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Providing services to a company that wants to provide a full package

Providing services to a company that wants to provide a full package

Providing services to a company that wants to provide a full package

(OP)
I have a guy that wants to be able to have engineering services available so that he can offer a complete package to his customers. It is looking like I want to setup a retainer type agreement so that he stays high priority in being able to get engineering services quickly for his clients. His business is not an engineering company but compliance company. We sort of want to have a business to business relationship where I do the engineering support and he can do his compliance work. I have read that some states have hooks about finder fees but what kinds of issues are there in providing services in this way? My engineering fees at least as he described are going to be pass through since he just doesn't want to lose clients to business that offer turnkey services. Finders fees seem a little merky but it seem like being under a sub-contract is kind of doing the same thing in an indirect way. Every state has their own guidelines but what are some things I should be worried or aware of ?

RE: Providing services to a company that wants to provide a full package

What kind of "engineering services"? Do these need a PE stamp?
"Compliance" to what exactly?
Who would be paying you? the "guy" or "his clients"?
Are you planning to charge by the hour or by the job or ?

RE: Providing services to a company that wants to provide a full package

(OP)
The guy would being paying me hourly with a retainer. He does NERC, electrical grid compliance. He said he used to have a guy and that guy got a big project so no longer had time for him. I think the guy is running into a situation where he is small enough that he doesn't have full time work for an engineer, the EPC's either don't want to deal with him or are going to charge him a lot, and he is afraid of them taking his clients. The hourly rate he is offering is decent for the part-time work. I would be stamping and taking ownership of the engineering work.

RE: Providing services to a company that wants to provide a full package

Need to be sure to have insurance coverage. Either have the cost rolled into your rate or have him pay for it directly.

Are you licensed in the states where the clients are located?

You will want a clear contract set up with him.

RE: Providing services to a company that wants to provide a full package

I personally refuse to offer engineering services to any middle man other than a licensed architect or general contractor. In my view, in these types of arrangements, the middle man is offering engineering services without a license, and the engineer taking the pass through fee is enabling the middleman to do so, which is against the rules. Think about it like this, if a random person who is a dentist or a bus driver wants to try to get into business offering engineering services and makes an arrangement with an engineer to perform the services, do you think the dentist or bus driver should be allowed to do that?

RE: Providing services to a company that wants to provide a full package

(OP)
Gte447f,

How are service agreements or contract houses different?

RE: Providing services to a company that wants to provide a full package

Fischstabchen, I don't understand your question. Can you clarify?

RE: Providing services to a company that wants to provide a full package

(OP)
I understand your statement and don't think it is invalid. It is just the notion that engineering services aren't sold by intermediary parties is kind of flimsy when you have contract houses, service agreements, and other types of employment arrangements. I am not saying you are wrong and I asked this question due to me having the same though you are having. I think I am just going to have to right up the contract to allow for flexibility based on state laws and regulation and allow for the arrangement to be direct or indirect. I am still bringing this to my lawyer but I am putting down the general framework.

RE: Providing services to a company that wants to provide a full package

What do you mean by contract house? Sorry, I'm not familiar with the term.

What about service agreements? I sign service agreements with my clients to perform engineering services for a fee. The clients are either a licensed architect, licensed general contractor, or the direct beneficiary of the engineering services. I would not sign a service agreement with a middleman to provide engineering services.

Employment contracts? I would expect the employer to be duly licensed to perform engineering services.

RE: Providing services to a company that wants to provide a full package

(OP)
By contracting house, I mean contracting agency where you hire on as an employee to them and then they have to do work for a client.

RE: Providing services to a company that wants to provide a full package

OK, the term I am familiar with is staffing agency. I think it is the same. Anyway, I would expect the company offering engineering services to be duly licensed to do so. They cannot skirt the engineering laws and rules by contracting a temp staff engineer through an agency, or at least its my opinion that they should not be able to. I would like to think that most state engineering licensing boards would agree with me. It should really be very easy; you should not be able to charge money for engineering services if you are not an engineer.

RE: Providing services to a company that wants to provide a full package

Quote:

you should not be able to charge money for engineering services if you are not an engineer.

I'm not sure that's the way the law is interpreted; a publicly traded corporation is ostensibly owned by stockholders who aren't necessarily engineers, but the corporation can charge for the services of its employees. The corporation may be required to have licensed engineers as officers of the corporation, but the corporation itself isn't an engineer.

