Improper Solicitation of Work - Business Consortium

A "consortium" is generally defined as a business combination established for the benefit of its members. The general structure of such entities varies of course depending upon the nature of the venture, size, and a whole host of factors. However, what is common to almost all such entities is the fact that the members of the entity generally conduct business primarily for the benefit of its members.

The issue presented before the Board in this case is whether an individual engineer may ethically join together with other business and professional groups in an arrangement which would offer incentives to its members for referrals to one another.

Engineering firms must balance a number of factors before seeking association with other firms or business.

Whether such an entity may exist within the bounds of the NSPE Code of Ethics must be determined by a close and careful analysis of the Code and cases interpreting the applicable Code provisions.

Section II.4.a., one of the most often cited provisions, touches upon some of the concerns raised under the facts of this case. Engineers act for the benefit of their clients in rendering their services. Their technical knowledge and experience are relied upon by their clients. Engineers are called upon to render judgments in a variety of areas including recommendations, referrals, and the like. A client should be entitled to expect the best judgment the engineer has to offer. In this regard, the engineer should not be guided by personal gain or private concerns. Like all professionals, the engineer should be free to make the best, most informed and impartial judgment he is capable of making.

In Case 75-10, the Board reviewed a case in which Engineer Doe was employed on a full-time basis by a radio broadcast equipment manufacturer as a sales representative. In addition, Doe performed consulting engineering services to organizations in the radio broadcast field, including analysis of their technical problems and, when required, recommendation of certain radio broadcast equipment as might be needed. Doe’s engineering reports to his clients were prepared in a form for filing with the appropriate governmental body having jurisdiction over radio broadcast facilities. In some cases, Doe’s engineering reports recommended the use of broadcast equipment manufactured by his employer. In finding that Doe may ethically provide consulting services as described only if there is full disclosure of all the facts and circumstances to his client, the Board noted that the controlling element in the case was the extent to which Doe’s recommendations for equipment manufactured by his employer were justified by the best interests of his client. Said the Board, ":It would be too easy to merely conclude that Doe may not recommend the equipment manufactured by his employer in all circumstances. If he truly believed and documented that such equipment was in the best interests of his client he would be ethically and duty bound to so advise."

However, it is unclear from the facts of Case 75-10 whether Doe advised his clients in each case of his connection with the manufacturer of the equipment in order for the client to determine whether Doe’s recommendation was influenced by his relationship with the manufacturer. Such disclosure, of course, is one of the crucial elements to Code Section II.4.a.

While the facts of the case at hand appear somewhat different than those of Case 75-10, there do appear to be common threads. Both cases suggest situations in which an engineer’s judgment may be influenced by a concern not necessarily consistent with the interests of his client. In Case 75-10, it is suggested that the full disclosure required by Section II.4.a. would suffice to remedy the ethical concern raised. Whether full disclosure of the referral fee in the instant case would be sufficient to dispel the ethical issue question is a different matter.

Obviously, one of the basic differences between Case 75-10 and the instant case is that in the instant case a significant direct financial incentive exists for consortium participants in referring clients to consortium members. Disclosure of this fact to a client to whom one maintains a professional relationship, while required by Section II.4.a., does not relieve the engineer from other Code requirements.

We note Case 81-4 in which Engineers A, B, and C were principals or employees of a consulting engineering firm which did extensive design work for private developers. The engineers were involved in recommending to developers a list of contractors and suppliers to be considered for selection on a bidding list for construction of a project. Usually, the contractors and suppliers recommended by the engineers for the selected bidding list obtained most of the contracts from the developers. Over a period of years the officers of the contractors or suppliers developed a close business and personal relationship with the engineers of the firm.

From time to time at holidays or on birthdays of the engineers with whom they dealt, the contractors and suppliers would give Engineers A, B, and C personal gifts of substantial value, such as house furnishings, recreational equipment, gardening equipment, etc. In reviewing a series of earlier BER cases, the Board cited Section II.4.c. and noted that the clients of the engineering firm may be led to question whether the recommendation of particular contractors or suppliers is totally unbiased and represents the independent judgment of the consulting firm. The Board concluded that the conduct of the engineering firm was not consistent with the Code of Ethics.

Finally, in Case 83-5, the Board ruled that it was unethical for an engineer to accept the proposal by a landscape architect to refer clients to the engineer in return for a fee over and above the value of the landscape work which the landscape architect would presumably perform on each of the projects.

Citing Code provision II.5.b., the Board noted that there was nothing to indicate that the landscape architect was a "bona fide marketing agency." Said the Board, "To the contrary, it appears that the landscape architect is wearing two hats and is wearing those hats simultaneously. The landscape architect proposed to act both as a marketing representative for Engineer A and at the same time expected to perform services at an inflated rate in connection with the work that the landscape architect secured for Engineer A. Such conduct does not demonstrate the requisite good faith, integrity of dealing, and honesty implicit in the definition of a ‘bona fide marketing agency,’ as required by the Code."

In the instant cases, both consortiums are being formed primarily for marketing purposes and represent, in effect, a "pooling" of individual firm marketing capabilities and efforts through an "umbrella" approach. In this sense the consortium is quite similar to joint ventures where one firm learns of a potential project and forms liaisons with other firms having expertise complementary to the others. 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 profession. It can be argued that objectivity can be comprised in the selection of joint venture participants as easily as the potential exists in the facts of the instant case.

The final issues for this Board to resolve are raised in Section II.5.b. First, the consortium represents a relatively unique approach to marketing and only time will serve to establish its credentials as a "bona fide…marketing agency." The Board prefers to defer the final judgment for another day.

Secondly, the matter of a referral fee, a portion of which is exchanged between consortium firm members, constitutes a payment for valuable consideration in order to secure work, as prohibited in Section II.5.b.