New York State
Ethics Commission


Advisory Opinion No. 92-2 : Application of Public Officers Law §73 subdivisions (4) and (7) and §74 to circumstances where a State employee, or a corporation which is 40% owned by a State employee, wishes to provide services to a State agency.

Introduction

The following advisory opinion is issued in response to an inquiry from a [State] employee who seeks clarification of how Public Officers Law §§73 and 74 apply to the following circumstances.

An employee informed the Commission that a corporation, wholly owned and operated by himself and his family, seeks to (a) provide its services (seminars) to State agencies, (b) include State agency employees in its seminar audiences and (c) respond to consulting contract opportunities announced by State agencies.

Pursuant to its authority vested under Executive Law §94(15), the State Ethics Commission ("Commission") hereby concludes that:

  1. it is not a violation of Public Officers Law §73(4)(a) for a State employee or the corporation of which he owns 40% to respond to requests for bids or proposals issued by any State agency, including (with limited exceptions) the State agency which employs him, to provide services valued at $25 or more;

  2. under circumstances described in (1) above, it is not a violation of Public Officers Law §73(7) provided the State employee receives no compensation for services rendered in connection with any appearance related to bidding on the contract;

  3. it is not a violation of Public Officers Law §74 for a State employee or the corporation of which he owns 40% to provide services to the State agency which employs him through a competitively awarded contract, provided that the employee has no role in preparing the specifications for the services, does not improperly use his State position to obtain the contract and there is no indication that fulfilling the contract would impair the employee's ability to fulfill his State responsibilities; and

  4. it is not a violation of Public Officers Law §73(4)(a) for a State employee or the corporation of which he owns 40% to provide services valued at $25 or more to any State agency, including, with limited exceptions, the State agency which employs him, so long as such services are competitively bid and awarded.

Background

An employee of [a State agency] requested an opinion on the application of the Public Officers Law to his circumstances. The employee's responsibilities [ ] include management of fiscal activities, including supervision of all purchasing.

In 1990, the employee, [and members of his family] formed [ ] a New York corporation that offers computer consulting services and conducts training seminars on how to buy and use microcomputers. [The company] provides computer consulting for businesses and home computer users; its services include training seminars, direct consulting, audio/video products related to computer buying and operation and [ ] a telephone consulting product for computer users. [The company] is currently producing a one day seminar/workshop [ ] that the employee wishes to provide to, among others, government agencies/employees.

The employee indicated to the Commission that he owns 40% of [the company]. Although he does not receive a salary, he has made it clear that he will benefit from the financial success of [the company] and that he anticipates drawing a salary in the future. The employee, who is "course director" for the seminar/workshop, asked the following:

  1. Are we correct that we should not provide consulting services to any State agencies or may we serve agencies outside of the [requesting employee's agency]?

  2. If we are contacted by a State agency expressing interest in sending one or more employees to our seminar, may we accept them?

  3. Finally, if an agency other than [the requesting employee's agency] publishes a consulting bid announcement in the newspaper or NYS Contract Reporter, may we respond?

Applicable Statutes

Public Officers Law §73(4) states, in pertinent part, the following:

(a) No . . . state officer or employee . . . or firm or association of which such person is a member, or corporation, ten per centum or more of the stock of which is owned or controlled directly or indirectly by such person, shall (i) sell any goods or services having a value in excess of twenty-five dollars to any state agency . . . unless such goods or services are provided pursuant to an award or contract let after public notice and competitive bidding.

Public Officers Law §73(7)(a)(i) prohibits an officer or employee of the State of New York from appearing or rendering services for compensation before any State of New York agency where such appearance or services are in connection with:

the purchase, sale, rental or lease of real property, goods or services, or a contract therefor, from, to or with any such agency. . . .

Public Officers Law §73(10), which sets forth the rule with respect to net revenues, states in part:

Nothing contained in this section . . . shall be construed or applied to prohibit any firm, association or corporation, in which any present . . . state officer or employee . . . is a member, associate, retired member, of counsel or shareholder, from appearing, practicing, communicating or otherwise rendering services in relation to any matter before, or transacting business with a state agency . . . otherwise proscribed by this section . . . where such . . . state officer or employee . . . does not share in the net revenues, as defined in accordance with generally accepted accounting principles by the state ethics commission or by the legislative ethics committee in relation to persons subject to their respective jurisdictions, resulting therefrom, or acting in good faith, reasonably believed that he or she would not share in the net revenues as so defined;

The rule with respect to conflicts of interest is provided in Public Officers Law §74(2):

No officer or employee of a state agency . . . should have any interest . . . or engage in any business or transaction or professional activity or incur any obligation of any nature, which is in substantial conflict with the proper discharge of his duties in the public interest.

