Government Code§ 1090 and the Political Reform Act
This article is part of presentation that was made to the San
Joaquin Valley Chapter of the American Council of Engineering Companies (ACEC)
by David Weiland on January 9, 2019.
Government Code § 1090(a):
Members of the Legislature,
state, county, district, judicial district, and city officers or employees
shall not be financially interested in any contract made by them in their
official capacity, or by any body or board of which they are members. Nor shall
state, county, district, judicial district, and city officers or employees be purchasers
at any sale or vendors at any purchase made by them in their official capacity.
How does Government Code section 1090 apply to consultants to California public entities?
If you provide professional services under contract for any
public agency, or fill a statutory position by contract, awareness of section
1090 is critically important. Attorneys, accountants, and engineers
all need to understand the impact of section 1090 and its preclusive effect on
the services they provide. Opinions issued by the Fair Political
Practices Commission (“FPPC”) and the California Attorney General (“AG”) are
instructive as to such effect, and are covered herein.
Public officials, whether elected or appointed,
should perform their duties in an impartial manner, free from bias caused by
their own financial interests or the financial interests of persons who have
supported them. (Gov. Code § 81001, Par. b; “Political Reform Act.”)
Assets and income of public officials which may
be materially affected by their official actions should be disclosed an in
appropriate circumstances the officials should be disqualified from acting in
order that conflicts of interest may be avoided. (Gov. Code § 81002, Par c.)
For the same reasons set forth involving Government Code section
1090, ACEC members should be aware of provisions of the Political Reform Act
which might prohibit or restrict conducting business with a Public Agency if
the member has a spouse employed by the Agency. The FPPC also issues
advisory opinions regarding Political Reform Act conflicts and should be
consulted whenever there is the possibility of a conflict.
GOVERNMENT CODE SECTION 1090
The 2015 appellate court case of Steven K. Davis v. Fresno
Unified School District (“Davis”) highlights the dangers
inherent for consultants working for public agencies involving projects
consisting of multiple tiers of services and separate
contracts. While the Davis case solely addressed
the involvement of a general contractor in pre-bid consulting services to the
school district which subsequently hired the general contractor to construct
the project, public agency attorneys and the FPPC have given the case broad
interpretation to prohibit consultants from performing professional services to
the agency involving overall planning, scoping, and project recommendations and
then providing the services recommended by the consultant at the planning
stage.
Such prohibition is not necessarily limited to
recommendations made by the consultant in an official capacity (i.e. Contract
City Engineer). It can include, for example, providing design
services for a public works project emanating from recommendations made by the
consultant in an earlier master plan prepared by the same
consultant. The Davis court concluded that Section
1090 was broad enough to include the corporate general contractor within the
reach of the code’s prohibitions, finding that the contract to construct the
school, after the general contractor served in a consulting capacity to the
district, was illegal.
The remedy for an illegal public agency
contract is the disgorgement of funds paid to the contracting
consultant. However, since Davis did not seek such remedy, it was
not available to him in his lawsuit. Nonetheless, the Davis court’s
analysis of Section 1090, and of the Political Reform Act prohibitions on
conflicts of interest, has now been extended by public agency attorneys and the
FPPC to a wide range of professional service contracts. Following
are specific examples.
In a 2016 FPPC opinion letter, the FPPC concluded that a local
city could not award a construction management (contract administration)
contract to an engineering consulting firm that had previously prepared the
construction drawings and specifications for the project. (FPPC File
A-16-170.) In this case, the consulting firm served in the statutory
capacity of City Engineer, and had over the years, obtained a series of general
services contracts covering a broad range of civil engineering services
typically provided by a City Engineer. Such contracts are not
unusual, and are typical, for small communities which cannot afford their own
engineering staff.
Nonetheless, because the engineering consultant
had prepared the construction drawings and specifications under a separate
contract, the FPPC opinion concluded that the consultant had a disqualifying
economic interest in the construction management contract prohibiting the
consultant from providing those services. Coleman & Horowitt was
retained to respond to the opinion letter. The response included a
detailed historical recitation of the general services contracts between the
consultant and the city, and a discussion of the broad range of services
provided in the contracts which not only allowed the consultant to perform the
construction management services, but arguably mandated that the consultant
perform them. While the effort in responding was expensive, it
actually resulted in the FPPC withdrawing its prior opinion letter, allowing
the consultant to perform the construction management
services.
Acknowledging that there were details in the contracts
unique to the particular project at issue, it has resulted in recommendations
from our office that general services contracts of the nature at issue in the
cited FPPC opinion be as broad and detailed as possible as to the types of
services to be provided by the consultant, and the conditions under which such
services must be provided by the consultant.
The AG has taken a slightly different approach to Section 1090
conflicts. In an opinion issued in 2016, the AG determined that a
City Attorney could not separately contract for bond counsel services based
upon a percentage fee arrangement even though the attorney’s general services
contract provided for such bond counsel services. (AG 12-409, January 28,
2016.) In so holding, the AG determined that the percentage fee
contract was allowable under the Political Reform Act, but not allowable under
Section 1090 because the percentage fee arrangement presented the opportunity
for the City Attorney to advise the city in a way that economically benefitted
the City Attorney.
