Enhancing Ethics and the Competitive Environment by Accounting for Conflict of Interest in Project Procurement
Publication: Leadership and Management in Engineering
Volume 13, Issue 2
Abstract
Conflicts of interest, whether actual, potential, or simply a situation having the appearance thereof, occur often in the global facilities and infrastructure design and construction industry, of which engineers are an important and integral part. The procurement of engineering services by governments and agencies can be the first checkpoint for preserving ethical conduct, and the enhanced ethics from this process can then propagate down the value chain in the subsequent delivery of design services, the procurement of construction services, equipment, materials, and supplies needed for construction, and the provision of ancillary services. This paper proposes to account for a range of properly disclosed conflicts of interest, using a scoring framework in the selection process that includes the benefits of accepting a certain degree or level of conflict of interest and weighing it, in a transparent process, against the adverse risks and consequences of a conflict. A two-part metric is proposed: the first part quantifies the adverse risks of conflict of interest (ARCOI) with a range of negative to zero values, and the second quantifies the benefits of accepting the conflict of interest (BACOI). Adding these two values provides a total conflict of interest (TCOI) score, which can then be properly combined and weighted with the other components common in procurement scoring frameworks, which have points for firm qualifications, staff qualifications, technical approach, and price, in order to arrive at a transparent selection decision. The paper provides the rationale and also practical commentary for implementation of the proposed procedures.
Introduction
Conflicts of interest, whether actual, potential, or simply a situation having the appearance thereof, occur often in the global facilities and infrastructure design and construction industry, of which engineers are an important and integral part. The procurement of engineering services by governments and agencies can be the first checkpoint for preserving ethical conduct, and the enhanced ethics from this process can then propagate down the value chain in the subsequent actual delivery of the design services, the procurement of construction services, equipment, materials, and supplies needed for construction, and the provision of ancillary services.
Conflicts of interest are more likely to occur in situations in which the number of firms competing for a project is small relative to the size of the market, e.g., in relatively small or developing nations, or in political jurisdictions (province, county, state, or city) with a limited number of companies that are capable of providing or restricted by law or regulation to compete to provide the service required. Also, even in relatively large markets for the facilities and infrastructure industry, as the contracting practices of governments and agencies trend away from the traditional design-bid-build process and toward design-build and other alternative project delivery methods, there will be increasing possibilities for conflicts to occur.
This paper proposes that it should be possible to account for a range of properly disclosed conflicts of interest in the selection process, using a scoring factor that includes the benefits of accepting a certain degree or level of conflict of interest and weighing it, in a transparent process, against the adverse risks and consequences. This in turn would remove the disincentives to provide proper disclosure and thus enhance ethical procurement processes resulting in a greater societal good in both the local jurisdictions and the global economy.
Three Hypothetical Scenarios
As thought experiments to provide perspective to the standards and ideals of conflict of interest policies, the following scenarios are provided:
Scenario 1
First, consider the scenario in which you want to build a home, and suppose you have a brother who is an excellent and highly qualified contractor who builds houses. Would there be a conflict of interest in hiring your brother to build your house?
Of course, in this focused scenario there would not be a conflict of interest, even if the contract were to be awarded on a sole-source basis, since you are using your own money, and not the money of a government or a public entity. But suppose you would like to receive the lowest price, and so you ask for bids from your brother and several other contractors as well.
Now, this may not go over too well with your parents, who might very much be happier to have you employ your brother, regardless of price. And they point out to you the benefits of keeping the funds and profits of performing the project within the family, not to mention the harmony that would be preserved at future holiday events and family gatherings. Nevertheless, you proceed with the bid process because you know it will at least provide a competitive benchmark to judge any price your brother proposes, and that logic may perhaps mitigate your parents’ complaints.
In the final selection process, there should be the recognition that all other factors aside, your brother may best understand you and know you and your spouse’s requirements (e.g., the number of children you have or intend to have) and aesthetic preferences (e.g., colors, textures, architectural or interior decorating styles) that may arise from your being raised in the environment of your parents’ tastes and preferences. All these factors would indicate that your brother, because he knows you so well, could reasonably be expected to provide you with the best value project, if not the lowest price project. And you would have to reasonably weigh this information in your selection decision.
