Referral and reseller arrangements that actually work

Three shapes, and they are not interchangeable

Every week someone asks whether we do referrals, whether we can be resold, or whether they can represent us. Those are three different legal animals with three different tax treatments, three different liability profiles, and three different failure modes. People use the words loosely, sign a document that mixes all three, and then discover in month nine that nobody agreed on who calls the customer. The fix is boring and cheap: decide the shape first, write four sentences about money and four about the account, and sign.

A referral is an introduction. The referrer makes a warm handoff, then steps out of delivery and out of the contract. We paper the deal, we invoice, we carry the risk, and we pay a fee on collected revenue. A reseller stands in the middle. The reseller signs the customer, the reseller invoices, and we sit behind them on their paper at an agreed rate. An agency arrangement is the one people underestimate: an agent acts on our behalf and can create obligations we did not price. Referral and reseller are contained. Agency is not contained unless the document contains it.

Which shape fits is usually decided by one question. Who does the customer want to receive an invoice from? If the answer is the partner, it is a reseller or a subcontract. If the answer is us, it is a referral. If the answer is "whoever can move fastest on an existing vehicle," that is a vehicle question, not a channel question, and it gets solved with a teaming arrangement under FAR 9.6 rather than with a commission.

Shape	Who invoices the customer	Typical economics	Where it breaks
Referral	We do, on our paper	5–10% of collected first-year revenue	Referrer keeps selling after the intro and nobody agreed they could
Reseller	Partner does, on their paper	15–30% gross margin held by the reseller	Margin is charged on work the reseller adds nothing to
Subcontract	Prime does, under a federal award	5–15% prime markup on subcontracted labor	Pass-through limits and flow-downs arrive late
Agency	We do, but the agent signs and speaks	Commission plus expenses	Apparent authority creates a commitment we did not scope
Team arrangement	Each member bills separately	No margin transfer at all	Only works where both sides hold a usable vehicle

What a referral fee actually pays for

A referral fee buys three things, and it is worth being honest about which one is on the table. It buys access, meaning the introduction happens at all. It buys credibility, meaning the introduction arrives with a recommendation attached. It buys timing, meaning the introduction happens while there is still a budget and a requirement rather than after an RFP has been written around somebody else's product.

Access alone is worth a flat fee, typically a few thousand dollars per qualified meeting. Credibility and timing together are worth a percentage, because the referrer is transferring reputation and taking a reputational loss if we underperform. The market band for professional services introductions runs 5 to 10 percent of first-year contract value. Above that, the fee starts to distort pricing, and the customer eventually notices that the number went up because of a relationship rather than because of the work.

Pay on collected revenue, never on booked revenue. Booked revenue creates a partner who is motivated by signatures and indifferent to whether the customer is a fit. Collected revenue creates a partner who wants the engagement to go well. That one word is the difference between a channel that improves our pipeline quality and a channel that fills it with noise.

The federal rules that decide whether a fee is legal

On federal work, a referral fee is a contingent fee, and contingent fees are regulated. FAR 3.404 puts the Covenant Against Contingent Fees at FAR 52.203-5 into contracts above the simplified acquisition threshold, currently $250,000 under FAR 2.101. The covenant says the contractor warrants that no person or agency has been employed to solicit or secure the contract on a contingent-fee basis, with one carve-out: bona fide employees, and bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business.

FAR 3.401 defines what makes an agency bona fide. It has to be a real, established selling operation. It cannot exert or propose to exert improper influence, and it cannot hold itself out as able to obtain a government contract through improper influence. A firm with a sales function, a track record, and a normal commission structure clears that bar. A retired official offering to make a call for a percentage does not. If the covenant is breached, the government can annul the contract or recover the full amount of the fee, which is a bad outcome to discover after delivery.

The Anti-Kickback clause is the one that catches well-meaning people. If a partner asks for a personal payment in exchange for placing us on their subcontract team, that is not a referral fee. It is a kickback, and 41 U.S.C. 8701 reaches both sides of it. The legitimate version is a payment from company to company, disclosed, priced into the arrangement, and visible in both sets of books. If a proposed fee cannot be written on a purchase order and booked in the open, do not restructure it. Decline it.

