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are referral fees legal? 1

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AlpineEngineer

AlpineEngineer

Civil/Environmental
Joined
Aug 27, 2006
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Location
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I have a framing contractor who sends me a few jobs a year, not a big client. He called today and asked for a 'referral fee' for sending me the latest job. I was taken aback, aside from the fact that I send some work his way and don't ask for money, this is illegal is it not? If it's not illegal is it even ethical? I am sure this would have to be disclosed to the client?
Thanks
 
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I have never given referral fees - never had to. If he was a repeat client and pays well, I usually give him a break in the price, but no referral fees. If I have a problem getting paid, forget the price break.

I feel referral fees it could get into a conflict of interest, and it borders on a kickback to me. If you have a lawyer, check it oput with him for the best answer legally.

Mike McCann
McCann Engineering
 
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Here's a snippet from the Iowa Engineering Board rules:

[blue]8.2(6)?Unethical or illegal conduct.

a. Business practices. The following guidelines regarding unethical or illegal business practices shall apply:

(1) Licensees shall not pay or offer to pay, either directly or indirectly, any commission, percentage, brokerage fee, political contribution, gift, or other consideration to secure work, except to a bona fide employee or bona fide, established commercial or marketing agency retained by them or to secure positions through employment agencies.

(2) Licensees, as employers, shall not engage in any discriminatory practice prohibited by law and shall, in the conduct of their business, employ personnel upon the basis of merit.

(3) Licensees shall not solicit or accept gratuities, directly or indirectly, from contractors, their agents, or other parties dealing with their clients or employers in connection with work for which they are responsible.[/blue]



 
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No - don't start that - it will only lead to problems. The ethics and morality of it is suspect...

Give him a price break - OK if he is a good customer and pays on time. That is a valid reason.
 
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He is just taking my bills and marking them up 10% and passing them on to the client. So the bigger my bill the more he makes, he doesn't want me to discount. Maybe I should tell him to mark them up more if he feels he needs more money out of it? I suppose at that point it's on his shoulders don't you think?.
Thanks.
 
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In that case I would say definately no. He is making his money out of you.

If he recommended you for a big job that he had no connection to, then that may be a different matter.

I dont see this as a referral since you are technically working for him. What is the difference between this and working for an architect - do you give an architect a referall fee?

csd
 
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There is nothing wrong with that then - it just covers his B & O taxes and time expended - perfectly legit business practice.

Mike McCann
McCann Engineering
 
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Referral fees is nothing more than a finder's fee, or marketing fee, or other results based payment arrangement. Why would that be illegal?

If referral fees are illegal, then all the headhunters of the US would be breaking some laws, no?

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He is trying to double dip, getting his 10% markup plus a referral fee from you.

csd
 
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Ashereng:

"If referral fees are illegal, then all the headhunters of the US would be breaking some laws, no?"

Regarding the above statement, the difference is that headhunters are licensed in the state they do business to provide just that service. They are not hiding anything. If the client is not aware of this fee, then it is tanamount to a kickback - behind the back - and is illegal.

However, markups are not so long as they are disclosed to the client in the billing and the contract.

Mike McCann
McCann Engineering
 
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As a corollary to the above post, just follow the golden rule here and you should not go wrong - do unto others as you would have them do unto you. (I believe that that is Matt 7:12)

Mike McCann
McCann Engineering
 
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