Compensation Question for Consulting Engineers 4

[GJD56]

I am working with a client who has started a new business. He has a need for some FEA work to confirm his patented design will match or exceed the stresses found in other commercially available designs, but is finding the cost for such work more than he wants his new business to have to pay at present. Would it be an acceptable and ethical proposition for me to offer to do the work at no up front charge, but to ask that I be given a % of the revenue he obtains from the sale of his product up to a fixed and acceptable amount we both agree to? The obvious downside for me is that I may not get any compensation, but the work will not take more than a week or so of my time. If my potential client does sell his product, and he likely will because it is a really good idea, then I would be compensated more than my original not to exceed price.

 

[SteelPE]

Maybe I am not an ethical person because I don't see anyway this would be unethical. Now when he makes millions and doesn't pay you a dime.... that would be unethical.

I imagine you would need to get lawyers involved up front to make sure you are going to be compensated. By the time you guys are done paying for the lawyers he might as well have paid you up front to do the weeks work.... I mean, how much are we actually talking about in up front charges? Even if you charge $250/hour we are only talking about $10,000 for a weeks worth of work.

What about insurance? Are you going to seal anything for him? If the product fails, are you going to get sued by the person using the product? That would kind of stink to be sued over the design of a product you never got paid for.

 

[GJD56]

Thanks for the reply. My terms and conditions the client must sign before I do work for them requires them to limit my liability to the amount paid by them to me should a legal issue arise. I also make clear that there are no warranties implied and that the work will be done in a manner commensurate with other professionals.

Now if the client does not pay... Well lesson learned and I'm out a week or so of time.

Thanks again.

 

[TheTick]

Beware the flakey inventor. To everything costs too much, everything is a rip-off or a gouge, and no one is entitled to a piece of the action. You may strike a deal, but good luck collecting.

 

[Ron]

GJD56....I'm not sure if you are a member of any of the major engineering societies in the US (assuming from the vernacular that you are in the US), but if so, there is an ethical prohibition against doing contingent fee work. The reason is that there might be a perception of compromised judgment for the sake of a positive outcome of the contingency.

 

[SteelPE]

Never thought of it that way Ron. I can now see the dilemma there. However, I seem to remember some years ago about some companies developing different types of systems and connections to resist seismic loads. I seem to remember diagonal bracing that had some form of shock absorber inside to reduce the demand on the structure. I'm sure an engineering company came up with the design and is making money off of the design on a regular basis. Wouldn't that fall under this category?

 

[coloeng]

The terms and conditions that your client signs only binds that client it doesn't bind any third parties that may sue you.

 

[zdas04]

Ron,
You are a kill joy sometimes

GJD56,
I took company stock as compensation once (at current market price), got my full charge rate and had a market valuation for the stock so games were not being played. It felt kind of close to the line that Ron mentions (and a bit like insider trading since I was sure that the work I was doing was going to send the stock through the roof), but my attorney said it was well on the ethical side of the line and not insider trading. On the other hand the company eventually went bust and I got nothing for the work, but that was my risk. I rationalized it as though I had taken money and then bought their stock (without the broker's fees). That might be a way to legally do what you are trying to do.

Coloeng,
That is a good point that often gets skipped in these discussions. Any agreement can only be binding with regard to the signatories. An injured third party can bring action against anyone they think they can prove harmed them. I've entered into a couple of agreements where the company reserved the right to fight any action against my company for actions related to the contract (i.e., the contract required their approval to settle an action, and if they rejected the settlement then they assumed all liability), but those are really rare in recent years. An agreement between two parties that limits liability to the amount paid feel really warm and fuzzy, but they don't provide a lot of protection.


David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
The plural of anecdote is not "data"

 

[stevenal]

I'll go with Run here. You only get paid if your analysis shows acceptable results? Sounds like a clear conflict of interest that a licensing board would have a problem with.

 

[Ron]

David...my wife tells me the same thing!

 

[DHambley]

GJD56, I've been in the situation several times where an inventor has an idea but he doesn't know how his invention can be implemented so, they wanted me to perform analysis and design it for them. I would advise that you don't sign any drawings in these situations. I have been issued stock which eventually becomes worthless. After those experiences, I simply bill. Bill at 30 day net and, if he can't pay until profits come in 1-1/2 yrs later, so be it.
On the contingency fee issue, Companies offer stock to their employees all the time. This does not mean that this is 'insider trading' or that there is a 'conflict of interest' because you know the stock will go up if you design that box well. Microsoft engineers would not be allowed to perform engineering for Microsoft if this were the case.

 

[Ron]

hqldr...the prohibition typically only applies to licensed engineers, not those in exempt industries.

 

[zdas04]

Seems to me that the risk of a stock going worthless is about the same as the inventor not making a profit to pay you a percentage of. If the OP is considering taking a future percentage (not ethical) then taking a stock position (ethical) would be pretty close to the same risk.

