Case 91-7
Indemnification - Product Specification
Code Citations: [II.4.a]
[II.4.b]
[II.4.c]
[III.5]
[III.5.a]
[III.9]
Case Citations: [59-3] [64-11]
[76-8]
Facts:
Engineer A is retained to design a facility. Engineer A is developing a
set of plans and specifications for the client's consideration. One of
the manufacturers of a product specified by Engineer A includes in its
information material a provision which indicates that in the event that
the specified product does not perform according to the client expectations
and the client brings a suit against Engineer A, the manufacturer will
indemnify and hold harmless the Engineer A for any losses suffered by the
engineer in connection with the Engineer A's specification of the manufacturer's
product.
Question:
Under the facts presented, does Engineer A have any ethical obligations?
References:
-
Code II.4.a
-
Engineers shall disclose all known or potential conflicts of interest to
their employers or clients by promptly informing them of any business association,
interest, or other circumstances which could influence or appear to influence
their judgment or the quality of their services.
-
Code II.4.b
-
Engineers shall not accept compensation, financial or otherwise, from more
than one party for services on the same project, or for services pertaining
to the same project, unless the circumstances are fully disclosed to, and
agreed to by, all interested parties.
-
Code II.4.c
-
Engineers shall not solicit or accept financial or other valuable consideration
directly or indirectly, from contractors, their agents, or other parties
in connection with work for employers or clients for which they are responsible.
-
Code III.5
-
Engineers shall not be influenced in their professional duties by conflicting
interests.
-
Code III.5.a
-
Engineers shall not accept financial or other considerations, including
free engineering designs, from material or equipment suppliers for specifying
their product.
-
Code III.9
-
Engineers shall accept responsibility for their professional activities;
provided, however, that Engineers may seek indemnification for professional
services arising out of their practice for other than gross negligence,
where the Engineer's interests cannot otherwise be protected.
Discussion:
Questions relating to the ethical obligations of engineers in connection
with the specification of products have been considered by this Board on
numerous occasions. As long ago as BER Case 59-3,
the Board stated that the use of standard specifications by reference and
the provisions for the preparation and submission of shop drawings by the
contractor are well established customs within the construction industry
and do not conflict with the Code of Ethics. A few years later, the Board
considered BER Case 64-11. There a government
agency programmed the construction of a bridge. It retained a consulting
engineer to design the total structure. An engineer who was a sales representative
of Firm A, which produced and sold prestressed concrete bridge members,
contacted the consulting engineer and requested him to consider using Firm
A's material. The engineer of Firm A indicated that his firm would provide
the design of the superstructure incorporating its product at no charge
to the consulting engineer, and that this design would be performed by
licensed professional engineers. In finding that it would be unethical
both for the engineer employed by Firm A to make such an offer and unethical
for the consulting engineer to accept such an offer under the circumstances
stated in the facts, the Board noted that if the consulting engineer believed
the construction material (product) proposed by Firm A was best and in
the client's interests, and proposed to contract for an appropriate fee
with Firm A for the necessary engineering design, the engineer must first
disclose such activity with his client.
Later in BER Case 76-8, the Board considered
a set of factual circumstances involving the design of a technical training
school and concluded that the furnishing of a sketch and other information
prior to selection of a firm for negotiations was a violation of the Code
of Ethics. Noting that changes in applicable Code of Ethics provisions
at that time were made to permit the giving of free engineering services
to civic, charitable and other eleemosynary organizations, the Board acknowledged
that in everyday engineering practice, engineers must provide some degree
of engineering information and expertise in discussions with potential
clients. However, after weighing the facts and circumstance of the case,
the Board concluded that the firm in question went further than what would
be permissible under the Code.
Turning to the facts in the present case, it appears that in this age
of increased liability, engineers, architects, materialmen, suppliers and
others have sought to employ new and innovative techniques to address liability
concerns, market services and products and deal with client concerns. The
question for us is whether a specifying engineer may specify a product
where the product manufacturer, in an attempt to make its product more
attractive, has in essence agreed to "insure" the specifying engineer,
is proper. We can foresee circumstances where such an arrangement would
create a conflict of interest between the specifying engineer's obligation
to specify products consistent with the best interests of the client and
the specifying engineer's self interest in achieving the maximum protection
from potential liability. For example, the specifying engineer's self interest
could lead to a decision to specify the product and not some other more
appropriate or less expensive product.
Based upon our reading of the Code of Ethics and earlier BER cases,
particularly BER Case 64-11, we believe such conduct
would be improper. We believe the facts and the Board's discussion in BER
64-11 is quite relevant to our consideration of
the facts in the instant case. Like BER Case 64-11,
a contractor had promised the specifying engineer something over and above
the product or service being specified. Such an arrangement would appear
to be in direct conflict with Code
III.5.a. of the Code of Ethics.
We are of the opinion that the proposed indemnification is a form of
financial consideration and its acceptance would be in violation of Code
II.4.b., Code
II.4.c. and Code
III.5.a. Full disclosure must also be made in accordance with Code
II.4.a. and Code
II.4.b.
The Board finds it disconcerting that a manufacturer would offer indemnification
as an inducement for specifying a product.
Conclusion:
Engineer A has an ethical obligation to (1) discuss the informational material
with the client; (2) not accept the indemnification for his own personal
benefit; and (3) recommend that the client explore the possibility of client's
indemnification with manufacturer.
BOARD OF ETHICAL REVIEW
John F. X. Browne, P.E.; William A. Cox, Jr., P.E.; Herbert G. Koogle,
P.E.-L.S.; William W. Middleton, P.E.; William F. Rauch, Jr., P.E.; Otto
A. Tennant, P.E.; Robert L. Nichols, P.E., Chairman
*Note-This opinion is based on data submitted to the Board of Ethical
Review and does not necessarily represent all of the pertinent facts when
applied to a specific case. This opinion is for educational purposes only
and should not be construed as expressing any opinion on the ethics of
specific individuals. This opinion may be reprinted without further permission,
provided that this statement is included before or after the text of the
case.
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