HomeMy WebLinkAbout96-530 SmalleyPhilip A. Smalley
Tra -Tech, Inc.
PO Box 1 196
Hermitage, PA 16148
STATE ETHICS COMMISSION
309 FINANCE BUILDING
P.O. BOX 11470
HARRISBURG, PA 17108 -1470
TELEPHONE (717) 783 -1610
ADVICE OF COUNSEL
March 27, 1996
96 -530
Re: Conflict, Public Official /Employee, School Director, Multi- District Health Care
Consortium, Use of Authority of Office, Vote, Business with Which Associated,
Consultant.
Dear Mr. Smalley:
This responds to your letters of February 16, 1996, February 25, 1996, March
4, 1996, and March 18, 1996 in which you requested advice from the State Ethics
Commission.
Issue: Whether the Public Official and Employee Ethics Law presents any
prohibitions or restrictions upon a School Director whose management consulting
practice has already rendered preliminary services to a health care consortium
comprised of school districts, including his own, and now seeks a long term consulting
assignment with the consortium.
Facts: As a School Director for the Hermitage School District in Mercer County,
Pennsylvania, you request an advisory from the State Ethics Commission. The facts
which you have submitted are as follows.
You state that a majority of the school districts in Mercer County (10 out of 13)
have formed a legal consortium, called the Mercer County Schools Health Care
Consortium, to study and manage their health care programs. The school district
which you serve, Hermitage School District, is a member of the Consortium. The
Consortium's affairs are governed by the Superintendents from the participating
schools. For the Consortium to ratify an action, such as hiring a consultant, 75% of
the voting members are needed. PSEA representatives participate in advisory roles.
In your private capacity, you own and operate a management consulting practice
known as "Tra -Tech, Inc."
You state that since May, 1995, Consortium officials have retained Tra -Tech,
Inc. to conduct certain preliminary activities. To your knowledge, representatives from
Hermitage School District had no input in selecting Tra -Tech, Inc. for that work.
Smalley, 96 -530
March 27, 1996
Page 2
Nevertheless, you state that to avoid any semblance of impropriety, Tra -Tech, Inc. did
not, has not, and will not extend any charges to the Hermitage School District for
services rendered.
You state that when Tra -Tech, Inc. performed the preliminary analyses for the
Consortium, you were unaware that the Consortium would be interested or had
planned to retain a permanent consultant. However, Tra -Tech, Inc. has since been
invited to bid -- and has submitted a bid -- for a long -term consulting assignment.
On March 14, 1996, the Consortium met and interviewed the three candidates
for the consulting assignment. On March 15, 1996 you were informed that Tra -Tech,
Inc. was the unanimous choice. However, you state that you will defer your decision
to accept the appointment pending a response to your request for an advisory.
You have submitted the following documents for review, which documents are
incorporated herein by reference:
1. A one -page document entitled "Mercer County Schools Health
Care Consortium" which lists the names of various individuals
involved with the Consortium (It is noted that Hermitage's
representatives are Louis Mastrian (Management) and Doane Bailey
(Labor) and that your name is listed on this document as follows:
"Phil Smalley - Consultant ");
2. A photocopy of a brochure about Tra -Tech, Inc. entitled
"Management Consulting - Specializing in Managed Care Insurance
Strategies /Employee Relations Processes ";
3. Your resume;
4. A nine -page document with attachments, entitled "Mercer County
Schools Health Care Consortium Medical Insurance Study by Tra -
Tech, Inc., September, 1995 ";
5. The Consortium's request for proposals, dated November 21,
1995;
6. The proposal submitted by Tra -Tech, Inc. to the Consortium dated
February 21, 1996;
7. A notice scheduling a meeting of the Consortium for February 29,
1996 for the purpose of reviewing the "RFP's" for the Consortium
consultant (copies of the meeting notice were sent to the Mercer
County Superintendents, the Mercer County local association
presidents, and you);
8. An unexecuted Agreement labeled "Draft #2" dated February 29,
1996, which would provide for the creation of and operation of
the Consortium and which sets forth the requirements for
participation /membership in same, which requirements include the
submission of a Resolution of the Board of Directors or other
Smalley, 96 -530
March 27, 1996
Page 3
governing body of the School District, vocational technical school,
or intermediate unit which seeks to participate /join;
9. A notice scheduling a meeting of the Consortium for March 14,
1996 for the purpose of interviewing the consultants who
responded to the RFP proposal; and
10. An editorial which appeared in "The Herald," a Sharon,
Pennsylvania newspaper, on Sunday, March 17, 1996, which
bears the headline "Our View -- Health Care Consortium -- Schools
Deserve Praise for Winning Combination."
