Marcus Steffen broaches the issue of commission, providing some clarity on the process, and how to ensure that what you are doing is both ethical and legal.

How money is made and who is profiting is almost seen as a dark art within construction. There are always stories floating around about extra money made, people getting a cut and who is making what. With this article I want to try and demystify how this works, so that we can all achieve the ultimate goal: having a project delivered on time, on budget, that the client is happy with.

Our industry is young and growing fast, so it is essential we do not allow bad practices to mire our industry in controversy.

I have always believed that it is best to make things as clear as possible and allow clients to make an informed choice with expert advice. Within lighting, lighting designers, architects, and interior designers are often the ones who are providing that expert advice. As we all know, lighting is extremely complex and projects benefit immensely from having an expert coordinate it from the very start. Clients need to be able to trust that the advice they’re getting is in their best interests. This is where the issue of commissions often pops up and can cause significant issues, and even constitute breaking the law.

For full disclosure, I run two companies: MS Lighting Design, which I started 10 years ago; and Ember Lighting, which I started with a business partner approximately seven years ago. MS Lighting Design provides only lighting design services, whereas Ember provides specification and supply services. This, along with 20 years in the industry, means I have seen many sides of the supply chain and how it functions.

What is commission?

Commission for lighting designers can fall into two general areas: commission paid to people recommending you/your company for a project or to a client, and charging commission from suppliers that you/your company has specified on a project. To be clear, the payment of commission is not illegal in itself, as long as the client is aware that this relationship is present. Commissions might take the form of a lump sum or a percentage.

In other industries, this is how businesses might normally function. For example, mortgage brokers charge a commission, and when you have your mortgage agreed with the provider, it will show on there the commission paid to the mortgage broker.

UK Bribery Act 2010

I am discussing the UK in this article, though similar legislation is likely to exist in other countries. I would also say that I am not a legal expert, and am not able to provide legal advice, so you should seek this yourself. The Bribery Act 2010 covers what is relevant here. This is a simple summary:

“[It is] …an offence for a person to offer, promise or give a financial or other advantage to another person….where [that person] knows or believes that the acceptance of the advantage offered, promised or given in itself constitutes the improper performance of a relevant function or activity… ‘Improper performance’ …means performance which amounts to a breach of an expectation that a person will act in good faith, impartially, or in accordance with a position of trust.”

The key point here is if a person is providing advice with an expectation of impartiality, but they are receiving or giving payments to other parties.

Relevance to lighting design

In the lighting design industry, we could be either party. We could be a supplier, providing our design services on the recommendation of a project manager or interior designer, while they are asking for a commission from us to be recommended. We could also be the expert providing advice to the client, while receiving commission from the suppliers. In some cases, commission could be viewed not as a monetary payment, but other benefits, such as gifts and entertainment.

Different legal business approaches

In some cases, commission is just greed, with parties wanting to make more money from a project. Often though, there may be legitimate work and expense being carried out by the expert, for which they feel they are entitled to some sort of restitution. There are a number of legal ways of ensuring this work is covered without resorting to kickbacks:

Agreed percentage based on the entire value of the project: This is often the method used by architects for pricing their projects. This will involve having a set budget for the overall size of the project, and then portions of this are allocated to each design and construction phase. This could form part of an overall lighting design fee, or it could be used just for the construction element of the project. This can vary depending on the sector the project is in and the size, but is a way to cover expanding scope within a project. This fee can then cover the work involved in managing the supply of items or coordinating other parties.

Supply management fee: This is a common method used by interior designers who have clients who want to purchase directly from suppliers. They would charge their interior design fees, but when it comes to supply, they seek quotes from the suppliers, these are checked, given to the client to pay, and the interior designer charges a flat percentage on top. This fee is often in the range of 10-20%, and negotiated with the interior designer as part of their contract. They will take on some responsibility for errors in the supply since they are checking the quotes before the client purchases the items.

Hourly rate: An hourly rate could be agreed with the client to cover work involved in the organisation of the supply of products. This is dependent on the client and can be challenging since costs are not known before the project starts, making clients wary. It might be the only way to provide services on a bespoke, custom project though.

Unforseen commission – declaration: in some cases a supplier offers some sort of commission to a designer. In these cases, it could be declared to the client that this offer has been made, and then ask what they would like to do with it. Most clients would take the extra saving, but in some cases they may be happy to leave it with the designer.

Full supply: Some lighting designers provide both lighting design and supply services under one roof. In this case, it should be declared to clients before hand if it is not possible for the client to then source the goods themselves (i.e. manufacturer specification is not being provided as part of the design service or quotes are locked to the designer).

Gifts and entertainment

The issue of gifts and entertainment is a bit of a grey area. A lot of suppliers might offer a lunch alongside explaining products, or a trip to the factory to see how they are made. They might offer free samples to a specifier. But these can form an essential part of expanding expert knowledge and design skills. Seeing how products are made can give designers greater understanding of how they work, and learning about the unique benefits of products can benefit clients.

How this is approached and ensuring that they do not breach the bribery act is important. They should not be tied to any sort of performance target or expectation for specifying products on projects. A designer could also make it visible to clients via social media and discussions that they have participated in a trip with a supplier. For this, it requires common sense and a good sense of ethics to navigate. It is also important to put in place policies with staff explaining what activities are and are not ok to engage in.

The focus should be on the client’s outcomes

All of this is leading to one result: ensuring the client has a good outcome on their project, and they have full confidence in their experts. It is important that we as an industry encourage and enforce good practice, and we do not engage in these terrible practices that have plagued construction for many years.

www.mslightingdesign.co.uk