For a new business starting out which is short on cash, barter is not a bad sustainable legal strategy. When one company agrees to provide something for another company in exchange for a similarly valued product or service, a bartering transaction has occurred. Both parties benefit from the exchange of each others needed services, and neither party needed to pony up the cash (but still report the received service as income and the offered service as an expense on your tax returns).
Even the US government got into the bartering business. The Minerals Management Service of the Interior Department had a “Royalty In Kind” program that allowed energy companies to pay for the right to drill on government land with a share of the actual oil product recovered, instead of cash. That oil was used to fill the nation’s Strategic Petroleum Reserve or to make oil available on the open market.
A nice win, win scenario for everyone, right? I’ll say. The Denver-Post last year detailed that the government workers overseeing the program in Denver engaged in secret sex and drug abuse with oil company employees and accepted thousand of dollars in gifts while
handling the billions of dollars worth of these energy contracts. The Interior Department’s Inspector General found that “in addition to the sex, drugs, and gifts, the employees [were] accused of rigging contracts, improperly helping oil company workers fix problems with their contracts, and working part-time as private oil consultants.” Uh oh.
Alas, Congressional Quarterly reported that The Interior Department will scrap the scandal-plagued program. Secretary Ken Salazar stated he intends to phase out the program as a first step in a series of broader reforms of oil and gas royalty collection.
If you are thinking of setting up a barter program with one of your partners, you probably do not need our help in avoiding problems such as these. But if you have questions on this sustainable legal strategy, let us know. We’re all in favor of alternative billing arrangements at Mayfield | Broderick, and we require neither sex nor drugs in exchange.