Time for Another Look at Conflict of Interest
BY PAUL L. BUSCH, PH.D., P.E., DEE
Change Is Here
For some years, many in environmental engineering consulting - I among them -- have been advocates for change in our approach. A broader view of problem-solving that focuses on societal needs as well as imaginative engineering is needed. Certainly, many engineering professionals are now moving rapidly into numerous fields, some of which were not even being thought about only a few years ago:
Images of the potential environmental consequences of a burgeoning population with higher standard-of-living expectations encourage broad use of pollution prevention technologies, reuse of materials, energy conservation, and similar activities to support a sustainable environment.
Alternatives to the design-bid-build delivery system, historically the norm in the domain of U. S. public works, now include design-build, design-build-operate, design-build-own-operate. And, privatization of operations is being proposed more and more for drinking water and water pollution control facilities, not just for solid waste collection and disposal.
Environmental restoration and reuse of contaminated sites, renewable energy sources, remote sensing, green buildings, biosolids reuse, and toxic and nutrient removal technologies are growing in importance. Information technologies, computer-aided design and operations, and engineering/economic/ecological models are needed to support environmental planning, design and operations.
There's no question that these changes have come, and that there will be many, many more! Our environmental diseases to pesticide impacts on the environment to carcinogens to endocrine disruptors, and on and on.
For the educational community, dealing with these changes presents an enormous challenge, as we still must produce both generalists and specialists, and research is needed over an expanding spectrum of such problems. But, the impact on consulting engineers is even greater -- in fact, it's a whole new ball game!
Change and Conflict
Like most people, most engineers resist change. (Yes, they say, it's good for others to change, but I'm o.k. without it!) However, the flattening of growth in conventional environmental engineering businesses and the entry of large players, through consolidation and from the defense and energy businesses, are making change happen despite the natural resistance to it. The newer businesses, plainly, provide new opportunities.
Return-on-investment is an important component of operating a successful business, and newer businesses of ten offer higher margins. It's more fun to be in a business that is growing than one that is not -- another plus for the newer businesses. And, finally, broadly-educated environmental engineers are well qualified to solve the environmental problems addressed by these new environmental areas. Consequently, all of these are drivers for existing consulting environmental engineers to enter these newer areas.
The question, then, is why do I think there are some ethical problems emerging? Perhaps the idea that ethical issues need greater consideration is more of a "gut feeling" but my reasoning takes me in this direction as well. It starts with my definition and understanding of how consulting professional engineers are supposed to behave.
Responsibilities of Professionals
I have always considered the "professions" as a special calling. Teaching, medicine, law, public accounting, architecture, and consulting engineering are activities in which it is expected that the interests of the student, patient or client will be placed above the practitioner's personal interest.
Each profession creates its own rules of practice to assure that the practitioner guides himself/herself along these lines. We all know that doctors are expected to take the Hippocratic Oath. In the licensing process, lawyers, public accountants, architects and professional engineers agree to Codes of Ethics which embody this idea. On this basis, "professional businesses" are supposed to differ from other businesses; caveat emptor is not expected to apply.
When a doctor, the "professional," recommends some tests, his/her conduct is questioned when we find he has an economic interest in the testing laboratory. Did the physician recommend the tests, as we hope, to help diagnose the patient's condition? Or were the tests recommended to supply revenue/profit to the laboratory business C and ultimately back to the doctor? That's what conflict-of-interest is all about. It's not that you do something wrong -- but that you're in a position to do something wrong.
Professionals are expected to take great care to avoid conflict-of-interest. How do you feel when an "independent" financial planner says that life insurance should be part of your financial plan, and then proceeds to sell you insurance? Or when an "independent" landscape architect suggests trees and shrubs for your garden and then is prepared to deliver and install them. We feel uncomfortable because we wanted independence, which we probably thought we paid for, but instead receive a "sales pitch" with a tied-in sale.
