This is a topic that we first wrote about in 2013 HERE and again in 2014 (https://www.ebhoward.com/contingency-fees/) that continues to resurface. Often we are asked if we can accept award funds to pay for proposal preparation service or if we can be paid a commission should the grant be awarded. The answer is a resounding “no.”
We DO NOT work on a contingency basis. Unlike most of our competitors, we do not take incentives, contingency, or success fees. We uphold the ethics of the Grant Professional Association (GPA) and the American Evaluation Association (AEA), follow Generally Accepted Accounting Principles (GAAP), and follow the federal government’s Uniform Guidance regulations §200.209.
Some (unscrupulous) consultants will attempt to charge a contingency fee, being paid upon the outcome of the grant award. Should your grant be awarded, you are then contractually obligated to pay them a certain percentage. Percentages can range between 4 and 10% of the grant award.
If you are submitting an SBIR Phase I proposal with a budget of $256K that means you will be paying between $10,240 (4%) to $25,600 (10%). That is a pretty steep bill for services already rendered. Yikes!!
Paying a grant writer/consultant a percentage of the grant funding they secure for an organization only if the grant is awarded is a practice that is unethical and, in some cases, illegal.
Here is why…
#1 Grant Solicitation:
Grant solicitation has a formal guideline on how dollars can and can not be spent. This means the budget you submit must follow solicitation guidelines and be specifically related to the proposal you are submitting (e.g., what is allowable and not allowable). If this is not followed, the chances of your proposal being awarded are pretty low, if at all.
#2 Grant Award Spending:
Not spending your grant award dollars in alignment with what you proposed in your grant is a misappropriation of funds and is considered FRUAD.
Organizations and individuals who are convicted of committing fraud can face criminal law consequences, civil liabilities, and administrative actions.
Criminal law violations include: False Statements, which can be punishable by up to 5 years in prison, forfeiture and a $250,000 fine; Theft of Federal Property, carrying a punishment of up to 10 years in prison, forfeiture and a $250,000 fine; Wire Fraud, which carries a punishment of up to 20 years in prison, forfeiture and a $250,000 fine; and False Claims, which is punishable by up to a $250,000 fine for individuals and a $500,000 fine for companies.
https://www.sbir.gov/tutorials/fraud-waste-abuse/tutorial-1#
#3 Ethics:
In addition to the possibility of an audit and legal ramifications, contingency payment is unethical and goes against the Grant Professionals Association (GPA), which says, “members shall not accept or pay a finder’s fee commission, or percentage compensation based on grants and shall take care to discourage their organizations from making such payments.” We are members of GPA and uphold the ethical guidelines. We have no problem not signing on a potential client that wants to operate this way. This is unethical and makes us think that if you are willing to be unethical about this, what else are you unethical about?
#4 Outcomes:
Grant writers do the same amount of work whether or not a proposal is funded. They can not make a grant funder award the grant to you. They have no control over the award process. So why only pay when they don’t have control of the outcome?
#5 Grant Readiness:
If you don’t have any money to pay for a consultant for services rendered, you’re not ready for funding. Grants should never be an organization’s first dollar. You should be raising funds from individuals first: people who believe in your organization and are willing to make a contribution to get you started.
#6 RED FLAG:
A consultant or grant writer who charges a commission either isn’t aware of these ethical standards or ignores them, both of which should be a red flag. Ultimately – if they are unethical about how they are paid, what other rules are they willing to break? Your consultant should never put you at risk for misappropriation of funds or an audit. Find a different consultant right away.
We work with high-growth startups and organizations that support the startup and innovation ecosystem. We build highly specific non-dilutive funding menus, provide proposal preparation services, and measure outcomes of funding through evaluation. Schedule a consult call with us HERE.