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Norma Houston Health Directors’ Legal Conference April 21, 2011

Conflicts of Interest in Public Contracting. Norma Houston Health Directors’ Legal Conference April 21, 2011. Legal vs. Ethical Standards. If people act legally are they also acting ethically? What’s legal may not always be ethical. What’s ethical may not always be legal.

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Norma Houston Health Directors’ Legal Conference April 21, 2011

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  1. Conflicts of Interest in Public Contracting Norma Houston Health Directors’ Legal Conference April 21, 2011

  2. Legal vs. Ethical Standards • If people act legally are they also acting ethically? • What’s legal may not always be ethical. • What’s ethical may not always be legal. • The “floor” versus the “ceiling” . . . • This session: The “Floor” = The LAW

  3. WARNING!!! If you have a question . . . Ask First! . . .contact your attorney or the SOG!

  4. Sources of Legal Standards Remember the “Most Restrictive Rule”

  5. Local Ethics Codes - Requirements (State Statutes) • State statutes generally require a code (only for cities, counties, school boards, and sanitary districts) • May impose additional requirements beyond state statutes governing conflicts of interest • Must cover governing board members; may cover other boards and employees

  6. Local Ethics Codes - Requirements (Federal Regulations) Grants Management Common Rule applies to most federal grants Grantees and Subgrantees must develop and follow a written code of conduct that addresses: • Real and apparent conflicts of interest • Gifts and favors • Disciplinary actions for violations

  7. State Statutes - The “Big 3”Conflicts in Public Contracting • Self-dealing - Conflicts of Interest in Public Contracting (G.S. 14-234) • Gifts & Favors (G.S. 133-32) • Insider Trading - Misuse of Confidential Information (G.S. 14-234.1)

  8. What is a “Contract” “An agreement between two or more parties creating obligations that are enforceable or otherwise recognized by law . . .a contract in which government receives goods or services.” - Black’s Law Dictionary (7th ed.)

  9. Are These Contracts? • Construction • Repair • Services • Property Transaction (real and personal) • Property disposal (sales, auctions, etc.) • Invoice • Purchase Order • Credit Card Purchase

  10. Conflicts in Contracting – The “Big 3” • Self-dealing • Gifts & Favors • Insider Trading

  11. 1. Self-dealing • State statute: G.S. 14-234 • Federal rule: Grants Management Common Rule (GMCR)

  12. 1. Self-dealing • State statute: G.S. 14-234 • Federal rule:Grants Management Common Rule (GMCR)

  13. Self-dealing(G.S. 14-234) Applies only to: • Public officials & employees • Their spouses Prohibits 3 things in public contracting: • Direct benefit in making/administering a contract • Direct benefit by influencing others • Gifts in exchange for influencing others

  14. Self-dealing – Direct Contracting(G.S. 14-234)

  15. Self-dealing – Direct Contracting(G.S. 14-234)

  16. Self-dealing – Direct Contracting(G.S. 14-234)

  17. Self-dealing – Direct Contracting(G.S. 14-234) Exceptions: • Contracts with banks, savings and loans, public utilities • “Friendly” condemnation • Employment of the spouse of a public officer (not employee) • Payment for public assistance programs • “Small” jurisdictions (not employee)

  18. “Small Jurisdiction” Exception(G.S. 14-234(d1)) Only if: Physician Pharmacist Dentist Optometrist Vet Nurse

  19. Counties with +15,000 Cities2010 Census Yellow = 15,000+ in 2000 census Green = 15,000+ in 2010 census (yellow counties remain in 15,000+ category in 2010)

  20. “Small Jurisdiction” Exception(G.S. 14-234(d1)) Exception Requirements: • Total contract amount must be under $40,000 in a 12-month period ($20,000 for medical services) • Contracts for purchases or construction must be under $30,000 • Approved at regular board meeting, declared on annual audit, publically posted • No participation or voting by conflicted official • Doesn’t apply to competitive bidding contracts

  21. Self-dealing – Attempting to Influence(G.S. 14-234) Direct benefit to you or your spouse Psst! + Someone involved in making or administering Attempt to influence Doesn’t have to be a contract you make or administer! Exceptions don’t apply!

  22. Self-dealing – Gifts and Favors(G.S. 14-234) Solicit or receive a gift or favor Psst! + Someone involved in making or administering Attempt to influence Doesn’t have to be a contract you or your spouse benefit from! Exceptions don’t apply!

  23. Self-dealing Analysis

  24. 1. Self-dealing • State statute: G.S. 14-234 • Federal rule: Grants Management Common Rule (GMCR)

  25. Self-dealing – Federal RuleGrants Management Common Rule

  26. Self-dealing – Federal RuleGrants Management Common Rule

  27. Self-dealing – Federal RuleGrants Management Common Rule

  28. Self-dealing – Federal RuleGrants Management Common Rule Whose “financial or other interest”? • Employees, officers, and agents of grant recipient; • Their immediate family members; • Their partners; • Any organization which employs or is about to employ any of the above. • Any of the above of grantees and subgrantees

  29. Self-dealing – State v. Federal

  30. Conflicts in Contracting: 3 Topics • Self-dealing • Gifts & Favors • Insider Trading

  31. 2. Gifts and Favors • State statute: G.S. 133-32 • Federal rule: Grants Management Common Rule (GMCR)

  32. 2. Gifts and Favors • State statute: G.S. 133-32 • Federal rule: Grants Management Common Rule (GMCR)

  33. Gifts and Favors (G.S. 133-32) PROHIBITED RECIPIENT: Public officer or employee who: prepares plans or specifications for public contracts, or awards or administers public contracts, or inspects or supervises construction PROHIBITED GIVER: Contractor or vendor who is: past (within 1 year) Current Potential future = Class 1 misdemeanor, unless an exception applies

  34. Gifts and Favors (G.S. 133-32) Exceptions: • Honoraria • Souvenirs / advertising items of nominal value • Meals at banquets • Gifts to professional organizations • Non-business customary gifts from friends or family (must be reported to agency head)

  35. 2. Gifts and Favors • State statute: G.S. 133-32 • Federal rule: Grants Management Common Rule (GMCR)

  36. Gifts and Favors – Federal RuleGrants Management Common Rule • PROHIBITED RECIPIENT: • Employee, • Officer, or • Agent • Subgrantee • of local government or nonprofit recipient of federal funds • PROHIBITED • GIVER: • Current or • potential future • contractor or vendor All gifts prohibited, but local government/nonprofit may create an exception for small, unsolicited gifts.

  37. Gifts and Favors – State v. Federal

  38. Conflicts in Contracting: 3 Topics • Self-dealing • Gifts & Favors • Insider Trading

  39. Misuse of Confidential Information (G.S. 14-234.1)

  40. What Do You Think?

  41. Questions? Norma Houston Phone: 919.843.8930 E-mail: nhouston@sog.unc.edu www.sog.unc.edu www.ncpurchasing.unc.edu

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