefits—in terms of cost control, operational efficiency, and financial stability—are significant.

Conclusion

Many of the challenges associated with CRO financial management, including those related to revenue recognition, are symptoms of deeper structural misalignment in traditional contracting models.

The CSPC approach addresses these challenges by:

• Aligning financial flows with observable progress
• Increasing forecasting accuracy
• Providing continuous visibility into performance
• Sharing financial risk and benefits between sponsor and CRO

While not limited to financial reporting considerations, these features collectively support more robust and reliable outcomes.

By addressing both operational and financial dimensions, CSPC provides a more stable foundation for modern clinical trial delivery.

Roger Joby, David Webber, and Simon Taylor are directors at The CURED Consultancy

References

1. Global Market Insights “Contract Research Organization (CRO) Market – By Service Type, By Therapeutic Area, By End Use, Global Forecast (2024 – 2032)”, gminsights.com
2. Harbor Clinical. Why CRO relationships break down, and how to fix them [Internet]. Hingham (MA): Harbor Clinical; 2026 [cited 2026 May 18]. Available from: https://www.harborclinical.com/why-cro-relationships-break-down/
3. Revenue Recognition Risk in Contract Research Organizations, Applied Clinical Trials [Internet]. 2026 [cited 2026 May 20]. Available from: https://www.appliedclinicaltrialsonline.com/view/revenue-recognition-risk-in-contract-research-organizations
4. Institution of Civil Engineers. NEC4: Engineering and Construction Contract. London: ICE Publishing; 2017.