By Tara Hoke
Situation
A grand jury investigation of bid rigging on public dredging contracts ends with a series of indictments against executives from four dredging companies for violation of federal antitrust laws. The indictment alleges that, for more than a decade, the company executives conspired to rig bids on dredging projects located along the Gulf Coast and funded by federal, state, and local dollars.
In conjunction with the federal investigation, the attorney general of one impacted state files a civil antitrust lawsuit against one of the named dredging companies and its two corporate officers. The suit alleges that these officers orchestrated a scheme to rig bids on a large beach improvement project within the state, and it seeks almost $4 million in restitution and civil penalties.
The attorney general notes that the contract in question is only one of several state dredging projects currently under review and that he ultimately expects the civil case to expand to include other projects. In the months to follow, the state identifies another five projects in which it claims the defendants had subverted the procurement process through this bid-rigging scheme, receiving contract awards ranging in size from $800,000 to over $20 million.
In support of its suit, the state procures testimony from executives of three other dredging companies, each being named as a coconspirator but not a defendant. One executive describes the basic structure of the bid-rigging scheme by explaining that the participants would meet to discuss upcoming bid schedules and to "argue about who would be the favored contractor." He explains that ultimately the parties would agree to some allocation of bids, based on an assessment of the companies' schedules and work capacities. He claims that the defendants were the drivers of the scheme and its largest beneficiaries but that he had nevertheless believed his participation was necessary to ensure the survival of his small company.
The second executive claims that he was not a regular participant in the scheme but that from time to time he would receive a call from one of the defendant officers asking him to "lay off" a particular project in exchange for the defendant's agreement to keep away from another project of interest. While claiming that this was an infrequent occurrence, the witness admits that he had typically complied with the defendant's request to refrain from competing on a project.
The third executive states that his firm derived most of its business from another part of the country but that he had previously sought to expand the firm's operations into one Gulf Coast state. Upon submitting a bid on a small project in that state, the executive says that he was contacted by one of the defendants with a proposal: the defendants would agree not to compete on any projects in the witness's primary market if the witness would stay out of the defendants' region. The executive accepted the arrangement and abandoned his plan to seek work in the region.
The state's suit is successful, and the defendants are collectively ordered to pay more than $3 million in restitution and an additional $250,000 in civil penalties. In addition, a federal trial results in an additional $8 million in fines for the dredging company and its officers, and at least one principal receives a criminal sentence for his role in the scheme.
Elsewhere, the three firms identified as coconspirators in the state suit each receive a reduced fine in exchange for their principals' cooperation in the investigation.
Three of the individuals involved in the state litigation--one defendant and two of the testifying coconspirators--are members of ASCE. Newspaper accounts of the case are forwarded to the Committee on Professional Conduct (CPC), which opens an investigation.
Question
Did the members violate the ASCE Code of Ethics by participating in a bid-rigging scheme?
Discussion
The objective of federal antitrust law is to support the operation of a free and open commercial marketplace, in which consumers may select from a range of providers the goods or services that best suit their needs in terms of price, quality, timeliness, and other factors. This aim is thwarted when commercial providers conspire to fix prices, divide market territories, or engage in similar conduct that allows commercial providers to unlawfully pad profit margins by limiting consumer choice.
While all such anticompetitive conduct is harmful to consumers, it can be said that these harms are magnified when the victim of this conduct is a public agency, in which the true consumer is not merely the agency itself but the citizens who depend on the agency to construct and maintain public resources. In view of this consideration, it may be argued that professionals who seek to defraud public agencies through bid rigging or similar schemes are guilty not only of violations of antitrust law but also of canon 1 of ASCE's Code of Ethics, which obliges members to "hold paramount" the public welfare in performance of professional services. Similarly, such conduct typically involves untruthful statements in violation of fundamental canon 3 and a lack of faithfulness to the public client, contravening canon 4.
In practice, though, violations of antitrust law are typically examined by the CPC under two other canons: canon 5, which states, "Engineers shall build their professional reputation on the merit of their services and shall not compete unfairly with others," and canon 6, which 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." Additionally, a guideline to practice under canon 6 states: "Engineers shall not knowingly engage in business or professional practices of a fraudulent, dishonest, or unethical nature."
Upon review of the trial transcripts and other relevant material, the CPC believed that all three members had voluntarily participated in, and benefited from, the scheme to undermine the public agency's procurement process. Accordingly, the CPC found that the three members had violated canons 5 and 6 of the ASCE Code of Ethics and recommended that they be expelled.
As per the Society's rules, a decision to expel a member for violation of the code requires a full hearing before the ASCE board of direction and an affirmative vote of not less than three-fourths of the board members. The members were advised of the committee's recommendation and invited to present a defense at the board hearing in person or in writing. Instead, the three members all chose to relinquish their memberships in the Society. The board of direction accepted the members' resignations, and notice of the action was published anonymously in a Society publication.
Tara Hoke is ASCE’s general counsel and a contributing editor to Civil Engineering.
© ASCE, ASCE News, February, 2018
