I’m a “full-time” sub (Lead Carpenter) for a Construction Management Corp. I came on board recently and have many 20+yr clients that think the world of me and my work but I always was “small time” businessman. Kitchens,baths, decks, interiors. One of my very best clients has contacted me to price out a 3 car garage with full space above for entertainment room/gym. Exterior will be gorgeous stone and copper with synthetic tile roof. Beautiful claddings all around. Wall gable above two doors and a polygonal roof dormer above the other. You get the picture. Approching $350k after we tear down old, remove 4 giant trees, regrade driveway, and relocate a ton of mechanicals. (Work is in weathy area of the Northeast). What would you say would be the value of this “lead” if and when the job goes forward. 2% of total job? More?
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Replies
huh?
What do you mean by "full time" sub? Does this mean you only do subcontract work full time for this particular Construction Management Corp.?
2-3% sound about right with what guys who pay employees for leads around here are doing,
Where did the O.P. state he was an employee?
Check the law.
In California this is illegal.
California Business and Professions Code Section 7157(d) Prohibited Inducement, says referral fees are considered to be illegal inducements, a violation of Contractors State License Law. If, after investigation, a license is found to be in violation of the law, CSLB may take a formal administrative disciplinary action and/or refer the matter to the local authorities for criminal prosecution.
Not an employee but......
It's so bizzare, the times we live in today. So, pre-2008 everybody was happy doing nice work for nice people. Now, everybody is uptight and worried about what is around the corner. All of my clients stopped spending money because they were so highly leveraged, etc. Now, everything spent on the house seems like life and death. Is this just me seeing this, I don't know.....Anyway, the job I've taken is wierd. The likes me, he knows I know my stuff, but he won't bring me on as an employee because he doesn't know what's around the corner, doesn't want the insurance burden, pay into workman's comp, unemployment. All those things I also choose not to deal with and stayed small because of these "things". So now I'm a fulltime sub, acting as lead carpenter, running a small crew, ordering material, and interfacing with his other subs. So, now, my customer calls me up with this great job. My question to you is, what's it worth? He has to throw me a bone, right? I mean, c'mon man, he can't bring me under his wing and pay me a few holidays, etc. So this job lead should be compensated some, no?
Sounds like you'er an employee to me.
Based on what you have stated, I believe the IRS would consider you an employee, not a sub. Just because your employer dosen't want to pay the overhead of an employee, doesn't mean he's not legally obligated to.
" where did the op state he was an employee?"
sound familiar???
He ended up
describing it in his actions rather than his words, dbag.
damunk
under most state and federal laws you are an employee
what your boss should consider is .... suppose you are injured on the job...
he will claim you are a "sub" and covered by your own WC policy... but any .... any ... personal injusry lawyer could pierce that veil in a short time and the liability would fall on him WITH NO INSURANCE
you have a good construction knowledge
you have a good 30 year relationship with your customer
you are already in business with the state.. hire some REAL employees and get started on this $350K job
you should not continure to work for this illegal contractor... he's a shit bum
and there are a lot of them out there
you should not be referring your customer to someone with a bad business plan...and that is what he has
but hey.... whadda i no ?
Not Illegal
Hey Mike, he's fully insured and has a regular staff. He has brought me on to work with the crew and keep an eye on things. But told me to get my own liability insurance and workman's comp and be as if I were a sub. Pretty weird. But I agree, if I ever did get hurt, it would come out very quickly that I am, for all to see, pretty much a full-time employee. And I hope to work with him for the next ten years and retire.
Take some positive action... carefully
damunk wrote:
.... I am, for all to see, pretty much a full-time employee. And I hope to work with him for the next ten years and retire.
If it were me, I'd take these thoughts to the contractor and tell him honestly how I felt. I'd tell him that I want to do everything in my power to help build his business so that I will have a secure next ten years as one of his main men. I'd tell him that I can bring past clients to his door and I'd tell him about this particular client (without naming any names yet) being a good one. I'd emphasize that this is only one of many possible clients if that is a possibility.
I'd do all this in order to show the contractor that you can be a valuable employee in more ways than swinging a hammer or by telling other guys how to swing theirs. But be aware of one giant pitfall: If the contractor is hired by the client to build this house/addition, and if that relationship goes south for any reason, your long established good will with the client will go south as well. This is a risk you must accept. It may not be "fair," but its a fact. Furthermore, if the client unexpectedly acts like a bug head and proves to be a problem to the contractor, your boss; you may very likely be out of a job. The risk runs two ways.
let's get the record straight on this issue
Okay, so you say your boss "... won't bring me on as an employee because he doesn't know what's around the corner, doesn't want the insurance burden, pay into workman's comp, unemployment." Yet he should be able to afford to cut you $7k or so off the top of one particular job w/o financial difficulty? Gotcha cowboy.
