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HomeMy WebLinkAbout83-015 MottoMr. Dominick Motto Chambers, Nicolls, Balph, Paul & Motto 306 Centeral Building 101 South Mercer Street New Castle, PA 16101 STATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 OPINION OF THE COMMISSION December 21, 1983 RE: Section 3(c) $500 Limit, Open and Public Process Dear Mr. Motto: I. Issue: 83 -015 You have requested the State Ethics Commission clarify whether the contract limit in Section 3(c), $500, is a cumulative, annual limit or a per contract limit. II. Factual Basis for Determination: You are the Solicitor for the New Castle Area School District. In 1980, you requested advice from the Ethics Commission as to whether the purchase of music instruments by the School District was a violation of the Ethics Act where such supplies were purchased from the Donati Music Store, the owner of which is the spouse of a member of the New Castle Board of School Directors. In response to your inquiry, the Commission indicated that the Ethics Act requires Mrs. Donati (the School Board member) to abstain from participating in School District matters concerning her husband's business, and that any contract between Donati Music and the School District in excess of $500 must be awarded through an open and public process. Although the School District has interpreted such language to mean that only separate and distinct contracts valued at $500 or more per year would be Mr. Dominick Motto December 21, 1983 Page 2 subject to the open and public bidding requirements of Section 3(c) of the Ethics Act, language in the June 17, 1983 Order directed to Mrs. Donati has caused the School District to question whether the $500 limit is a cumulative, annual figure, or whether it is a ceiling which applies to any number of possible contracts between the School District and a business with which a School Board member or his or her spouse is associated. You have, therefore, requested an opinion from the State Ethics Commission clarifying the meaning of the $500 contract limit within Section 3(c). III. Applicable Law: The law to be applied to this question is as follows: Section 3. Restricted Activities. (a) No public official or public employee shall use his public office or any confidential information received through his holding public office to obtain financial gain other than compensation provided by law for himself, a member of his immediate family, or a business with which he is associated. 65 P.S. 403(a). (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). Section 1. Purpose. The Legislature hereby declares that public office is a public trust and that any effort to realize personal financial gain through public office other than compensation provided by law is a violation of that trust. In order to strengthen the faith and confidence of the people of the State in their government, the Legislature further declares that the people have a right to be Mr. Dominick Motto December 21, 1983 Page 3 IV. Discussion: assured that the financial interests of holders of or candidates for public office present neither a conflict nor the appearance of a conflict with the public trust. Because public confidence in government can best be sustained by assuring the people of the impartiality and honesty of public officials, this act shall be liberally construed to promote complete disclosure. 65 P.S. 401. The Ethics Act applies generally to elected and appointed officials, and School Board members are "public officials" as defined by the Ethics Act. 65 P.S. Section 402. See Snider v. Thornburgh, 469 Pa. 159, 436 A.2d 593 (1981). As a public official, the conduct of a School Board member must present "neither a conflict nor the appearance of a conflict with the public trust." 65 P.S. Section 401. The Ethics Act does not per se preclude the possibility that a public official, member of his /her immediate family, or a business with which his or her spouse is associated may contract, or have any type of business relation with the governmental body with which he or she is associated. However, in such a situation, Section 3(c) of the Ethics Act mandates that any contract valued in excess of X500 must comport with the open and public requirements of Section 3(c), cited above. As you are probably aware, the Commission has delineated the elements that constitute the "open and public process" required by Section 3(c) including: (1) prior public notice of the contract possibility; (2) sufficient time for a reasonable and prudent competitor to be able to prepare and submit a proposal /application; (3) public disclosure of all proposals /applications considered; and (4) public disclosure of the contract awarded or offered /accepted. As stated previously by this Commission, a "reasonableness" test is to be applied in determining whether the open /public requirements of Section 3(c) have been met, meaning essentially, that