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November 2012

The Ethical Aspects of Competition

Situation:

A county road commission issues a request for proposals (RFP) for engineering design services relating to an improvement of a major intersection in a town’s busy shopping district. In addition to requesting information about respondents’ experience, qualifications, and proposed work plan, the RFP asks that interested firms submit a listing of the hourly billing rates for individuals likely to be involved in the project and says that “reasonableness and balance” of the hourly fees will figure in the selection criteria. 

Struggling with budget concerns in a political climate that takes a dim view of wasteful spending in public works projects, the government agency seems unconcerned about compliance with the state’s “mini-Brooks Act”—so named because of its similarity to the federal Brooks Act. The latter mandates a qualifications-based selection process for federal procurement of architecture and engineering services. The state’s version reads as follows: 

It is the policy of this state and all public subdivisions and local governmental units thereof to announce all requirements for architectural, engineering, and surveying services, to select firms qualified to provide such services on the basis of demonstrated competence and qualification for the type of professional services required without regard to fee other than unit price information at this stage, and thereafter to negotiate a contract for those services at a fair and reasonable fee with the best qualified firm. 

The agency’s RFP comes to the attention of a local civil engineering firm whose primary business involves traffic planning and transportation engineering services. While the firm has taken a financial beating in the present sluggish economy and would certainly benefit from the public contract, its owner, a professional engineer and member of ASCE, is concerned about the ethical implications of participating in what appears to be a violation of the state’s version of the Brooks Act.   

Question: 

Would the engineer’s submission of pricing information in response to the agency’s RFP violate ASCE’s Code of Ethics?  

Decision:

 A full answer to this question requires an understanding not only of the Code of Ethics but also of the history of the Society’s ethics activities in relation to federal antitrust law.

Although language relating to engineering fees existed in the original version of the Code of Ethics, which was adopted in 1914, it was not until some decades later that ASCE took a more direct role in addressing price-based competition. Believing that price competition forced engineers to cut corners or give undue weight to cost considerations at the expense of sound engineering judgment, the Society approved a series of revisions to its code prohibiting members from engaging in price competition. 

By 1961 article 3 of the code stated: “It shall be considered unprofessional...and contrary to the public interest for any member...to invite or submit priced proposals under conditions that constitute price competition for professional services.” Guideline 4 for that article added that no engineer may “submit a priced proposal, written or verbal, which includes a stated fee or estimated range of fees in any form in response to [any] public advertisement for bids.” ASCE took steps to publicize this ethical stance; brochures explaining ASCE’s opposition to price competition were made available for public distribution, and the executive director explained the Society’s policy to government officials and made it clear that engineers who provided priced proposals would be subject to disciplinary procedures for unprofessional conduct. 

During this same period, however, ASCE learned that its strictures on price competition might be out of step with federal antitrust law. The Sherman Antitrust Act prohibits agreements by private entities that restrain competition in the marketplace, and a legal audit commissioned by the Society observed that article 3 of the code, which could be interpreted as an agreement on the part of members not to engage in price bidding, might represent an “actionable restraint” under this federal law. In the late 1960s representatives from the U.S. Department of Justice visited ASCE and inquired about its competitive bidding provisions, and the department posed similar questions to other societies. 

ASCE’s concerns became a reality in 1971, when the Department of Justice signaled its intent to bring proceedings against ASCE for violating the Sherman Antitrust Act. After negotiating with the federal agency, ASCE agreed to remove article 3 from its code, and a consent decree was entered in federal court whereby ASCE was enjoined from adopting any statement that “prohibits or limits the submission of price quotations for engineering services by members...or which states that the submission of price quotations for engineering services is unethical.”

The judicial decree against ASCE, together with similar cases in the following years against other professional societies, made it clear that while courts had generally lauded professional societies for their willingness to “self-regulate,” codes of ethics could not proscribe price competition. Nevertheless, the Department of Justice action did not entirely prevent ASCE from working to improve the contract selection processes. An interpretive letter issued with the consent decree noted that the judgment did not prohibit ASCE from advocating actions by federal, state, and local agencies or from “expressing or disseminating its view orally or in writing, that the procurement of engineering services includes consideration of factors in addition to fee.”

Today, ASCE’s position on contracting procedures is expressed in Policy 304 (“Qualifications-Based Selection of Professional Engineers”), which emphasizes ASCE’s belief that basing contract selections on such qualifications as education, training, experience, past performance, capabilities, personnel, and workloads results in more successful working relationships and provides better overall value to clients and customers. ASCE is also actively involved in efforts to expand the application of the Brooks Act in federal procurements and to encourage more states to enact similar legislation.

It is noteworthy that whereas private parties are prevented by antitrust law from adopting ethical provisions restricting price competition, many states are not similarly restrained. In fact, a number of state licensing boards have adopted ethics provisions that prohibit licensed engineers from participating in any procurement process that violates the state’s version of the Brooks Act.

For example, subsection 245:15-15-3 of the Oklahoma statute provides that licensed engineers “shall seek professional employment from governmental clients...on the basis of qualifications, previous experience, and technical competence for proper accomplishment of the work. The procedure for seeking professional employment restricts the engineer, land surveyor, or firm from submitting a fee or price for services...until the governmental client or any entity contracted by the governmental clients to furnish engineering or land surveying services has selected, on the basis of qualifications, previous experience, and technical competence, engineers, land surveyors, or firms for negotiation.” 

In similar fashion, the state rules governing the conduct of professional engineers in North Carolina stipulate that a licensee “shall, with regard to fee bidding on public projects, comply with the provisions of [the state’s version of the Brooks Act] G.S. 143-64.31 et seq. (or for federal projects, the Brooks Act, 40 U.S. Code 541 et seq.) and shall not knowingly cooperate in a violation [of these acts].”

Consequently, while an ASCE member who submits price information in response to a public works RFP that fails to comply with the state’s version of the Brooks Act would not violate ASCE’s Code of Ethics, that member might be subject to disciplinary action under the code of conduct in his or her state.    —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, that some details may have been altered for purposes of illustration or confidentiality, and that the general summary information contained in these case studies is not to be construed as a precedent binding upon the Society.

Tara Hoke is ASCE’s assistant general counsel and a contributing editor to Civil Engineering.

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