HomeMy WebLinkAbout84-508 BonnerMr. John Bonner, Esquire
Casale & Bonner, P.C.
329 Market Street
Williamsport, PA 17701
Dear Mr. Bonner:
Ma,l,n Address
STATE ETHICS COMMISSION
P.O. BOX 1179
HARRISBURG, PA 17108
TELEPHONE: (717) 783 -1610
January 18, 1984
ADVICE OF COUNSEL
84 -508
RE: South Williamsport School District, Section 3(c), $500 Limit
This responds to your letter of December 20, 1983, in which you requested
advice from the State Ethics Commission.
Issue: You ask whether a business owned by a member of the School Board may
contract to provide cafeteria products to the School Board, what restrictions
might be applicable to such a transaction and whether the limit in Section
3(c) of the Ethics Act of $500 is a cumulative annual amount or to be
determined on a per contract basis.
Facts: You serve as Solicitor for the South Williamsport School District,
hereinafter the School District, and on behalf of the School District you
request or response to the above question. Further, in your communication you
indicate that you are requesting this response "on behalf of both the School
District and Consumer (Quality Food Service, Inc.)." Accordingly, we will
address the factual situation which you present and provide our response.
On a factual level, you indicate that Consumer Quality Food Service
Incorporated, hereinafter referred to as Consumer, is a Pennsylvania
corporation whose majority ownership is vested in an individual who also
serves as a member of the School District Board of Directors. Prior to 1981
Consumer supplied federal donated surplus food stuff to the School District
under an agreement with the United States Department of Agriculture whereby
Consumer was the sole supplier of donated foods in the region imcompassing the
South Williamsport Area School District. However, beginning in September,
1981, and continuing to the present time, the School District's Cafeteria
Supervisor, in conformity with the provisions of the School Code (Sections 502
and 504) purchased cafeteria food products without public bidding or any other
open and public process from a total of five food suppliers within the area.
One of these food suppliers is Consumer.
State Ethics Commission • 308 Finance Building • Harrisburg, Pennsylvania
Mr. John Bonner, Esquire
January 18, 19R4
Page 2
With respect to these purchases the communications and dealings have been
between the Cafeteria Supervisor and Consumer and where handled by a
salesperson for Consumer other than the individual who is a member of the
School District Board of Directors but who Is the adult son of the School
Board member. Purchases were normally made on a 6 -to -day or week -to -week
basis. The purchases normally resulted from week meetings with the sales
representatives of the five food suppliers refers. .o above and involved
negotiations on price and ultimate purchases were jade on the bases of the
food quality primarily and the price and matters of convenience secondarily.
In many instances the lowest priced product was not purchased because the
quality of the product was not satisfactory or a better quality product could
be obtained elsewhere.
Payment for these purchases was processed by way of daily invoices
prepared by Consumer, when Consumer was the supplier chosen, and these daily
invoices were transcribed onto a monthly statement which was presented by
Consumer to the School District for payment. You have supplied copies us with
copies of all invoices and statements with respect to the transactions you
wish us to review. A review of these invoices and statements indicates there
are three daily invoices which individually exceeded 4500 although the
majority of daily invoices were for amounts less than 4500. The vast majority
of the monthly statements, however, exceeded 45n0.
You state that it is Consumer's opinion that each daily invoice is a
separate contract and that, therefore, Section 3(c) of the Ethics Act which
refers to a limitation of 4500 would not be violated insofar as the majority
of these invoices (contracts in Consumer's opinion) should be considered
individually and, therefore, not in excess of 5500 or restricted by the
requirement that they be awarded only after the open and public process of
Section 3(c) of the Ethics Act. Consumer, further contends, that on at least
two of the previous daily invoices of the three which exceeded 4500 as noted
above, the bill came from a food preparer which was paid by Consumer and
merely "passed through" to the School District.
It should be noted finally that Consumer does and can be expected to,
under the present circumstances, do approximately 410,000 in gross sales per
year with the School District. However, pending a resolution of your request
for advice, the School District and Consumer have amicably agreed to
discontinue their present business relationships until a response is
provided.
Mr. John Bonner, Esquire
January 18, 1984
Page 3
Discussion: The member of the School Board of Directors on whose behalf you
request advice is an elected official and must be considered a "public
official" as that term is defined in the State Ethics Act. See Section 2 of
the Ethics Act, 65 P.S. 402. As such, his conduct and that of the other
elected members of a School Board of Directors must conform to the
requirements of the State Ethics Act. The requirements of the State Ethics
Act most pertinent to our review of this question is found in Section 3(c) of
the Ethics Act set forth below:
(c) No public official or public employee or a member of
his immediate family or any business in which the person
or a member of the person's immediate family is a
director, officer, owner or holder of stock exceeding 5%
of the equity at fair market value of the business shall
enter into any contract valued at $500 or more with a
governmental body unless the contract has been awarded
through an open and public process, including prior public
notice and subsequent public disclosure of all proposals
considered and contracts awarded. Any contract made in
violation of this subsection shall be voidable by a court
of competent jurisdiction if the suit is commenced within
90 days of making of the contract. 65 P.S. 403(c).