In my opinion, professional referrels are free and you shouldn't be paid one red cent for it. You should professionally refer someone because you feel they are worthy of properly executing the job; not just worthy of potentially padding your wallet. Actually, in this case, you'd be compensented well enough just by having another job to go to because you can't take on the responsibility yourself If you could, you wouldn't be asking this forum the pointless question of what your sales commission should be. Further, if you were an employee, then it would be spelled out in an employee handbook under "employee compensation". If it's not in a handbook, then knmow it is always pie-in-the-sky and you weren't entitled to it in the first place.
Many ways to view it....
Your point is valid. If I wasn't in the last few years of being able to do the work in the field as I have the past 38 + yrs, I would say strap em on and get out there. And if I wasn't living pay check to pay check with two boys in college, I may not be asking the question. I have refered 100's of thousands of $ of work to folks whos work I knew without expecting a "red cent". If I could find another 2 carpenters who's work I was willing to stand behind, I'd still be hitting it. But they are all disappearing. So now I hang with the new wave and make sure they produce quality work, don't destroy their bodies by working stupid, and get home at night to kiss their kids and girl goodnight.
I understand
the diffuculties you face. I roughly have the same time in the field as you. It certainly doesn't get any easier as you age, yet I still mangage to wear all the hats necessary to run a building company. The older you get, the less you will be able to wear the "field carpenter" hat. Having been through it, this gives me the right to say that everything you submit as obstacles for running your own company (and collecting sales fees for your own company) are just excuses. And, the fact of the matter is that none of those obstacles entitle you to a free referrel fee. It's time to parlay your feild expertise into a viable contracting business model.
I'm not trying to be hard on you. Actually I'm trying to help you. The sooner your recongnize your work situation for what it is, the sooner you can realize what steps you need to change them for the better. I'm reminded here of another poster's signature sign off: "there ain't no free lunch". Quit wasting time looking for it.
One choice would be
....to do those things you mention. Or I could simply help this guy out, make his company better and bigger and more profitable. And get paid for it. But thanks for the input. Where does your business call home?
really?
damunk wrote:
...Where does your business call home?
Not sure why it matters, but the information you request if right before your eyes. As they say, if it had teeth, I'd bit you. You strike me as someone that is loath to seek out answers that require effort easily within your own ability. Do you, by any chance, buy lottery tickets on a regular basis?
All Understood
I have worked for this family for 30 yrs. I only have their best interest in mind, as well as making myself a fair living. I sleep,breathe, eat conscientious building practices. I have worked as a "Lead Carpenter" sub for this Construction firm for 4 weeks. We use my truck and all my tools. The job, if we even get it, will run approx 350k and billed as a cost plus 15% job. I think what I shall do is recuse myself from any negotiations and after the job is completed and everyone is happy, ask "my boss" for a raise in pay. What say you?
Looks like a bit of cognitive dissonance going on here.
If you're an employee, then you ask for a pay raise. If you're a subcontractor, then you simply increase your fixed or hourly fee.
Sounds like you still haven't determined in which capacity you are operating. That's a problem. Always will be.
Exactly
DanH wrote:
In all likelihood it's going to sour my relationship with both you and Jack, and give me a bad (or worse) impression of construction people in general.
Dan hits on an interesting point. Why would the reaction be negative rather than positive? In my opinion it's because a referrel really adds no absolute value to a project. It's not the connection that is of value*, its the work that results from it.
You might say (as the referral contact), hey, wait a minute. If I didn't facilitate that connection, then nothing would have happened. Wrong. Something would have happenend, its just might not have involved you. It's not like the contractor you referred is the only game in town and if this client doesn't connect with them, than their projects lapses in despair. On the contrary, they might hook up with a better contractor as a result. Maybe worse. You absoutely don't know. And that's why referrels add no absolute value to a project.
Another negative aspect is that, since referrels add no abosulte value to a project, then the overhead of a professional referrel commission has to be ultimately absorbed by the customer. You might point (erroneously) to the contractor bearing the responsibilty of this overhead, but who pays for ALL of a contractors overhead? That's right. Ultimately, the client(s) do. Even if the contractor spreads this overhead item over all his customers**, this one particular customer will still bear the brunt of a valueless (in terms of their specific project production) transaction.
