Handling Potential Conflicts of Interest

It is important to point out a possible conflict of interest that may come up if a custom software vendor does work for two customers who compete with each other. That conflict of interest can occur if one customer pays the vendor to develop a software solution and then the other customer who competes with the first customer asks for a very similar solution. In that case, is it ethical to provide the same code to the second customer, possibly at a discounted rate, when the first customer paid full price for that code?

This is particularly prevalent in software development because a vendor may be hired specifically they have expertise in a particular industry. In fact many software vendors, the smaller ones in particular, specialize in particular industries. Such vendors are almost bound to run into potential conflicts such as this.

A more complicated problem occurs if the software vendor assisted in developing the specifications for the solution. What happens if the vendor helps one customer devise some ingenious and innovative idea that provides that customer with a competitive advantage? Is the vendor allowed to suggest any aspect of that idea to a competitor of that first customer?

The answer: clearly not.

How do you avoid such conflicts? Some customers may request that the vendor sign a legally binding contract preventing them working with competitors, at least over some well-defined time period. In that case it is not a problem.

But if the vendor is, in fact, presented with this problem, I believe that there is only one solution. That solution is to prevent the same project managers, programmers and engineers from working for both customers.

If you instruct the technical staff to avoid discussing such ideas, you’re putting them into a very difficult and possibly impossible situation. How do you separate generic technical ideas from specific ideas?

So the only answer – separate your technical staff into different groups for each competitor.

Note that this is not necessary if the customers are not competitors. I worked for a company that provided ID card solutions. Some of the ideas that were developed for issuing employee ID cards for a telecommunications company were used for a large bank. Some enhancements paid for the large bank were proposed to the telecommunications company. Both companies benefited and neither company paid for any code development that also helped a competitor.