Page 15 - PCCA Journal 1st Quarter 2012

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PCCA Journal|1
st
Quarter 2012
15
W
hen contractors speak of their suc-
cess, they rarely mention ethics
policies, though ethics has become
a defining issue for the design and
construction industry. Driven in part
by regulatory pressure, ethics programs are gaining promi-
nence within firms whose leadership has made it a priority,
and further throughout the industry, supported by associa-
tions like the Construction Industry Ethics and Compliance
Initiative (CIECI) and the Associated General Contractors
of America (AGC). Adhering to Federal Acquisition Regula-
tion (FAR) is only a small part of instituting a formal ethics
program. (See sidebar explaining FAR on page 22.) Breathing
life into a written program so that it permeates the culture of
a company is the true challenge and test of an effective ethics
program and requires superb leadership. The firms that have
already made a commitment to building a vibrant ethical
culture have taken great steps to counter negative perceptions
of the industry. They have also paved the way for others to
create formal ethics programs, and in doing so invest in their
own long-term survival and vitality.
To date, little research has focused on ethical practices
within the design and construction industry, though we know
the costs of unethical behavior are significant. FMI’s 2004
ethics survey of individuals within the construction industry
estimated a loss of between $5,000 and $50,000 per million
dollars spent on a project due to unethical behavior. FMI has
conducted preliminary research to explore what motivates
architectural, engineering, and construction (AEC) firms to
invest in ethics programs and how they facilitate awareness
and enforcement of ethics policies. Members of the CIECI and
clients of FMI spoke about their experiences piloting ethics
and compliance programs, the result of which is this article,
designed to isolate best practices for developing an ethical
culture.
Why Ethics Matter
The AEC industry is grappling with ethics at
present much in the same way it once did
with mandatory safety standards. Some firms
are ahead of the curve and have already in-
stituted ethics training programs and internal
audit mechanisms, while others are scoping out the interplay
of legal requirements and cultural values. Increasingly strin-
gent federal reporting standards and ongoing modification
of FAR language burdens both federal contractors and public
companies. The Federal Sentencing Guidelines and the 1996
Caremark case prompted many companies to develop compli-
ance and ethics programs. (See sidebar for commentary on
current requirements.) Private owners are also beginning to
pay attention to ethics during selection of contractors; the
government might have provided the nudge, but the entire
industry has moved into an era in which ethical conduct
is a non-negotiable. While the recession may have stalled
the rapid development of ethics programs outside of federal
work, sustained competition as the industry recovers will
likely place an even greater emphasis on differentiation strat-
egies, of which ethics is central.
It is clear that the industry has an image problem. In 2004,
FMI surveyed 270 owners, architects, construction managers,
and contractors, and 61 percent of them thought the industry
was “tainted” by unethical acts. Further, there is systemic
failure within the industry to prevent unethical behavior: 84
percent reported that they had experienced, encountered, or
observed construction industry-related acts or transactions in
the past year that they would consider unethical.
The 2010 Global Economic Crime Survey published by
Price Waterhouse Coopers reported that 24 percent of engi-
neering and construction (E&C) companies had experienced
economic crime in the last three years, most commonly asset
misappropriation, accounting fraud, and bribery and corrup-
tion (see Exhibit A).
The findings of Price Waterhouse Coopers also showed
that bribery and corruption are more prevalent in the E&C
industry than the global industry standard: of all respondents
Ethics Programs: Federal Imperative,
Cultural Opportunity
By Sabine Hoover
Continued on page 16