One additional item has been submitted which shall be noted. You have
submitted a copy of a letter from you to Dr. Louis C. Mastrian, Superintendent of the
Hermitage School District, dated May 26, 1995. The letter provides as follows:
Dear Dr. Mastrian:
As you are aware, Tra -Tech, Inc. has been retained to conduct a
medical insurance project for eleven of the county's school districts,
Hermitage School District included. Each district's portion of estimated
expenses ($100 retainer plus 16 hours at $50.00) will be at minimum
$ 900.00.
I would request that this $900.00 which would otherwise be due
from Hermitage be transferred as a personal contribution to our new
athletic complex improvement project which will benefit not only the
school system but community as well.
Please advise if there are any procedural problems with this
request.
Very truly yours,
s /Philip A. Smalley
(Letter of May 26, 1995 from Smalley to Mastrian).
You state that the aforesaid letter was sent as a result of Tra -Tech, Inc. being
requested to complete the initial analysis for the Consortium. You state that you
believe the letter demonstrates your sensitivity to doing the proper thing.
You state that it is your belief that the Consortium leadership is fully aware of
the School and Ethics Codes and that there is "comfort" that Tra -Tech, Inc. has and
will continue to act in a highly professional manner should it be awarded the consulting
assignment. Nevertheless, you request an advisory from the State Ethics Commission
on this matter.
Discussion: Two points are initially noted. First, it is noted that when you
submitted your advisory request, you were specifically asked to submit information as
to the enabling legislation for the Consortium, any agreement as to its inception,
function, funding, expenditures, and other operational information (Letter of February
16, 1996 from Dopko to Smalley). In submitting the documents which you provided,
Smalley, 96 -530
March 27, 1996
Page 4
you represented that you provided "as much background information as possible"
(Letter of March 6, 1996 from Smalley to Dopko). Be advised that pursuant to
Sections 7(10) and 7(1 1) of the Ethics Law, 65 P.S. §§407(10), (11), advisories are
issued to the requestor based upon the facts which the requestor has submitted. In
issuing the advisory based upon the facts which the requestor has submitted, the
Commission does not engage in an independent investigation of the facts, nor does it
speculate as to facts which have not been submitted. It is the burden of the requestor
to truthfully disclose all of the material facts relevant to the inquiry. 65 P.S.
§§407(10), (11). An advisory only affords a defense to the extent the requestor has
truthfully disclosed all of the material facts.
It is further initially noted that an opinion or advice may be given only as to
prospective (future) conduct. See, 65 P.S. §§407(10)(11). As for Tra -Tech, Inc.'s
prior work for the Consortium and your disposition of the Hermitage School District's
$900 share of Tra - Tech's prior fee, such constitute past conduct. Questions as to the
propriety of past conduct may not be addressed in the context of an advisory.
As a School Director for the Hermitage School District, you are a public official
as that term is defined under the Ethics Law, and hence you are subject to the
provisions of that law.
Section 3(a) of the Ethics Law provides:
Section 3. Restricted Activities.
(a) No public official or public employee shall
engage in conduct that constitutes a conflict of interest.
The following terms are defined in the Ethics Law as follows:
Section 2. Definitions.
"Conflict or conflict of interest." Use by a public
official or public employee of the authority of his office or
employment or any confidential information received
through his holding public office or employment for the
private pecuniary benefit of himself, a member of his
immediate family or a business with which he or a member
of his immediate family is associated. "Conflict" or
"conflict of interest" does not include an action having a de
minimis economic impact or which affects to the same
degree a class consisting of the general public or a subclass
consisting of an industry, occupation or other group which
includes the public official or public employee, a member of
his immediate family or a business with which he or a
member of his immediate family is associated.
"Authority of office or employment." The actual
power provided by law, the exercise of which is necessary
to the performance of duties and responsibilities unique to
a particular public office or position of public employment.
Smalley, 96 -530
March 27, 1996
Page 5
"Business with which he is associated." Any
business in which the person or a member of the person's
immediate family is a director, officer, owner, employee or
has a financial interest.
"Contract." An agreement or arrangement for the
acquisition, use or disposal by the Commonwealth or a
political subdivision of consulting or other services or of
supplies, materials, equipment, land or other personal or real
property. "Contract" shall not mean an agreement or
arrangement between the State or political subdivision as
one party and a public official or public employee as the
other party, concerning his expense, reimbursement, salary,
wage, retirement or other benefit, tenure or other matters
in consideration of his current public employment with the
Commonwealth or a political subdivision.
In addition, Sections 3(b) and 3(c) of the Ethics Law provide in part that no
person shall offer to a public official /employee anything of monetary value and no
public official /employee shall solicit or accept anything of monetary value based upon
the understanding that the vote, official action, or judgement of the public
official /employee would be influenced thereby. Reference is made to these provisions
of the law not to imply that there has been or will be any transgression thereof but
merely to provide a complete response to the question presented.