TTFN (ta ta for now)
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RE: Providing services to a company that wants to provide a full package

IRstuff, yes that is how the law is written in every state where I have been licensed. By engineer, I mean an individual or a company with an engineering license. Companies have to be licensed as engineering companies, an engineer. Therefore, my statement stands, you should not be able to charge money for engineering services if you are not an engineer.

RE: Providing services to a company that wants to provide a full package

IRstuff, I should add, the matter of companies having to be licensed as engineers (engineering companies) is the entire crux of the OP and this thread. The OP has been approached by an individual or a company (makes no difference whether one or the other) that is not an engineer (or an engineering company) but wants to sell engineering services, so they think they can subvert the requirement to be licensed simply by acting as a middleman/broker and passing the money and the contract for engineering to a real engineer. That practice shouldn't be allowed in my opinion, and I think most state boards agree with me.

RE: Providing services to a company that wants to provide a full package

gte447f - I agree with you that somebody shouldn't be able to say "I'll provide engineering for X" and not be an engineer but just hire one as a pass through. BUT...I work with architects who are not engineers who offer full design packages - they provide architecture and engineering to their clients by hiring consultants to do the parts they can't. I've worked with contractors on design build jobs where the contractor hired the entire design team, offering building, architecture, and engineering services to their client without being a license architect or engineer.

So I think there's room to differentiate between a strictly pass-through sort of arrangement where the 'middle man' is just offering a service they can't legally offer and a situation where the licensed individual is a value add to the business arrangement.

The OP sounds like the latter. One business is offering a non-engineering service, but there is a closely related engineering service they cannot offer. Their competitors have engineers on staff that allow them to do both. This client wants to partner with an engineering firm rather than hire one directly so they can each do their own half of the package. Sounds very much like my arrangements with architects.

RE: Providing services to a company that wants to provide a full package

phamENG, if you reread the thread and my posts from the beginning you will see that I listed the exact two exceptions that you have mentioned, licensed architects and general contractors, as the only "middle men" that I offer engineering services to. In the case of architects, there is historical precedent there to do so, and I think this historical precedent is likely to be recognized, respected, and allowed by most state licensing boards. In the case of general contractors, design-build has weaseled its way in as an accepted project delivery method thanks to lobbying by interest groups, but I believe some state boards (e.g. New York) explicitly reject contractor led design-build for engineering services. I personally think deign-build should not be allowed, but it is. However, other than these two exceptions, which I have acknowledge throughout this thread, I don't think any other pass through arrangement is intended to be recognized under common engineering licensing laws and rules.

RE: Providing services to a company that wants to provide a full package

I know you did - I'm just saying that I don't see that there's a difference here.

For me, the important metric is whether or not the 'pass through' entity profited from my service beyond the fact that my presence made the deal more marketable. If they did, then we're probably not okay. An architect charging a 10% or 15% markup to cover administration of the contract and coordination of the design team - okay. Architect billing $50,000 for engineering services while I'm only billing them $35,000? Not okay. So I'm okay with an unlicensed house designer hiring me to do the structural design of a house so long as A) the house doesn't require a licensed architect and B) they are simply passing the cost on and not inflating my price to line their pocket.

In our line of work (structural engineering), it's pretty rare to have a potential client that isn't the owner, another RDP, or a contractor. But in other disciplines, dealing with environmental work, utilities, etc. there's a lot of overlap between the engineering and the legal compliance side and I could see such an arrangement being perfectly ethical and acceptable. The finder's fee is certainly questionable, though.

RE: Providing services to a company that wants to provide a full package

phamENG, I highly respect your contributions on this forum. It's clear that you have a lot of technical and business acumen as it relates to structural engineering. But, I strongly disagree with you on this topic. I know I am probably in the minority on this issue, but I have arrived at my position over the last 15 or so years of operating as a small time solo firm. Overtime, an obvious and distinct pattern has been revealed in my practice, and that is that the only time I really face this decision of whether or not to contract with an unlicensed entity to provide pass through services, it is inevitably a fringe element that is basically swimming in the deep end where they have no business and they need me to be their rescue swimmer. Why would I do that? It is like the ring master working for the clown.

Your example of an unlicensed home designer is a perfect example. I face that situation routinely, and I always simply bypass the middle man and contract directly with the owner. If there is any pushback on that arrangement, then one or both of the other parties is either, at best, unsophisticated, or, at worst, shady, and I want nothing to do with the project, and walk.