Public Officers Law §74(3)(h) provides:

An officer or employee of a state agency, . . . should endeavor to pursue a course of conduct which will not raise suspicion among the public that he is likely to be engaged in acts that are in violation of his trust.

State Finance Law §112(2) states:

Before any contract made for or by any state department, board, officer, commission, or institution, shall be executed or become effective, whenever such contract exceeds five thousand dollars in amount, it shall first be approved by the comptroller and filed in his office.

State Finance Law §174 provides:

The commissioner [of General Services] may purchase materials, equipment and supplies to an amount not exceeding five thousand dollars without competitive bidding, and may by rule prescribing the amount, not exceeding twenty-five hundred dollars, authorize purchases, without competitive bidding, of specified materials, equipment and supplies by any state department . . .

Discussion

The Governor's Approval Message on the Ethics in Government Act of August 7, 1987, noted that the Act provides for "restrictions on dealings with government, which will bar public officers and employees from . . . doing business with the State in the absence of competitive bidding."(1)

Public Officers Law §73 application.

In Advisory Opinion No. 91-5, the Commission reconciled the restrictions of §73(7)(a), which prohibits a State employee from appearing or rendering services for compensation before a State agency in relation to any matter in connection with the sale of goods or services to a State agency, with §73(4)(a), which allows such sales pursuant to a notice and competitively bid contract. The Commission's opinion addressed a State agency contract which was awarded, after public notice and competitive bidding, to a company whose sole shareholder was a full-time employee of another State agency. The next lowest bidder objected to the award citing Public Officers Law §73(7)(a). In finding that the State employee's appearance before the State agency did not violate Public Officers Law §73(4)(a) or §73(7), the Commission reasoned that State officers and employees may bid on State contracts:

[I]n those cases where the contract is to be let after competitive bidding, provided that the State officer or employee does not receive compensation either for the submission of the bid or its preparation or any personal participation in the presentation of the bid/proposal to the awarding agency personnel.

As applied to the instant case, Public Officers Law §§73(4)(a) and 73(7)(a) can be reconciled as follows. The employee (or firm, or association, or corporation 10% or more of the stock is owned or controlled by the employee) may provide consulting services to any State agency, including [the employee's agency] (pursuant to limitations described below), so long as those services are provided pursuant to a contract that has been competitively bid and awarded, and the State employee is not compensated in any way for his appearance in support of the bid on the contract.

Stated another way, Public Officers Law §73(4)(a) disqualifies a State officer or employee or any firm or association of which such person is a member, or corporation, 10% or more of the stock of which is owned or controlled by such a person, from performing services for or selling goods to a State agency, unless pursuant to a contract let after public notice and competitive bidding. Public Officers Law §73(7)(a) disqualifies a State officer or employee from receiving compensation for any work involved in actually obtaining the contract.

State Finance Law

The State Finance Law, which generally governs the process by which a State agency obtains goods and services, does not require a State agency to bid a contract to obtain goods or services in all circumstances. [See, State Finance Law, Article IX-Contracts and Article XI-Purchases; and standards of purchase.] For example, certain purchases valued below $5,000, or transactions with a "sole source," need not be pursuant to the standard bidding process and rules.

However, the exceptions allowed by the State Finance Law do not override or supersede the specific proscription of Public Officers Law §73(4)(a). The Commission concludes, in this instance, that, because this State employee owns more than 10% of the stock of [the company], a State agency may not award a contract to [the company] without competitive bidding even though no-bid contracts might otherwise be allowed by the State Finance Law.

Net revenues

The Commission next considered whether Public Officers Law §73(10) is meant as an exception to the competitive bidding requirement of §73(4), and concludes it is not.

