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Contingent fees – a positive sign that we’re aligned to our clients

Posted on Friday 25 November 2022 by Luke Hamm | Chief Executive Officer

In recent press coverage, I’ve noticed that some commentators have used the term “no win, no fee” as a derogatory indicator of poor practice. That it forms part of this “rotten” R&D market that encourages fraudulent and negligent behaviour from some R&D tax providers. I think that this is just lazy, and for me, is just as blunt as the cut to the SME scheme.

Contingent fee – when client and R&D provider are aligned

It’s really worth remembering that no win, no fee is not the enemy here, unprofessional conduct is. Taking aim at no win, no fee is just an inaccurate trope, when many professional service providers and their clients welcome this approach. If, instead, you call this arrangement a contingent fee, or value based, then you start to see the point. An R&D tax relief agent is paid for the value delivered as opposed to the amount of time it takes to deliver. The provider and the clients’ interests are more closely aligned because they both benefit from a successful and optimised client claim. Contingent is appropriate where there is uncertainty in scope or risk and when you walk into a situation. Depending on innovation, scope tends to move, and it can’t be right if a provider is forced to pull the hand break up because they are out of budget.

Providers with contingent fees often expect to spend more time with their clients, across their different sites and business units to go wherever the evidence takes them. This will be done by technical specialists, engineers or business people with R&D experience and expertise. Clients can usually expect that with contingent fees Enquiry defence is included as part of the success fee. Is a time-limited initial report that goes into enquiry and the clock starts ticking for the client again fair? I’m not so sure.

Contingent fees promote a feeling of working side by side. On the other hand, fixed fees can be purely transactional – like buying a tin of beans. I reiterate- how you charge isn’t the issue, culture and conduct is.

The risks with a fixed fee arrangement for R&D tax services

Fixed fees risk leaving the client unsure of what the final costs will be, and whether they are going to benefit overall. It can be argued that the advantage of fixed fees is that the cost directly reflects the actual time spent, however, it restricts a provider who then isn’t free to explore all aspects of the clients work to uncover the true extent of their claim. What happens if the time and budget is reached before the full value of the R&D claim has been discovered?

If an R&D provider offers fixed fees, they will probably be offering an automated or standardised service, they may only use generalist staff. It is unlikely that HMRC Enquiry defence will be included, and this would be a risk to the provider who might be on the hook for escalating costs. This later point is key – use the wrong R&D provider and you could be left high and dry if HMRC have concerns about your claim.

We have worked with a number of businesses where we are at risk to help scope out their qualifying expenditure and our advice was not to make a claim. Because we are not on a fixed or time based cost then that remained our risk, the client wasn’t charged. How would that land if there was a fixed fee? Would the provider be tempted to find a claim to justify the fee? Surely this is where there is a potential for fraudulent behaviour.

When are fixed fees appropriate?

Having said that some of our GovGrant services are fixed fee – usually when we review a previous claim that a client brings with them from another provider. Or when they seek our advice through our HMRC Enquiry service. Here we have a clear idea of the details of the claim and can scope the work involved in checking and verifying that work upfront. The other area is our IP Harvest report which again is fully scoped and answers specific questions for the client.

Fixed fees are appropriate when there is a known scope of work with minimal tolerance, risk is well understood from the outset and the deliverable is quantifiable.

The real risk is incompetent or fraudulent service providers

The truth is that poor practice can happen under either pricing model. But R&D tax done well is still risk aligned. We welcome increased scrutiny, attention to accurate scope, ongoing education and continuous improvement. Innovation always moves so if advisors are just on the clock or fixed fees – how is that aligned to client success?

A competitive market decides the price, and this is a competitive market – fees are appropriate, and evolution happens with individual clients based on their circumstances. I am proud of our ability to offer different pricing models to make sure our expertise is accessible to those that need it.

GG RD tax relief

 

About Luke Hamm | Chief Executive Officer

Joining GovGrant in 2017 as Commercial Director, Luke now brings his passion for client delivery to the role of CEO. He ensures that GovGrant is taking its place as the UK’s largest specialist provider of IP services and R&D tax relief, helping our clients commercialise innovation. View profile