Designer Mafia: Referral Fees are just another form of Raketeering

There's an evil force in the design world. This is how it works:

Client "A" hires Designer "B", whom refers business to Contractor "C" and both are awarded the job. Designer "B" charges Client "A" an hourly rate of $175 per hour, and bills out 80 hours over the next 12 weeks for a total of $14,000 + 12% HST. Designer "B" sends Contractor "C" an invoice for a 10% Referral Fee based upon the costs of doing the job, let say it's $28,000. No taxes are applied to the invoice. Contractor "C" increases his price to you by $3,500 to pay Designer "B" and the extra paperwork that's needed. It's a cost of doing business, he thinks, and everyone does it. Client "C" is none the wiser to this transaction, and Designer "B" just made $210 per hour.

What just happened here is Racketeering, it's the Designer Mafia. Racketeering, in it's true sense, is to pay compensation to someone for preferential treatment. This well-known practice goes by other names such as, but not limited to, a referral fee, commission, or kickbacks. When Designer "B" sent an invoice to Contractor "C", or didn't send an invoice and accepted cash for that matter, not only broke the racketeering laws, but they have now effectively defrauded Revenue Canada and they have defrauded taxation laws of the British Columbia Ministry of Revenue by neglecting to collect and pay the Harmonized Sales Tax (HST).

Committing a Federal offense is not only punishable by a $25,000 fine and up to 20 years in jail, it is also against all professional codes of conduct:

National Kitchen & Bath Assocation (NKBA) - Standards of Conduct

  • Section 2 Accept compensation from one source only, with the full knowledge of all parties, including the client

American Society of Interior Designers (ASID) - Code of Ethics & Professional Conduct

  • Section 3.3 All members must disclose all compensation to the client
  • Section 3.6 Act fiscally responsible to the client's goals.

Interior Designers of British Columbia (IDIBC) - Code of Ethics

  • Section A.6 All members must disclose all compensation to the client
  • Section A.7 All members shall not be a party to financial renumeration on a project

The problem here, or my objection, is that this type of business practice is inflating project costs and the clients aren't aware. Referral fees are completely legal if you disclose them to a client formally, but otherwise your ass could be grass.

So, the next time you hire a designer, or your are a designer collecting referral fees, be clear that a disclosure statement isn't required.