Scenario 2
On the other hand, consider a second scenario in which you are the procurement officer for a public entity or government agency, and your organization desires to construct a specialized project. Then suppose that your brother is the president of a company that is the best-qualified specialty contractor to perform the construction of your project. Would there be a conflict of interest in hiring your brother’s company to construct the project?
Of course, there would be a serious breach of legal and ethical conflict of interest issues if you awarded the contract to your brother’s company on a sole-source basis. On the other hand, suppose there is a competitive procurement process, and your brother and his company bids on the contract and wins on a lowest bid basis. And assume that during the procurement period, you and your brother were both highly ethical, and followed the letter of the process and did not speak or communicate, so he had no “insider” information to help him compete. If he wins, even if it is on a lowest price basis, there is no doubt that suspicion would be cast upon the process, and at the very least it would appear that there is a conflict of interest, even if in fact there were none.
So, in order to avoid even the appearance of conflict of interest and to preserve your integrity, your brother’s company is prohibited from bidding on the project. The downside for the greater good (the government agency or society) is that you are not able to have the best-quality contractor to build the project.
Scenario 3
Now, let’s consider another variation of the first scenario, in which you are on the proposal evaluation and selection committee for a project for a federal government agency in a country with contractors native to your home country and also contractors from abroad who will be competing with your home-country contractors. Substitute now your parents with the national government or one of its officials who truly would like to see the contract awarded to one of the local companies, instead of an international outsider.
There is no doubt that there would be advantages to the local or national economy, if the contract were to be awarded to a local contractor. There would be the creation or maintenance of jobs locally in the short term, especially if some of the components of construction are manufactured in the country instead of elsewhere. In the long run, the project would provide experience and training for the local population, which would enhance the technical expertise and knowledge embedded within your country for the future.
However, in a global economy, without a transparent mechanism to balance the advantages and disadvantages of such favoritism shown to local companies, this could reduce the competitiveness of the procurement. This in turn would tend to drive the process toward a “small” market scenario, which creates a milieu for more possibilities for conflicts of interest, and in the worst case would tend to drive the country toward a less competitive and unethical local economy.
Moving Away from All-or-Nothing Determinations
The first two of the three preceding hypothetical scenarios have one aspect in common with most highly ethical procurement procedures in practice today. The commonality is that the conflict of interest or the appearance of a conflict of interest is usually a binary yes/no determination. For an engineering consultant or construction contractor, a conflict of interest or the appearance of a conflict usually precludes the firm from competing for a contract. It is, in essence, all or nothing.
The point of all three of the precediing narratives is to illustrate the gradational nature of the degree or severity of conflicts of interest, as well as the gradational nature of the risks and benefits of accepting some degree of conflict of interest, ranging from the personal to the macroeconomic level.
Although there are important and strict standards regarding conflicts of interest and apparent conflicts of interest, it is proposed to allow and account for the existence of these ranges and move away from all-or-nothing determinations. This can be the mechanism that will encourage more disclosures, more informative disclosures, enhanced ethics, better quality projects, better value projects, and a greater good for society as a result.
Definitions of Conflict of Interest
There are myriad definitions of conflict of interest depending on the professional context, whether it is for a lawyer, a political officeholder, or a financial fiduciary (e.g., an investment adviser or financial auditor), and depending on what the implications are of such conflicts. For engineers in the facility and infrastructure design profession, the following is a synthesis of various definitions, as applicable for the purposes of this paper.
A conflict of interest can be defined as “any situation in which an individual or corporation (either private or governmental) is in a position to exploit a professional or official capacity in some way for their personal or corporate benefit” (“Conflict of Interest” 2012). Or, it may be that the individual or corporation is in a position of trust, and has a competing personal, professional, or financial interest, which can “make it difficult to fulfill his/her or the organization’s duties impartially” [wording adapted from Institute of Internal Auditors (2012)].
Specifically, as related to “impartiality” for engineering professionals, it is important to not encroach upon conflicts that may bias their judgment in the technical aspects of prosecuting or reviewing a design, or in the construction of a project.
