Contingency Pricing Failure – Part 2

This snippet is part of a conversation had recently with someone across the pond.
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Yesterday I addressed "value-based pricing in the extreme."

Today I'll address what's in bold.
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"R&D tax is dominated by consultants charging heavy contingent fees (value based pricing in the extreme) - HMRC are currently reviewing the R&D tax scheme because they believe that contingent fees have generated very poor behaviour in this sector (stretching the scheme boundaries in order to max fees) - our customers are going the other way - fixed fees based on value and competitive pricing - my point is there is a limit to value-based pricing and the R&D tax sector has gone past it! (it’s an extreme case)"


Clarification #2:
It's not contingent fees that generated poor behavior. It's the incentives that generated poor behavior.

People will get creative and "stretch" any scheme, when they are compensated for doing so.

To use the contingency pricing tool and generate good behavior, be transparent and incentivize what is in bounds, and be transparent and disincentivize what is out of bounds.

If at any point you sense behavior heading out of bounds, address it.