The Ethics Advisor

Do you look good in stripes? How about an orange jump suit? We don’t have to look too far these days to find examples of unethical business practices that turn into criminal prosecutions. Insider trading, corporate fraud, shady accounting, illegal political contributions — these often go from the board room to the court room. So, too, in the construction industry it is a thin line between unethical conduct and criminal activity.

Whistle-Blower Laws. As part of a design-build team, architects and engineers may be faced with situations where their client (the owner or the prime contractor) wants to take a short-cut or make a substitution or design change that either violates the building code, OSHA standards, the ADA, or otherwise adversely impacts public health, safety or welfare – against the design professional’s advice. What is a professional required to do? AIA Code of Ethics, Rule 2.105, says, “If, in the course of their work on a project, the Members become aware of a decision taken by their employer or client which violates any law or regulation and which will, in the Members’ judgment, materially affect adversely the safety to the public of the finished project, the Members shall: (a) advise their employer or client against the decision, (b) refuse to consent to the decision, and (c) report the decision to the local building inspector or other public official charged with the enforcement of the applicable laws and regulations, unless the Members are able to cause the matter to be satisfactorily resolved by other means.” Advise, refuse, report — three simple ethical steps which are also required by the NSPE Code of Ethics for Engineers and by most state licensing laws.¹ Some state laws go even further and require the architect to terminate his or her services. See, e.g. N.J. Reg. 13:27-5.2. As a result, if your client or design-build teammate is cutting corners against your advice, you may have ethical responsibilities to report such actions to the local or federal officials and, possibly, quit the team. In addition, insurance coverage may be lost by participating in a knowing violation of a build-ing code.² Most professional liability policies contain exclusions for, “any dishonest, fraudulent, criminal, intentional or malicious act, error or omission, or those of a knowingly wrongful nature or the willful violation of any statute, regulation, ordi-nance, or administrative complaint, notice or instruction of any governmental body or agency, committed by you or at your direction.”³

Often design professionals can head off problems by showing their teammate or client the ethical requirements and discussing what the results will be if the action is reported to codes officials. Blowing the whistle on a design-build teammate will naturally sour the relationship, so it is best to go over this ethical rule during the teaming agreement stage so that there is no misunderstanding later.

Bribery and Kick-Backs. It is very rare for criminal charges to be filed against a contractor or a design professional. However, participation in bribery, kick-backs, bid rigging, or other activity can result in criminal charges. The violation of state lien laws, licensing laws, copyright laws, and OSHA safety rules can also result in criminal charges in cases of willful misconduct. Violating state campaign finance laws can also result in ethics penalties.⁴ More often, however, criminal liability for owners, contractors, and design professionals is the result of bribery or kick-backs of some type. There have been criminal cases in which architects or engineers have been prosecuted for bribery or attempts to bribe government officials, even in such unlikely states as Kansas and Oklahoma.

Penalties can be very severe. For example, in a 1997 federal court case an architect was sentenced to two years in prison and ordered to pay restitution for conspiring with a subcontractor to over-bill for work on a school project.⁵ The federal government then sued the architect under the False Claims Act, recovering triple damage of over $480,000, plus $20,000 in penalties. In 1999, 31 architects, real estate brokers, and construction managers pleaded guilty to bribery charges relating to bid rigging on interior construction work in New York City.⁶ The state licensing board then started proceedings to revoke the architects’ licenses due to felony convictions. Criminal charges can also lead to suspension or debarment from future public work. These are extremely serious matters and can end a promising career or sink a successful company.

Bid Rigging. Today, everyone involved in construction needs to know a little about bid-rigging laws and the harsh legal consequences that can result. Competitive bidding is used in public construction because it gives everyone an equal chance to bid and it normally saves taxpayers money. When bidders agree to rig bids, however, the public trust is violated and a federal crime is committed. The courts define “bid rigging” as “any agreement between competitors pursuant to which contract offers are to be submitted to or withheld from a third party.” The federal government advises their agencies to look for warning signs when reviewing bids such as identical bids by competitors; simultaneous price increases (“follow-the-leader”); rotation of bidders (with each taking turns as low bidders); division of market by agency or geography; joint bid by two competitors when one is clearly qualified to bid on his own; and identical calculation or spelling errors.⁷ Any federal agency that suspects bid rigging is required to report the matter to the Department of Justice.

A company can be held criminally liable for bid rigging conspiracies committed by its employees if those employees were acting within the scope of their authority or apparent authority and were acting, at least in part, with intent to benefit the business. Bid rigging agreements “restrain trade” by undermining the competitive bidding process and a conspiracy to submit collusive, non-competitive, rigged bids is a felony. In addition to criminal charges, there can be civil suits for “treble” (triple) damages, plus costs, attorney’s fees, and interest. Other penalties can include forfeiture of the corporate charter, personal liability of stockholders, officers and directors, debarment from work, injunctions, and fines.

Serious Business. Most criminal charges in construction involve conduct that you would recognize as illegal even before reading this article. If anyone makes you a proposal to submit phony bills or bids, or to overlook code violations, talk to your lawyer before proceeding. Get the word out to your project staff, from estimators to executives, that no form of bid rigging will be tolerated by your company and will be grounds for immediate termination. The risks and penalties are just too severe to treat this subject any less seriously.

Endnotes

1. See, NSPE Code of Ethics for Engineers, Rule II.1.a and Rule II.1.f. (2003); NCARB Legislative Guidelines and Model Law/ Model Regulations, Rule 100.803 (C)(1999).
2. See also, AIA’s Rule 2.106, which states “Members shall not counsel or assist a client in conduct that the architect knows, or reasonably should know, is fraudulent or illegal.” (AIA Code of Ethics).
3. Zurich-American’s exclusion IV.A, Professional Liability Policy, form no. U-PL-528-A CW (8/96 edition).
4. AIA National Ethics Council, Decision 93-7; AIA Memo, p. 9, February 1994.
5. U.S. v. Peters, 110 F.3d 616 (8th Cir. 1997)
6. Architects Plead Guilty in New York Bid-Rigging Scandals, p. 59, Architectural Record, December 1999.
7. 48 C.F.R. § 3.303.

G. William Quatman, Esq., FAIA, DBIA, is both an attorney and a licensed architect who practices law with the firm of Shughart Thomson & Kilroy, P.C., in Kansas City, MO. He can be reached at (816) 421-3355 or www.stklaw.com. Mr. Quatman is the 2005 Chairman of DBIA’s Legislative Committee and serves on the Designation Board.