Construction/Engineering Conflict of Interest Question

[dhoward26]

I own an engineering business (2 employees plus me) and also work for a Construction Company doing project management for small vertical construction projects ($2-$8M projects). I started the engineering company 3 years prior to starting work for the construction company. I wanted to broaden my knowledge base and have come to really like the project management side, plus it gives me great insight into the construction world and it has greatly improved the quality of my engineering companies drawings. Recently, my engineering business projects are looking like they will be crossing over with the construction company that I also work for. In essence, the construction company is wanting to pursue work on projects that my engineering company has designed or are in the process of designing.

For CM/GC (Construction Manager/General Contractor) projects, what if any conflict of interest would there be? My name may or may not be on the stamped drawings depending on who is designing them, and my company name does not reflect my personal name, nor do my billing statements. My invoices are sent out via e-mail from a specific invoicing e-mail address as well...not that any of that really matters, but I thought I should state that. In the CM/GC process, the contractor is chosen based on past work history and qualifications for the project so it doesn't necessarily have anything to do with the design of the project.

The down side I see:

1) My engineering company and the construction company I work for get into a dispute over drawings or future claims from omissions.

I'm really curious because it has the potential to limit profitability/work load for each company.

Thanks.

 

[BAretired]

When you say "work for a construction company" do you mean as a consultant or as a salaried employee?

BA

 

[dhoward26]

Salaried.

 

[TehMightyEngineer]

Something tells me that, no matter what you find out here, eventually you should get a lawyer involved to get a professional recommendation.

Professional and Structural Engineer (ME, NH)
American Concrete Industries

http://www.americanconcrete.com

 

[allgoodnamestaken]

Huge conflict of interest. Immense.

Talk to a lawyer if you think this is something you really want to do. And make sure its a good lawyer with the right background for these issues.

 

[dhoward26]

We will be talking with our attorney for sure. Maybe I'm just ignorant to the whole thing, but it doesn't necessarily seem like a conflict of interest unless it's a hard bid job. If the chosen contractor is chosen based off of qualifications (i.e. negotiated work) and I'm not involved with that process, then it seems above board, as long as the owner and selection committee are aware that I do work for the construction company and my business is also one of the disciplines of engineering on the project.

The biggest liability I can see is for my company specifically.

If you believe it is a conflict, please explain why so you can help me wrap my mind around it. I have put a whole heck of a lot of thought into it, so maybe I'm just stuck in my little thought box.

 

[sbisteel]

Apparent collusion between the EOR and GC, as the EOR now has an interest in the GC's monetary performance on the job. One might think that the employee for the contractor could exert control over the engineering firm to let certain things (errors, deficiencies) slide.

I don't think it's a hard stop, but certainly at a bare minimum a letter to the owner explaining the situation would be necessary.

 

[allgoodnamestaken]

The biggest liability I can see is for you personally. Your company doesn't have a conflict of interest - YOU DO!

You now have interests in the project that are outside of the interests of your company who is executing the project. As the owner of the design company, you could be potentially liable for an innumerable amount of issues. If some of those issues were to crop up, how confident are you that a lawyer couldn't make you look like you acted in your own interest's instead of your employers?

Risky risky risky.

 

[BadgerPE]

Is this any different then a design-build firm? The same conflict of interest listed above would seem to be in play in the DB world.

 

[sbisteel]

That's why I don't think it's a total killer. The biggest difference is the owner of the engineering firm is just an employee of the GC, and I don't believe the relationship is visible to anyone outside of those 2 companies.

 

[allgoodnamestaken]

No, its not analogous to that. By definition a design bid firm is one entity. Here there are two entities and he only owns one, and the other he's a salaried employee of. He has obligations to both that aren't necessarily in line with each other.

Lots of places for conflict of interest. Talk to a lawyer.

FYI if this was not disclosed to your employer and legal advice wasn't attained, and I heard about it in the office, I'd report you anonymously. I'm not sure how you can't see the potential for serious conflict of interest.

 

[hokie66]

I think it is the same as design build, perhaps not on the financial side, but on the ethical side.

In addition to the conflict of interest situation, I would worry about too closely aligning myself with one contractor. Other contractors you might like to work with will tend to look at your differently if you are in bed with their competitor.

 

[allgoodnamestaken]

It's clearly different from design build because the owner of a design build firm, or the employee of the design build firm, don't have conflict of interest in serving the design build firm's interest. There is only one entity to which he is obligated in that scenario. It is very clearly not that case - there are two separate entities - one he owns and one he is a salaried employee of, with separate goals and interests.

Just by repeating "It's like a design build firm" without justifying why its actually like that in detail is nonsense. When a lawyer is asking you about it in court and you say:

"It's like a design build firm"

and he replies with

"It obviously isn't, because it's two separate firms with different interests who you have responsibilities to both for. There clearly isn't one firm who is your employer or whom you own. Would you like to explain how you think its like a design build firm in terms of your contractual and ethical obligations"

This is textbook conflict of interest.

 

[JStephen]

First off, read your state PE rules and see if there's anything that clarifies that.

It may be possible to work with the conflict of interest. One requirement is that the parties involved be made aware of the situation and be okay with it. Still lots of pitfalls as pointed out above. A lot of it would depend on the personalities involved.

