What do you know about kickbacks? A look from the inside

Mykyta Kovalevskyi

Entrepreneur

Let me share one business case. The actors are a developer (1), a construction contractor (2), my competitor, a material supplier (3), and our team (4).

A few months ago, I met a developer who was completing the engineering networks of a business-class residential complex in the Pechersk district of Kyiv. I learned from him that the work on the site was being carried out by a company purchasing materials at an inflated price. The contractor tried to explain this by saying that cooperation with the manufacturer of the elements had been established for years, so it was supposedly "better to overpay for proven quality and thus minimize risks."

Then we agreed that if I offered a better price, we would work together. I provided a commercial price with a 4% discount. We talked with my technologist about how to replace two serial items from their list with our ones and ship products not from four different workshops, but from the nearest one in Vydubychi (to reduce the cost of logistics).

However, the issue with the contractor was more difficult to resolve. At first, they agreed that we would bring one car from us and the other two from a competitor's plant.

The size of the kickback

But by our next meeting with the developer, I was already able to get two competitors' invoices:

The cost to our client was higher even than the price list on their website;
but they offered a little-known individual entrepreneur a 20% discount.

Thus, any B2C customer could call the sales department and order a small amount of goods at a price proportionally 1/4 less than the company sold in bulk to its regular customers. Thus, it can be assumed that the contractor's kickback could be at least 25% for certain items of goods alone.

However, the situation with logistics was even more interesting:

They were ready to transport their products over a shorter distance (only 2.5 km) at a cost three times higher than ours, 6.4 km.
Compared to us alone, the contractor and the manufacturer cheated their partner almost eight times over on transportation!
And when you take into account that some logistics companies I know transport goods for 40 UAH per kilometer, the contractor's markup could have been even higher.

The result

As a result, the dishonest contractor and manufacturer were replaced. The developer started working with me on a win-win basis.

But in fairness, it should be noted that at that stage, his managers could have had another way — to take a kickback from the "trusted" manufacturer themselves and work directly without us and the eliminated contractor.

The choice of a client in such situations depends on many factors: the form of ownership of the enterprise (private, state, or municipal), the position in the company (director, manager, or business owner), and, accordingly, the motivation.

As a lawyer by training, I also know how to achieve the desired result by working honestly with both my partner and the state. When stimulating sales, you just need to understand the Tax Code of Ukraine and comply with its provisions... But more on that in the next comments!