Standards Applicable to the Appearance of Conflicts of Interest
In the public domain, and other areas where public trust and confidence are critical, there is an even stricter and more severe standard regarding apparent conflicts or the appearance of conflicts of interest. As an example, the following provides the full context for the statements derived from the conflict of interest policies of the Institute of Internal Auditors (2012): “A conflict of interest exists even if no unethical or improper act results. A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the internal audit activity, and the profession.”
For government employees, the Government of Canada (Treasury Board of Canada 2012) has provided the following requirements:
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“Public servants in the Government of Canada are required to be as concerned with preventing apparent conflicts of interest as they are with preventing real and potential conflicts of interest.”
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“Appearance, or perception, is a key characteristic of impartiality, neutrality, fairness and integrity.”
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“[G]iven the heavy trust and responsibility taken on by the holding of a public office or employ, it is appropriate that government officials are correspondingly held to codes of conduct which, for an ordinary person, would be quite severe.”
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“In setting a high standard for both apparent and actual government integrity, the Courts distinguish this from the standard that applies outside government.”
Although individuals and private firms that are providing services to a public governmental entity are not necessarily held to the preceding standard, it is a standard to strive for nevertheless.
Importantly, it is the ethical obligation of engineers and firms in the private sector to endeavor not to cause a conflict of interest or an apparent conflict of interest for government employees, at the very least through proper disclosure of potential conflicts [see ASCE (2009), Canon 4; and similarly, Province of Ontario (2008)]. As stated previously and reiterated here, it is the hope that the procedures provided in this paper will enhance and encourage the proper disclosure of actual conflicts as well as possible appearances of conflicts of interest in the public procurement process.
Two Types of Adverse Risks
There are many adverse risks or downsides to having a conflict of interest or the appearance of a conflict of interest, but this paper proposes to define and address two types of downsides that can be accounted for in the selection of engineering services in public procurement:
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Type 1: The adverse risk of a competitive advantage perhaps leading to a direct financial advantage (perhaps unfair or perhaps not) to a particular person, firm, or organization.
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Type 2: The adverse risk of a possible bias (perhaps an impairment) of judgment in technical and financial matters in the subsequent performance of engineering services.
The first of the downsides (Type 1) clearly has the potential to lead to an unfair or undeserved direct financial gain. But there are two instances of the word “perhaps” in the preceding which warrant clarification. The first “perhaps” postulates that even with a competitive advantage that can be “exploited,” a fair procurement process may result in that competitive advantage not being realized, i.e., a firm with a specific competitive advantage may not win owing to other overriding evaluation factors. The second instance of “perhaps” is to question or to consider whether the advantage was arrived at fairly or unfairly, and if fairly, whether that would still be unethical. This is addressed in more detail later in this paper.
The second of the downsides (Type 2) is less clear. A Type 2 situation can perhaps lead to a suboptimal technical and/or financial solution for the client, and is sometimes more difficult to ascertain if it occurs because professionals can differ on whether a technical design solution is optimal or suboptimal. However, the decisions that result from this downside may have larger consequences that could propagate down the value chain of an economy.
In the delivery of the project, subsequent to design, this second downside can have an economic “multiplier” effect. In the extreme, if an engineer’s professional judgment compromises that professional’s obligation of holding paramount the best interests and safety, health, and welfare of the public, this second downside is a potentially more serious consequence than that of an unfair Type 1 financial gain by any single individual or firm.
On the other hand and as a counterpoint, there can also be a propagation of undesirable effects if the most qualified or a highly qualified firm is excluded from competing based on its having a conflict or perceived conflict of interest, and is prevented from providing its services to a client or the public. In this case, the client and the public may not benefit from the best design that could have been achieved if the procurement process did not exclude firms with conflicts of interest.
Limited Competition in “Small” Markets
Geographically Limited Markets
The “small” market concept is particularly applicable in a relatively small nation or small jurisdiction, in which there are often a limited number of companies that are capable of providing the engineering services required for a project. In a small country, there is often a greater probability of some level or degree of closeness, such as that a person in any given firm might be linked with an individual on the client/owner side by friendship, family, or other personal connections, some of which may go back for several generations.
