Thursday, March 25, 2010

Faux-Ethics Debate on Percentage Contingency Fees in Grant Writing

Non-profit consulant and expert grant writer, Derek Link, shares his thoughts on the controversial topic of grant writing contingency fees:

Paying grant writers a percentage of the grant funds is often presented as a black and white issue in the nonprofit world. Whether paying a contingency fee is ethical depends on whether the percentage represents a reasonable amount of money for the work involved; the same principle that applies to a flat fee for services. I argue that if a contract for services is negotiated ethically and it results in a reasonable level of payment, there is absolutely nothing unethical or sinister about the practice of percentage contingencies. I suggest to you that a contingency arrangement can actually increase grant writer accountability.

Fundamentally, paying a percentage fee would only be ethically wrong if it were ethically wrong to pay for a grant writer’s services. It is self-evident that the amount of money paid to a writer should be proportionate to the work involved. A flat fee would be unethical if a grant writer were to accept a guaranteed grant writing fee and then do a poor job of writing the grant. It would also be unethical for a grant writer to accept a flat grant writing fee for a grant that they were fairly certain the organization would not receive.

A reasonable contingency percentage is very ethical because the writer has to do the best job possible to get the grant funded. The writer is also not likely to accept a grant that has a low likelihood of funding because on a percentage, the writer takes all the risk! If the grant isn’t funded, they don’t get paid! What is more ethical on the part of a grant writer than that?

The bottom line in any contract for services is reasonableness. The reasonableness in consulting fees is based upon the market and upon the value of the work. Only a non-profit administrator gets to decide what’s reasonable and their Board should be reviewing these decisions. If a grant writing contract results in a fee of $5,000 being paid to the writer for say, a $95,000 proposal, would it be a more ethical fee just because it was guaranteed to be paid whether or not the grant was funded? I say absolutely not, there is no nexus between ethics and reasonableness, and a flat fee for services.

I once heard of contingency fees being charged in the field by a consultant that I felt were out of line and unreasonable. This consultant was not successful and the natural market forces drove her out of the business. Such abuse is probably where the ethics of the practice has come into question; however, to paint contingency fees with a broad brush as unethical is just silly and unfair.

Many grant writers work diligently with agencies to obtain funding for them on contingency arrangements. This is helpful to agencies with cash flow problems. It is up to each non-profit to establish contracts for grant writing services that are reasonable and representative of the market rates in their area no matter what the form of payment.

I’ll go one step further in my argument by suggesting that the entire debate is faux-ethical in nature. American Association of Grant Professionals (AAGP) member regulations state that, “Members may accept performance-based compensation, such as bonuses, provided such bonuses are in accordance with prevailing practices within the members’ own organizations and are not based on a percentage of grant monies.”

The AAGP regulation that approves bonus (which is a contingency) proves their regulation against contingencies as faux-ethical. AAGP means to argue that nobody involved in the process of giving a bonus is whipping out the calculator to determine the bonus amount as a percentage of the grant funds received to determine reasonableness? A bonus amount based on “prevailing practice” amounts must be calculated on something or how could it be supported as mathematically reasonable?! A percentage contingency fee and a bonus contingency are no different, they are both performance-based.

The AAGP needs to stop treating Executive Directors as mathematically-challenged greenhorns who need to be protected from city-slickers with unreasonable contingency contracts. Unethical fees can be charged in any format and I trust that ED's know what is exorbitant when they see it.

The issue of percentage fees simply can’t be painted as black or white; come on folks, I was born on a Sunday, but it wasn’t last Sunday.


Anonymous said...

I think you're misunderstanding the purpose of the AAGP policy - it is unethical to pay a percentage fee from the grant itself. The funds from project grants (as opposed to general operating grants that are much more rare) are supposed to go towards direct costs of the project. Grant writing and securing funding are indirect costs and should be taken elsewhere from the organization's budget. The AAGP policy may be over-reaching or badly worded (wouldn't be the first time) but it is protecting grant recipients from what could be unethical use of grant funds. In other words it isn't the contingency that's the problem, it's the source (or perceived source!) of funds.

derek said...

Thanks for commenting Mr/Ms./Miss/Mrs./Dr./Esq. Anon,

My point is, to say that percentage contingency fees are unethical is simply rubbish.

If an unethical fee level is the issue, or if paying grant writing fees with money intended for services is the issue, then policies like AAGP should explicitly address those practices.

The policy should not condemn contingencies as if determining a fee based on percentage of a grant is the root cause of unethical practices.

Clearly no money granted to an agency should ever be expended on an unauthorized expense at any time.

Grant Goddess said...

