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March 2011

Collusive Bidding Scheme Prompts Indictments

Situation

Newspaper accounts of a large-scale bid-rigging scandal are brought to the attention of ASCE’s Committee on Professional Conduct (CPC). The accounts cover a U.S. Department of Justice investigation of collusive practices by paving contractors in two southern states, which results in the filing of criminal charges against nearly 70 firms and principals. Among the individuals named in the newspaper reports and criminal indictments are no fewer than eight members of ASCE. The CPC acquires copies of the criminal indictments and follows the case through the media.

Prosecutors in the Department of Justice investigation allege that the principals and firms named in the indictment had participated in an anticompetitive scheme known as complementary bidding. Here prospective competitors on a particular paving contract would select a “winning” bidder amongst themselves. The designated contractor would submit its bid for the project, while the other contractors would knowingly submit bids having a higher dollar amount or containing terms the contractors knew would be unacceptable to the state entity letting the contract. The scheme would thus create the illusion of a competitive bidding process while ensuring that a particular paving contractor ultimately received the contract award.

Among the ASCE members named in the indictments is the president of a construction firm in one of the two states targeted in the indictment. The member enters into a plea bargain with the Department of Justice whereby he pleads guilty to one charge of conspiracy to suppress competition, in violation of the Sherman Antitrust Act. The member’s firm also accepts a plea agreement for two counts of conspiracy in connection with the bid-rigging scheme. In exchange for the member’s cooperation in the investigation by the Department of Justice and the state attorney general’s office, the member is sentenced to serve 60 days of a one-year prison sentence—the remainder of the sentence is suspended—and three additional years of probation. The firm is ordered to pay fines in excess of $1 million as restitution for the criminal conduct and is barred from bidding on projects within the two states for an indefinite period of time.

Question

Did the member’s actions in participating in a collusive bidding scheme on state paving contracts violate ASCE’s Code of Ethics?

Discussion

Canon 5 of the code reads as follows: “Engineers shall build their professional reputation on the merit of their services and shall not compete unfairly with others.” Category (b) in the guidelines to practice for this canon supplements this injunction: “Engineers should negotiate contracts for professional services fairly and on the basis of demonstrated competence and qualifications for the type of professional service required.” Category (a) in the guidelines to practice for canon 6 also is applicable: “Engineers shall not knowingly engage in business or professional practices of a fraudulent, dishonest or unethical nature.”

In response to the CPC’s request for information, the member contended that complementary bidding was a standard practice within the two states and that the practice was both well known and widely accepted within the community, even by senior state officials involved in the contracting process.

The member attributed the practice to a state requirement that contracts not be let until the state entity receives at least three competitive bids. The member claimed that, in many cases, it was difficult to find three contractors interested in a particular project and that such projects might be readvertised a number of times. Consequently, the member said that it was not uncommon for one contractor to contact another to request the submission of a complementary bid to increase the likelihood of a contract being awarded. The member stated that it was viewed as a professional courtesy between the companies and that, in his opinion, the practice did not prevent the state agency from receiving good work at a fair price. The member denied deriving any personal benefit from the anticompetitive arrangement.

While the member said that he did not regard his actions as illegal, he acknowledged that he felt “uncomfortable” participating in the scheme. He argued that the system of preparing and soliciting complementary bids had been entrenched since well before he joined the practice and that although he did not regularly engage in complementary bidding, he felt pressured to participate in the scheme from time to time.

The member further stated that he had been happy to work with the state and federal investigators in putting a stop to the practice, that he had established new procedures within his company to prevent future bidding misconduct, and that he was seeking opportunities to share his experiences as an educational tool for other engineers. Finally, he noted that both he and his firm had already been penalized through the time lost and expense incurred in the investigation and through the negative publicity.

The members of the CPC felt that the individual’s actions clearly violated canons 5 and 6 of the Code of Ethics. Not only were his actions in violation of state and federal laws, but the CPC was not persuaded by his claim that the actions had not benefited him or harmed the state entity. The concept of antitrust law is based on the notion that competition in the marketplace forces competitors to offer products and services at a higher quality and a lower price than would otherwise be the case. By colluding in the bidding scheme, the member and other participants could give short shrift to quality and price and increase their profit without the threat of losing the award to a competitor offering better terms.

While the CPC lauded the member’s efforts to amend his conduct and to assist others in avoiding the same ethical traps, its members nevertheless felt that his conduct required some form of disciplinary action. The CPC recommended that the member be suspended from the Society for a period of three years. The member signed a consent agreement accepting the recommended sanction and waiving his right to a hearing before ASCE’s Executive Committee. That committee approved the agreement, and notice of the action was published in a Society publication without the member’s name.

With its focus on preserving competition in the commercial market, antitrust law has played a significant role in the history of engineering ethics. For further illustration of the way in which antitrust law has affected such ethical standards as ASCE’s Code of Ethics, see the February 2007 and March 2007 issues of ASCE News. —Tara Hoke

Members who have an ethics question or would like to file a complaint with the Committee on Professional Conduct may call ASCE’s hotline at (703) 295-6061 or (800) 548-ASCE (2723), extension 6061. The attorneys staffing this line can provide advice on how to handle an ethics issue or file a complaint. Please note that individual facts and circumstances vary from case to case and that the general summary information contained in these case studies is not to be construed as a precedent binding upon the Society.

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