Advertising—Use of Client Information by Third Party

The use of innovative marketing schemes and other sales mechanisms by professional engineers in collaboration with others, and the ethical implications involved in such business associations, has been the subject of NSPE Board of Ethical Review deliberations in the past. Whether such business associations (“consortiums”) create the potential for conflicts of interest or other circumstances that could create appearances of impropriety is often dependent upon a review of all of the facts and circumstances relating to the operation of the consortium.

For example in BER Case No. 86-1, the Board considered two situations involving an engineer’s involvement in a business association. In the first case (Case 1), Engineer A had the opportunity to join a business consortium consisting of his engineering firm, an architectural firm, a construction firm, and a financial firm. The general purpose of the consortium was to improve the collective general marketing and business development of the members. To defray consortium expenses for promotion, publicity, overhead, etc., each firm was required to pay to the consortium an entrance fee plus a percentage of income derived from business successfully generated from referrals by other consortium members. In the second case (Case 2), which involved the same opportunity and purpose, Engineer B and the other members of the consortium were required to pay an entrance fee to the consortium. In addition, in Case 2, Engineer B was also required to pay a referral fee directly to the consortium firm member who found a new business client for Engineer B. If Engineer B found a new business client for a member of the consortium, Engineer B would receive a finder’s fee. The Board found that Engineer A’s participation in the consortium would not be prohibited by the NSPE Code of Ethics for Engineers in Case 1, but Engineer B’s participation in the consortium would be unethical in Case 2. The Board specifically noted that both consortiums were formed primarily for marketing purposes and represented, in effect, a strategy for individual firm marketing capabilities and efforts through an umbrella approach. The Board compared the consortiums with typical joint ventures, wherein one firm learns of a potential project and forms liaisons with other firms having expertise complementary to the others. In such joint ventures, marketing efforts are combined to secure the business and fee arrangements agreed to by all joint venture participants. The joint venture, in the Board’s view, becomes a temporary and less structured form of a consortium widely and successfully practiced within the engineering profession. The Board noted that objectivity can be compromised in the selection of joint venture participants as that potential existed in the Cases 1 and 2. Nevertheless, the Board noted that it was an acceptable form of practice. However, the Board concluded that the matter of a referral fee, a portion of which is exchanged among consortium firm members, constituted a payment for valuable consideration in order to secure work, which is specifically prohibited in the NSPE Code.

Later, in BER Case No. 05-9, Engineer A was employed in private practice and was approached by a networking and referral organization that has multiple chapters around the world. Only one person from any given profession or line of business could join any individual chapter. The chapter that approached Engineer A included a lawyer, contractor, investment advisor, and insurance agent. At each weekly meeting, there was usually a presentation on how to market a business and one member gave a detailed presentation about his or her business. Finally, members exchanged all referrals that they had obtained from each other during the week. The referral organization earned its revenue though annual membership fees. The members did not pay any fees to each other, and the organization did not make any referrals nor require that members make referrals to each other. Engineer A described the organization’s role as helping to bring people together to make “free referrals among themselves.”

In deciding that it would be ethical for Engineer A to participate in the networking and referral organization, the Board determined that the facts were clearly more in line with Case 1 of BER Case No. 86-1, noting that the structure was based upon an established model that was presumably practiced throughout the world. While that does not necessarily indicate that the practice was acceptable, it does demonstrate a level of credibility and sustainability. The arrangement outlined appeared to constitute a formalized networking circle and information exchange with no requirement that any party make a referral to another party. In addition, the fees that were paid were intended to cover chapter membership and general administrative cost, but are not provided to any individual member in consideration for a referral. A member was also free to make referrals outside of the network if the member so chose. On this basis, the Board concluded that there is no violation of the NSPE Code.

Turning to the facts in the present case, based upon the earlier cases discussed and the general custom and practice within the design and construction industry, it is the Board’s view that the situation described under the facts constitute an acceptable method of sales and marketing activities. In today’s competitive world, use of client lists, directories, and other related sources of information have become one of the many standard ways of advertising and promoting professional services. Under the facts, no direct compensation changed hands between Engineer A and Contractor Z. In addition, there did not appear to be any direct quid pro quo under which Engineer A was promised or guaranteed any future business or considerations in exchange for providing Contractor Z with the client information.

The Board, however, wishes to caution Engineer A that (1) since some of the information apparently was generated as a result of Engineer A’s collaboration with the land surveyor and the law firm, Engineer A should advise both the land surveyor and the lawyer to determine whether those parties had any agreements with their individual clients regarding the use of their contact information and future sales and marketing efforts, and (2) Engineer A should determine whether there are any federal, state, or local laws or regulations that might limit Engineer A’s use of the information in the manner proposed.