Section 3(f) of the Ethics Law provides as follows:
Section 3. Restricted activities
(f) No public official or public employee or his
spouse or child or any business in which the person or his
spouse or child is associated shall enter into any contract
valued at $500 or more with the governmental body with
which the public official or public employee is associated or
any subcontract valued at $500 or more with any person
who has been awarded a contract with the governmental
body with which the public official or public employee is
associated, 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. In such a case, the public official or
public employee shall not have any supervisory or overall
responsibility for the implementation or administration of the
contract. Any contract or subcontract made in violation of
this subsection shall be voidable by a court of competent
jurisdiction if the suit is commenced within 90 days of the
making of the contract or subcontract.
Parenthetically, where contracting is otherwise allowed or where there appears
to be no express prohibitions to such contracting, the above particular provision of the
law would require that an open and public process must be used in all situations where
Smalley, 96 -530
March 27, 1996
Page 6
a public official /employee is otherwise appropriately contracting with his own
governmental body, or subcontracting with any person who has been awarded a
contract with the governmental body, in an amount of $500.00 or more. This open
and public process would require that the following be observed as to the contract
with the governmental body:
(1) prior public notice of the employment or contracting possibility;
(2) sufficient time for a reasonable and prudent competitor/ applicant to be
able to prepare and present an application or proposal;
(3) public disclosure of all applications or proposals considered and;
(4) public disclosure of the contract awarded and offered and accepted.
Section 3(f) of the Ethics Law also requires that the public official /employee may
not have any supervisory or overall responsibility as to the implementation or
administration of the contract with the governmental body.
Section 3(j) of the Ethics Law provides as follows:
Section 3. Restricted activities
(j) Where voting conflicts are not otherwise
addressed by the Constitution of Pennsylvania or by any
law, rule, regulation, order or ordinance, the following
procedure shall be employed. Any public official or public
employee who in the discharge of his official duties would
be required to vote on a matter that would result in a
conflict of interest shall abstain from voting and, prior to the
vote being taken, publicly announce and disclose the nature
of his interest, as a public record in a written memorandum
filed with the person responsible for recording the minutes
of the meeting at which the vote is taken, provided that
whenever a governing body would be unable to take any
action on a matter before it because the number of
members of the body required to abstain from voting under
the provisions of this section makes the majority or other
legally required vote of approval unattainable, then such
members shall be permitted to vote if disclosures are made
as otherwise provided herein. In the case of a three -
member governing body of a political subdivision, where
one member has abstained from voting as a result of a
conflict of interest, and the remaining two members of the
governing body have cast opposing votes, the member who
has abstained shall be permitted to vote to break the tie
vote if disclosure is made as otherwise provided herein.
If a conflict exists, Section 3(j) requires the public official /employee to abstain
and to publicly disclose the abstention and reasons for same, both orally and by filing
a written memorandum to that effect with the person recording the minutes or
supervisor.
Smalley, 96 -530
March 27, 1996
Page 7
In the event that the required abstention results in the inability of the
governmental body to take action because a majority is unattainable due to the
abstention(s) from conflict under the Ethics Law, then in that event participation is
permissible provided the disclosure requirements noted above are followed. See,
Mlakar, Advice 91- 523 -S.
Having set forth the above provisions of the Ethics Law, Section 3(a) shall first
be addressed.
Although Section 3(a) of the Ethics Law does not prohibit public
officials /employees from having outside business activities or employment, the public
official /employee may not use the authority of his office or confidential information
obtained by being in his position for the advancement of his own private pecuniary
benefit or that of a business with which he is associated. Pancoe, Opinion 89 -011.
A public official /employee is required to exercise caution so that his private business
activities do not conflict with his public duties. Crisci, Opinion 89 -013.
In the absence of any use of the authority of your public office or of confidential
information available to you as a result of holding your public office, Tra -Tech, Inc.'s
acceptance of the proposed long -term consulting contract would not cause you to run
afoul of Section 3(a) of the Ethics Law because your activities would be solely in your
private capacity, outside the scope of your public office.
On the other hand, if you would use the authority of your office as a School
Director or would use confidential information obtained by being in your public position
for the advancement of a business opportunity for Tra -Tech, Inc., such conduct could
transgress Section 3(a).
It is clear that at this point in time, Tra -Tech, Inc. has at the very least a
"reasonable expectation" of getting the contract to provide long -term consulting
services to the Consortium. Not only does Tra -Tech, Inc. have an existing contract
with the Consortium for the initial consulting work, but you have already been advised
that the Consortium has chosen Tra -Tech, Inc. as the successful candidate for the
long -term contract. A "reasonable expectation" of a business relationship may form
the basis for a Section 3(a) violation. See, e.g., Garner, Opinion No. 93 -004.