Reseller margin, and what the margin has to cover

Reseller margin is not a finder's fee with a bigger number. The reseller signs the customer contract, so the reseller carries the credit risk, the warranty exposure, the collection cycle, and the indemnity. In federal work the reseller also carries the flow-downs, the invoicing mechanics, and the compliance reporting. Fifteen to thirty percent is not generous once those obligations are priced. Below fifteen, resellers stop staffing the account. Above thirty, the customer starts asking for a direct relationship, and both sides lose.

Where the number should sit depends on how much of the sales cycle the reseller actually runs. A reseller who sources the requirement, writes the scope, holds the customer meetings, and manages the delivery relationship earns the top of the band. A reseller who forwards an email and issues a purchase order earns the bottom. We write that distinction into the agreement as two tiers with a definition for each, so the conversation happens once at signature rather than every quarter.

Two mechanical items to fix early. Price protection: the reseller needs to know we will not quote the same customer directly at a lower number, and we need to know the reseller will not discount our rate below a floor to win an unrelated part of their bid. Resale tax treatment: software licenses generally move under a resale exemption certificate, while professional services taxability varies by state. Getting that wrong turns a thirty percent margin into twenty-four at audit.

The seventy percent line

Anyone building a reseller structure over federal work should read FAR 15.408(n) and the clause it prescribes, FAR 52.215-23, Limitations on Pass-Through Charges. The rule is straightforward. When a contractor subcontracts more than seventy percent of the total cost of work to be performed, the contracting officer can determine that the contractor is adding no or negligible value, and the government does not have to pay the indirect costs and profit the contractor loaded onto that subcontracted effort.

That reshapes how a reseller arrangement over federal work gets built. If a partner intends to resell essentially all of the delivery, the margin is exposed. The defense is documented value: integration, program management, security accreditation support, or customer-side work that is real, described in the proposal, and traceable in the accounting system. We help partners write that description.

Agency agreements, and why they need the tightest language

An agent acts on behalf of a principal, and the principal is bound by what the agent does within actual or apparent authority. That is the whole risk in one sentence. A sales agent who tells a customer we can deliver in six weeks has, in many jurisdictions, created an expectation we now have to litigate our way out of. Resellers do not create that exposure because they contract in their own name.

Agency arrangements are still worth doing when a partner has standing in a market we want and needs to speak with authority to be useful there. The document has to do four things: state the exact scope of authority, cap it in dollars and in time, forbid any commitment on schedule or technical performance without written approval, and require that customer-facing pricing come from us. With those four, an agency agreement works. Without them, it is an open line of credit against our delivery calendar.

Who owns the customer relationship

This is the question every channel dispute is really about. Write the answer down before the first meeting, because it is unanswerable afterward. Ownership has three separate pieces, and they can be assigned to different parties.

Commercial ownership. Who holds the contract, sets price, and gets paid. In a reseller structure this is the partner. In a referral structure it is us.

Technical ownership. Who the customer calls when something breaks at 2 a.m. This should follow competence, not paper. A reseller who owns the commercial relationship but routes every technical question through a salesperson is slowing down their own account.

Renewal ownership. Who has the right to be in the room when the follow-on is scoped. This is the one people forget, and it is where the money is. A partner who brought the original deal and then watched us take the $2M follow-on directly will never send a second lead.

Deal registration that survives a lawyer

Deal registration is the mechanism that makes ownership enforceable. A partner registers a named account in writing, with a date. Registration confers exclusivity on that account for a defined window, commonly 90 to 180 days, renewable on evidence of activity. If the window closes with no meeting, the account releases. This is not bureaucracy. It is what stops two partners from arriving at the same program office in the same month with the same capability statement.

Attach a tail. If the arrangement terminates, registered accounts that produced revenue during the term keep paying the partner for 12 to 24 months. Without a tail, both sides have an incentive to terminate right before the follow-on lands, and everyone knows it. With a tail, termination is a normal business event instead of a race.

One more caution on teaming paper generally. In Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013), affirmed at 549 F. App'x 211 (4th Cir. 2013), a teaming agreement that promised to negotiate a subcontract later was held to be an unenforceable agreement to agree. The lesson transfers directly to channel documents. Terms that matter must be stated now, with numbers, not deferred to a future document that a motivated party can simply decline to sign.

