Secret Commission and an Undisclosed Shareholding on a Hotel Refurbishment
Architect B is appointed by a hotel owner for a HK$300 million refurbishment in Tsim Sha Tsui. During construction, B specifies a particular stone cladding supplier. Unknown to the client, the supplier has offered B's project architect a 3% 'marketing fee' on the supply contract, worth about HK$450,000, and the project architect has already accepted it. Separately, B's director has a 40% shareholding in a joinery subcontractor that is one of five tenderers for the guest-room joinery package. B has not disclosed either interest. The joinery package is about to be awarded by the main contractor, and the client has asked B to review the tenders and recommend a preferred subcontractor. The client has also asked B to certify the next payment, which will include the stone supplier's first delivery. The client has no knowledge of either interest and regards B as its trusted adviser.
1. Identify the professional conduct issues raised by the 3% fee and the shareholding, with reference to the principles an architect must follow.
Read the worked answer
Two separate conflicts arise. First, the 3% marketing fee is secret remuneration from a supplier whose product the architect specified. The HKIA Code requires integrity, independence and disclosure; an architect must not accept commissions or gifts that could influence specification or certification without the client's informed consent. The fee creates a direct conflict between the client's interest in a competitive price and the architect's interest in the supply contract. Second, the director's 40% shareholding in a tenderer is a personal interest that must be disclosed. Even if the director is not the project architect, the firm's judgement on the tender is compromised. The fact that the client does not know makes both matters worse. The architect should not hide behind the argument that the fee was 'only marketing' or that the shareholding is 'personal'. Both go to the firm's independence and to the fairness of the tender and certification process.
2. What should B do now, and can it continue to act on the tender review and certification?
Read the worked answer
B should disclose both interests to the client immediately and in writing. It should decline or repay the 3% fee, or hold it on trust for the client pending instructions; it should not keep it. For the joinery tender, the director should be excluded from the tender review, and B should recommend that the client appoint an independent reviewer or allow the main contractor to assess the tender without B's input. B should not certify any payment that includes the stone supplier's delivery while the fee issue is unresolved, because certification would be tainted. If the conflict cannot be managed, B should offer to resign from the affected parts or from the appointment. Continuing without disclosure would be a serious breach. The test is whether a reasonable client, knowing the facts, would still have confidence in B's independence.
3. If the client discovers the facts and reports B to the HKIA, what are the likely consequences and mitigating steps?
Read the worked answer
A report to the HKIA could lead to disciplinary proceedings. The HKIA's disciplinary process can impose penalties ranging from a reprimand to a fine, suspension or removal from the register, depending on seriousness. The likely view is that secret commissions and undisclosed shareholdings are serious because they strike at independence. Mitigation includes immediate disclosure, repayment, cooperation, remedial measures and evidence of good character. B should not destroy documents or coach staff. It should appoint a compliance adviser, review its conflict-of-interest register and train staff. If the matter becomes a dispute with the client, B should take legal advice. The architect should also consider whether the 3% fee is recoverable by the client and whether the supplier's conduct raises separate issues. Early, candid disclosure is usually better than waiting for the client to discover the facts.