"End User" Rate 1

[DTOREC]

I've got a regular client (another consultant) that dropped the following statement in my lap yesterday, after doing two years of work together: "these are end user rates, I need subcontractor rates."

I've never heard of such a thing in engineering services. And I'm miffed that he's saying this after two years. Does anyone out there have one rate for end users, another rate if you're working for the end user's lead consultant?

 

[rbulsara]

Rates are rates. You offer what you are comfortable with. It is always a game of who is more desperate, you or your client.

Rafiq Bulsara

http://www.srengineersct.com

 

[greenone]

Actually, the sub consultants I use do give me a different (cheaper) rate than they would use if they billed the client directly. They realize I need to mark up their rate, and clients will only pay the going rate, not the going rate plus 15%.

My subs do not have to deal with trying to get payment from the client, or managing the project.

 

[IRstuff]

In aerospace, there are lots of different rates for different contract configurations. Prime contractors typically add management and overhead on top of anything they buy, which can add significantly to the overall cost. It would not be uncommon to charge an end-customer 140% of a purchased item cost. Some companies will "eat" that overhead for the end customer, particularly if there's a cost issue. Likewise, we bookkeep lower rates for Independent Research and Development (IR&D) and capital projects, because there's less management and overhead compared to a contractual effort. I've seen spreads from $60/hr up to $200/hr depending on the situation and contract vehicle.

As with any cost structure, you start with the basic hourly rate for labor, and add to it the various overhead, general, and administrative costs. As indicated by greenone, one could discount the rate if certain things are not really being exercised.

TTFN

FAQ731-376
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[TheTick]

How about a Let's-continue-doing-a-lot-more-business-in-the-future rate?

 

[DTOREC]

Had a sit down with him. Here's his basic premise:

He wants to make sure that the end user sees an invoice from him that shows my output listed as a line item on his invoice at a price that would be the same the one I'd charge if I went to the end user direct.

Let's use $1200 as an easy example.

So if my invoice to the end user would have been $1200, he wants to make sure his invoice to the end user is $1200. So I'd have to invoice him $1000, and he marks it up. The kicker is, he doesn't want to mark anything up or show anything on his invoice. He wants to show the client my invoice on my letterhead. So for clients of his where he introduces me, he wants me to invoice the client $1200, but he also wants to send me an invoice for $200 for "consulting". Basically what he would have made on markup.

And so far he's been pushy on what it's supposed to cover. Not only my rate, but any subs I use myself. Basically the entire total that I invoice. So if my $1200 job had $500 in subs, instead of being left with $700, I'm left with $500.

I also own another company, a specialty construction company, and he's tried to apply the same logic there - "if one of my clients needs this and you can do it, I'll introduce you but you need to give me 20%." He tried to say that's how GC's work it, but I put my foot down and said, look, I've been dealing with GC's as a sub for decades, and a GC has never asked me for a cut of my end of any kind. They ask for the best price I can do it for, period. He said, well I'm not an engineer, but this is how I've been doing it.

 

[AnotherEllis]

Interesting. Have you pointed out to him that while in contracting 20% may be reasonable, in the consulting world most established firms with E&O, office space, and actual qualified staff gun for 10-15% profitability? And in this economy, 5-10% is more than most are pulling down. He is basically expecting to make 2x as much on your work as you are.

I'd start calling him Wal-Mart.

http://www.ellisconsultingengineers.com

 

[Ron]

Interesting how codes of ethics work. His first premise of billing his client $1200 and you billing him $1000 is ethical. His second premise of him billing his client $1200, you billing him $1200 and he bills you $200 is unethical. It's called a kick-back. It is a deceptive practice and it is also illegal under the engineering laws of some states in the US.

 

[rbulsara]

Agree with Ron.

Rafiq Bulsara

http://www.srengineersct.com

 

[DTOREC]

Thank you guys. I'm going to lay the law down to him Monday.

Are you guys like me, working on a Saturday?

 

[Ron]

DTOREC...doesn't everyone?

 

[IRstuff]

What's a "Saturday?"

TTFN

FAQ731-376
Chinese prisoner wins Nobel Peace Prize

 

[cvg]

99% of the time we don't mark up subs at all. why does he feel compelled to profit from your work?

 

[Ron]

cvg...if you don't mark up subs you're losing money. Your professional liability insurance alone is based on gross revenue...so you are paying for that subs fees as well as your own. Then there's administration of the billing, project coordination, etc. You need to mark it up some, but be realistic....and it isn't profit...it is just to cover your extra expenses.

 

[jgailla]

I worked on many projects where marking up of subs was not "allowed".
I typically include a line item for coordination/management of subs. On a lump sum job the extra line item covers the sub issue and provides for the profit.
On hourly rate jobs I include an estimate of hours for coordination and the multiplier on my rate for dealing with subs covers the cost.

 

[cvg]

jgailla hit it. we mark up when we can, to cover our overhead. Mostly, we include that cost in our management fee. we certainly don't expect them to give us a discounted rate just because they are not the prime consultant. If possible, we don't sub the work out.

 

[beej67]

Interesting how codes of ethics work. His first premise of billing his client $1200 and you billing him $1000 is ethical. His second premise of him billing his client $1200, you billing him $1200 and he bills you $200 is unethical. It's called a kick-back. It is a deceptive practice and it is also illegal under the engineering laws of some states in the US.

Absolutely.

Except if you're selling cars, in which case it's industry standard, and it's called a "holdback" instead of a "kickback."

Funny how ethics work.

Hydrology, Drainage Analysis, Flood Studies, and Complex Stormwater Litigation for Atlanta and the South East -

http://www.campbellcivil.com

 

[GregLocock]

I imagine that USAn Professional Engineers think that they are held to higher standards than car dealers.

Cheers

Greg Locock


New here? Try reading these, they might help FAQ731-376

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[Ron]

Greg...at present, yes.....but give it a little time....it's headed downhill!