The first-deal cliff

Here is the pattern that kills most arrangements. Deal one closes. The fee gets paid. Then the partner realizes that all future revenue from that customer flows to us at zero to them, and the account quietly goes cold. The arrangement was structured as a bounty, and bounties are collected once.

Three structures fix it. The first is a declining but non-zero residual: 8 percent of collected revenue in year one, 4 percent in year two, 2 percent for the life of the account. The absolute dollars usually grow even as the rate falls, because federal and enterprise accounts expand. The second is expansion credit, where any new program office, new business unit, or new contract vehicle inside the registered customer counts as a new registered deal at the year-one rate. That rewards a partner for opening doors inside an account they already own.

The third is the one that works best and gets used least: give the partner something to do. A referrer who also runs customer-side requirements gathering, or handles the security questionnaire, or manages the accreditation calendar, has recurring paid work rather than a lottery ticket. That converts a channel relationship into an operating relationship, and operating relationships do not go cold.

SBIR and STTR change the math

Channel structures do not map cleanly onto SBIR and STTR awards, and it is better to know that before writing a commission into an agreement. The SBIR Policy Directive requires the awardee small business to perform at least two-thirds of the research in Phase I and at least half in Phase II. STTR splits the work at a minimum of 40 percent to the small business and 30 percent to the research institution. A reseller cannot sit on top of an SBIR award and hold a margin on the whole thing, because the award has to be performed by the awardee. Eligibility is separately governed by 13 CFR 121.702, which reaches ownership and control.

Data rights are the second constraint. SBIR and STTR data carry a protection period under DFARS 252.227-7018, running 20 years from award for data generated under the award. A channel partner who intends to resell the resulting software needs a license that is consistent with those rights, and that license has to be written, not assumed. We prefer to handle it as a named-license schedule attached to the master agreement so nobody has to reconstruct the chain three years later.

Where a channel partner is genuinely valuable in the SBIR lane is the transition. Phase III has no competition requirement and can be sole-sourced by any federal agency, and a partner with a customer relationship, a vehicle, and a program office that wants the capability is worth real money at that moment. That is a referral fee or a teaming arrangement on the Phase III action, not a margin on the research award.

State, local, and commercial variations

State and local work has its own version of the contingent-fee rules, and it is not uniform. Several states require sales agents on state contracts to register or to file a contingent-fee affidavit, and some prohibit contingent compensation on procurement outright. Cooperative purchasing arrangements add another wrinkle, since the administrative fee already built into the vehicle can collide with a separate channel fee and make the total look excessive to a purchasing agent.

Commercial work is simpler in one way and harder in another. There is no FAR, so the parties can build what they like. There is also no default rulebook, so the agreement itself has to carry every term federal clauses would otherwise supply: audit rights, termination, indemnity caps, data handling, and what happens to registered accounts on a change of control.

Terms we sign in one pass

We would rather move fast than negotiate a template for a month, so here is the standing set. If a partner sends paper containing these, we sign it without a redline cycle.

• Deal registration with a written start date and a 180-day window, renewable on evidence of activity
• Mutual non-circumvention with a 24-month tail on accounts that produced revenue
• Fees calculated on collected revenue, paid within 30 days of our collection
• A named technical point of contact on both sides before the first customer call
• A written scope boundary listing the work we will not pursue direct in a registered account
• Full flow-down of the customer's security, CUI, and data-handling terms to us
• Change-of-control assignment language that carries registered accounts forward

And the counterpart, stated plainly. We do not sign personal-payment arrangements, undisclosed fees, exclusivity across a whole agency or market, or any structure that would require us to warrant a schedule we did not scope. Those are not negotiating positions. They are the shape of a firm that intends to be here in ten years.

Propose the shape

Our team builds production AI, ML, data, and cloud systems, and we are as open to being the engineering behind someone else's customer relationship as we are to holding our own. Referral, reseller, white label, agency, subcontract, or teaming: we have a term sheet for each and we will meet a serious partner on terms.

Frequently asked questions