Also, relying on vague concepts, such as the $$$ magnitude of the mark-up on the engineering services, to distinguish between a passthrough/broker/finder fee/kickback type arrangement and a legitimate "value added" arrangement is too subjective and too easy to game or manipulate. A broker can always make a value added argument for their services, that is after-all, the only service that they offer, connecting two parties that needed help connecting. But, it's my understanding and interpretation of the engineering laws and rules in my state, that brokers are not allowed to sell engineering services, and engineers are not allowed to pay brokers to sell their services. I know that it is done, but it shouldn't be.

I'm not preaching to you or condemning your personal business practices, because I do highly respect your opinions, but I personally see more good than harm in taking a rigid approach to this issue, and vice versa.

RE: Providing services to a company that wants to provide a full package

(OP)
gte447f,

I am not saying you are right or wrong and I probably should be contacting the state boards to get a very specific interpretation. When I was going through archived threads, the point about architects hiring engineers to do work for them was one of the situations that made me feel the situations was a little gray.

How much is your opinion satcheled in the fact that you don't want a middle man shaving off moneys that you feel should go completely to the engineer? If you are of the opinion it could be a detriment, I agree if it was abused.

RE: Providing services to a company that wants to provide a full package

gte447f - thank you; that respect is mutual. I agree that the fringe elements needing you to throw them a life line are not worth it. I'll have to consider the unlicensed designer concept in a little more detail, and perhaps I'll reach out to my board. Though on the face of it I fail to see the difference - neither an unlicensed designer nor a real architect are licensed engineers. I'll ponder it some more...

I also agree 100% on the broker question. That's precisely who I'm saying we shouldn't do these things with. My understanding of the OP's situation wasn't that it was a broker, but somebody offering a different service who saw that their clients could also benefit from an engineer, and so sought to bring additional value to their clients by creating this relationship. The unlicensed individual gets the benefit of good will from their client for making the connection. If they then turn around and take a pound of flesh from the engineer for their 'trouble' of connecting them then it's a no go.

Maybe I'm misunderstanding the arrangement? Maybe the way to go is to form a joint venture, structured such that this joint entity is permitted to provide engineering services?

RE: Providing services to a company that wants to provide a full package

phamENG, of course these entities don't openly call themselves brokers, and in fact they usually try to present themselves as the actual service provider, but if it walks like a duck and quacks like a duck, then it is a broker.

Also, I can appreciate a business seeing a need and trying to indenture themselves to their customer by introducing the customer to other service providers, but that should be an arms length referral and the referring business should not get in the middle of any contract that follows between the other two parties. In other words, make the referral and then step aside and do not collect a referral fee or a markup. I sometimes make referrals, and sometimes I am offered a referral fee or kickback, but I always say, "no thanks, I'm not interested, it's not necessary." I used to be tempted by the possibility of a small referral fee for doing none of the work, but I gradually came to see the practice as a form of conflict of interest. I know others don't see any harm in it, but for small potatoes, I can leave it alone.

Likewise, I have been approached numerous times about business opportunities where someone would funnel work to me in exchange for skimming a small portion of the fee off the top. This has usually been small time (unlicensed) "contractors" that wanted to offer turnkey services to customers. To me this sounds similar to the scenario that the OP is describing. This scenario seems easy to identify as somewhat shady when it is being proffered by small time operators that are obviously in over their head and don't bring much to the table, but it is my contention that the same standard should apply to large sophisticated companies.

I think a joint venture could be a good and legitimate structure for this type of thing. I looked into years ago and drafted up a couple of joint venture agreements to try to pursue project opportunities with general contractors in a more equitable way, but I found the structure to be complicated and intimidating to the uninitiated.

RE: Providing services to a company that wants to provide a full package

Companies have to be licensed as engineering companies, an engineer. > in general, no. In the civil structures industry, probably yes. In other industries, such as aerospace, no.

RE: Providing services to a company that wants to provide a full package

SWComposites, the engineering licensing laws apply to all engineers. Most likely, companies in your aerospace industry are covered by an industrial or product development type exemption. The OP didn't explicitly say that a PE license was required in this case, but that has been the general assumption of the discussion up to this point. Maybe the OP will clarify whether this is an exempted industry or situation.

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