the circumstances of each case will dictate whether or not the requirements of Section 3(c) have been met. See Howard, 79 -044. Bidding under seal, after advertisement and mandatory acceptance of the lowest responsible bid are not mandated by Section 3(c) of the Ethics Act. Cantor, 82 -004 and Fields, 82 -006. Mr. Dominick Motto December 21, 1983 Page 4 Of course, with regard to the public official's reporting of income on his Financial Interest Statement, the $500 limit is an aggregate or a cumulative, annual figure. Full disclosure under Section 405(b)(5) of the Act, requires reporting of the name and address of any person who is the direct or indirect source of income totalling in the aggregate of $500 or more" (emphasis added). The public official would have to report the governmental body as a source of income on his or her Findn'cial Interest Statement if the aggregate value of the separate contracts equals $500 or more. With regard to your specific question, that is, whether the Section 3(c) $500 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 positions set forth in Section 3(c) may contract with the official's governmental body without application of the open and public process for individual contracts under $500. To require a governmental body to engage in the open and public process for every purchase or contract with one of its officials above a cumulative sum of $500 would be both costly and time consuming and not consistent with a strict reading of Section 3(c) of the Ethics Act. This is not to say, however, that the open and public process of Section 3(c) can be intentionally evaded. While the Commission recognizes the inefficiency of a cumulative standard or trigger for application of Section 3(c), we also recognize the possibility that evasion of the open and public process can occur when several contracts each individually valued under $500 are formed, but where the total of the individual contracts exceed $500. The Legislature has also recognized this danger and has passed legislation directed at curtailing such evasion, examples of which include the Borough Code at 53 P.S. 46403 and the Township Codes at 53 P.S. 56803 (1st Class) and 53 P.S. 65802.1 (2nd Class), In essence, these provisions are: ... intended to make unlawful the evading of advertising requirements by making a series of purchases or contracts, each for less than the advertising requirement price, or by making several simultaneous purchase or contracts, each below said price, when, in either case, the transaction involved should have been made as one transaction for one price." 53 P.S. Sections 46403, 56803, and 65802.1. Pennsylvania law is replete with examples of cases dealing with the problem of evasion of competitive bidding through fragmentation of contracts. In Yohe v. City of Lower Burrell, 418 Pa. 23, 208 A.2d 847 (1965), the Supreme Court of Pennsylvania held that a third class city could not award exclusive Mr. Dominick Motto December 21, 1983 Page 5 contracts for garbage collection without first advertising for bids where the contract involved $1,000 or more, stating that the statute under consideration was "clearly directed against the avoidance of bidding requirements through the fragmentation by any device of the entire contractual amount into sums under $1,000." 418 Pa. at 28, 208 A.2d at 849. In another case, In Re Summitt Hill School Directors, 258 Pa. 575, 102 A.273 (1917), two school directors were removed from office for awarding contracts which exceeded the statutory amount without engaging in a competitive bidding process. Although no actual fraud or dishonesty was found, the Court stated that the rendering of the separate bills, each under the statutory amount, indicated an intention to evade the competitive bidding requirements of the statute. See also In re Audit of School District of Scranton, 354 Pa. 225, 47 A.2d 288 (1946), where a number of contracts, each under the statutory limit of $300 but totalling approximately $12,000, violated the competitive bidding statute and were declared invalid. And see In Re Chester School District Audit, 301 Pa. 203, 151 A. 801 (1930). As McQuillan, in Section 29.33 of his treatise on Municipal Corporations states: When a municipality is prohibited from letting contracts involving an expenditure of more than a specified sum without submitting the same to competitive bidding, it cannot divide the work and let it under several contracts, the amount for each falling below the amount required for competitive bidding." 