Working on a proposal for a large hospital system in Philadelphia — 12 accounts with PECO, total spend around $180,000/month. They're interested but balking at my standard 40% contingency. Their CFO says that on a recovery this potentially large, 40% is too rich. Anyone use a sliding scale where the percentage drops as the recovery increases?
Sliding scale contingency — lower percentage for bigger recoveries
I use a tiered structure for big accounts. First $50,000 in recovery at 50%, next $50,000 at 35%, everything above $100,000 at 25%. The client feels like they're getting a better deal on large recoveries and my effective rate on a $200K recovery works out to about 34% blended. Everybody wins. For your hospital with $180K/month spend the potential recovery could be substantial and the sliding scale gives their CFO the optics he needs to approve it.
I do something similar but simpler — 40% on recoveries up to $100K, 30% on anything above. Easy for clients to understand and it gets the deal done on larger engagements where a flat 40% feels excessive. The key is making sure your engagement agreement clearly defines how the tiers are calculated and what counts as a recovery. Ambiguity in the fee structure is where disputes come from.
Sliding scales are a smart tool for larger engagements. The principle is sound — your marginal effort on the 10th finding is less than on the first, so a lower marginal rate is fair. Vince and David both have workable structures. The critical thing is clarity in writing. Define what constitutes the recovery amount, whether it's calculated on refunds only or includes ongoing savings, and over what time period ongoing savings are measured. A well-written sliding scale agreement prevents disputes later.