Contingency fee versus flat fee, explained
When a firm reviews your costs, you will be asked to agree to a fee. Two models come up most: a flat fee and a contingency fee. Each moves risk and cost in a different direction. This article explains both in plain terms, then gives you questions to ask. Fairview does not set any firm's fees. Fees are agreed between you and the firm.
How a flat fee works
You pay an agreed amount for a defined piece of work. The amount does not depend on what the review finds. You know the cost before work starts, and you owe it whether the review finds a lot or a little.
A Washington State Bar Association article on fee arrangements describes the flat fee, in the legal setting, as one agreed amount based on typical work rather than hours. It lists two benefits: the client knows the cost in advance, and the provider gets payment early. It also lists drawbacks: the client may not want to pay everything upfront, and a fixed price can push a provider to take on more work than it can handle well.
How a contingency fee works
The firm is paid only if something is recovered, and the payment is tied to the amount. The same article describes this model as typically a percentage of money recovered, with no upfront cost to the client, and with both sides sharing an interest in a sensible result. The drawbacks it lists apply here too: the provider may wait a long time for payment, and a client may question whether the fee matches the effort when a large recovery comes from little work.
Our contingency fee glossary entry gives the short definition.
What changes for you
- Cash. A contingency model avoids an upfront payment. A flat fee asks for money before results are known.
- Predictability. A flat fee is easy to budget. A contingency fee is known only after the result.
- Scope. A contingency firm may choose to review only the areas where recovery looks likely. A flat-fee firm is paid for the scope you agree.
- Types of finding. Some findings do not produce a refund, such as a contract term you can renegotiate for the future. Ask how each model treats them.
Some firms use other models, such as a fee tied to ongoing savings, or a mix. [CONFIRM: a partner firm supplies and approves any statement about the fee models it offers]
Questions to ask any firm
- What is the fee, how is it calculated and when is it due?
- If the model is contingency, what counts as a recovery? Cash refunds only, or also credits and future savings?
- What is the percentage or rate, and does it change by type of finding?
- Are there expenses on top of the fee, and who pays them?
- What happens if the review finds nothing?
- Who decides whether to pursue a correction with the vendor or landlord?
- How long does the agreement last, and how can it end?
- Are any fees owed after the agreement ends, for savings that continue?
Ask for the answers in writing. If a term is unclear, ask for it to be rewritten in plain words.
Connect the fee to the scope
A fee only means something when the work is defined. Ask what will be reviewed, which documents you provide and what you will receive at the end. The same point appears in how matching works at Fairview and in our guide to questions to ask a partner firm.
For reviews of recurring spend, such as accounts payable audit, recovered amounts can be easy to define. For reviews of contract terms or leases, the value may come over time, which makes the definition of a "result" more important. See lease audit and compliance for the kind of review where this arises.
Legal rules on fee agreements vary and may limit certain arrangements in some professions. [VERIFY: rules on contingent fees for the profession and jurisdiction of the firm you choose]
Sources
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