* Which is why I believe facebook is an empty shell of a company and investors have overvalued this company the same way that AOL was overvalued. Its only a matter of time before folks realize the king has no clothes. But I digress...
** Which is not the case here because the contractor has already established he is not in position to float overhead at all. He won't even risk the overhead of a regular, full time employee for Christ's sake. That means this customer would be obstensibly be paying the full $7k commission as overhead. That's an actual chunck of my project that get's compromised in some fashion and I'd be pissed too.
Kickbacks
This is why California considers "referal fees" kickbacks.
Not so black and white
Mike, you've alluded to this fact 2x in this thread. I don't believe case law comes down on this issue as clear as you would have us believe. It might be helpful to read this memorandum written by a law firm operating in California. http://www.smwb.com/Construction-Projects-Referral-Fees-are-they-legal.
What is interesting is that, according to this memo, only one case has been interpreted by the California Attorney General specifically with respect to section 7157(a) which involved inducements directly with the customer. This is very different than the situtaiton considered in this thread.
Of considerable note is the situational commentary from the firm below:
"Consider three referral situations: 1. A contractor pays a fee to a designer for referring a client for construction work; 2. A vendor of furniture or fixtures, who is not a contractor, pays a fee to a designer for referring a client for the purchase of furniture or fixtures; and 3. A designer pays a fee to someone for referring a client for design services. Which fees, if any, are illegal"
I believe that the situation considered in this thread most closely resembles situtaiton #1. The question is whether the lead carpenter subcontractor is considered to be a "salesperson". This may be arguable in a court of law, but apparently it hasn't been so far.
The firm concludes at the end of their memo: "Applying the foregoing to the example situations stated above, none of the referral fees are prohibited. There is nothing prohibiting a contractor from paying a referral fee to a designer unless the relationship somehow morphs into the designer becoming a salesperson. The statute has no application to non-contractors, so it does not prohibit a mere vendor or a designer from paying a referral fee for either the sale of materials or procurement of design services.
I sure wouldn't want to be the test case.
You've done considerably more homework on this than I have, but consdering the lack of established precident I'd chose to err on the side of caution rather than be the one to test the law in court at my expense, no matter what my feelings were about the law. Referal fees are common in certain buisnesses and I think they do have a place in the construction buisness but it's a slippery slope.
Agreed
MIke,
I agree with you. That's why I made my arguement earlier for why they are valueless and why they shouldn't involve a fee.
Just out of curiosity, where do you feel they have a place in the construction industry? I ask this because I've been in it for 40 years and have never been paid one or felt the obligation (legally or morally) to pay one.
Appropriate?
I haven't given a lot of thought to the exact circumstances when a fee would be appropriate. I've never taken or given one for construction, but I have been paid referal fees by Realtors. This often comes with out any expectation of a fee and is pretty common place. I would think that when contractors pass on jobs to other contractors (either sub or prime) a referal fee might be appropriate in an on going relationship. Again a slipery slope, that I'll not go down.
Brings Up Another Question
Was Damunk brought on by his employer based on what he knows or who he knows or a combination of the two? I would think that the answer would be the starting point when compensation was negotiated. Based on the fact that Damunk is addressing this now kind of says that that discussion never took place.
semantics
mike mahan wrote:
This often comes with out any expectation of a fee and is pretty common place.
Thanks for your response to my question. Interesting anecdotes. Perhaps semantic at play here, but I'd call the above situation (with realtor) a "tip". Nothing wrong with that. IMO a "fee" infers a certain degree of demand.
With regard to subs: If I'm not involved on a particular job with them, then I refer my subs all the time. Why wouldn't I? I work with them for the good reason...and I'm happy ot to pass on that referrel freely. Though I never ask, they do the same with me. I imagine they are doing it for the same reason. Howver, as a consequence we both develope an additional customer base which sometimes even leads us full circle to working together with that client down the road . To me, either case is plenty of remuneration in and of itself.
Sounds Like you're this guy's main man......supervising/managing/ordering etc. Does your pay rate take this into account? Also,it sounds like you only work for him and no longer take on your own jobs? Did you ever have a conversation with him about the value of your customer base? His feeling might be that if he gets a job based on your contact then you get to share in the rewards in the form of a job and not necessarily a referral fee. But, on the other hand if a large % of the jobs are directly attributable to you then it might be time to have the conversation.
