Holdbacks are unethical, a legacy of academics and non-profits agreeing to whatever it takes to score THE GRANT. Holdback terms are perpetuated through improper nomenclature (investigator “grants”, when they’re actually fees), hard bargaining (“these terms are required for your participation in the study”), and, most importantly, research sites continuing to agree to these terms.
Holdbacks create distrustful relationships, defer payment on completed services for months or years into the future, and produce reconciliation errors galore, among many other issues- all in an industry where the majority of payees are biotechs with no revenues and CROs who have already been paid in advance to pay sites later.
So how do research sites negotiate better outcomes on holdbacks? Take it in steps:
Strike the language- all of it. Optionally, briefly explain why or just say “we do not agree to holdbacks”.
Strike it again (and again). Stand your ground.
Reduce the payment terms by 15-30 days on payments subject to holdback.
Require payments monthly instead of quarterly (always do this anyways).
Make all held-back funds immediately due and payable when sponsor or CRO is in breach of its payment responsibilities.
Eliminate all future holdback requirements once the first payment breach occurs.
For longer projects, require holdback balances be reconciled and paid every 6-12 months
Increase the late fee penalty
Make these steps part of your negotiation policy that staff are trained on. Enter the negotiation knowing that your counterparty (whether Sponsor or CRO) already has the funding in hand for your contract. This knowledge gives you significant leverage to negotiate payment terms favorable to you.
If you hit an impasse, recognize you are likely not interacting with a decision maker (especially at a CRO). Ask your counterpart who should get involved to resolve the impasse.
Realize just how much is at stake in these negotiations- consistently poor outcomes in contract negotiations play a pivotal role in why many organizations underperform their financial goals. This concept applies to research sites more than any other organizational type I’ve come across in my career.
*P.S.- CROs are not part of the holdback problem. CROs hate holdbacks- they are a reconciliation nightmare. If a CRO is demanding you agree to a holdback, it’s because the sponsor requires them to.
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Contact me or book a meeting to discuss how these principles can be applied to improve the performance of your business.
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