By Tara Hoke
Situation
Newspaper accounts are forwarded to ASCE's Committee on Professional Conduct (CPC) reporting the criminal prosecution of a county official and two principals of a consulting engineering firm on charges that include conspiracy to defraud the United States.
The case arose from a planned $250-million project to overhaul a county sewer system in a populous Gulf Coast state. The project commenced with the commissioning of a study of the county's current sewerage capabilities and needs, with funding provided by a grant from the U.S. Environmental Protection Agency (EPA). At the instruction of the county's drainage department director/chief engineer, the study was characterized as an emergency contract, allowing the agency to award the contract without putting the project out for public bid.
The firm that received the contract promptly awarded a large portion of the work to a subcontractor-a firm in which the county's drainage director held a substantial ownership interest. Over the course of the next year, the contractor received nearly $2 million in fees for the study, more than $900,000 of which was attributed to the subcontractor's services.
Yet federal prosecutors alleged that the subcontracting firm had in fact done no work on the study-that, indeed, it lacked the "experience, technical competence, personnel, equipment or capacity" to do the work it was contracted to perform. Instead, the subcontractor agreement was simply a thinly disguised kickback scheme-wherein the contractor overbilled the county for its own work on the project, and then directed the proceeds back to the public official as "payment" for the subcontractor's work.
The scheme came to light following a tip-off on another fraudulent scheme spearheaded by the same public of-ficial-this time involving the director's authorization of some $800,000 in sham "rental payments" for unnecessary and even nonfunctional drainage equipment. Acting on information from the tipster, federal investigators undertook a widespread investigation of the official, which uncovered his undisclosed interest in the subcontractor's firm and exposed the fraudulent payments being made to that firm.
The county drainage director ultimately pleaded guilty to a lesser charge in exchange for a reduced sentence. Charges against the consulting firm's principals were dropped in exchange for their cooperation in the investigation, but the firm itself was sanctioned with a hefty criminal fine and directed to repay all the money received from the study contract.
Both the drainage director and one of the consulting firm principals are members of ASCE, so the CPC opens an investigation into the case.
Question
Did the members' conduct in participating in this sham "subcontracting" scheme violate the ASCE Code of Ethics?
Discussion
Fundamental Canon 4 of the ASCE Code of Ethics holds that "Engineers shall act in professional matters for each employer or client as faithful agents or trustees, and shall avoid conflicts of interest." This language is mirrored not only in the ethical codes of other engineering organizations but also in those governing doctors, attorneys, accountants, and other professionals. Indeed, it could be argued that it represents one of the crucial elements that define a professional: the obligation to render expert and impartial service on matters of crucial importance, honoring the client or employer's needs over other competing or conflicting personal interests.
In the case of the firm principal, his company overbilled his client by nearly $1 million-an act that unjustly enriched the firm and others involved in the scheme at his client's expense. Yet, when contacted by the CPC, the engineering prin-cipal was quick to deny that he had committed any ethical offense. The principal alleged that he was neither an instiga-tor nor a participant in the fraudulent scheme but instead another of its victims. He claimed that the scheme had been orchestrated entirely by a senior project manager at his firm and that the principal himself had been entirely unaware of the unlawful activity. He also noted that he had fully cooperated with federal agents investigating the scheme and that his firm had made full restitution for the unearned fees.
The CPC was not particularly swayed by the principal's attempt to disclaim responsibility for his firm's involvement in the scheme. In the first place, the CPC felt that the principal did not make the most credible witness for his own lack of knowledge of a scheme that delivered a lucrative no-bid contract to his firm. Second, even if it were true that the principal had no knowledge of the scheme, the CPC felt that his inattentiveness to serious misconduct within his firm was also inconsistent with his professional obligation to serve clients as a "faithful agent or trustee."
Accordingly, the CPC held that the member's conduct violated Canon 4 of the ASCE Code of Ethics and recommended a five-year suspension, a sanction that was upheld by ASCE's Executive Committee.
With regard to the drainage director, the involvement of a public employee in a project wherein he/she has a personal financial interest represents a clear conflict of interest. Even in the absence of an outright agreement to seek improper gain, this blending of personal and public interests offers tremendous opportunity for impropriety. A public official with a financial interest in a subcontractor may be inclined to steer greater volumes of work to a contractor with the goal of receiving some share of the benefit. Similarly, a contractor may be tempted to select the official's firm as a subcontractor not based on objective measures such as cost and ability but rather in hopes of currying favor with the public official.
Moreover, even if the public official takes no action to serve his/her personal gain, failure to avoid conflicts of interest can still be an ethical misstep-creating an appearance of impropriety that may be detrimental to the public's trust and the reputation of the public agency. This action may also put the official at risk of violating any criminal conflict-of-interest laws that govern public-sector employees in the jurisdiction.
In view of these concerns, it is perhaps small wonder that ASCE's Code of Ethics imposes a blanket prohibition on such arrangements. Guideline d under canon 4 states: "Engineers in public service as members, advisors, or employees of a governmental body or department shall not participate in considerations or actions with respect to services solicited or provided by them or their organization in private or public engineering practice." Given this restriction, even if the subcontracting firm had capably performed its obligations under the contract, the drainage director's involvement in this transac-tion still likely would have raised significant ethical concerns.
Yet in this case, it appears that the subcontractor did not, in fact, contribute meaningful services to the project but rather received payment only as a means of diverting funds to the public official-a fact that elevates the engineer's degree of culpability from a simple ethical lapse to an act of willful fraud and corruption. Such acts are covered under Fundamental Canon 6, which in its current form reads: "Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and dignity of the engineering profession and shall act with zero tolerance for bribery, fraud, and corruption."
Unfortunately, the drainage director proved unresponsive to the CPC's request for information. Proceeding on the basis of written records of the criminal case, the CPC held that the official had violated canons 4 and 6 and recommended that he be expelled. Following a hearing before the full Board of Direction, as required by ASCE's rules for cases involving expulsion, the Board concurred with the CPC's recommendation.
Notice of the disciplinary actions against the two members was printed in a Society publication.
Tara Hoke is ASCE’s general counsel and a contributing editor to Civil Engineering.
© ASCE, ASCE News, July, 2018
