Help me evaluate this business situation

[joehvac]

Here is a hypothetical business situation that I would like to get some input on. 2 engineers. Engineer #1 owns an established one man consulting firm, with all insurances, licenses etc in place. Let's call him Upstanding Businessman Engineer, UBE for short. Engineer #2 does not have a legitimate company, but he does have a day job that exposes him to lots of people in need of engineering services. ME's day job isn't a consulting firm, and doesn't care so long as ME doesn't stamp drawings. Let's call him Moonlighting Engineer, ME for short.

ME contracts with UBE on a 1099 basis. UBE is the engineer of record, supervises ME in performing the engineering services (remotely of course) and handles client billing. Clients pay UBE, who retains a reasonable percentage for his involvement and send the rest to ME (issuing a 1099). Everyone pays their taxes, the engineer of record maintains professional liability insurance, the clients are happy. UBE is happy because he doesn't have to beat the bushes looking for work. ME is happy because he makes some very nice money without the overhead of setting up a complete firm and the risk of his day job seeing stamped drawings with his name on them.

What are the pitfalls for UBE and ME?

It seems like UBE carries most of the risk. He is the EOR. In the event of an issue, he will be named in the lawsuit. Will his professional liability cover him contracting with an uninsured "designer"? (I chose designer because ME is not acting as EOR, even though he is licensed.) Does this situation have a different risk profile that if UBE hired ME on a W-2 basis?

Is this siutation simpler than I describe it? More complex?

Joe

 

[zdas04]

The relationship is called sub-contractor and it is really common. My insurance policy has language about sub-contracting but every policy is different and UBE needs to look at the language of his policy. When I had a similar question I had my agent explain the fine print and made my business decision with that in mind. As I recall, in that case the sub had his own insurance and we just needed a waiver of subrogation issued with regard to each other and then everything was cool with the clients (they didn't need to be named insureds on his policy as long as I was a named insured on his policy).

It would be a good idea for UBE to sit down with his agent and get an opinion that means something. The agent will probably require a written contract between ME and UBE, they always seem to.

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.

 

[joehvac]

David,

Thanks for your reply. I had a feeling that who had what insurance was going to be the sticky point.

Joe

 

[MiketheEngineer]

Once again - you are asking legal questions of a bunch of enginners. CALL your Laywer!!

 

[joehvac]

Mike you have a great point. However, my lawyer charges real money to answer questions.

 

[frv]

That's true, Joe.. but it will also be real money you will lose if the advice of engineers is legally sketchy.

 

[MiketheEngineer]

And our responses are EXACTLY what you paid - NOTHING.

Do you do your own colonoscopy, fill your teeth, birth a baby, perform an apendectomy???? Guess not.

OB-GYN is whole new subject!! You wish!!!

 

[msquared48]

Done the third Mike, but not the other three... Working on them.

Mike McCann
MMC Engineering

http://mmcengineering.tripod.com

 

[urgross]

Using that analogy, I should be getting paid as much as a proctologist.

 

[Ron]

urgross....yeah, I've been told I have my head up my a$$, too!

 

[casseopeia]

What happens when the Client does not pay UBE? Does just the UBE lose out, or does ME not get paid for he work he did? If you were an employee on a W-2, NOT being paid if the Client does not pay is not an option for your employer. As a sub-contractor, it's an option as a condition precedent in your contract.

"Gorgeous hair is the best revenge." Ivana Trump