Also, limited competition may result in part from the existing socioeconomic structure of a small country. In small developing countries, there may be a relative lack of higher educational institutions and resources for the training of engineers. Thus, it may be difficult to find persons, or firms employing such persons, who do not have at least an appearance of a conflict of interest in any matter or project within the jurisdiction. This is what defines the “small” market effect.
Number of Competitors Limited by Laws and Regulations
Local regulations, laws, or licensing requirements, including licensing for engineers are factors that may tend to cause some restriction of trade and commerce, and therefore cause a “small” market effect. Thus, fewer firms and staff may be available to compete, or conversely, there may be greater opportunities for the fewer companies to have potential conflicts of interest.
Mega-Project Effects
“Small” markets in a relative sense can be created when a government or agency embarks upon a regional mega-project that can employ a substantial proportion of the engineering talent and engineering firms in the market. Often, this results in all the major engineering firms in the region participating or endeavoring to participate in some manner in various scopes and facets of the project, and this may lead to increased numbers of firms having potential conflicts of interest.
Design-Build Exacerbating the “Small” Market Effect
Design-build procurement effectively reduces the number of firms able to compete for design functions and with sole allegiance to the owner/client. Or conversely, if any firms have been previously involved in design functions with the owner/client in the early stages of design, it now possibly increases the number of those firms and staff who will be associated with the builder’s or constructor’s realm with potential conflicts of interest.
In any design-build project delivery framework, firms will have to decide if they desire to be in the preliminary design phases of a project representing the client/owner, or whether they would prefer to cast their lot with the design-builder. Typically, most firms view that there is more revenue to be gained as part of the design-build team, rather than through involvement in the preliminary phases of design, for which they can receive fees for only up to 10% or 30% of the design. Also, by engaging in only preliminary design, a firm would not be able to earn fees for construction-phase services.
As an example, suppose that half of the available design firms within the pool decide that they see a potentially greater upside in teaming up on a design-build team. This automatically reduces by half the number of firms that would compete for the preliminary design contract.
Thus, as described here, the trend of the contracting practices of governments and agencies moving toward design-build procurement reduces the number of firms in the purely design segment of the market and exacerbates the “small” market effect.
Proposed Evaluation Framework for Conflict of Interest Metrics
Having presented the case for the need to have a selection process that embodies high ethical ideals but reflects the reality of the market, we now present the proposed framework for accounting for conflicts of interest and the gradational impacts and/or benefits of accepting a degree of conflict of interest. The framework should be compatible with other components in common scoring frameworks, which assign points for categories such as firm qualifications, staff qualifications, technical approach, and price proposed.
Typical Scoring Selection Process
The bid evaluation or proposal evaluation and selection process usually involves scoring of proposals based on several factors and is usually performed by a proposal evaluation and/or selection committee. As an example, a typical scoring procedure could involve an assignment of a score from 1 to 5, with 5 being the highest favorable score and 1 being the least favorable score. Another common scoring metric assigns a score in a range from zero to 100. A typical framework for the scoring system is based on attributes and weighting factors such as the following (weighting percentages are shown in parentheses):
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Firm qualifications score (5%);
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Qualifications of key personnel score (10%);
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Technical approach score (20%);
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Work plan score, including
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Schedule (15%) and
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Capacity to perform the proposed work plan (15%);
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Other factors and considerations (5%); and
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Price score (30%).
It should be noted that these components are to be weighted and summed for a total score, and that the sum of the weight percentages is 100%.
Proposed Conflict of Interest Scoring
What is proposed is that in addition to these scoring factors, a factor with two components should be added as follows:
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Conflict of Interest score, including
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Adverse risks of conflict of interest (ARCOI) score (greatest conflict of interest receives highest negative-value score), and
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Benefits of accepting the conflict of interest (BACOI) score (greatest benefit that offsets a conflict of interest receives highest positive-value score).
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Total Conflict of Interest (TCOI) score = ARCOI + BACOI.
