Unethical Business Practices In Contracting

Standards start to tighten after incidents of unethical behavior shake engineers and contractors

Ethics are challenged everywhere, it seems. On Oct. 28, a U.S. prosecutor indicted Vice President Dick Cheney's chief of staff for allegedly lying to a grand jury, which ended a particularly bad week for the Bush administration. But it was also a bad week for other politicians around the U.S.,

whose proven or suspected ethics lapses also made headlines, if not on the front page. While I. Lewis Libby Jr. apparently got into trouble all by himself, others were aided by construction industry executives who engineered or joined in an array of questionable schemes.

On Oct. 27, federal prosecutors indicted former Alabama Gov. Don Siegelman (D), a former state transportation director and industry executives in an alleged contract fraud and bribery scheme. On Oct. 19, a former CEO of a large Baltimore mechanical contractor was named in a 30-count racketeering indictment, along with a once-prominent Maryland state senator (see story, p. 28).

And as the month ended, Connecticut's disgraced former governor, John G. Rowland (R), was back in the news as state officials found themselves in the middle of a dilemma over commissioning a portrait of him. Rowland earlier this year went to federal prison, partly for accepting bribes from contractors in exchange for state work.

Even these stories aren't the end of news on the ethically challenged. The American Underground Construction Association Oct. 26 ordered a review of its Minneapolis headquarters after a probe found that a "substantial part of AUA's funds could not be accounted for," the group said in a statement. AUA President Thomas F. Peyton, a Parsons Brinckerhoff vice president, and its outside attorney declined further comment.

Despite more attention to illegal and unethical actions in the construction industry, individuals still "cross the line" into questionable areas of business practice--whether due to temptation, market pressure, or greed. "It's really systemic in the industry," says Theresa Carlson, supervisor of the FBI's white collar crime division in Birmingham, Ala. "There is little oversight and accountability."

While big international engineering and construction firms are now targeting corruption on Third-World construction projects, domestically, old practices and new, more subtle business approaches are under scrutiny. Some firms still feel compelled to engage in "pay-to-play" arrangements with political candidates to insure the flow of public contracts. The use of lobbyists, while legal in most situations, carries a negative connotation and a potential for abuse. Traditional chumminess in industry business relations and a pattern of revolving-door hiring between firms and clients can be a breeding ground for ethical breaches.

Two Chicago city engineers were swept up this year in an ongoing federal probe into contract fraud and hiring practices in city hall that forced their resignations as public scrutiny toughened.

Denise Casalino was cited by ENR in 2003 for her successful completion of a $200-million urban highway rebuilding project (ENR 4/7/03 p. 40). That job elevated her to the post of city planning and development commissioner, where she won kudos for a lucrative redevelopment of a derelict city property. Casalino's role put her in frequent contact with those permitting projects, including those of her developer husband, Perry. No wrongdoing has been proven, but she admits possibly overstepping ethical boundary lines and resigned in October.

"I don't feel like I was guilty of doing anything that should have generated a front-page story," says Casalino. "It is a rough atmosphere right now."

Stan Kaderbek, Chicago's former buildings commissioner, also felt the sting. Despite a successful construction public service career, he also resigned. The move followed high-profile agency incidents, such as building inspectors carrying fake credentials.

"I didn't do anything unethical. I think everybody pretty much knew where I stood," he says. Kaderbek takes responsibility for some management mistakes, but says, "it is the constant questioning of everything that wears you down." He is now an executive for locally based Walsh Group. Casalino now is a vice president in the Chicago office of Earth Tech.

In New Jersey, statewide ethical hurdles confront the construction community. The state's strong tradition of "pay-to-play" among firms, unions and elected officials at all levels lands it at or near the top of watchdog group tallies of state-by-state political contributions.

The Center for Public Integrity, Washington, D.C., reports that engineers, architects and construction managers contributed nearly $2.5 million to New Jersey "party and caucus committees" in 2003-04. Donations include some funds to "federal accounts," says the center, but the total dwarfs that of other states. Building trades unions also contributed more to New Jersey political coffers than anywhere else. "We operate in the system that exists," says one state-based engineer.

Loopholes

Just before his own 2004 resignation under questionable circumstances, state Gov. James McGreevey (D) signed an executive order with new rules on political contributions. The state legislature later codified it into law, but firms say the rules are confusing and have loopholes.

Executives add that with campaign costs going up, politicians depend on donation income and legislators are in no hurry to stop it. "It bothers me that New Jersey has become the poster child," says Steven Boswell, president of Boswell Engineering, Hacksensack, N.J. "But all bills that would stop pay-to-play are dead on arrival."

Donations move firms and their causes closer to busy politicians who can help, executives say. "We want to get on their radar screen," says one senior vice president of a design firm. "Part of that is to make contributions." Says another executive, also anonymous: "Our firm gets pressure from our clients all the time, and you have to support them. When does it cross the line? That's a good question."

Candidates vying to be New Jersey's new governor on Nov. 8 are against "corruption," but neither of the two multimillionaires self-financing their campaigns has targeted specific changes.

Some recent high-profile incidents in the New Jersey