What you need to know about the federal mandate.
Many firms are deciding now is the time to implement an ethics program. Some do so because they are competing for federal contracts of a certain size and must satisfy the Federal Acquisition Regulations (FAR) mandate. Others wade into discussions of risk management, corporate governance and culture because they can see that ethics and integrity are the zeitgeist within a fast-changing design and construction industry. Promotion of ethics is an investment made by the best-in-class.
Supported by the Construction Industry Ethics & Compliance Initiative (CIECI) and Associated General Contractors of America (AGC), FMI set out to investigate the best practices and key issues surrounding implementation of ethics programs in September 2010. FMI spoke with 19 CEOs, compliance officers and legal counsel from 16 leading design and construction firms.
The strategic imperative to implement an ethics program is clear, even if return on investment is not. FMI estimates a loss between $5,000 and $50,000 per million dollars spent on a project due to unethical behavior, along with intangible costs to employee morale, project safety and company reputation. A formal ethics program can preserve existing company values and integrity after a period of growth, can insure against penalties and libel and will help minimize risk.
One of the chief concerns of those creating and implementing ethics programs is compliance with the FAR. Upon award of federal contracts in excess of $5Mand a 120-day duration, the following steps are required:
- Within 90 days of award:
- Establish an employee business ethics and compliance awareness program and internal control system.
- Install an anonymous hotline for reporting suspected improper conduct and instructions that encourage employees to make such reports.
- Within 30 days of award:
- Draft a written code of business ethics and conduct, and provide this to employees.
- Exercise due diligence to prevent and detect criminal conduct.
- Promote a culture encouraging ethical conduct and compliance with the law.
- Establish an ongoing business ethics awareness and compliance program, and conduct effective ethics training
But what makes a program effective, and how do you promote an ethical culture? The FAR does not outline how an ethics program should be structured or how the most value can be exacted from it. 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. Listed below are best practices for implementing ethics programs, derived from conversations with industry leaders. These best practices provide touchstones for those executing or refining their ethics program.
Start with Upper Management
Design and construction firms wrestle with a disconnect between the office and field, and between upper management and staff. The only way to drive policy into the everyday actions of the entire organization is to start at the top. Leaders not only demonstrate the behaviors employees will emulate but are responsible for communicating and inspiring belief in the company vision through their vice presidents, mid-level managers and foremen. An ethics program challenges the company leader to show that he means more than lip service because ethics is in essence a learning process. To demonstrate your commitment to ethics, attend company-training sessions, reinforce its importance in company newsletters and capitalize on every opportunity to put your name on the program.
Keep the Ethics Policy Clear
Factors like integrity, honesty, fairness and ethics are often a part of company culture in multi-generational firms, but as a company grows, it becomes more difficult to instill those values into the culture. A clear, concise code of conduct and ethics policy, coupled with annual training will give employees the tools to make ethical decisions. Peter Beaupre, president and COO of U.S. operations for PCL, explains the importance of a clear policy. "In the dozens of decisions that each person is making each day, there are many that are made on the spur of the moment by people at all levels of the organization. When they are making those decisions, we want the whole notion of ethics-what is right and what is wrong-at the front of their minds."
Get Buy-in from the Construction Company's Board
Federal Sentencing Guidelines require continued involvement of the board of a company in their ethics program. Begin with a well-documented board resolution adopting the program and appointing the compliance officer, and include periodic reporting or auditing in the yearly activities of the board. Self-report measures, on-site training and field audits are good ways to promote awareness of ethics on the jobsite. Many companies also get employees to sign paperwork to signal that they have read and comprehended the ethics policy or code of conduct. Dominick Servedio, chairman and CEO of STV, a firm offering engineering, architectural, planning, environmental and construction management services, believes that "ethics are critical in our business, and the code of conduct is the foundation. There has to be transparency at every level, and you have to educate employees before you ask them to sign on the dotted line."
Hire the Right People
Good corporate parenting allows you to build an ethical culture from the ground up through careful hiring of individuals with similar values to that of your company, and through the long-term education of young leaders and field staff, resulting in higher retention and employee engagement. Graduates also report a preference to work for a company with a strong ethical culture. Check references, and explore a potential hire's values on a job application and during the interview. Take the next step by implementing mentoring programs to foster a rich understanding of corporate accountability.
Use Scenarios to Teach
Many of the games played by various entities on a project can be circumvented by addressing them up front on the contract or through a partnering agreement. Establishing specific language around change order expectations can limit the latitude a project partner can take. Likewise, addressing ambiguous situations directly can help employees avoid making the wrong decision in the future. Practicing ethical rationalization through scenarios equips employees with the tools to avoid unethical behavior. Annual training is a must; ongoing online and live training sessions will hone employee appreciation for ethics and intensify their sensitivity to unethical behaviors.
Review, Monitor and Report
Build multiple feedback mechanisms into your program-an open-door policy, hotline, self-report measures, risk assessments, 360-degree reviews and internal audits are all good components to consider including. Many firms view their hotline as more of a helpline, offering employees the opportunity to ask questions and avoid unethical behavior, as well as report incidents. Update training in response to issues that crop up to ensure the firm against repeated violations and to adapt training to the current risk areas within your company. "It's not just a written program, it's a living program," says Mike Futch, vice president and chief counsel at Granite Construction Inc.
Take Action
If a report comes in through the hotline or any other avenue, ensure you have the resources to duly investigate and take action. Perhaps the most important determination is whether and at what point to involve legal counsel. If a violation is determined to have occurred, internal or external legal counsel will typically handle the case to preserve attorney-client privilege. Repercussions for violations of the ethics policy should be as clear as the policy itself: suspension, reprimand or termination each has their place.
The firms that have already made a commitment to building a robust ethical culture have taken great steps to counter negative industry perceptions. As ethics programs become widespread in the industry, it is likely that distinct ethics standards will evolve and that compliance with federal requirements will require greater diligence on the part of contractors. There is also evidence that private owners value an investment in ethics-a potential differentiator in the bid process in years to come. Complying with the ethics mandate is not now, nor will it ever be, a matter of filing the right documents; rather, it requires a commitment to cultural change. As the premium on integrity increases, your investment in ethics will bring you a positive return.
Construction Business Owner, January 2011
