By: Michael Loulakis
The barrage of corporate misdeeds reported over the past year makes one wonder how things could have possibly gotten so out-of-hand. How could Enron’s management get away with “cooking the books” and reporting phantom revenue so easily for so long? Why didn’t someone at Arthur Andersen look at the big picture and figure out that bad things (like going out of business!) would happen if they caved into the pressures of satisfying a big client?
Many of us in the design-build community look at these events and shrug them off as shenanigans played by “the big boys” on Wall Street, where the term “business ethics” is an oxymoron. After all, design-build has gained market share over the past decade because of what it sells – professionalism, honesty and teamwork. But is it fair to say that design-builders possess only the purest of business ethics? Probably not.
Consider how design-build is marketed. It is easy to sell an owner about the concept of single point responsibility – if something goes wrong, the design-builder will take care of it. But is this really what the design-builder means? Are contractor-led design-builders really willing to offer the owner more protection than what the contractor can get from their design teammates or insurance? Will design-led design-builders agree to warrant that their design will achieve performance guarantees in the contract? Will they pick up responsibility to the owner if the contractor fails to perform?
What about the process of selecting the design-builder and its team? The Design-Build Institute of America (DBIA) and design-builders extol the virtues of qualifications-based selection (QBS) for design-build services. Yet how many design-builders practice what they preach and select subcontractors and professional consultants on the basis of QBS? The reality is that the design-builder’s team is often selected through the same low price / bid shopping mentality that has led to so many problems under other delivery systems. Is this in the best interests of the project?
Consider project execution. Design-builders often follow the same pattern as low bid general contractors in preparing and updating project schedules. The design-builder may keep three different schedules on a project – one for the owner, one for the subcontractors, and the “real” schedule. Schedule graphics can be easily manipulated to hide logic ties and show activities as “critical” when they are not. How many design-builders are willing to provide owners with copies of their electronic schedules and allow the owner to see the true picture of the job?
What happens if the owner is a tough negotiator? Is it wrong to add a little bit extra here and there in a change order request to give some bargaining room? And if you know that you are going to have a dispute, do you create a few claims so that you can horse-trade later? Is this fair, open and honest?
It is likely that the management teams of Enron viewed their conduct as being within the rules of the game. I suspect that some design-builders operating in today’s environment feel the same way. Those working in the public arena may not have heard about statutes like the Truth in Negotiations Act and the False Claims Act. Violations of these statutes carry heft fines and potential debarment. Do design-builders working in the private sector every think about the prospect of being sued for fraud or under a state deceptive trade practices statute? Do they ever think that what happened to Arthur Andersen in terms of loss of reputation and confidence can happen to them?
It may be impossible to test an industry’s ethical barometer. My own experience tells me that most in the design-build community go out of their way to ensure that they are being fair, open and honest with their counterparts. What does your ethical barometer tell your colleagues about you?
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About the Author: Michael Loulakis is President of Wickwire Gavin, P.C., and a shareholder in its Virginia office, located at 8100 Boone Blvd. , Vienna , VA 22182 . He devotes his legal practice to representing parties in the construction industry, including owners/developers, sureties, contractors, and design professionals. He can be reached at 703-790-8750 or by e-mail at mloulakis@wickwire.com. This article is reprinted from the February 2003 issue of Design-Build DATELINE (Design-Build Institute of America).
ConstructionRisk.com Report, Vol. 5, No. 6 (Jul 2003)