The Question

“Why do some firms charge a percentage of the credit instead of a flat fee — and is that good or bad?”

Contingent fees — the “no win, no fee” model — are common in the R&D tax credit industry.
They sound appealing: you only pay if you get a credit. No upfront risk. No out-of-pocket cost until results appear.

But as with most things in tax, the truth is more complex.
The right pricing model depends on your goals, your size, and your tolerance for both financial and audit risk.

The Short Answer

Contingent fees can make sense for early-stage companies exploring the credit for the first time.
But over time, they often cost two to three times more than a fixed-fee study — and can create misaligned incentives between the company and the provider.

Sometimes, they even appear under a friendlier label — “value pricing” — which can sound client-focused but still carry the same issues underneath.

What looks like a “no risk” or “aligned” arrangement can quietly become the most expensive and risky option of all.

The Deep Dive

1. How Contingent Fees Work

Under a contingent-fee model, the R&D provider takes a percentage — often 15% to 35% — of the total credit amount as their fee.
For example:

The bigger your credit, the higher the fee — even though the amount of work required to calculate it doesn’t increase proportionally.

At first glance, that seems fair: you only pay when there’s value. But the model comes with trade-offs most companies don’t recognize until later.

2. The Rise of “Value Pricing”

Recently, many firms have moved away from using the term contingent fee, opting instead for value pricing.
It sounds more sophisticated — and, on the surface, it feels aligned: you pay for the value delivered rather than hours worked.

But look closer, and “value pricing” often functions like a contingent fee in disguise.
The firm ties its price to the size of your credit rather than the scope of work — meaning the same incentive misalignment remains.

Here’s the subtle but important distinction:

• Intended idea: Align provider and client — “We win when you win.”

• Actual effect: Incentivize maximizing value delivered (a bigger credit) rather than delivering the right value (a compliant, audit-ready credit).

In other words, it can create pressure to stretch the definition of qualifying work, inflate time allocations, or overlook documentation weaknesses — all in the name of providing “more value.”

Alignment only truly exists when both sides are rewarded for getting it right, not for getting it bigger.

3. The Pros

There are legitimate advantages to contingent or value-based pricing — particularly for first-time claimants or cash-constrained startups:

• Low upfront cost. The credit helps pay for itself.

• Provider confidence. A firm willing to take risk likely believes your claim will succeed.

• Cash-flow friendly. The fee is paid out of realized benefit, not before.

For small companies trying to confirm eligibility or test the process, this structure can make sense in the short term.

4. The Cons

a. It’s expensive over time.

Once you start qualifying consistently, the recurring percentage compounds fast.
A company with $250K in annual credits may pay $50K every year — $250K+ in fees over five years for a study that could have cost a fifth of that.

b. Incentives can skew results.

When fees scale with credit size, the provider has every reason to find “more value.”
That doesn’t always mean fraud — but it can mean aggressive interpretations or inflated allocations that increase audit exposure later.

c. Audit defense isn’t always included.

Many contingent-fee or value-priced engagements stop at filing.
If the IRS or a state authority asks questions, support can be billed separately — or not offered at all.

d. Lack of transparency.

Because pricing is tied to your credit, it’s hard to compare quotes between firms.
A 20% fee might seem fine until your credit doubles — and your bill does too.

5. The Hidden Costs

Even when the credit amount is accurate, contingent or value-based pricing can carry unseen costs:

• Dependence: Companies outsource the thinking and never internalize how credits are built.

• Investor optics: Contingent arrangements can raise eyebrows during due diligence — especially if methodology isn’t clear.

• Switching friction: Long-term percentage contracts can make it costly to change providers later.

What begins as convenience can become a long-term liability.

6. When These Models Make Sense

Contingent or value-based pricing isn’t inherently bad. It fits certain use cases:

• First-time claims when eligibility is uncertain.

• Early-stage startups using payroll tax offsets.

• One-off years with high uncertainty or unusual projects.

They make sense when you need to test the waters — not when you already know you’re swimming.

7. When to Move to a Fixed Fee

Once your credit is predictable, it’s usually time to switch to a flat or hybrid model.
Why:

• You gain transparency and control.

• The provider’s work becomes repeatable.

• Incentives shift toward accuracy and efficiency.

A fixed-fee model rewards the provider for doing it right — not for inflating the output. It also simplifies budgeting and builds trust.

The Takeaway

Contingent and “value-based” pricing often promise alignment — but alignment around what matters most?

If it’s simply the size of the credit, the incentives can quietly drift in the wrong direction.
The true alignment comes when both sides share the same goal: getting the credit right, not just bigger.

These pricing models can be useful tools — especially early on — but they work best when treated as temporary, transparent, and carefully structured.

Ask every provider you evaluate:

• Is this a contingent or “value-based” fee?

• How is it calculated?

• Does it include documentation and audit defense?

• What happens if the credit amount changes?

Clarity upfront is what keeps pricing models from turning into audit risks later.