Relationships, ethics and marketing: Where are the boundaries?

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bid rigging

When does healthy relationship-building and solid client service practices become unfair advantage? This question isn’t as simple to answer as it is to ask, especially as we think about the purpose of marketing in the AEC community, especially for public works projects.

In theory (and at least on paper), most public works procurement practices should, by their nature, be public. The problem is that in the interconnected world, there are frankly many more service providers who can deliver the work than there are opportunities, at least for small to medium-sized projects that do not require extensive levels of corporate capitalization to complete.

(And there are shouts and cries from within the industry when procurement officials bundle smaller jobs into bigger ones in the name of efficiency — because this effectively closes the door to qualifications from the smaller players.)

So, a small job is posted publicly and then dozens, even hundreds of contractors and speciality service providers apply for the work. If price is the criteria, then usually some sucker or desperate business takes the work, hoping for the best but usually heading down the road to bankruptcy (assuming the low bid really is fulfilled at that rate and there aren’t any tricky change orders underneath the surface.)

Qualitative-Based Selection (QBS), prequalification lists, and systems of private “short list” bidding purportedly solve many of these problems — and indeed are mandated in the US for federal and many state and local projects through Brooks Act or similar provisions.

Fair enough. But I’m troubled and challenged by the murky “insider” and “outsider” stories I continue to hear as I research a local procurement scandal at the Ottawa Hospital. If, indeed, several competent businesses can indeed do the work to the highest standards, and friendly relationships between the hospital administration and selected contractors “grease the wheels” and make repeated procurements with selected contractors the best solution to the free-for-all of the open market, how does an outsider ever break in, and when do things go over the edge to cartel-type behaviour (with some fraud and embezzlement thrown in.)

These issues arise in part as I observe several contractors who haven’t been named in the litigation, yet somehow touch to the edges of what appeared to be unethical behaviours.

As an example, is it wrong for a general contractor to invite a good client out for an evening’s entertainment or a resort vacation, or to pay “gifts” with airline points or other incentives?  (We see plenty of these schemes/systems in place?) The correct answer may be: It is okay to offer, but not accept — or certainly not to accept without documenting the acceptance and reporting it so that there is no chance of unfair advantage — but there still is the subtle but real relationship story behind the surface.

(I’m reminded of how I set the stage for a tax audit of my own business. First, I made sure to have the necessary documentation and professional services — that is, my accountant — available on the scene. Then, after researching the rules, I purchased some coffee for the auditor and the accountant.  The auditor smiled when he accepted my coffee offer. “People don’t realize that in fact I am allowed to accept this offer,” he said. He then set out his tasks with a positive attitude and by the end of the day did something I hadn’t expected — reporting that our business indeed owed absolutely no additional tax. This made the coffee in my opinion one of my wisest tax-deductible business expenses.)

I think most of us clearly know when right turns wrong, and the true extremes when solid relationships and a generous spirit go over the line, but there are plenty of grey areas, and there can be a slippery slope, that evolves and gets worse over time.  If you ask an outsider you’ll hear that things aren’t fair, the game is rigged, and there is no chance to enter the contest. If you ask an insider, you’ll hear that the service quality and relationship value ultimately saves the public institution money.

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