Finder's Fee 1

[zdas04]

[I've already dealt with this, but I thought it would be an interesting case study for discussion]

I recently prepared a cost estimate for a pipeline job including a length of pipe that had a published price of $8.45/ft. In this market, discounts off published prices are very rare and premiums abouve published price are pretty common.

When my client placed the order, the manufacturer called me and said that "since I had sent so much business their way, they would sell my client the pipe for $7.50/ft and pay me a 2% "finder's fee". The options that I saw were:
1. Accept the finder's fee and my client's appreciation for saving them 11% on a big-ticket item, but don't disclose the fee.
2. Accept the finder's fee, but tell the client about it.
3. Ask the manufacturer to subtract the finder's fee from the invoice to my client.

If the discussion gets interesting on this, I'll post the way I resolved it.

David

 

[LHA]

I work in civil consulting, so our deliverables are plans and reports, versus products. But the situation is the same.

Markups are the rule, if I sub something out, I add a percentage (which varies in amount) to anything before I "sell it" to my client. For good clients, often this will be waived, but there is nothing at all unethical about markups, which are conceptually identical to "finders fees", or your grocer buying a thousand apples at pennies a piece and selling you one for many pennies.

On the other side of things - and probably more applicable to your situation - I used to work for a company that made a product. Again, if we would need to add a peripheral item to the product, we would buy it, mark it up and "sell it" to the client.

Buyers generally know this, so if it is a big ticket item, and/or they want the hassle of subbing the service themselves, they can freely choose to do that. Usually, as is the case with a product - including a run of piping - the client wants what any customer wants: a finished product, which they can start using immediately; an apple ready to eat, versus finding an apple field, procuring(renting?) a ladder, picking and washing the apple...kinda hard to do in downtown NYC

Remember, amateurs built the ark...professionals built the Titanic. -Steve

 

[SlideRuleEra]

Interesting situation. I would combine Options 2 and 3...
Accept the finder's fee.
Tell the client about it.
But then negotiate (in good faith) with the client about which one of you was due either part, or all of the fee.

My reason for this approach would be make it crystal clear to the client that if you surrender the fee (most likely by applying it as a credit towards your bill), it is coming from you, not the vendor.

http://www.SlideRuleEra.net

 

[zdas04]

lha,
I agree that mark-ups are the rule and if I was buying the pipe to supply to my client, there would be an explicit mark-up (that would be significantly more than 2%) for using my funds and my administrative effort. This feels more like a "kick back" than a "mark-up".

I was well paid for preparing the specifications and cost estimates on the project. I didn't disclose to my client that I had a business relationship with the pipe manufacturer (because I didn't).

Does that make it any different?

David

 

[arunmrao]

zdas04
My advice will be to go ahead and accept. Nothing wrong in it,though this far in my life I have not accepted.

This gives you an extra bonus for any deliquencies you might have faced or will face. Even your customer may not mind it.

Recently a customer of mine in Middle East won a contract for supply of 15,00,000 security seals for energy meters. I was involved in identifying the supplier and getting samples approved,but I have not taken a cut .

I supply castings and expect to make my money this way.Rest all other assistance I provide earns goodwill. Hopefully some good samaritan might help my children.

 

[LHA]

Not a kick-back, you bought something cheaper than they could get it. That's because you buy a lot, they buy none or little. You might opt to share some of the windfall with client, but I would only do that if there was a good chance of future business. You are not obligated to give money away, which is what you will do if you share the savings. In fact, the free market demands that you don't, or you will be replace by "more efficient" marketers.

Remember, amateurs built the ark...professionals built the Titanic. -Steve

 

[Maury]

Go with option 3. However it's rationalized, the 2% is a kickback, not a "finder's fee, and it's going to obligate you to the supplier. It's sad that so many people can justify accepting a bribe.

 

[Ashereng]

What is in the contract.

If your contract says after your client accepts the $8.45/ft, then that is the price, you can accept the finders fee. Why, because if the price later came back at $9.00/ft, you would be on the hook for the price difference. This is the risk/reward part of your contract.

If your contract says you are only advising client on the price, but you are paid, for example, on hourly or cost plus, then you need to tell your client about the 2%. In this case, you can discuss who gets what, but ultimately, it is his money because you are paid on hourly, cost plus, etc.

 

[CorBlimeyLimey]

What's the difference between the supplier giving you a "finders fee" & you passing it on to your client as an "extra discount"? Does that then make you a "briber"? Does it then obligate your client to you?

The order was already placed so the finders fee was a thankyou. It was not a bribe to get the order. If you went with option #3, you will probably never have the discount or the finders fee offered to you, or your clients, again.