Exactly!!!
.....and he is paying well, and getting a lot in return, especially once the job I'm on gets closed in, then I shine. But this is the thing. He has me on the outside of the Company, paying my own liability and workman's comp, which he insists I get even though state law says I don't need as a sole proprietor (very expensive btw). Don't get me wrong, I'm thankful for this opportunity. Just wondering your take on what, if anything, all this Goodwill and client base I have established in the community may be worth. Without me, this 350k job never crosses his radar. And the way I see it, if the job is a cost plus job, the $7000 comes from him and can't be passed on to the customer. It's not like I'm going to hand him a bill for 2% of the total job cost, that he then puts 15% on top and bills the client. I don't know. I'm going some place I've never been before. I want to be a good soldier. Do I just get him work in the community and be thankful for the regular pay check, (that could end at any time?), remember, I'm just a sub. I dunno, what say you?
well the decision is yours, obviously.
Guess if its hard to find a steady check where ever you are your at his mercy for his Ilegal request. You should not have to carry liability on yourself if your working relationship is how you describe it unless your doing work on the side that would require it. You shouldnt be carry the tax burden you are carrying from the money his pays you either.
the irs made a clear effort to avoid contractors from continuing this type of thing.
IF you bring this up it will stress your relationship, and depending on the extent of his offense (others he has paid this way) could put a hurtin on his financial situation if the tax man got involved.
lapsing into delusion
damunk wrote:
And the way I see it, if the job is a cost plus job, the $7000 comes from him and can't be passed on to the customer.
YOu are delusional. If the person you work for makes his living from the customers he works under contract for (like the potential one you feel you need a referral fee from), then where do you think the money you want him to pay you should come from? Let me guess: You intend for him to pluck it from the money tree he has growing in his backyard, right?
Business can be done a number of ways
He could, in fact, make a tiny bit less on this job to enable his company to get work he would not otherwise see. Or maybe his company has a bank account that is used to pay for things like costs associated with doing business. I don't know.
'tis the season
Maybe you still believe in Santa Clause as well.
More Questions
If you look at the bottom financial lines of being an employee vs a sub (sole proprietor) how do they compare? I'm assuming you are aware of the business expenses that a sub is entitled to that an employee is not? Also, being an employee is no guarantee of job security....subs get let go and employees get layed off. Sounds like you are at the top of your employer's food chain. Also sounds like you're getting the opportunity to add to you skill set, e.g. supervising, managing, ordering, etc. These are worth something and may put you ahead of the competition if and when you have to go for your next job and may help increase your compensation value to an employer. After all these years with this employer what is your feeling about his willingness to take care of his employees and recognize their (referral) value to him? Is this a person you can have a heart-to-heart talk with? Does he come to this site and might he recognize your post? Hate to say this, but this customer base/referral conversation maybe should have happened during original employment negotiations......something to keep in mind if there is a next time.
JIMMIEM wrote:
After all these years with this employer what is your feeling about his willingness to take care of his employees and recognize their (referral) value to him?
JImmie
I like your presentation of questions to consider. However, let's not change the facts that are coupled along with them. The O.P. already stated that he has worked for this contractor as a "lead carpenter" sub for all of 4 weeks. I wouldn't put that in the catagory of working for someone "all these years".
Just sayin.
My Mistake
In one of his posts he mentioned working for the family for 30 years. I mistook this to be the construction company family. He apparently was referring to the family of the owner of this current large project. I have to retract some of my comments. Definitely not in the category "all these years".
It should be stated that conceptually there is merit to paying for "leads". A contractor may spend substantial amounts of money advertising and soliciting business. In addition,even if the contractor gets all his labor via subs, he still has a potential expense (due to "overhead" and due to simply not making money) if he is without work for a period of time. I would (wild ass) guess that these expenses run very roughly in the 5% range for most smaller residential contractors, but it could easily be 20% or more in some scenarios. So anything that offsets some of that expense is pure profit, and it makes sense, from the contractor's standpoint, to "rebate" some of that expense to anyone who somehow helps defray the expense.
That said, it's a very slippery slope. As noted, there are laws against this in many areas, and such laws don't get written because lawmakers are "law-happy", but are pretty much alway in response to some actual problem that has been encountered (though one can always argue that the law is an over-reaction.) It's very easy for such a kickback scheme to end up being used to monopolize a marketplace, eg, or used to take advantage of a particular segment of the population that cannot easily "fight back". And the practice blurs the line with out-and-out bribery.