It is suggested that a conflict of interest score could be included in the proposal scoring framework, with a relative weight reflective of its importance. Methods for establishing the degree of conflict score for its two components are described in the following.
Degree of Conflict of Interest: A Social Network Approach (ARCOI Score)
It is commonly said that there are at most only six degrees of separation between any two persons on planet Earth. In actuality, the number is between five and six degrees of separation (Gladwell 2000).
It is proposed that the evaluation scoring mechanism could be a social network type of index that accounts for the degrees of separation between parties in a project, i.e., a firm (or persons in a firm) and the client/owner. A spousal or immediate family relationship would receive a degree of separation (DS) score of 1, and a linked friendship could be a score of 2, to a far removed acquaintance at a score of 6, as follows:
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DS = 1: Immediate family relative of client staff or close personal (nonbusiness) relationship exists.
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DS = 2: Friend of a member of DS = 1 or equivalent existing business relationship circumstance, such as a firm presently performing work for a client.
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DS = 3: Friend of a member of DS = 2 or equivalent existing business relationship circumstance, such as a firm acting as a subconsultant to a firm working for a client.
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DS = 4: Friend of a member of DS = 3 or equivalent existing business relationship circumstance, such as a firm acting as a second-tier subconsultant to a firm working for a client.
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DS = 5: Friend of a member of DS = 4 or equivalent existing business relationship circumstance, such as a firm in the process of marketing its services to a client, but with no past contracts or business relationships
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DS = 6: Effectively an extremely far removed relationship or contact.
The exact nature of the methodology for determining the DS score and the details of “equivalent business relationship circumstances” can be customized to the procurement department’s needs and the needs of the project or of the local jurisdiction. The examples given are intended to be conceptual and for guidance for more detailed definitions, as may be determined to be required. Some considerations are described in a later section on sources of conflicts of interest for engineers and designers.
To properly integrate with the typical procurement scoring system, the ARCOI score can logically be defined as follows:
As defined in this formula, the ARCOI score is a negative number or zero, reflecting that the higher the absolute value of the negative score, the greater the conflict of interest, and that the range of the values is from 0 to .
Counterbalancing Benefits Evaluation (BACOI Score)
When a conflict of interest or an appearance of conflict exists, such as in any of the hypothetical scenarios presented at the beginning of this paper, the familiarity of an engineering firm with the client may actually benefit the client. In Scenario 3, there may be a greater public good to a small nation that extends substantially beyond the immediate client/owner and to the country as a whole, and it would be beneficial to have a transparent mechanism to allow some level of conflict of interest to occur. Thus this benefit should be taken into account to counterbalance the negative aspects of the ARCOI score.
To properly integrate with the typical procurement scoring system and the proposed ARCOI score, the BACOI score can be logically defined as follows:
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BACOI = 0: No benefits or advantages in accepting any degree of conflict of interest.
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BACOI = 1: Immediate benefit only in terms of possible quality competitiveness, attributable to accepting a degree of conflict of interest.
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BACOI = 2: Immediate benefit only in terms of possible quality competitiveness and a lower price, attributable to accepting a degree of conflict of interest.
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BACOI = 3: Immediate benefit in terms of possible quality competitiveness and/or a lower price, and regional economic benefits attributable to accepting a degree of conflict of interest.
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BACOI = 4: Immediate benefits and regional and national economic benefits, attributable to accepting a degree of conflict of interest.
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BACOI = 5: Immediate benefits, and regional, national, and international, or global economic benefits, attributable to accepting a degree of conflict of interest.
Total Conflict of Interest (TCOI) Score
Once the ARCOI and BACOI scores are obtained, they are combined as follows:
Thus, when ARCOI (a negative number) and BACOI (a positive number) are combined, the highest value that can be achieved is zero (i.e., no influence of conflict of interest issues) and the lowest value that can be achieved is . Thus, as formulated, the TCOI score is structured so as to give preference to not accepting any conflicts of interest, all other factors in the procurement decision being equal.