Therefore, you would have a conflict of interest in matters pertaining to the Mercer
County Schools Health Care Consortium, its programs or functions, where the use of
the authority of your office or confidential information obtained by being in your public
position would advance a private pecuniary benefit for you and /or your company, Tra -
Tech, Inc.
You would also have a conflict of interest in matters pertaining to the School
District's representatives serving on the Consortium, where those individuals are in a
position to participate in decisions financially affecting you and /or your company. See,
Woodring, Opinion No 90 -001; Bassi, Opinion No. 86- 007 -R.
You are advised that the "authority of office" includes more than the mere
mechanics of voting and encompasses all of the tasks needed to perform the functions
of a given position. See, Juliante, Order No. 809. Some examples of the use of
authority of office include discussing, conferring with others, and lobbying for a
particular result. In each instance of a conflict of interest, you would be required to
Smalley, 96 -530
March 27, 1996
Page 8
abstain fully from using the authority of office. You would also be required to fully
satisfy the disclosure requirements of Section 3(j) as noted above.
As for Section 3(f), that section applies to contracting where the public
official's /public employee's governmental body is a party to the contract. If the
proposed contract would be with the Consortium itself, Section 3(f) would not apply.
The Consortium is not your "governmental body" -- at least not yet. First, although
Hermitage School District is part of the Consortium, the Consortium is comprised of
numerous governmental bodies. For purposes of the Ethics Law, it is a separate entity
from your governmental body, the Hermitage School District. Furthermore, Tra -Tech,
Inc.'s initial work for the Consortium would not result in your being viewed as a public
official /public employee of the Consortium. See, Rogers v. SEC, 80 Pa.Commw. 43,
470 A.2d 1 120 (1984). Therefore, a contract with the Consortium would not be with
your "governmental body."
However, if the Hermitage School District would itself be a party to the
contract, the restrictions of Section 3(f) would apply and would have to be fully
observed.
It is noted that where Section 3(f) is applicable, a request for proposals from
certain targeted companies, as opposed to a public notification of the contract
opportunity, is inadequate.
Finally, although the State Ethics Commission does not have the statutory
authority to interpret or enforce the School Code, it is noted that the School Code does
provide as follows:
No school director shall, during the term or [sic] which he
was elected or appointed, as a private person engage in
any business transaction with the school district in which
he is elected or appointed, be employed in any capacity by
the school district in which he is elected or appointed, or
receive from such school district any pay for services
rendered to the district except as provided in this act ..
24 P.S. §3 -324. Although you have indicated that Tra -Tech, Inc. will not accept any
pay from the Hermitage School District for services rendered to the Consortium, it is
nevertheless recommended that you seek legal advice as to the applicability of the
School Code, particularly if Hermitage School District would be a party to the contract
with Tra -Tech, Inc.
The propriety of the proposed conduct has only been addressed under the Ethics
Law; the applicability of any other statute, code, ordinance, regulation or other code
of conduct other than the Ethics Law has not been considered in that they do not
involve an interpretation of the Ethics Law. Specifically not addressed herein is the
applicability of the School Code, although it has been suggested that legal advice be
sought in that regard.
Conclusion: As a School Director for the Hermitage School District, you are a
public official subject to the provisions of the Ethics Law. Section 3(a) of the Ethics
Law would not preclude you from outside employment /business activities subject to
the restrictions and qualifications as noted above. Your company, Tra -Tech, Inc., has
Smalley, 96 -530
March 27, 1996
Page 9
a "reasonable expectation" of a business relationship with the Mercer County Schools
Health Care Consortium. You would, in your capacity as a School Director for the
Hermitage School District, have a conflict of interest in matters pertaining to the
Consortium, its programs or functions, where the use of the authority of your office
or confidential information obtained by being in your public position would advance a
private pecuniary benefit for you and /or your company, Tra -Tech, Inc. You would also
have a conflict of interest in matters pertaining to the Hermitage School District's
representatives serving on the Consortium who are in a position to participate in
decisions financially affecting you and /or your company. In each instance of a conflict
of interest, you would be required to abstain fully and to fully satisfy the disclosure
requirements of Section 3(j) of the Ethics Law as set forth above. The restrictions of
Section 3(f) set forth above must be fully observed where applicable. Lastly, the
propriety of the proposed conduct has only been addressed under the Ethics Law.
Pursuant to Section 7(11), 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 appeal the Advice to the full Commission.
A personal appearance before the Commission will be scheduled and a
formal Opinion will be issued by the Commission.
Any such appeal must be in writing and must be actually received
at the Commission within thirty (30) days of the date of this Advice
pursuant to 51 Pa.Code §13.2(h). The appeal may be received at the
Commission by hand delivery, United States mail, delivery service, or
by FAX transmission (717- 787 - 0806). Failure to file such an appeal at
the Commission within thirty (30) days may result in the dismissal of
the appeal
Si cerely,
Vincent opk
Chief Cou sel