Finder's Fee
Finder's Fee
(OP)
[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
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





RE: Finder's Fee
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
RE: Finder's Fee
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.
www.SlideRuleEra.net
RE: Finder's Fee
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
RE: Finder's Fee
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.
RE: Finder's Fee
Remember, amateurs built the ark...professionals built the Titanic. -Steve
RE: Finder's Fee
RE: Finder's Fee
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.
RE: Finder's Fee
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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RE: Finder's Fee
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
RE: Finder's Fee
respectfully
RE: Finder's Fee
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.
RE: Finder's Fee
I think the fact that you posted this question shows that you perceive something similar.
TTFN
RE: Finder's Fee
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.
RE: Finder's Fee
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.
RE: Finder's Fee
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
RE: Finder's Fee
RE: Finder's Fee
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
RE: Finder's Fee
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.
"Do not worry about your problems with mathematics, I assure you mine are far greater." Albert Einstein
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RE: Finder's Fee
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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RE: Finder's Fee
I was in a project golf tournament, sponsored and paid for by the project, and employees of the client were not allow to accept any of the "fun prizes" typical of golf tournaments. They couldn't even accept a sleeve of balls.
"Do not worry about your problems with mathematics, I assure you mine are far greater."
Albert Einstein
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RE: Finder's Fee
Your original post did not state that you had exclusively (or even preferentially) spec'd the $7.50 pipe; indeed, you say you didn't have a business relationship with the supplier. You based your initial cost estimate honestly on the best data available. Now you have better data, so the next time you should estimate pipe @ $7.50 - and here's what I think the crux of our disagreement is - TIMES 1.02%. Why? Because it will cost the next client $7.65 to get the item in question. Why will it be so cheap? Only because you buy a lot of pipe. They can't buy pipe for $7.50, because the market will not allow someone to give a small buyer pipe at a loss.
Do with the 2% "commission"/"finder's fee"/"whatever you want to call your profit" as you see fit, you've earned it. Your client got a better deal than they could have elsewhere, and it was due to your expertise. They will be back if they are smart, you will keep making money if you are smart, and the capitalist machine keeps feeding itself and my son for another day...sleep well ;)
Remember, amateurs built the ark...professionals built the Titanic. -Steve
RE: Finder's Fee
Since this is now in the realm of the hypothetical, I'd like to add a fourth option: The whole subject of ethics (especially their lack) tends to put people into defense mode. Just look at some of the threads here. Consider the mindset of the pipe seller when asked to reduce the clients invoice. Put on the spot, he is now in defense mode. He'll reduce the invoice, but future discounts may be less forthcoming. Option 4 is to gracefully accept the kickback, disclose same to client, and adjust the engineers bill to client by the same amount. No conflict of interest and no hurt feelings.
RE: Finder's Fee
In a perfect world, Option 4 would be a great answer. The problem with ever getting a penny in your hand for even a moment is that there is a real risk of a disconnect.
For example, a guy that doesn't see my invoice providing the finders fee back to the client has a conversation with the manufacturer and the manufacturer mentions that since I hooked the company up with the manufacturer they would pay MuleShoe Engineering a finders fee like they did the last time. Word quickly spreads around the engineers in my client's company that I'm taking kickbacks (everyone gossips) and I am eased off the approved vendor list and the engineer that saw my invoice is just confused that he can't use me any more.
No amount of goodwill with one individual could ever be worth the risk appearing unethical to a large company.
David
RE: Finder's Fee
3.4 Licensees shall act in a professional manner for each employer or client and shall avoid conflicts of interest.
3.4.5 More than one source of compensation. Licensees shall not accept compensation, financial or otherwise, from more than one party for services on the same project, or for services pertaining to the same project, unless the circumstances are fully disclosed to, and agreed to, by all interested parties.
3.4.6 Solicitation or Acceptance of Compensation. Licensees shall not solicit or accept financial or other valuable consideration, directly or indirectly, from contractors, their agents, or other parties in connection with the work for employers or clients for which the licensee is responsible.
This law is more or less in most all states for registered engineers and architects. You made the proper ethical, and most likely legal, decision. Your client should bring you some good beer at the very least...