Paying Commission On Grant Proposals: Don’t Do It
May 13, 2014 The NonProfit Times
Developing a grant proposal takes a lot of time, and time is money. Since there are no guarantees that a proposal will pay off with a grant award, organizations often want to pay for proposal writing on commission. In these “contingency payment” agreements, the writer receives a percentage of the grant amount if (and only if) the organization wins the grant.
“The urge to minimize risk by paying on commission is understandable,” said Holly Thompson, contributing editor for the Grantsmanship Center in Los Angeles, Calif. “But, don’t do it.”
Contingency pay is considered an unethical practice and is prohibited by leading professional groups, including the Association for Fundraising Professionals (AFP) and the Grant Professionals Association (GPA). “There are lots of reasons” for the prohibitions, said Thompson.
“First, pre-award costs are very rarely allowable line items in a proposal budget, and many grantmakers will not support fundraising expenses at all. It is extremely unlikely that you can use grant funds to pay the proposal writer. Doing so could, in fact, result in termination of funding.”
Second, real grant development professionals deliver a high quality product for a fair fee. They don’t gouge. A professional might, for example, spend 160 hours pulling together a highly complex proposal that results in a $5 million grant award. Paying that consultant at $100 per hour for high-level skills would result in a fee of $16,000 — pretty standard for top-level work.
But paying on a 5% commission would result in a $250,000 fee ($1,562.50 per hour), or $500,000 ($3,125 per hour) for a 10 percent commission, which is outrageous. And since the pre-award work won’t be an allowable expense within the grant budget, where is the money going to come from?
Thirdly, many variables impact grantmaking decisions, only one of which is how well the proposal is written. Success or failure does not lie in the hands of the proposal writer alone. “Winning grants depends largely on the level of community need and the effectiveness of the applicant organization in responding to that need. The organization’s track record, capacity to implement programs and deliver outcomes, partnerships within the community, and ability to sustain the project are huge considerations for funders. These elements are not in the proposal writer’s control,” said Thompson.
You are paying a proposal writer for a solid, professional job, not for a grant award. The applicant organization must assess the situation and assume the risk of moving forward with a grant proposal. “That risk must rest with the organization,” said Thompson, “not the consultant.”
Finally, 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 and some can take between six months and one year to be processed. “Waiting until an award is received to pay for proposal writing services is unfair to the writer and could also ding your audit,” Thompson warned. “And don’t forget, taking the consultant’s fee from the grant award is probably a prohibited expenditure.”
Grantseeking is an inherently risky endeavor, but it’s a cost of doing business. “Organizations wanting to make a serious commitment to grantseeking should make as serious a commitment to funding it,” Thompson said. There is no guarantee of a grant award no matter the proposal writer’s skill. But working with a skilled consultant can help your organization make the best possible case for funding. “Always play fair and pay fair,” said Thompson.