By Tara Hoke
Situation
In the early 1960s, California's legislature received and reviewed feasibility studies for a water resources development program in the Siskiyou County area. The centerpiece of the proposed program was the construction of a dam on the Sacramento River at Box Canyon, near the city of Mount Shasta. The area presented a favorable climate for winter and summer recreation, and it was determined that constructing a dam and reservoir at Box Canyon would enhance the attractiveness of the area for trout fishing and other recreational activities.
On the basis of its study, the state directed Siskiyou County to apply for state and federal grant money to support construction of the Box Canyon Dam. At the same time the state noted that, because the primary purpose of the project was recreational, the size and cost of the facility would have to be minimized.
Faced with strict limits on the size and cost of the project, the county devised a unique strategy to ensure that the work remained under budget. It issued a request for proposals for engineering design work specifying that all respondents must agree that payment for their services would be contingent on the county's ability to receive a construction bid that was under the budgeted amount. If the selected engineer's design was such that all construction bids were over the amount authorized by the grant, the engineer would be required to redesign the project at no additional cost to the county. If after the redesign the county was still unable to solicit a construction bid within its budget, the engineer would receive no payment at all.
Several local engineering firms accepted this condition and submitted proposals to the county. Notice of the proposed transaction was forwarded to ASCE's Committee on Professional Conduct (CPC) for its review.
Question
Would an ASCE member's participation in this type of transaction violate the Society's Code of Ethics?
Discussion
At the time this case was decided, the Code of Ethics was significantly different from today's version. Although four new canons had been added to the original six and guidelines to practice were incorporated to illustrate the code's principles, in many ways it was largely unchanged from the code adopted some 50 years earlier.
One of the ways in which the 1960s code resembled its predecessor was in its focus on business etiquette rather than broad ethical principles. Believing that engineering professionals had an innate calling to serve the public and that there was therefore no need to codify an engineer's values in a bullet list of dos and don'ts, the code's drafters chose instead to focus on business transactions, offering guidance on dealing with clients and other professionals and seeking to steer members away from activities deemed to present too great a risk of leading even upright individuals into ethical missteps.
Many of the activities proscribed by the 1960s code concerned competition for engineering work. Article 3 imposed a ban on price competition, finding it "unprofessional and inconsistent with honorable and dignified conduct...to invite or submit prices...for professional services." Article 4 dealt with attempts to undercut another engineer's contract, forbidding engineers "to supplant another engineer in a particular engagement after definite steps have been taken toward his employment." And two guidelines to practice for article 9 sought to prohibit contingency fee transactions. One said that engineers "shall not solicit or accept an engineering engagement...when payment for such services is contingent upon results supporting a predetermined conclusion or upon a favorable finding with respect to economic feasibility"; the other added that engineers "shall not request, propose, or accept an engineering engagement on a contingent fee basis if the contingent basis or the contingent services performed influence the selection of the engineer."
While these limits on competition no doubt also served the business interests of practicing professionals, it would be unfair to describe these provisions as purely protectionist. The code's drafters genuinely believed that the public interest was not best served by certain types of competition. As they saw it, the race to lower prices could only foster lower competence and a poorer quality of service, and seeking payment under a contingency arrangement might tempt engineers to cut corners or misrepresent results in order to reach their "pre-determined conclusion."
Despite the good intentions, the code's language did not pass muster under federal law. In the early 1970s ASCE received notice from the U.S. Department of Justice that the agency deemed ASCE's Code of Ethics to be in violation of federal antitrust law. The resulting 1976 revision replaced the language dealing with business practices with broader ethical provisions and exhorted engineers to be guided by principles of public service, competency, fidelity, and transparency.
Yet concerns about the contingency fees survived this overall rewrite, albeit in modified form. Today, category (c) in the guidelines to practice for canon 5 reads as follows: "Engineers may request, propose or accept professional commissions on a contingent basis only under circumstances in which their professional judgments would not be compromised." This provision acknowledges the ethical risks of contingency-based transactions while falling short of an outright ban.
Whether viewed under the language of the 1960s code or today's version, contingency fee transactions of the type seen in the Box Canyon project can best be described as raising significant ethical questions. On the one hand it is perhaps unfair to regard contingency agreements as more suspect than other transactions, as the temptation to commit wrongdoing in an effort to win or retain a client may exist in any type of fee arrangement. On the other hand, particularly when the contingency fee gives the engineer a financial stake in a project's outcome (or, as in the case of expert witness testimony, a stake in the amount of a party's recovery), such fees are inimical to concepts of objectivity, candor, and independence, concepts that form the essence of an engineer's professional responsibility.
In the CPC's review of the Box Canyon case, its members were unable to discern any evidence that the contingency transaction had influenced any engineer to compromise his or her professional integrity. Indeed, if anything, the design firm selected for the project had merely learned the costs of a bad business gamble. The lowest construction bid that the county received was a full 25 percent over the amount available, and the CPC's notes on the case indicate that no engineering fee was ever paid.
Ultimately, the CPC found that there had been no violation of the Code of Ethics, and it voted to close the case. However, both the CPC and the Board of Direction voiced misgivings with regard to transactions of this type. Upon the recommendation of the CPC, the board published an official statement in Civil Engineering holding that "if the contingent fee procedure by which engineering services were engaged for the Box Canyon Dam project...was not unethical, it was certainly bad public policy."
This description may be a valuable rule of thumb for any contingency-based transaction. While all projects present risks and opportunities, it is essential to exercise particular care when considering any form of contingency payment. Unless an engineer can clearly demonstrate that the deal will not hinder his or her ability to meet all other ethical obligations, the best course may be to deem the transaction "if not unethical, then certainly a bad idea."
Tara Hoke is ASCE’s general counsel and a contributing editor to Civil Engineering.
© ASCE, ASCE News, April, 2015