Dan,
I like your arguments of late. They're pushing the understanding of the topics at hand. Let me address your latest:
Your opening statement falls short of stating that there is merit to paying for referrels. You say, rather, that there is merit to paying for "leads". Very different. IMo, paying for leads is the same thing as "advertising". Angiie's List and such have made a business model out of it. It's really no differnet than paying for an ad on a roadside billboard, or a local magazine. The only difference between Angie and traditional forms of advertising is the medium (in Angies case it's internet based). The reason this is not the same as a referrel because the "business" model is different. These advertising agencies (and they are acting as agents) have expenses associated with the delivery of their clients message. Therefore, they provide real value...and therefore you pay for it. I am not aware of any lawsuits claiming kickbacks, bribery, or extortion for advertising agencies being paid for leads.They're expected to be generated. The way I see it, it's not a slippery slope at all.
Paying for referrels on the other hand, is really not a business model at all. There are not neccessarily costs associated with a referrel and the person making the referrel is not necessarily an agent acting in the interest of a client. In fact, in the case of a building referrel, the "best interest" is obscured betwen the homeowner and the contractor. The "fee" is also usually a "one off" agreement that is specific to a particular job. Not so with Angies List. Their is a regular membership fee for both the contractor and the client (nominal) that is paid irrespective to any particular job.
Further, I don't think referrels offset advertising overhead as Dan indicate it does. This would assume that you would be able to back out your advertising costs at any point upon receipt of a successful referrel. Since advertising agreeements and fees are usually not a "one off" arrangement (they are usually monthly if not annual) you'd be stuck with the same overhead either way. Sure the percentage of overhead goes down with a successful referrel, but you can never count on it as a regular offset. Correspondingly, if you can never count on it as a regular offset, then you can't build your business plan around it. In my view, this is worthless. You might as well adopt buying a weekly lottery ticket to your business plan.
Lastly, if you think paid referrels have a place in our society, then consider this: I've never seen a client balk at an Angies LIst agreement. However, would you say to a friend: "I'll refer you to a good contractor that can do your job if you agree to pay me 7 thousand dollars" with no compunction whatsoever? If you can, I would venture to guess that you would have earned yourself one less friend in the world.
One last time.
The question was how much would you pay a sub for a lead. I have worked for this Const. Man. Corp. for 4 weeks. Harldly long enough time for me to know this persons work. He seems like a great guy, but I have no idea who he is or how he operates. On the other hand, the client who has the prospective garage job I have known forever. They understand fully that my relationship with this firm I'm attached to now is in it's infancy. Again, if you were a general contractor, and one of your subs introduced you to a client for which you ended up doing a 350k job, what, if anything, would you feel compelled to pay that sub for the lead that resulted in a $350,000 job for your business? You are allowed to say zero, you're allowed to say the question should never be asked, you're allowed to say this type of thing is illegal, and you are allowed to say 2% - 3%. I fully understand deadnuts doesn't pay his subs for leads that result in getting work. What say you?
What say your customer?
Look. Why don't you just ask the customer whom you've known forever. They're going to be the one(s) paying it anyhow...and you'll get the definitive answer you're tenacioulsy searching for.
hold the phone
whooh, whooh, whooh, wait.... I have a better idea:
Ask your customer what your referrel fee should be, then let your boss know what they're willing to pay. Then he can mark his contract up the exact same amount. This way the both of you can sit in a California jail cell together and discuss the merits of referrel fees full time--- on the State's dime!
Isn't that the best lottery ticket you could ever hope for!?
Again, it's a lead.
I can't refer someone who I have known for 4 weeks. I guess you can't grasp the difference. I have had the discussion with my customer of 20 + years and her exact words were, " he better pay you something", so, we are working on it. Thanks for all your input.
How About This
How about explaining the situation to your new boss? Let him know that your relationship and reputation with the customer are on the line and that you need to have a lot of control over the project and need to be more of a partner than employee/sub and would like to be compensated accordingly. Is this really a lead? When he hired you he also got your customer base. Did you mention this during the hiring process? Also, you mentioned that you've talked to your customer about a fee and her initial reaction was that you should get a fee. When the customer starts getting bid prices do you think that she may be wondering if your boss's bid is higher than it would have been if this 'fee' situaion was not part of the situation? Hope you didn't put yourself between a rock and a hard place.