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Contracts & Ethics

October 10, 2011

Tough economic times tend to place ethics and honesty under stress – and I am seeing growing evidence of ‘underhand behavior’ as the pressures mount.

There are perhaps three major areas where we must be watchful. One is around competitive behavior; another is around the ‘truth in bidding and negotiation’; the third is in honoring commitments.

When it comes to competitive behavior, actions can take many forms. These range from the formation of cartels designed to reduce competition in bidding, to unfair or unprincipled actions towards competitors, often designed to put them out of business. The way that patents are used is one example that I have cited in previous blogs. Deliberate misrepresentation of a competitor’s performance or capabilities is another. Using subterfuge to gather competitive information is a third.

Many of these actions are not illegal, but they should cause buyers to be alert. A smart buyer understands that any gain they receive from anti-competitive behavior will be short-term. First, it should alert them to the character of the company and its likely post-award behavior; and second, if it succeeds in reducing competition, prices will rapidly rise.

‘Truth in bidding’ is a topic on which IACCM has run a  series of workshops. As in the post-award ‘honoring of commitments’, there are faults on both sides of the table. Measurement systems provide incentives towards acts of omission and commission when specifying needs or capabilities. Commercial staff need to operate with increased skepticism in discovering the accuracy of requirements or commitments. Unfortunately, it seems there is also a need for increased rigor in monitoring actual performance and the management of change. Hard times lead to the temptation to understate or overstate the impacts of changes (depending on which side you are on). They also lead to an increase in inaccurate billing, including such areas as overstated hours or application of the wrong charge levels.

It is nice to believe that contracting can always be used as a vehicle to create harmonious and high-value relationships. Unfortunately, we also have to remember its importance in rooting out dishonesty and unethical practices.

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