What is not ethical for a P.E. would not be ethical for an Engineer with an industry exemption, but for the latter there is no one looking to enforce ethics on you except you and your employer.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
The plural of anecdote is not "data"

 

[GJD56]

Thanks to you all for your notes in reply to my original question. What I failed to make clear is that I told my client that if the analysis I conducted showed his design to be inferior to a currently used design, from a stress perspective, that I would assist him in modifying the design so that the deficiencies were corrected. My ethics requires that I be honest in my analysis and that I make clear to the client deficiencies that are present with his design concept. I understand the concern for a conflict of interest, but the only way I would proceed with this work would be to ensure that any deficiencies were identified and corrected before presenting the design to potential customers.

Obviously the ethical concern might still be there, but documenting the work, ensuring that the reports are referenced and made available to the public for review and then providing the report to the prospective customers for their review seems to me to be a legitimate method of addressing the concern voiced by Ron above. I am a PE and intend to check further into this issue relative to my state's NSPE chapter.

As far as liability is concerned....your notes pertaining to this issue are well founded and well stated. I intend to look further into the liability questions by addressing them to my attorney and asking if my terms and conditions would suffice to protect my practice given that I state in the T&C's as follows:

"Documents and Information: All documents, data, calculations and work papers prepared
or furnished by CONSULTANT are instruments of service and will
remain CONSULTANT’s property. Designs, reports, data and other work
product delivered to or on behalf of the Client are for Client’s use only for the limited
purposes disclosed to CONSULTANT and subject to Client paying for the services to provide said work product. Any delayed use, use at another site, use on
another project, or use by a third party will be at the user’s sole risk and Client agrees to
indemnify and defend CONSULTANT against any liabilities resulting
there from. Any technology, methodology, or technical information learned or developed by
CONSULTANT will remain its property."

There is additional verbiage in the T&C's, but obviously if someone wants to sue, they can and if they prevail in court, even professional liability insurance will only go so far. Thus, creating the LLC. Anyway....thanks again, folks. Great to know that I have colleagues in the field willing to give of their time to answer my questions.

Best regards to you all!

 

[stevenal]

Sounds like two issues are being discussed. The employee is expected to work for the company and its stock holders, so there is no conflict when asked to aid in a design that might increase share value. Quite a bit different is the independent consultant asked to analyze a completed design, and who who might have a financial incentive to fudge the results.

 

[TheTick]

No one is questioning your personal ethics. It's a question of complying with the ethics of the profession.

 

[zdas04]

GJD56,
Keep telling yourself that the LLC protects your personal assets. It isn't true, but keep telling yourself that. According to the corporate attorney of the major company I used to work for, when a P.E. is sued, the company is forbidden by law from participating--the P.E. is on his own since the P.E.'s work and stamp represent individual effort not corporate effort. The suit names the P.E. as an individual (often in addition to naming the company) and the liability is personal.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
The plural of anecdote is not "data"

 

[Ron]

David...YES! Currently there is legislation going through committee in Florida to reverse previous law. New law will allow the individual to be contractually protected from lawsuit if the company is sued. Probably won't make it through.

 

[zdas04]

With the Supreme Court saying that corporations are people, maybe Florida will say that a corporation can get a P.E. Beyond that, the proposed law will certainly be declared "not in the public interest" by federal courts the first time they hear a case that started under that theory.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
The plural of anecdote is not "data"

 

[moltenmetal]

I'm having a hard time understanding how contingent fee work is fundamentally unethical, though I take Ron's word for it as to the viewpoint of his state regulatory body or bodies.

It seems to me that the OP is being asked to carry out a work of invention: to take the inventor's item and modify it so that it is safe but its native advantages, whatever they may be, over whatever is out there on the market right now, are also retained.

Works of invention can be carried out on one of two bases: either you are paid your normal fees and retain zero ownership over what you produce, or you are paid something less than fair market value for your work NOW in return for a piece of future profit. Which of these is chosen is a contractual matter, not an ethical matter in my view. There are entire businesses set up to carry out works of invention for others via joint development agreements, with part or all of the "pay" given on a contingent basis. That pay can be via royalties, licensing fees or other measures of ownership in return for work and expertise given "free" or below market rates. It is obviously "cleaner" to do work for hire only, but not fundamentally unethical to do otherwise. Doing work "for hire" is no guarantee of being paid for it either - though given the ratio of inventions which dramatically succeed versus those which fail to generate a penny for the inventor, betting on the winners only is on average a losing strategy.

Professional engineers are ethically bound to hold the public safety as paramount, to use the language of our own local licensure body. It doesn't matter how you are paid- that ethical responsibility is always there. An employee could be tempted to do negligent work or to take unacceptable risks in a design to keep their employer from going bankrupt and finding themselves out of a job, just as easily as a contractor could be tempted to fudge the results of an analysis in order to be paid- or merely to keep a good client. It is unethical to bend to that temptation, but not unethical to enter into a situation merely because it might tempt you.