10 McQuillin, Municipal Corporations, Section 29.29 (3rd Ed. 1950). Although one of the avowed purposes of mandatory competitive bidding status is to get the best price for the taxpayers as recognized in R. & B. Builders, Inc. v. School District of Philadelphia, 415 Pa. 50, 202 A.2d 82 (1964), there are other purposes for these statutes. McQuillin states in Section 29.29: "The provisions of statutes, charters and ordinances requiring competitive kidding in the letting of municipal contracts are for the purpose of inviting competition to guard against favoritism, improvidence, extravagance, fraud and corruption, and to secure the best work or supplies at the lowest price practicable, and they are not enacted for the benefit of property holders and taxpayers, and not the benefit or enrichment of bidders." 10 McQuillan, Municipal Corporation, Section 29.29 (3rd Ed. 1950). This particular philosophy and policy has been restated and adopted in many Pennsylvania cases, including Yohe, supra, and Condiut and Foundation Corporation v. City of Philadelphia, 41 Pa. Cmwlth. 641 at 647, 401 A.2d 376 at 379 (1979). Mr. Dominick Motto December 21, 1983 Page 6 Such a concept of guarding against favoritism is in line with the purpose of the Ethics Act, as expressed in Section 1, which is to strengthen the faith of the public in their government. Section 3(c), with its requirements of an open and public process in awarding contracts to public officials, their families, etc. serves to help achieve the Section 1 purpose by alleviating the public's fear that ''insiders" such as School Board members or their /spouse's businesses are "favored" by virtue of holding public office. It is important to note that both the statutory and case law discussed herein includes "reasonableness" and "intent" tests to determine whether there was evasion of competitive bidding statutes through fragmentation of contract amounts. In this regard, where it is difficult for the School District to in this particular case, estimate just how many music instruments or supplies, for example, it will need in a given year, it should attempt to award an annual contract through an open and public process in order to avoid even an appearance of a conflict of interest with the public trust. See Steff, 80 -535 and Sheehan, 82 -556. By awarding such an annual contract to whatever company submits the best bid for the specifications involved, based on an estimation of annually anticipated needs, the School District will comply with the Section 3(c) requirements and will avoid the possible accusation that it made several purchases during the year of less than $500 each, the sum of which exceeded $500 in evasion of the open and public process requirements of Section 3(c) of the Ethics Act. See In Re German Township School Directors, 46 D & C 562 (1941) where a School Board authorized its teachers, principals, and janitors to order coal as needed, with the total orders aggregating approximately $1,600. The Court pointed out that where the School Board knew by actual experience that payment for the supply of coal would exceed the statutory limit for competitive bidding, it was bound to secure bids by advertisement and enter into an annual contract with the lowest bidder. V. Conclusion: The open and public process in Section 3(c) is triggered when a public official /employee, immediate family thereof or a business in which the public official /employee or a member of his /her immediate family is a director, officer, owner or holder of stock exceeding 5% of the equity at fair market value of the business is awarded an individual contract valued at $500 or more. Section 3(c) is not triggered under these circumstances even if several contracts taken together would exceed $500, so long as each individual contract between these parties is valued at $500 or less. However, as a "source of income ", the $500 limit is to be considered on a cumulative, annual basis for purposes of financial disclosure by a public official. Evasion of the "open and public process requirements of Section 3(c), must not be attempted by entering into a series of contracts individually valued at $500 or less where the facts and circumstances of such purchases reveal the contracts should have been made as one contract and fragmentation thereof is intended or designed to avoid the $500 limit. Any contract entered into in violation of Section 3(c) is voidable by a court of competent jurisdiction if suit is commenced within 90 days of making of the contract. Mr. Dominick Motto December 21, 1983 Page 7 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. Pursuant to Section 7(9)(i). this opinion is a complete defense in any enforcement proceeding initiated by the Commission, and evidence of good faith conduct in any civil or criminal proceeding, providing the requestor has disclosed truthfully all the material facts and committed the acts complained of in reliance of the advice given. This letter is a public record and will be made available as such. Finally, any person may request within 15 days of service of the opinion that the Commission reconsider its opinion. The person requesting reconside- ration should present a detailed explanation setting forth the reasons why the opinion requires reconsideration. SSC /rdp By the Commission, PAUL) ITH Chairman