Public Officers Law §73(10) provides that, notwithstanding that other subdivisions of §73 might disqualify a current or former State employee from receiving compensation for rendering services before a State agency, a firm with which such a disqualified person is affiliated may do so as long as the individual does not share in the firm's net revenues resulting from such appearance.(2) The clear focus of subdivision 10 is the issue of receipt of compensation for rendering services before a State agency, where the employee is disqualified from preforming such services. It cannot reasonably be construed that the subdivision seeks to address anything other than the prohibitions contained in §73 against receiving compensation for certain services rendered before a State agency by a present or a former State employee. In sum, subdivision 10 does not provide an exception to the competitive bidding requirements of subdivision 4.

In response to the employee's inquiry, if [the company] were to hold a training seminar open to the public, which was publicly advertised in the general media, not targeted to State employees, State employees may attend and pay by State voucher. This is so because the State agency has not initiated the contracting process, either by issuing a request for proposals, conducting polls of qualified vendors to solicit bids to provide goods or services, or other method allowed by law. The "evil" meant to be avoided by the prohibition of Public Officers Law §73(4)(a) is the use of inside information and influence which State employees may have to obtain State contracts for goods or services. In the instance of the public seminar, and absent specific solicitation of a State agency or employees to attend, there is no violation of §73(4)(a) of the Public Officers Law for State employees to attend [the company's] seminar and pay by State voucher.

Public Officers Law §74 application.

Public Officers Law §74, the code of ethics, is concerned with both actual and apparent conflicts of interest and provides minimum standards against which State officers and employees are expected to gauge their behavior. The code addresses the conflict between the obligation of public service and private, often personal, financial interest.

In the instant case, the employee manages the fiscal activities for the [State agency], including supervision of all purchasing. There is no indication that the employee has ever used his State position to secure any benefit for [the company]. In the Commission's view, the employee's concurrent holding of the State position and performing services for [the company] on non-State time and without use of State facilities or equipment do not represent a conflict of interest, provided that he observes certain precautions. He must not participate in preparing the specifications for the services, or use his State position to obtain any contract; he must be careful not to allow his interests in [the company] to otherwise impair his independence of judgment or his ability to fulfill the duties of his State position; his actions must not raise suspicions that he is violating his trust; he may not disclose or use any confidential information gained in his State position to further his private interests.(3)

Specifically, as long as he has an interest in [the company], the corporation should not accept as clients any vendors who do business with the [] facility at which the employee works or with any other [State agency] vendors under the employee's official State purview or of which he is aware as a purchasing officer.(4) Otherwise, there is the possibility that the public could conclude that a conflict of interest exists for a State employee between his purchasing responsibilities at [the State agency] and his obtaining clients for his private business.

Conclusion

Public Officers Law §73(4)(a) allows a State officer or employee, a firm or association of which a State officer or employee is a member, and a corporation, 10% or more of the stock which is owned or controlled directly or indirectly by a State officer or employee to sell goods or services valued at more than $25 to the State only where there has been an award of a contract let after public notice and competitive bidding.

Considering the standards set in Public Officers Law §74, a State officer or employee, or his corporation, may provide services to a State agency provided the officer or employee does not improperly use his State position to obtain the contract and there is no indication that fulfilling the contract would impair the employee's ability to fulfill his State responsibilities.

This opinion, until and unless amended or revoked, is binding on the Commission in subsequent proceedings concerning the person who requested it and who acted in good faith, unless material facts were omitted or misstated by the person in the request for an opinion.

All concur:

Joseph M. Bress, chair

Angelo A. Costanza
Donald A. Odell, Members



Dated: February 6, 1992


Endnotes

1. For example, subdivision 7(a) was added to Public Officers Law §73 as part of the Ethics in Government Act of 1987, L. 1987, c.813.

2. See Advisory Opinion No. 90-14 for a full discussion of net revenues.

3. The Commission noted in Advisory Opinion No. 91-5 that an award or contract let to a State officer or employee even after public notice and competitive bidding may violate the provisions of Public Officers Law §74. The Commission did not find a violation in that case; there was no suggestion that the employee improperly used his State position to obtain the contract, and there was no indication that fulfilling the contract would impair the employee's ability to fulfill the responsibilities of his State position.

4. The Commission notes, however, that Public Officers Law §74 would not prohibit the employee [or the company] from contracting and doing business with a vendor whose business with a State agency (other than the [employing] facility) is unrelated to any area of an employee's official State responsibilities.


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