In medicine, suppose the doctor has an economic interest in a hospital and recommends surgery, even if he doesn't perform the operation. A lawyer who recommends insurance may have an economic interest in the title insurance company. Or suppose you pay an attorney to negotiate to purchase a tract of land in which he has an ownership interest through some real estate company. Would it be enough that the "processional" tells you about his other (not professional) economic interest and, therefore, discloses his conflict-of-interest? I personally think that this type of disclosure is not enough, even when it is legal. We simply expect more from a "professional".
Conflict-of-interest laws and professional Code of Ethics were set up to address some, but not all, of such issues. We expect professionals to avoid such direct conflicts. But indirect conflicts are also an issue. When a doctor publishes an article about how managed care provides better medical service than independent doctors, or on how a medical test should be given to all adults over 35 years of age, what happens when we learn that the doctor has an economic interest in a managed care company or a testing laboratory? What about doctors doing research on the impact of smoking when that research has been paid for by tobacco companies?
Is anything wrong with such businesses as medical testing, landscaping or life insurance? Of course not! Could doctors be best at setting up and running a medical lab? Could architects be best at landscaping? Could financial planners be best at understanding life insurance? Absolutely! It's just that wearing the hat of an independent professional is not consistent with concurrently (and sometimes surreptitiously) wearing the hat of a talented business person in a non-professional business.
For consulting engineers, architects and public accountants the issues are still more difficult. Such professionals have an even higher standard -- while they, too, are required to put the clients interest ahead of their own, they are further expected to put the public interest ahead of the client's interest.
In engineering, for example, the public health and welfare must come ahead of client preferences. Axiomatically, engineers are expected to design for earthquake protection whether or not it is requested by the client or embodied in the local code. Public accountants' audits are expected to disclose what the public needs to know about their clients, whether or not the client is happy about it. In fact, the public actually anticipates that the engineer or account will do more to protect them than merely what is required by the building code or the Financial Accounting Standards Board rules. Interestingly, these professions have significant obligations to a public that does not make any direct financial contributions to their activities! And the public expects them to act accordingly.
How do these observations more directly relate to the new businesses in environmental engineering? It's the multiple hat problem. It's a problem of separating the professional activity from the more conventional business activity.
Let's look at construction. Why are consulting engineers employed by owners during construction? Resident engineers observe construction to ensure that the project is built following the plans and specifications in accordance with the designers' intent. Together with office engineers, they also correct errors of commission or omission which inevitably occur in the planning process. Consulting engineers who represent the client are well experienced with contractors who offer alternate designs, substitute materials and differing equipment under the "or equal" clauses usually included in construction contracts. The independent resident or office engineer must look into the details of the proposed changes to determine whether they are equal to the original specification. In making that determination, the engineer considers the proposed change in terms of its full life cycle expectations compared to the specification. Performance, longevity, operating/maintenance costs, safety, aesthetics -- all these things are in the best interest of the public and client. While the contractor is expected to deliver a completed project in accordance with the plans and specifications, an independent assurance by a professional is the norm in most construction.
The contractor's behavior is expected to be based on both the terms of the contract and the desire to maximize profit (remember, contracting is a very risky business). The engineer, on the other hand, is to represent the client, assure fulfillment of the contract intent (which may sometimes exceed the contract terms) and protect the public health and safety. While we would like the goals of the contractor and the project to converge, it is the responsibility of the independent engineer who represents the client to see that the "right" project is finally delivered and that appropriate change orders are issued to adjust for actual project delivery.
When design-building is the method of project delivery, however, who represents the client and the public interests? This is a tough question because the public and client interests of the conventional design professional may be quite different from economic interests of the design-builder. This is not in any way to imply that builders can't be trusted. Rather, although builders have a profession in the sense of the word "occupation", they are not when we mean by "professionals" with the special calling and rules of practice described previously.
Under our capitalist system, we accept that in business we are permitted to put our own interests first, provided we behave lawfully and with appreciation of the public good. For example, it is certainly acceptable in business to minimize capital costs even though this may not create the best life-cycle cost. Although it might not be in the best long-term interest of the client or the public, this is a business issue -- not an ethical one. Of course, one way to manage design-building programs in the public and the client interest is to prepare a well-thought-out request for proposals and a very detailed contract. However, inasmuch as proposals and contracts can never convey everything intended, one cannot expect a design-builder to deliver the same product or protection to the client and to the public that was included under the conventional design-bid-building approach (which is one reason whey selecting a design-builder based on low bid rather than experience and trust doesn't make sense). After all, it should be expected that delivery systems which include players with different responsibilities will yield differing results.
