There’s a Very Big Company (VBC) that hires subcontractors from a certain Subcontracting Company (SC). I’m going to do some contract work for VBC, but I have to go through SC as a subtier for billing/invoicing. SC says that they have to take 20% of my bill rate because they rebate 20% of the billing rate back to VBC. That struck me as strange. Is SC feeding me a line? It’s seems odd to me that the contract VBC has with SC states that 20% of the bill rate will be given back as a rebate.
In the US, almost certainly you would be in violation of state anti-rebate laws. IANAL, YMMV
—WAIT!—
I misread the question. Let’s wait until someone smarter than mean stops by.
I wanted to add that it is common for the SC-type company in these subtier situations to take a reasonable 5-8% cut for the administrative tasks. I’ve done this with other companies and that’s usually what they’ve been in the past. This is my first time working with VBC and they only go through SC for their contractors. They want to take 20% for the rebate plus 6% for administrative costs.
I’ve seen this done. Usually a rebate that large is an incentive for continued business in a contract that lets the client walk away at any time. They only get the rebate if they continue until a certain date or phase of the project.
For example, if a client needs a 4-week analysis and prototype stage followed by a longer design and implementation stage, we may structure the deal so that the initial 4 weeks are $200/hr, after which we deliver an estimate for the second phase and they can decide whether to continue. If they keep going, they get a rate of $150/hr and a rebate of $50/hr for the initial work done.
Smaller discounts are offered for clients who pay early (e.g. Net 10), but those are usually more in the 1-2% range and deducted from the initial payment amount.
It’s entirely possible that their contract with VBC includes a 20% rebate. Often rebates are conditional, and VBC may be meeting all the necessary conditions.
My question is, did VBC agree to your bill rate prior to telling you about SC, and SC’s 20% rebate? If they did, then I’d say they negotiated in bad faith, knowing that SC would be forced to cut your rate by 20% in order to stay profitable on your contract.
It could depend on what your are consulting about. In my state, some licensed trades and professions (e.g. insurance agents and consultants) are specifically prohibited from rebating a portion of their fee. If you have to be licensed to do what you do it could be worth checking into.
In real estate? Abso-fucking-lutely!
It may be legal for them to do so, but my question is: in your consulting agreement with them was this mentioned? If not, then they cannot impose it now. (I’m assuming you have signed some sort of agreement.)
Don’t see why that would be illegal, but IANAL. The type of rebate that is illegal is a “kickback,” in government contracting, when a government contracting officer receives cash under the table as a reward for awarding a contract to a particular company.
But a company-to-company rebate is just another way of structuring a deal.
I had been talking with an friend in VBC who needs some work done. He had a certain amount in his budget and that would work for me. It was only after I started talking with SC about becoming a subtier that I found out about the rebate. My friend didn’t know about it either. He can’t get an additional 20% added to the budget, so I’ll need to see what other options I have. Thanks for the replies.
So how do you handle referrals from RELO agencies where you are effectively agreeing to pay or them 20% - 30% of your commission?
Commissions are not consulting fees. We put it in writing and have both brokers sign it.
I was thinking more along the lines of mortgage companies, home inspectors, etc. giving money back to us. Under no circumstances is that legal.
Kick-backs are not just for government contracts. If someone is negotiating a contract on behalf of their employee and gets money directly from the other party that their employer doesn’t know about, that’s a kick-back.
Heck yeah. We have all sorts of very good rules for interacting with vendors, such as value limits, discount policies, event attendance, and so on, all of which could be regarded as kickbacks if the limits and rules are observed. It’s not limited solely to, “I’ll give you this contract if you buy me a house in Jamaica” type of deals.