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[zdas04]

Ashereng,
I was working by the hour for my client doing the design work. I gave him my best estimate of material and labor costs on the project for budgetary purposes and left it to him to negotate actual pricing and delivery. I didn't have any money at risk other than my consulting fee.

David

 

[waross]

I run into this fairly often. It is a common form of bribery in this area. Maintenance electricians are commonly paid a "Finders fee" on purchases made in the normaL course of their work. I have seen a lot of transformers installed instead of changing the motor connections for the express purpose of inflating the cost of the project and the amount of the "Finders fee." I ask the vendor to subtract it from the invoice. I inform the customer that I have negotiated a discount on his behalf. If I had to choose between my charges to my customers and the "finders fees" I would go with my normal charges. I couldn't live on the finders fees.
respectfully

 

[Ashereng]

zdas04,

If that were me in this case, I would tell my client about the 2% finders fee/rebate. And, I would consider it his. I would suggest he share it, but under no obligation.

Next time, I would write into the contract that the finder's fee, if any, would be split x vs y. Fool me once...fool me twice...

You have earned the fee by your work and relationship with the vendor. You should get to keep a portion of it. Unfortunately in this case, it was not in the contract - hence, it is not yours.

That's my thought.

 

[IRstuff]

Since the "finder's fee" is not the result of any price reduction in the product, and is, in fact, a combination of incentive/reward for steering business toward a particular supplier, it is, at the minimum, a conflict of interest. The end goal of this transaction is mostly about incentivizing you to continue to generate business for this supplier. That's something you need to air out.

I think the fact that you posted this question shows that you perceive something similar.



TTFN

 

[cadnutcase]

Question for ZDAS04,

If the pipe supplier was to take you to dinner or get you football tickets for sending a client his way, would you turn him down?

If the client did not have to go with that vendor, then I don't see this being a big deal. I would kindly inform your client and see if he has a problem with this. I am guessing that he will not.

This stuff happens all the time, usually not on the record though.

 

[dbuzz]

Consider these extracted claused from the Code of Ethics for the Institution of Engineers, Australia:

Members, in complying with the Code of Ethics:

should keep their employers or clients fully
informed on all matters, including financial
interests, which are likely to lead to a conflict of
interest;

should neither solicit nor accept financial or other
considerations, including free engineering designs,
from material or equipment suppliers for specifying
their products;

Hopefully you followed your third option.

 

[zdas04]

This is a great discussion. My total time of pondering this topic was a very few seconds. I took option 3 and never considered either of the other two. Like wross, I can't live on the finders fee and my relationship with my client is far too important ever to risk even the appearance of impropriety.

Occasionally I use a product that I like so much that I buy stock in the company. Sometimes I do work for manufacturers. In either of these cases if a product of those manufacturers is the best solution for a particular problem, I insert a disclaimer "MuleShoe Engineering has a financial interest in this product, please consider carefully if you believe that that financial interest has affected the recommendation and if you should consider the following to be simple sales literature" and then deduct the time it takes to write the section on the product (and to do the analysis) from the time tha I'm billing. Frequently I can re-bill the time to the manufacturer, but sometimes I can't and just eat it.

IRSTUFF, I will take a hat from a vendor for my ball-cap collection. If I'm traveling already and and a vendor is taking a group to a football game I'll go along. I try very hard to purchase at least half of the meals I eat with vendors. I won't ever accept airline tickets, hunting trips, hotel rooms, or gifts of substantial value. Tickets to sporting events are only acceptable to me if the cost is not substantial and if there are other clients also attending (I got a pretty big job in a sky box in the basketball stadium in Salt Lake City once, I don't even know who was playing).

I sleep real good at night and it takes zero effort to "keep my stories straight". I'm making a great living and the finder's fee would not have added substantially to my quality of life.

David

 

[arunmrao]

Congrats on your choice. Truth is only one,while lies can be several. Also you sleep soundly,that's a great boon!!.

 

[IRstuff]

We've always had a limit of something on the order of $5 for "gifts," as well as similar guidelines regarding how many people are treated with such gifts.

In the defense industry, appearances can be as damaging as actualities. But, it's generally accepted that caps and mugs are sufficiently valuable to be considered a form of bribery or incentive.



TTFN

 

[Ashereng]

I didn't interpret zdas04's OP as accepting swag.

I interpretted it as:
- My company bids on a contract to procure pipe at $8.45/ft.
- My company finds a better price of $8.30/ft.
- Does my company get to keep the profits? Of couse it does. Because, if the best my company can do is $9.00, my company loses money.



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[HgTX]

In the defense industry, appearances can be as damaging as actualities. But, it's generally accepted that caps and mugs are sufficiently valuable to be considered a form of bribery or incentive.

I hope you meant *not* sufficiently valuable...

Though there are some public-sector employers who don't allow their employees to accept so much as a pencil.

Hg

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