Total Selection Score
Ultimately, in the final selection process, the TCOI score should be combined with the other components—such as firm qualifications, staff qualifications, technical approach, and price proposed—in the scoring framework being used. The ARCOI, BACOI, and TCOI values as defined previously are consistent with an overall selection scoring range from 1 to 5. If a scoring range of zero to 100 is desired, the procedures can be easily normalized to that range.
The weighting of TCOI versus the other components may be decided by the procuring agency, and the TCOI probably should have a weight percentage in the range of 10% to 35%, and/or be consistent with the weighting given to price considerations, as it seems logical to have a balance of price versus conflict of interest to mitigate Type 1 adverse risks or consequences.
Sources of Type 1 Conflicts of Interest
There are several sources of organizational conflicts of interest or appearances of conflict that may exist, in addition to those that result from personal relationships. They can be created intentionally or unintentionally in the realm of the private-sector firms providing services to a government or government agency. Some of those other sources of conflict of interest are described in the following sections.
Relationships Created by Business Development and Marketing
One of the goals of business development and of the marketing department in a company is often to create relationships between firms providing a service and the clients receiving the service. Thus, the act of marketing itself is a potentially conflict of interest-creating activity. The fact that there is a fostering or developing of familiarity is not necessarily an adverse event, however, because a client’s knowledge of the service provider may lead to better decisions for procurement. When a firm responds to a request for proposal, a client’s knowledge of the service provider upon receipt of the proposal may help the client better evaluate the proposal. The goal should be not only to perform marketing, but also to keep the marketing process transparent and ethical.
In the United States and in Canada, and in many other countries, there are usually laws, rules, or regulations that prohibit clients from accepting gifts and payments for meals and entertainment in order to reduce opportunities for conflicts of interest. Nevertheless, opportunities for formation of relationships between engineering service providers and potential clients still exist within legal and ethical contexts in the form of presentations and professional events for networking. These may need to be considered or disclosed properly within the proposed evaluation framework. See Hoke (2012) for an interesting case study and discussion.
Relationships Based on Past Performance of a Contract
Relationships between a firm and a client are often reinforced by a history of past performance on previous projects. It is often said that the best marketing for a future project is for the engineering service provider to do a good job on a current project. This relationship may provide an engineering firm with an advantage in competing for new contracts. This is a connectivity that is often viewed as a “fair” advantage that is created ethically. This connectivity and the firm having a familiar knowledge of the client may lead to a more responsive service and better quality design and should be reflected in the BACOI score. However, in a fair procurement process, this advantage does not necessarily guarantee that the firm will win the project.
Providing Multiple Types or Scopes of Services
A common organizational conflict of interest occurs when a firm provides two types of services to the government on the same project. For instance, providing a feasibility study and then competing on a final design contract or as part of a design-build team for the design and construction of the facility may provide an opportunity for a firm to incorporate elements in the early phases of a project that give it an unfair advantage in competition for work on the later phases.
As a counterpoint, it may be that the firm that performs the preliminary design may actually have the best knowledge of what is needed by the client/owner to carry the preliminary design to 100%. There may also be some price advantage in terms of the firm’s embedded knowledge from the “learning curve” gained from preliminary design. For example, if nothing else, the firm may already have the computer-aided drafting and design (CADD) or building information management (BIM) files created for the design.
To pose then some difficult and not necessarily rhetorical questions: Did the client/owner not hire the best-qualified firm in the first place to perform the preliminary design? Was the “learning curve” advantage created “fairly,” and how should this conflict of interest or advantage be valued in the decision process to select a final designer? Is there a public policy interest or matter to be considered in the selection? These are all factors that need to be considered in the ARCOI and BACOI scores.
Subcontracting Issues
Subcontractors or subconsultants often perform work for various prime contractors or consultants. Subcontractors could find themselves working for prime contractors that are working on separate contracts for the same client. This creates a situation, similar to the situation described in the preceding section, in which these subcontractors are providing the same or multiple types or scopes of services for one end user. Conflicts of interest can also occur when firms are subcontractors to prime contractors that are working for competing clients, although this is usually more problematic in private industry than in the public sector. The point here is that one should carefully evaluate the potential conflicts that subcontractors could present on proposed project teams.
