Contingency Fees

Grant seeking can be risky and unpredictable. Hours are spent researching and writing proposals with no guarantee of success. Some organizations believe that it is a standard practice to pay a consultant on a contingency, commission or percentage fee basis (i.e., if the grant is funded, the consultant is paid).  This is incorrect.

Fees in the form of commissions, contingent upon award or a percentage of the award are considered an unethical practice and prohibited by leading professional groups, including the Grant Professionals Association Code of Ethics and the Association of Fundraising Professionals Code of Ethics, members are not allowed to work on a contingency basis.

Some reasons why commissions, contingencies and percentage of awards don’t work:

• Pre-award costs are rarely an allowable line item in a proposal budget, and most government agencies and foundations will not fund pre-award costs. Therefore, all costs associated with the preparation of the proposal cannot be paid from grant proceeds.  Some organizations will try to “hide” a grant writer’s payment under inflated costs for project management or evaluation – a practice that no Code of Ethics could ever endorse.

• Generally Accepted Accounting Principles (GAAP) standards state that fundraising services should be paid “at the time services are provided.” Very few grant awards are made immediately. Award decisions can take between six months to one year to be processed.

• From a financial perspective, hiring a grants professional on a contingency basis can cost your organization a lot of money.  Those grant writers that charge on a contingency basis usually charge 10% on grant award over $100,000 and 15% (or more) on grants under $100,000.  In real terms, using a government grant as an example, with a $600,000 award spread over three years, the consultant’s contingency fee would be $60,000 (or $20,000 per year).  Consider that the average federal grant takes approximately 60 hours (or more, depending on the complexity) to write.  Using the contingency example, the grant writer would be paid $1,000 per hour – far above the industry norm, not to mention unreasonable!

Many small organizations just starting out will question how to pay a grant writer if they don’t have any revenue? If your organization does not have any revenue, you’re not ready to apply for a grant. Grants should never be an organization’s first dollar. A nonprofit wants to raise funds from individuals in their community first: people who believe in your organization and are willing to make a contribution to get you started. This is the first step of many to become grant ready.  An organization that is grant ready and who wants to make a serious commitment to grant seeking, will want to show funders there is community fiscal support for your cause. Remember, a grant award is never guaranteed no matter the level of expertise of the grant writer.  But working with a skilled consultant can help your organization make the best possible case for funding.