In other words, because the compensation to be
paid to the City attorney under the separate bond counsel contract provided a
“bonus” of sorts in the form of a percentage of the amount of the bonds, the
attorney was in a position to economically benefit if the value of the bonds
was higher. Hence, the City Attorney’s recommendations for the bond
issuance was potentially influenced by the attorney’s interest in the
percentage fee, an arrangement prohibited by Section 1090.
In
addition, the fact that a separate contract was required for the bond services
also triggered the financial interest exclusion of Section
1090. Hence, it can be concluded that, had the City Attorney merely
provided the bond services under the scope of the general services agreement,
without a separate contract, there would have been no conflict. This
is consistent with the ultimate conclusion reached by the FPPC in withdrawing
its opinion letter involving the previously mentioned City Engineer contract
for construction management services.
POLITICAL REFORM ACT
While the Political Reform Act (Gov. Code, § 81000, et seq.) is
aimed primarily at California Election campaigns and practices, the provisions
cited above apply to a wider range of situations involving consultant
activities with public agencies which could economically benefit the
consultant. Where contracts are involved, the FPPC has authority to
issue advisory opinion letters. One recent letter emphasizes the
potential issues that can arise involving spouses or close family members.
In an opinion issued on November 6, 2018 (FPPC File A-18-212), the
FPPC determined that the public agency employee, employed in a management
position, was prohibited from reviewing any project involving her spouse, a
planning consultant with multiple projects filed with the public
agency. While the public agency’s subsequent actions did not
disqualify the planning consultant from dealing with the public agency, they
did result in the public agency employee being shielded from any involvement with
the planning consultant’s projects. The FPPC analysis is
instructive.
First, the FPPC factually determined that the agency employee was:
a department head with ultimate responsibility over 60 employees and three
separate divisions of City government; reported to only the City Manager but
also consulted with other department heads of the City; provided direct
supervision to five management level employees within the department; provided
secondary guidance and supervision to other employees within the department; assisted
the public in navigating the processes of the department; met with developers
to answer questions regarding the department processes; made decisions
involving ministerial acts; and provided recommendations regarding
discretionary applications to be considered by the City Council. The
FPPC then factually determined that the spouse was employed as a planner and
project manager for a corporate employer conducting business with the agency
employee’s department.
The FPPC then analyzed whether the agency employee had a
“financial interest” in the outcome of any decisions made by the department
involving the projects with which her spouse was a consultant. (Gov. Code §§
87100 & 87103.) The Act defines a financial interest as: any
business entity in which the public official has a direct or indirect
investment of $2,000 or more (§ 87103(a).); any business entity in which the
public official is a director, officer, partner, trustee, employee, or holds a
position of management (§ 87103(d).); any source of income, except gifts or
loans by a commercial lending institution made in the normal course of business
on terms available to the general public without regard to official status
totaling more than $500 in the preceding 12 months (§ 87103(c).); or the agency
employee’s personal finances including those of immediate family members (§
87103.). Based on its analysis of these factors, the FPPC determined
that the agency employee had a financial interest in the form of a community
property interest in the consultant’s income from his employer.
Next, the FPPC examined whether it was reasonably foreseeable that
a decision by the agency employee would have a material financial effect on her
financial interest, which was the community property interest in the consultant’s
income from his employer. Applying Regulations 18701(b), 18702.1(b),
18702.1(b)(1) through (3), and 18704 of the California Code of Regulations, the
FPPC determined that, even though the consultant did not actually submit the
applications for the projects being considered, the agency employee had direct
authority over the decisions regarding the project applications, resulting in a
reasonably foreseeably material financial effect on the agency employee’s
community property interest in the consultant’s income. With the
cooperation of the City Attorney, the agency employee directed the department
staff that she would not be involved in any projects involving the consultant’s
employer and further instructed her staff to carry out the policies of the department
just as they would for any other applicant. Only time will tell how
successful this directive will prove to be.
David J. Weiland is a
partner in the firm and is the head of the firm's litigation department. David
joined the firm in 2014. He was admitted to practice in 1992. He is a graduate
of California State University, Fresno, where he received a degree in civil
engineering. He received his JD from San Joaquin College of Law, where he
served as the Managing Editor of the San Joaquin Agricultural Law Review. Prior
to joining the firm, David served as a partner, member of the Board of
Directors, President and chair of the litigation department of the Fresno firm
Dowling Aaron Incorporated. David, a registered civil engineer, represents clients
in complex commercial, construction, real estate, professional liability
defense, tort defense, as well as municipal law, real estate transactions, and
land use matters. David is experienced in all phases of real estate and
construction litigation and public agency law. He also has significant
experience in the defense of professional liability claims against design
professionals and attorneys. David previously served as the City Attorney for
the cities of Sanger and Mendota. He also serves as an arbitrator privately and
with the American Arbitration Association as well as a mediator. He attended
the Straus Institute for Dispute Resolution for ADR training. David has been
named a Super Lawyer® by Thomson Reuters from 2009 to 2018 and holds an
AV®-preeminent rating from Martindale Hubbell. David is a member of the
American Bar Association (Member: Construction Law Forum), Fresno County Bar
Association (Member: Real Estate, Construction and Litigation sections),
Association of Business Trial Lawyers, Legal Advisory Committee of the
Associated
No comments:
Post a Comment