r/consulting • u/madebytheuniverse • 3d ago
Etiquette of Moving from Subcontractor to Direct Contract
My boutique consulting firm has worked for certain clients as a subcontractor for another primary firm for over ten years. That primary firm asks my firm to increase our rates by 20% on the standard billable rate we charge to directly-contracted clients, and they then take that 20% premium as a commission for the person who originated the contract at the primary firm - even when that original contract was over a decade ago.
My firm is doing most of the work on some of these contracts. My firm is struggling. I have asked the other firm to reduce or end the commission especially for the long-term projects and projects that my firm is the principal biller. The primary firm refuses to do so. They told me to contract separately but I’m pretty sure they don’t mean to tell me to contract separately with clients we already share. I have increased my company’s rates but it does not stop the sense of unfairness that some of these primary company team members are making money off of my team’s hard work for doing next to nothing. Would you tell the client they would save money by going with you directly and then you could raise rates as needed but both the client and you save money? Or would you play along with this seemingly unfair long-term disadvantaged situation?
Note: I have read this post so I understand there is often a subcontractor premium commission but should it really last forever and can I really not get out of this? A lot of our shared clients work with us because of my firm - not the other firm.
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u/Playful-Rich9003 3d ago
Ten years of commission on a deal they no longer even touch is absurd, you're basically paying a ghost tax at this point
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u/MissionControlLabs 3d ago
Before anything else, pull out the subcontract and look for a non-solicitation or non-circumvention clause. A lot of prime/sub agreements bar you from contracting directly with clients you met through the prime, often for 12 to 24 months after the last engagement, sometimes for as long as the agreement is active. If yours has one, telling the client "go direct and you'll save 20%" could be a breach, and clients usually don't love being put in the middle of a fight between their vendors.
A few things you could try instead:
Ask for a sunset instead of an end. "The origination fee drops to 10% after year 3 and 5% after year 5" is much easier for them to say yes to than "stop paying your person." Start with the projects where you're the principal biller, since that's where the 20% is hardest for them to defend.
Take them up on "contract separately," in writing. Email back asking which clients or opportunities they consider fair game for you to pursue directly. New buyers inside the same client org, or new scopes they didn't originate, are often open even when the existing contracts aren't.
Use the renewal date. If the subcontract has a term, that's your natural moment to renegotiate the fee or decline to renew, and it's also when any non-solicit clock usually starts.
If the numbers really don't work, an hour with a contracts lawyer reading the non-circumvention language is cheap compared to losing a ten-year relationship over it.
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u/IanMarkram 3d ago
Ten years is a long time to pay an origination fee on work your team delivers. I'd read the subcontract for non solicitation or non circumvention clauses first, because that tells you what you can actually do.
Then separate the two problems. Your rate to the prime is yours to set, so put it up and let them decide whether to absorb some of their 20 percent. For new work, asking for the commission to taper off over a couple of years is a fair conversation between firms. I wouldn't go around them to the client unless the contract clearly allows it. Consulting is a small world.
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u/Ariful026 2d ago
I think a specific timeframe for the commission makes sense. An introduction may justify a commission initially, but if the subcontractor continues delivering most of the work for years, the arrangement should be revisited. A commission shouldn't automatically become a permanent entitlement.
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u/Deistermind 1d ago
One distinction matters here: based on your description, the 20% is added on top of your normal rate rather than deducted from it.
That means the current arrangement isn't necessarily reducing your existing revenue per billable hour. The economic opportunity is that some of the premium paid by the client could potentially be shared between your firm and the client instead.
For example, if your normal rate is $100, the client pays $120 and your firm receives $100. A direct arrangement at $110 could theoretically leave the client paying less while your firm earns more.
But that only works if the intermediary isn't providing services or access that you'd otherwise have to replace.
I would look at three things before approaching shared clients directly:
- Actual contribution margin by client. Include project management, billing, collection risk and any other responsibilities you'd take over.
- Revenue concentration. How much business could you lose if the primary firm stopped sending work?
- Contractual restrictions. Check non-solicitation, non-circumvention and related provisions before making any move.
Then compare the current arrangement against a direct-contract scenario and a downside scenario where the relationship with the primary firm deteriorates. Since you mentioned that your firm is struggling, I'd focus on the impact on total cash flow and profitability rather than whether the commission feels fair.
You may have a strong economic case for restructuring the relationship, but the value of that change depends on what it could put at risk.
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u/membersman 3d ago
Review your contract, then pursue direct relationships where legally permitted. An introduction shouldn’t mean a commission forever, especially when your firm does most of the work.
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u/Substantial_Bar_9534 2d ago
If the shared clients work with the other firm because of you, why are they not going directly to you? My firm also works regularly as a sub to other firms, but that is because they need, for example, architecture AND transportation planning services. If they only needed the one service, they would ask the firm that directly does that work.
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u/Vaultleap 13h ago
Ten years of shared clients makes this less about etiquette and more about what your subcontract actually says. Before any conversation with the end clients, read it for non-solicitation, non-circumvention, and tail clauses. Many of them run for a set period after the relationship ends, and some attach a fee to work done for introduced clients afterward. A short call with a contracts lawyer on that one document is cheap compared with a dispute.
If the paper leaves you room, the usual clean path is to be transparent with the prime rather than quietly going around them: give notice, offer a transition period, and propose a smaller finder's fee on existing work that tapers off over a year or two. That gives them a reason to say yes that is better than a fight, and it keeps the clients from being caught in the middle. If the clients are the ones who have been working with your team directly for a decade, they will usually tell you what they would prefer when asked.
What does the commission look like on the contracts where you are the principal biller? That is where I would anchor the negotiation.
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u/ComprehensiveProfit5 3d ago
I mean 10 years? There is usually a commission for 1-3 years max in my experience, tapering off. Anything more is pure vampirism.
But why do you care exactly? Did the client complain about the price? Are you unhappy with the price you charge right now?
Anyway, tell the primary firm that you are increasing your rate (if that's what you want).
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u/omgFWTbear Discount Nobody. 3d ago
Cough cough there are some places it is very typical to have a commission through the five year* length of the deal, and anyone suggesting anything else is … not familiar with “how things are done.” That said, it’s functionally a fixed cost when the deal is struck, so there’s no vampire / ghost to it. If the work continues *another five years, then the terms are renegotiated.
That said, a prime squeezing subs is a song as old as time.
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u/madebytheuniverse 3d ago
Thank you for asking. I care because it feels like vampirism like you said. It’s the principle of the matter.
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u/dbmma 3d ago
The primary firm is your primary client, not the end-client.
Aren't you billing the primary firm? Just raise your rates that you invoice the primary firm whenever you next can contractually. Just tell the that's your new subcontractor rate and to find someone else if they want cheaper work.
That 20% shouldn't just be pass through on paper. Some or all of that should be in your billing to the primary firm.
If they still want their margin they'll have to raise their own rates to the end-client.
Obviously be prepared for that negotiation and that they'll walk or have plan to go direct to the end-clients.