Of course, wearing multiple hats -- professional and conventional business -- raises another issue. When an "independent" engineer or architect -- the professional -- recommends design-building and plans to be part of the design-build team -- business -- what assures his independence in the recommendation itself? Conflict-of-interest arises merely when one is in a position to serve both seemingly conflicting interests!
These very same conflicts arise as a result of the current interest in privatization. For example, environmental engineers are very much involved in providing operations and maintenance (O&M) services at water and wastewater treatment plants. This is a valuable service to many municipal and industrial clients who choose to outsource these services rather than operate with their own personnel. When an "independent professional" recommends privatizing O&M and concurrently has an economic interest in a commercial O&M company, what independence exists? Or when this same engineer writes an "independent" paper enumerating the virtues of outsourcing O&M, how does anyone know which hat is being worn?
Professional Practices Are Businesses, Too
All of these issues are confounded by the fact that the practices of medicine, law, architecture, consulting engineering, and so on, are businesses as well as professions. There is an economic self-interest in the practice of the profession itself. When a consulting engineer recommends a design, there is an economic interest in doing the design just as an ophthalmologist has an economic interest when he recommends eye surgery. The key difference I see is between two connected professional services in contrast to connecting a professional service with a non-professional contract. In the former, the professional is expected to answer to a higher calling -- and tradition expects that he/she will do exactly that. In the latter, the professional is wearing two hats, a professional hat and a business hat.
When I ask my attorney if I should settle or litigate, I implicitly assume I will get professional advice in which my interests come ahead of the attorney's interests even though I know the attorney will likely bill more fees on the litigation. Moreover, all the services provided by the attorney will be professional services -- preparation, litigation, and/or settlement negotiation. In addition, I feel confident that the choice made by the attorney will include the cost of litigation when alternates are compared. Even though the attorney is in business, I assume all his decisions are based on his professional opinion. When I think they are not, I get a new attorney.
A Line in the Sand
Most of us operate in accordance with self-imposed rules that make us comfortable. I am much more comfortable when professional services are not included with commercial services or products. Although this system is not perfect either, in this way the client and the public get more independence, and therefore, a higher level of protection. Taking this a step further, acting to avoid even the hint of a scandal, is often necessary to properly serve the client and public -- even though no inappropriate decisions may actually have occurred. My personal "smell test" is to ask if a conflict could be implied from the professional/non-professional relationship, and if the appearance of conflict would harm the client or the public if it appeared in its worst light on the front page of tomorrow's paper. This test makes it hard to defend against charges of conflict-of-interest with assurances of "Chinese walls" or holding companies with separate professional and non-professional companies because the economic benefit accrues back to the same people.
As the profession becomes more involved in using environmental skills to offer clients these new services, I think a lot of time will be spent wrestling with the best way to ensure that conflict-of-interest is not an issue for the public or the clients. Many are choosing to enter these new fields without the spirited debate necessary to understand what we may be doing to damage the "professional" side of environmental engineering. At a recent conference, several utility managers who were discussing privatization indicated a problem of trust with their consultant. In the end, of course, the public will decide, as they have in medicine where regulations have been implemented to disconnect doctors from their non-professional businesses.
But let's not wait for regulations. I believe that much more is at risk than many realize. I encourage us all, as engineers, to talk about these issues more openly so that we can clearly articulate the decision-making process as to how best to serve the public and client interests in these newer areas without raising conflict-of-interest issues. Unless this issue is met head-on, the trust of the public and the clients we serve may be inadvertently lost. That trust has been essential to the practice of environmental engineering in the modern era and those in the profession should do everything possible to protect and preserve it.
* This article was reprinted with permission from The American Academy of Environmental Engineers Paul L. Busch, Ph.D., P.E., DEE is the President and CEO of Malcolm Pirnie