AE Blog - Contingent Fee Contracts
A contingent fee contract for professional design services is one in which payment to the Consultant for his or her services is dependent on the actions of an entity other than the Client. A contingent fee contract likely creates the highest possible business risk to the Consultant. The risk is so high that entering into a contingent fee contract for many Consultants requires the specific approval from the highest levels of management. Contingent fee contracts are considered so problematic that many public agencies are prohibited by law from entering a contract until the project is fully funded.
Generally speaking, consideration of accepting a contract containing a contingent fee clause should begin with refusal to accept the contract. Then move carefully away from refusal toward some justification for accepting it. Here are some things to take into consideration:
- Is there prior positive experience with the Client during which the Client has demonstrated correct judgment in evaluating the risk of the contingency being overcome?
- Is there prior positive experience with the entity that controls the funding on which the fee is contingent?
- Is the Consultant’s economic situation such that the risk is warranted?
- An alternative to refusal could be proceeding with negotiating the contract scope, schedule, and budget with the understanding that work will not begin until the contingency is removed.
- Be aware that investing further time, energy, and money into the consideration process can create undue pressure to accept the contract.
All of the above considerations still contain considerable risk requiring managerial judgment and should be viewed as such.