Sources and Mitigation of Type 2 Conflicts of Interest
Lack of Independence in Providing Engineering or Quality Reviews
Conflicts can arise if a firm is in a position to evaluate or review its own design or engineering work. This can happen when a firm is providing multiple scopes of services, and one division of the company may be put in the position of reviewing the work of another division in the same firm. This may also occur when one firm acquires another firm and then, because of that acquisition, is now in the position of reviewing the work of a previously independent firm.
The lack of independence that results from one individual or part or division of a company reviewing the work of another division is a typical example of a Type 2 conflict of interest. There may be other similar Type 2 conflicts arising from the multiple scopes of services scenario. This is in contrast to Type 1 conflicts, for which there may be potential direct financial advantages or monetary gains resulting from the conflict. For Type 2 conflicts, the concern is more one of providing confidence and trust.
From a professional point of view, few engineers would usually knowingly act to compromise their professional integrity by not performing a review or other work objectively. In addition to a sense of ethics, the author believes that there is ingrained in most engineers, an integrity and respect for the fact that one cannot violate or overlook violations of the basic laws of physics and science that are the foundations of engineering. A lack of independence does not necessarily preclude a lack of objectivity.
Potential Future Work Depending on Outcome
For the review work described previously, there is always the possibility that the review may result in financial implications, and thus convert a Type 2 conflict into a Type 1 conflict. An example may be a situation in which a review comment creates additional work for the company in a time and materials contract. Another example is when an engineer who performs a feasibility study or preliminary design can have an opportunity to influence the subsequent scope and fees for the self-same firm to bring the design to 100%. The nature and existence of the conflict of interest may also be dependent on the type of contract and contractual terms, e.g., whether it is time and materials or fixed price/lump sum. This is an example of an adverse risk to be considered or weighed in the assignment of an ARCOI score.
Mitigating Type 2 Conflicts of Interest
These considerations then lead to the possibility and rationale of providing mitigation measures to accommodate for Type 2 conflicts of interest, as long as one can confirm that the mitigation does not directly transform a Type 2 conflict of interest into a Type 1 conflict of interest. The typical mitigation is to consider whether a “firewall” can be properly established to preserve the objectivity and impartiality of the engineer and maintain proper checks and balances in the work. It should also be confirmed that audits and oversight of the work by the party or parties can be reasonably achieved.
However, in the context of the proposed conflict of interest evaluation framework for procurement, the possibility of mitigation of conflicts is not intended and should not be a factor in assignment of the ARCOI and BACOI scores. One should not state that because mitigation is possible, that this should be factored into and influence the decision process. It should not because one can always rationalize in decision making that some form of mitigation can reduce the risks of adverse consequences of a conflict of interest.
Practicalities of the Procurement Selection Process
Commonly in public procurement, a team or committee, rather than a single person, evaluates the proposals for selection. If any person on the team may have a conflict of interest or an appearance of a conflict in the award of the contract, he or she is obligated to disclose that conflict. Then, if in fact the conflict is considered serious enough, the person or persons may need to recuse themselves from participating on the selection committee.
The methodology proposed in this paper, however, is not intended only to be focused on a firm that may present to the individual person on the selection committee or an individual in the client/owner’s procurement department with a conflict of interest, as was hypothesized in Scenario 2 at the beginning of this paper. In any geographic, technical, or services market, business relationships in time are created between individuals up and down the organizational ladders respectively of the design/engineering firm and client/owner. Thus more so, the methodology is meant to reflect the interconnectivity created through existing and past contracts, marketing endeavors, and other business and professional relationships between organizations.
Enhancing the Competitive Environment
Although the main intent of this paper is to address issues of ethics, there would likely be benefits beyond the enhancement of ethics if the proposed framework of balancing the adverse risks of conflict of interest (ARCOI) against the benefits of accepting the conflict of interest (BACOI) can be implemented. These include a better competitive environment for design firms that may either lead to better quality projects or lower cost projects or both.
