Attention
Startup cash is precious, yet a single misstep can trigger a federal fraud investigation: paying a “success fee” to your grant-writing consultant.
Your TL;DR
Federal rules prohibit using SBIR/STTR or other public grant dollars for undisclosed success-based consulting fees. Violations can bring audits, penalties, and criminal charges. Vet consultants carefully, insist on transparent flat pricing, and keep every fee above board.
Why “success fees” invite trouble
Consultants sometimes offer a pay-later model, where their reward is drawn from the award itself after you win. That arrangement violates the Uniform Guidance cost principles: contingency-style payments are unallowable unless explicitly budgeted and approved in advance, eCFR.
Recent enforcement shows regulators mean business. In 2025, a software firm repaid federal SBIR funds after the Department of Justice alleged improper consultant payments. The Small Business Administration has likewise warned that SBIR/STTR money must fund research and commercialization, not contingent consultant bonuses.
Beyond disallowed costs, hidden success fees can implicate wire-fraud statutes if invoices mask their true purpose. Auditors now compare draw-down records to approved budgets, and new FY 2025 award conditions emphasize stricter monitoring.
Protect your company
Founders safeguard equity fiercely; protect compliance with equal zeal. Use this checklist before signing any consulting contract:
- Pricing Model – Demand a fixed, disclosed fee structure payable from operating funds, not grant proceeds.
- Budget Alignment – Ensure every consultant cost appears in the proposal budget narrative submitted to the agency.
- Access Limits – Restrict third-party access to financial systems or award notices; provide only necessary documents.
- Written Policies – Keep an internal memo citing 2 CFR § 200.433 and agency-specific terms so staff know success fees are disallowed.
- Audit Readiness – Maintain timesheets, invoices, and proof of payment sourced from non-federal funds.
Choose consultants who play by the rules
Ask prospective partners these questions:
- How are fees structured, and when are they due?
- Do you ever take payment from award funds?
- What compliance guidance will you provide?
Only collaborate with firms that answer clearly, bill transparently, and share documentation proving their model aligns with federal cost principles. Your diligence today shields tomorrow’s funding and your reputation.
Ready To Take the Next Step?
We assist our clients in locating, applying for, and evaluating the outcomes of non-dilutive grant funding. We believe non-dilutive funding is a crucial tool for mitigating investment risks, and we are dedicated to guiding our clients through the entire process—from identifying the most suitable opportunities to submitting and managing grant applications.