It is obvious that the School Board Director who is the majority owner of
Consumer stands in a relationship to Consumer which would invoke the
application of Section 3(c) of the Ethics Act to his conduct vis -a -vis the
School District if the other requirements of Section 3(c) of the Ethics Act
are evident. Specifically, if the School Director who is the majority owner
of Consumer seeks to enter into a contract valued at $500 or more with the
School District, that contract must be awarded only after an open and public
process and may be voidable in a Court of competent jurisdiction if such a
process is not undertaken.
However, you should be aware of the fact that the Commission has recently
decided that the application of Section 3(c) of the Ethics Act is required and
an open and public process mandated only where the individual contract in
question exceeds the 4500 limitation. Specifically, the Commission has
recently concluded that:
With regard to your specific question, that is, whether
Section 3(c) S500 limit is a cumulative annual limit or a
per contract limit, the Commission is of the opinion that
the requirements of Section 3(c) are triggered by
reference to an individual contract. In other words, a
public official, member of his or her immediate family, or
a business in which he or she holds the position set forth
in Section 3(c) may contract with the official's
governmental body without the application of the open and
public process for individual contracts under 5500. See
Motto, 83 -015, page 4.
Mr. John Bonner, Esquire
January 18, 1984
Page 4
In arriving at this conclusion, the Commission emphasized that the open
and public process requirements of Section 3(c) cannot be intentionally evaded
and they also recognized the possibility that evasion of the open and public
process could occur when several contracts each individually valued at under
$500 are formed, but where the total of the individual contracts exceeds $500.
The Commission was particularly concerned that the competitive and open and
public process requirements would be intentionally avoided through
fragmentation of contracts and specifically stated that such fragmentation
should not be attempted by entering into c series of contracts each valued at
$500 or less where the facts or circumstances of such purchases revealed that
the contracts should have been made as one contract and fragmentation thereof
is intended or designed to avoid the $500 limit. However, the Commission did
clearly conclude that Section 3(c) of the Ethics Act is not triggered even
where the annual a cumulative amount of the contracts would exceed $500 so
long as each individual contract between these parties is valued at $500 or
less.
Thus, in this particular case, assuming that the Cafeteria Superintendent
and Consumer enter into a contract when negotiations and selections on the
daily or weekly requirements of the School District are concluded and orders
placed with Consumer, so long as those contracts do not exceed $500 or more,
the open and public process requirements of Section 3(c) of the Ethics Act are
not triggered. We should note that the invoices that you have provided which
exceed the limit of $500 or more on an individual basis should have been
awarded through an open and public process even based upon the assumptions
contained herein.
Finally, however, it should be noted that in the context of the Motto
ruling the Commission did articulate the concept that where the business with
which the official is associated can be expected to or estimated to provide
services to the official's governmental body on an annual basis which might
exceed the $500 limit, that an annual contract should be considered.
Specifically, the Commission concluded that:
Where the total annual expenditure under a contract is
difficult to estimate, whether above or below the $500
mark, we suggest that an annual contract should be let by
the School District after applying the Section 3(c) open
and public process as described above. We urge these
guidelines be complied with so that the School Board will
avoid even the appearance of a conflict of interest,
thereby assuring the citizens of the School District of
the impartiality and honesty of the members of the School
Board. Motto, supra at page 7.
Mr. John Bonner, Esquire
January 18, 1984
Page 5
It would seem that this suggestion should be considered and the School
District in this matter, recognizing that Consumer does a substantial amount
of business with the School District should consider the award of an annual
contract so that any concerns regarding the applicability of the open and
public process would be obviated and the question of when a contract is formed
or when it might exceed $500 may be eliminated.
Conclusion: The requirements of Section 3(c) of the Ethics Act as to an open
and public process are triggered only when the individual contract in question
is valued at $500 or more. The Commission will not countenance intentional
evasion of the open and public process requirements by the fragmentation of
the contracts (each of which might be valued at 4500 or less) but the
aggregate of which exceeds fi500. The Commission suggests that where the total
expenditures under a contract or difficult to estimate but where the official
or his business, as in this case, can clearly be expected to undertake
significant contracts with the School District that an annual contract should
be considered and in the award of this annual contract an open and public
process should be undertaken. Of course, with respect to any such contract
and procedure if this matter is presented to the School Board for
consideration, the individual who is a majority owner of Consumer should be
alert to requirements of Section 3(a) of the Ethics Act and the requirement
that he abstain from participation in any decisions of the School Board with
respect to the award of or consideration of the contract with Consumer.
Pursuant to Section 7(9)(ii), this Advice is a complete defense in any
enforcement proceeding initiated by the Commission, and evidence of good faith
conduct in any other civil or criminal proceeding, providing the requestor has
disclosed truthfully all the material facts and committed the acts complained
of in reliance on the Advice given.
This letter is a public record and will be made available as such.
Finally, if you disagree with this Advice or if you have any reason to
challenge same, you may request that the full Commission review this Advice. A
personal appearance before the Commission will be scheduled and a formal
Opinion from the Commission will be issued. Any such appeal must be made, in
writing, to the Commission within 15 days of service of this Advice pursuant
to 51 Pa. Code 2.12.
SSC /rdp
S'
.<:4
(,4aM_ J) i(.
Sandra S. 6'ri sti anson
General Counsel