By Tara Hoke
Situation
An ASCE member and geotechnical engineer is contacted by a local structural engineer with a proposal concerning a large subdivision project on which the structural engineer has been retained to perform work. The structural engineer informs the member that the owner is seeking to retain a geotechnical engineer to perform work on the subdivision project and that he, the structural engineer, is prepared to recommend the ASCE member to the owner. However, in exchange, the structural engineer would expect the member to pay him a flat fee of $500 for each lot the member is engaged to perform work on as a "referral fee." The structural engineer claims that the owner of the subdivision plot is aware of and has agreed to this proposed financial arrangement between the structural engineer and the member.
Concerned with the ethical implications of this transaction, the member contacts the ASCE ethics hotline, which in turn forwards the question to the Committee on Professional Conduct for its views on the matter.
Question
Would it be a violation of ASCE's Code of Ethics for the member to accept this proposal and pay the referral fee to the structural engineer?
Decision
The members of the Committee on Professional Conduct felt that, if the subdivision owner were unaware of the proposed financial transaction between the geotechnical engineer and the structural engineer, the payment of a referral fee to the structural engineer would raise clear ethical concerns under canon 4 of the code, which reads as follows: "Engineers shall act in professional matters for each employer or client as faithful agents or trustees, and shall avoid conflicts of interest." Category (a) in the guidelines to practice for canon 4 elaborates: "Engineers shall avoid all known or potential conflicts of interest with their employers or clients and shall promptly inform their employers or clients of any business association, interests, or circumstances which could influence their judgment or the quality of their services."
The committee members were of the opinion that payment of the per-lot referral fee could very well cloud the geotechnical engineer's judgment or diminish the quality of his services. As they saw it, the engineer might be pushed to inflate the costs charged to the owner or to compromise quality in other areas to cover the amounts being paid to the structural engineer for the referral. Failure to disclose this potential conflict to the owner would thus represent a violation of canon 4.
While the committee members were skeptical that an owner would voluntarily accept this type of financial transaction, they also felt that the owner's agreement did not remove the ethical taint from the payment. Canon 5 of the Code of Ethics reads as follows: "Engineers shall build their professional reputations on the merit of their services and shall not compete unfairly with others." Category (a) in the guidelines to practice for canon 5 has this to say: "Engineers shall not give, solicit, or receive either directly or indirectly any political contribution, gratuity, or unlawful consideration in order to secure work, exclusive of securing salaried positions through employment agencies." Moreover, category (b) notes that professional contracts should be negotiated "on the basis of demonstrated competence and qualifications." Finally, canon 6 emphasizes the importance of acting "in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession."
The committee members felt that the payment of a fee in exchange for the structural engineer's recommendation was inconsistent with the strictures on gratuities for securing work. As they saw it, by making this payment, the member would be violating his obligation under canon 5 to base his professional reputation on the quality of his services, and they recommended that the member be advised to reject the project referral. The committee further noted that it was deeply troubled by the conduct of the structural engineer who had proposed the referral transaction.
It is interesting to note that other professions have struggled with the ethics of referral fee arrangements among their members. While the American Medical Association's code states plainly that "payment by or to a physician solely for the referral of a patient is fee splitting and is unethical," the model code for attorneys is slightly more permissive. The American Bar Association model code prohibits fee splitting among attorneys from different firms unless the fee relates to the services performed by each and is both reasonable and accepted by the client in writing. Here the fee in question is less a referral fee than an equitable share for an attorney who performs some work before electing to recommend a client to a more suitable attorney.
However, the American Bar Association code does permit "reciprocal referral agreements" among attorneys whereby attorneys agree to refer prospective clients to one another as long as these arrangements are not exclusive and the client is made aware of the existence and nature of them. Such arrangements are also subject to the laws of the particular jurisdiction, and some states have adopted codes of professional conduct that prohibit attorneys licensed in those states from entering into reciprocal referral agreements.
Tara Hoke is ASCE’s general counsel and a contributing editor to Civil Engineering.
© ASCE, ASCE News, July, 2010