A common occurrence in project procurement is when there may not be a sufficient number of bidders or responders to a request for proposal. There may be various reasons for this, but there are two reasons that can be related to concerns with implicit connectivities in the social network sense, or explicitly as conflicts of interest, as follows:
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Firms may decide not to compete because they view a certain contract as potentially causing a conflict of interest for future contracts, e.g., participating in a feasibility study or preliminary design (say up to the 10% level) may then preclude that firm from competing for a higher value contract to bring the design from 10% to 100%.
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Firms may decline to compete because they may view that another firm or a group of firms may have an “inside track” based on having existing contracts with a client/owner. This may be particularly so in the case of reprocurement of a contract for continuing services, i.e., for the next period of a multiyear task order contract to provide engineering services.
It is proposed that by using the methodology described in this paper, the first of these concerns can be mitigated by a process to incorporate participation in a previous contract in the ARCOI score, balanced against an anticipated future BACOI score. Regarding the second concern, this can be mitigated by assigning to the firm or firms with the perceived “inside track” an appropriate ARCOI score to reflect the existence of a present contractual relationship that would similarly be balanced against a BACOI score.
Lastly, the focus of this paper has been on the procurement of engineering services, but it is posited that this framework can be similarly extended for implementation for procurement of construction contracts and of other large capital equipment in the transportation sector, buildings, other infrastructure, or the defense sectors of government or public procurement.
Summary and Conclusions
It has been proposed in this paper to account for a range of properly disclosed conflicts of interest using a scoring framework in the procurement selection process. A basic scoring system has been described, but it can be customized by different agencies, and various agencies’ procurement departments may have different ideas on how to customize the selection scoring systems for their specific markets and needs. The main purpose of this paper is to provide a framework, more theoretical than definitive or prescriptive, for governments, governmental agencies, and their procurement departments to consider rationally the conflicts of interests of firms versus the benefits of accepting various levels conflict of interest. In the long run, it is hoped that adopting this framework and a principled set of procedures will lead to more transparency in project procurement and decisions, to more competitive procurement environments, and thus also to better project quality and performance, as well as enhanced ethics in the global marketplace.
Acknowledgments
The author wishes to thank Rebecca Waldrup, ASCE’s manager of professional practice, and Tara Hoke, ASCE’s assistant general counsel, for their review of this paper and for generously providing insightful comments.
References
ASCE. (2009). “Code of ethics.” 〈http://www.asce.org/Leadership-and-Management/Ethics/Code-of-Ethics/〉 (Jul. 2012).
“Conflict of interest”. (2012). Wikipedia, 〈http://en.wikipedia.org/wiki/Conflict_of_interest〉 (Jul. 2012).
Gladwell, M. (2000). The tipping point, Back Bay Books, Boston.
Hoke, T. (2012). “The ethical aspects of promotional expenses.” Civil Engineering, 81(6), 38–39.
Institute of Internal Auditors. (2012). “1120-Individual Objectivity.” 〈http://www.theiia.org/guidance/standards-and-guidance/ippf/standards/standards-items/?i=8244〉 (Jul. 2012).
Province of Ontario. (2008). “Regulation 941 (Sections 72&77) of the Professional Engineers Act.” amended to O.Reg. 258/08, Toronto.
Treasury Board of Canada. (2012). “Apparent conflict of interest.” 〈http://www.tbs-sct.gc.ca/rp/aci01-eng.asp〉 (Jul. 2012).
Biographies
Sam S. C. Liao is a senior project manager at Parsons Brinckerhoff and can be contacted by e-mail at [email protected]. He is currently serving as an extension of staff of the Toronto Transit Commission (TTC), as Manager-Facilities Engineering for Light Rail Transit Engineering at TTC. In a previous assignment, he served as extension of staff for the procurement department of Eskom Enterprises, the national electric utility provider of South Africa. However, the opinions expressed in this paper are solely his own and do not reflect the opinions or positions of ASCE or any of the aforementioned organizations.
Information & Authors
Information
Published In
Leadership and Management in Engineering
Volume 13 • Issue 2 • April 2013
Pages: 86 - 95
Copyright
© 2013 American Society of Civil Engineers.
History
Received: Aug 28, 2012
Accepted: Nov 14, 2012
Published online: Mar 15, 2013
Published in print: Apr 1, 2013
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