 

[dhengr]

Dhoward26:
In the best of worlds, there should be nobody better to manage a construction project, inspect it, know where the difficulties will be, etc. than the person who did the structural design on it. That’s getting back to the idea of ‘the master builder’ who had a better understanding of everything involved in the project. As apposed to letting out ever little detail and its design to a specialty supplier, and having 600 different engineers and subs of one kind and another running around, each only being knowledgeable about only their particular sized bolts or their aspect of construction minutia. You already know the project in some detail, how it works and why, and you know what needs some special attention. This should all be good for the project. You also have some construction experience, so you have a better understanding of how to do/detail things so they are buildable to the best advantage of any contractor who gets the job. This sound a lot like the best of the design/build concept, when your guy gets the job, and as long as you don’t favor one party over another. And, how do you show this with absolute transparency? You are now working for the owner, as his designer, and then the contractor, if your guy gets the job, so you have to be very careful to keep those two obligations separated and in full view, at all times. As long as all parties involved in the project understand your position in the whole transaction, I would think this could be o.k.

But, as others have suggested I would get some good legal advice as to how to set this all up, particularly as regards conflicts of interest, division of liability issues, etc. How should the construction co. preface and price its bid, to inform the owner that you also work for them and will be doing the construction management on the job? Does this save the owner any money in total cost for engineering and construction? Any other contractor bidding on the job won’t have the advantage of your knowledge during the bidding process or on the job, does this tend to make their price higher. Will other contractors avoid your designs in the future because you might be feeding your guy inside info?

Maybe when you are talking with an owner about doing the engineering, and selling that aspect of your work, you should offer construction management service too, then you are working for only one client on that project, whichever contractor gets the job. Then, on other jobs which you have not designed, you can work for the contractor in the construction management capacity.

 

[thaidavid40]

@dhoward26,
When you say "work for the construction company", does that company advertise that they have an in-house engineer, or do they advertise any engineering services? If they do, then I think that you would definitely have a problem with that, as all of the states in which I am registered and have a familiarity with (five, total) do not allow an engineer to be the principal for more than one organization at a time. This proposal would seem to make you the company principal for two companies at once. I think that is a universal "no-no" for state licensing and practice boards. Unless one company or the other buys out the other company. Then that becomes a "subsidiary office" question, which I think you might could pull off legally (though I personally wouldn't want to try this myself).
My two-cents' worth,
Dave

Thaidavid

 

[dhoward26]

Thanks for all the comments!

I fully disclosed my business before starting at the construction company. I had done a couple of designs that they did the construction on in the past and always kept in contact. I eventually got my engineering business stable enough that I felt like I could get into the construction industry further in an effort to not only learn more hands on stuff, but also learn what not to do and create better design documents.

The construction company does not advertise design services. I have kept the entities as separate as possible. I won't be the project manager or involved in anyway with my businesses projects if the construction company goes after them.

I have a meeting set up with my attorney next week so I will let you know how it goes. On the surface, he said as long as I disclose my positions and that my loyalty is to the owner, then everything should be above board.

 

[TLHS]

Even if you aren't involved in the project from the construction side, what happens when the construction company screws up and there's a significant deficiency on one of the projects you designed. Say you have two remediation options, one of which is borderline acceptable and significantly cheaper, and another that would fully resolve the situation but is much more expensive. Can you honestly say you won't be influenced toward the cheaper option?

There's always a judgement call in that situation. Sometimes the cheaper option is legitimately good enough and is the right call to recommend. However, even an appearance of a conflict in that situation is bad.

 

[IFRs]

"all of the states in which I am registered and have a familiarity with (five, total) do not allow an engineer to be the principal for more than one organization at a time."

I never thought of this, I am the sole owner of a very small engineering company and a majority owner in a products company in a related industry that I do the design for. I am licensed in 5 states and will immediately research this with my lawyer. Which states are you licensed in that have this restriction?

 

[dhengr]

Thaidavid40:
You say.... “ do not allow an engineer to be the principal for more than one organization at a time.” I’m not sure I’ve ever heard it put exactly that way, meaning any and all other organizations. However, there are some ethical strictures in the following sense: if you are a P.E. and running a Consulting Engineering Firm promoting your unbiased design services to your clients; you should be unbiased in terms of promoting building products, proprietary means and methods of construction, and the like which may influence your unbiased ‘best choice’ for the situation. You shouldn’t profit directly from the design choices you make, in those regards. In other words, you can’t serve two masters at the same time, without likely doing some disservice to one or the other. You can’t own a widget company, and have an interest in fitting widgets into your project, just because you are the president, or a paid salesman/promoter of that company, when widgets are obviously not appropriate for your project, from the design standpoint, or in that client’s best interest. Your statement probably does apply to being a principal of two consulting engineering firms competing for the same job, with the same client. Again, where does your loyalty lie, with witch firm, in offering your best services and efforts to the client? On the other hand, we all do have our prejudices and biases, whether it was the bad performance of that product, the good service you got from that product supplier and their engineering people when you were in need help, the dinner their sales or engineering manager bought you after the sales pitch, etc. We have to be able to defend our choices and engineering decisions with some degree of engineering logic, honesty and fairness.