Ethical codes must not hinder the rights of consumers

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SITUATION A public agency in a midsized central U.S. city seeks a consulting engineer to manage the repair and restoration of facilities damaged by recent flooding in the region. While the local laws for emergency contracting allow the agency to waive its usual competitive bidding requirements, the agency nevertheless calls for interested firms to submit information about their qualifications and capacity to undertake the work.

Upon review of the submissions, the agency selects a firm and contacts its principal by telephone to advise that his bid has been accepted. The successful bidder has never worked with this agency before, and the principal is delighted at this opportunity to expand his firm’s client base and establish a relationship, which offers the potential for even more work in future.

The agency forwards its standard contract documents to the firm principal, but before he can review and return them, he receives a second phone call from the agency, this one announcing an abrupt change in course. The principal learns that the agency’s chief engineer feels additional review is necessary before he can make a final selection, and he has decided to hold face-to-face interviews with the top bidders: the principal’s firm and one of his firm’s chief competitors in the region. Though disappointed at this reversal of the agency’s previous decision, the principal brings members of his team to meet with the chief engineer—only to find his team unexpectedly put on the defensive, with the chief engineer asking pointed and openly skeptical questions about the firm’s prior work and degree of experience.

Over the course of the interview, it becomes evident to the firm’s principal that the chief engineer is acting in reliance on disparaging comments made by one or both partners of the firm’s competitor. The chief engineer appears convinced that the principal’s proposal has overstated his firm’s experience and seems particularly focused on a recent project in another part of the state, a project which the chief engineer thinks was hampered by the consulting firm’s lack of attentiveness or competence. While the principal disputes the validity of that report and offers to put the chief engineer in touch with a client contact on this earlier project, he is not afforded the opportunity to do so. Not long afterward, the public agency announces it has awarded the emergency contract to the rival partnership.

The principal files suit against his competitor for tortious interference, a type of legal action that offers redress to plaintiffs who can show they had reasonable expectation of receiving contracts or economic benefits from third parties, only to be deprived of those benefits by defendants’ intentional and wrongful conduct. The plaintiff alleges that the partners knowingly and willfully made false statements about the principal’s firm and that these falsehoods influenced the public official first to withdraw his contract award and later to deliver that same contract to the partnership.

Collectively, these cases represent an important restraint on a profession’s right to self-regulate.

In depositions and the ensuing trial, the partners flatly deny making any wrongful statements about the plaintiff or his firm. While acknowledging their efforts to win the contract for their practice, the partners claim their comments were limited to a comparison of their relative merits and thus were completely within the norms for competitive bidding. Despite their arguments, a jury ultimately finds the plaintiff’s case to be more credible. It awards to the plaintiff’s firm a sum of $350,000, representing its assessment of the firm’s lost profit on the contract.

Both partners of the competing practice are ASCE members, and the aggrieved plaintiff submits a complaint to ASCE’s Committee on Professional Conduct (CPC).

QUESTION Did the competing partners’ actions violate the ASCE Code of Ethics?

DISCUSSION Fundamental Canon 5 of the ASCE Code of Ethics directs that: “Engineers shall build their professional reputation on the merit of their services and shall not compete unfairly with others.” Guideline g under that canon adds: “Engineers shall not maliciously or falsely, directly or indirectly, injure the professional reputation, prospects, practice, or employment of another engineer or indiscriminately criticize another’s work.” While the facts as presented in this case might suggest the clear applicability of this language, the CPC had a strong incentive to handle this matter with caution.

ASCE’s history of enforcing ethical restrictions on competitive conduct might best be described as checkered. Today, ASCE’s Canon 5 represents a decisive statement against bribery, extortion, bid-rigging, and other forms of inappropriate or unlawful attempts to gain a competitive advantage, but past limits on competitive conduct have received less than favorable reception.

In the early 1970s, the U.S. Department of Justice (DOJ) filed a civil suit against ASCE, alleging that its code of ethics sought to suppress price competition in violation of federal antitrust law. At the time of this suit, article III of the code stated that it was unethical for members “to invite or submit priced proposals under conditions that constitute price competition for professional services.” While the Society argued that this prohibition was necessary to protect clients and the public from a price-based race to the bottom, prompting engineers to cut corners and deliver shoddy work in order to lower fees, the DOJ felt this justification was an unsupported rejection of the basic premise of federal antitrust law: that price-based competition and an open opportunity to explore alternatives benefits the consumer and ultimately results in better goods and services. As settlement for the DOJ action, the Society agreed to strike its ban on price proposals and, for many years, attached a footnote to its amended code noting that price-based competition is not unethical.

Only a few years after that action, however, the code again ran afoul of federal antitrust law, this time with respect to language precluding engineers from attempts to “supplant” an engineering competitor “after definite steps have been taken toward his employment.” Again, the DOJ deemed this language to represent an unlawful restriction on price competition, and again ASCE was compelled to remove this language from the code.

The case described here was brought to the CPC less than a decade after ASCE’s second encounter with the DOJ. Against this backdrop of federal scrutiny, it is perhaps unsurprising that the CPC took a conservative approach to its assessment of a case that did not represent a clear instance of unlawful or even criminal conduct. Additionally, the CPC felt that the accused members had already learned an expensive lesson about professional conduct after the legal judgment against their partnership effectively erased their profit from the contract. For this reason, the CPC declined to pursue formal disciplinary action in this case and instead sent the partners a cautionary letter, directing them to review Canon 5’s prohibitions on unfair competition and defamatory statements and reminding them to be more conscious of these professional obligations in the future.

The two actions described here are ASCE’s only direct encounters with federal antitrust law, but countless other professional and trade associations have faced enforcement actions in the ensuing years for ethical provisions that sought to allocate markets, limit competition, or restrict price-based advertising. Collectively, these cases represent an important restraint on a profession’s right to self-regulate. While the fundamental purpose of ethical codes is to set minimum standards for safety, integrity, and quality and in so doing to protect the public health and welfare, such codes may not do so in a manner that seeks to place obstacles in the way of a consumer’s basic right of choice in the market for professional services.

This column first appeared in the July/August issue of Civil Engineering.


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