I have reviewed the AAGP policy and AFP policy. Both are clear about not approving of contingency fees. There are several articles and discussions for each organization that explore the topic further, giving many examples of clearly unethical behavior and linking that behavior to the contingency fee--THAT must be the ethical nexus point. It's a logical fallacy. Here are my thoughts:
1- It's ultimately about communication. The writer and the client must communicate very clearly. I find that a contingency fee is rarely appropriate. When it is possible appropriate, there are many other issues that must be discussed.
2- The rules of the funder always come first. For the most part, grant writing fees (whether fixed or percentage)cannot come from the grant award itself. Period. However, there are some sources that allow it.
3- Using a percentage of the grant requested budget as a way of calculating a fee is not unethical in itself; however, a standard of reasonableness should be applied. The fee has to be within reason. Too large a fee is preying upon a desperate client, and that is unethical in any field. Of course, "too large" can have many interpretations.
4- A writer who ONLY works on a percentage basis is misguided. I wouldn't be so arrogant as to call that writer unethical.
5- In the past, when we have offered contingency fees, we always made sure that our contract spelled out the real number (not just a percentage), that our clients were fully aware that the fee could not come from the grant award AND (most importantly) clients always had (and still have) the choice of paying a flat fee instead. In fact, I have never offered the contingency. It was always requested. We haven't offered it for the last couple of years at all.

I am suspicious of any group that lables those who disagree with them as unethical.

I know some fantastic AAGP and AFP members. I also know some very bad grant writers who move from client to client just taking their money and getting almost nothing funded who keep getting work because they market themselves as AFP or AAGP "certified." I consider THAT unethical.

Anonymous said...

I think like anything else it comes back to ethics and intent. There are occassions where money is scarce and an agency may not want to commit any funds if there are no guarantees (of which there are none). In such a case a contingency assures the customer they will not be in a worse position financially should the grant request be declined. This seems reasonable to me. Further, as there may be limited to no experience with the grant writer an agency may want to be cautious and simply say show me.

The question that arises to the top is "what is a reasonable fee." For example in many legal documents they refer to "reasonable costs and fees" - but this can be interpreted very broadly.

My question then is "what is the written or unwritten standard for "reasonable."

It was mentioned that $5,000 on a $95,000 grant or let's just say 5% was not unreasonable. Does this hold true for example on a $1,000,000 grant where 5% would be a $50,000 fee. On the other end of the spectrum if a grant of $25,000 was obtained would a fee of more than 5% be reasonable.

As there is a certain amount of work that goes into the preparation does it make sense that reasonable starts at a certain amount based upon the number of hours required - regardless of the amount of the grant, therefore it may be significantly higher as a percentage if the grant is for a smaller amount of money?

Derek said...

Thank you for your thoughtful commentary on the post. Reasonable is certainly a tricky question because it is so subjective. A grant writer who freelances is always in danger of falling into the trap of chasing money out of fear that they won’t be able to pay their rent. This fear can lead to discounting a valuable service when it is unnecessary to do so, and in fact does damage to the industry. On the other hand, an agency that needs a grant may be tempted to agree to terms that are exorbitant out of fear that they may lose an opportunity for some funding.

Operating on fear is a bad idea so here’s a way to calculate reasonable. First of all, I’ve written some grants for large amounts that were relatively easy compared with grants for smaller amounts that were extremely complicated and cumbersome. So, the size of the grant does not always indicate the complexity of the application. Generally, the length of the narrative is longer with larger amounts but this is not always true and sometimes the narrative is the easiest part of the application for the writer if there are dozens of forms to complete that require gathering and processing large amounts of data.

A good rule of thumb is to calculate the number of hours an application will take to complete – include prep, meetings, communication with client, writing, preparing, compiling, publishing, and delivering the document. Multiply this number of hours by the rate you customarily charge for consulting per hour and you have a ball park figure to begin with.

Now with a contingency fee, a grant writer should be rewarded additionally for assuming all the risk. By that I mean, all the hours of work necessary to complete an application are done without pay – unless – the grant is funded. This means the writer “puts up” all the time and effort in developing an application with no assurance of being paid one thin dime. That kind of risk deserves a reward.

What level of reward is appropriate? This is where reasonableness enters the discussion. I need to be a smart businessman at this point so I consider these things that may strengthen or weaken my bargaining position:
1. Do I have a history of success in writing this particular application?
2. How does my fee relate to the salary of the person I am negotiating with?
3. What percentage of the agency’s budget does this grant represent?
4. How motivated is the client?
5. What is the time frame for negotiating relative to the deadline?
6. How necessary is my expertise in developing a sound application?

In answer to your question, in my opinion generally, a 5% contingency on a million dollar proposal would not be reasonable – UNLESS, for instance – I was the only person in the USA that had the technical knowledge to write a certain proposal (and I’m not by the way).

So in terms of reasonableness, I think there are lots of things to consider including what is moral, ethical, smart business, and fair. Toss all that together and see what you get. Just remember, you’re never going to retire on one commission, so return business and referrals are the keys to a successful grant writing career.

Anonymous said...

I have read different opinions, but is it a policy, or is this up to each non profit businesses? There is much time in filling out apps as well as writing. I feel the writer should be given something, just don't know how much to encourage him/she to write more.

Anonymous said...

This is what happens when socialists talk about ethics. If both parities agree and there is no subversiveness to the negotiations then it is not unethical.

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