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Design Professional Fee Sharing Explained – Avoiding Misconduct

05.27.21  |  By Douglas R. Halstrom

Despite clear rules on the books, there are many misconceptions held by New York design professionals regarding those whom they are legally permitted to share professional fees with.  The New York State Board of Regents’ regulations provide that a design professional may not share fees earned from the professional services they perform with any person other than a partner, an employee, or an associate in a professional firm or professional corporation, a subcontractor, or a consultant. 

Typically, sharing earned professional fees with other design professionals generally follows these regulations, because design professionals are permitted to form a business entity (and thus, share professional fees) with other licensed design professionals.  And, if the design professional forms or joins a New York Design Professional Corporation, earned professional fees may be shared with those not licensed, if the unlicensed shareholder(s) own less than 25% of the corporation's shares.  Similarly, design professionals in a grandfathered corporation, in which shares may be owned by non-licensed individuals, may share earned professional fees with the non-licensed shareholders to a greater extent than allowed in a Design Professional Corporation,  although only a few grandfathered corporations currently exist. 

However, a design professional or registered firm or entity authorized to perform design professional services is not permitted to share earned professional fees with a person or entity that is not licensed or is not properly registered and authorized to provide design professional services.  It is when the design professional becomes employed or retained by a person or entity that is not licensed or is not registered and authorized to provide professional services and performs professional services for the public, misapprehending that this professional practice is legal because of that design professional’s license to do so, that the trouble to the design professional often begins. 

Although the licensed design professional is permitted to practice the profession licensed, that employer, or the person or entity that retained the licensed design professional is not.  Under those circumstances, the New York State Education Department and its professional disciplinary arm, the Office of Professional Discipline, can become quite critical, charging the licensed design professional with unprofessional conduct resulting from “fee-sharing” and often, in “aiding and abetting the unlicensed practice of” the profession, resulting from the design professional simply practicing the profession licensed with no intent to fee-share or aid and abet the unlicensed practice of that licensed profession.

We see this occur when an unregistered and unauthorized entity employs a design professional and then holds itself out as being able to practice and provide the services of that design professional’s discipline.  It is important that the design professional not allow the employer to use the design professional’s license in this manner to avoid jeopardizing the license and professional record of the design professional, due to the likelihood that the Office of Professional Discipline will find that the design professional participated in fee-sharing, and by practicing the profession by or through an unauthorized entity, aided and abetted the unauthorized entity in the practice of that profession.  Both fee-splitting and aiding and abetting the unlicensed practice of the profession are grounds for a finding of professional misconduct under the regulations, a finding of which may subject the design professional to suspension or revocation of the professional license and/or a monetary fine. Criminal charges could also result if the conduct is repeated. 

While it is common that contractors needing a licensed engineer or architect to prepare an underpinning drawing or provide some other such professional service retains an engineer to perform professional services necessary for the contractor to complete its work, this does not protect the design professional retained to do so.  The contractor, including in the bid the cost of the professional services, is sharing in the design professional’s fees that will be earned by the design professional, thus establishing the very circumstance the Board of Regents is legislating against - the sharing of professional fees with the non-professional contractor and allowing the contractor to offer to provide professional services to the client, thereby aiding and abetting the unlicensed practice of the profession. 

Of course, certain exceptions to these rules exist permitting design professionals to be engaged by contractors rather than directly by the client.  Design-Build is an alternate project delivery method in which the contractor may legally retain the design professional.  However, in New York, the design-build project delivery method is only statutorily allowed for certain municipal projects or under only certain circumstances and it is not generally allowed in all projects, as it may be in many other states.

As such, the risks of a finding of professional misconduct through a finding of fee sharing or aiding the unlicensed practice of the profession are to be avoided.  It is important that the design professional performing professional services must be organized and practice separate and apart from the unlicensed person or entity that is performing non-professional services, and each of them should have separate and independent contractual and payment relationships with the client.  The Office of Professional Discipline has indicated in its adjudication of disciplinary matters that this is the preferred method of providing design professional and non-professional services to the client.  This way, there should be little doubt as to the lack of fee sharing with a non-professional, and no indication of aiding and abetting the unauthorized practice of the profession.  Importantly, there would be no reason to doubt that the design professional is exercising its professional, independent judgment, which is the stated goal and purpose of these regulations.

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