Position on spec work
Clients may, at times, request you compete for an engagement on the basis speculative work—that is, work done for no cost. [AIGA] is against speculative proposals.
Similarly, organizations sometimes initiate contests as a way of developing logos or other identity work. Unlike disciplines in which the designer can bill for implementation of the proposed design (e.g., architecture), in communication design, the submitted solution already represents the bulk of the intellectual work. AIGA encourages organizations to issue a request for proposals from qualified designers.
AIGA believes that doing speculative work seriously compromises the quality of work that clients are entitled to and also violates a tacit, long-standing ethical standard in the communication design profession worldwide. AIGA strongly discourages the practice of requesting that design work be produced and submitted on a speculative basis in order to be considered for acceptance on a project.
I didn't know that there was such an organization or such a code of proposed conduct. It is voluntary, just like the SPJ [Society For Professional Journalism] code of ethics. And just like that code I'm sure a lot of the members pay no attention to the code.
Bill Palmer did this ... logo competitions, naming competitions, and more recently Engadget did it.
It's interesting for me to see this in place though ... didn't know it existed, and don't know if I agree.
* Link credit to Daring Fireball