In Legal Terms - Fall Issue 2001

Ethics an Issue as 3rd Special Session Ends

While the main purpose of the recently-concluded 3rd 2001 Special Session of the Alabama Legislature was to pass Congressional and State Board of Education redistricting (which did not happen), the Governor included an ethics package in his call to the Legislature. Two of the bills in that package did pass. Additionally, the Governor has signed several Executive Orders in recent months aimed at issues of governmental ethics. While neither the new laws nor the Executive Orders directly affect county contracts, these new rules will have some impact on counties' dealings with the state in both contracts and grants. Therefore, a discussion of these new provisions is set out below:

Act No. 2001-955
Act No. 2001-955 requires the disclosure of family relationships in state contracts, bidding, and grants. Under the Act, all persons who submit a proposal to the State of Alabama "for the purpose of direct financial gain" must include with that proposal, a disclosure statement identifying any family relationship with public officials and employees and their family members. The disclosure statement, which will be a matter of public record, will be developed by the Attorney General and approved by Legislative Council and shall include: the names and addresses of any public official or employee or family member who may have a family relationship with the person who may directly and personally benefit financially from the proposal or with his or her immediate family members or employees; a description of the financial benefit that may be knowingly gained; and the name and addresses of any paid consultants or lobbyist used. A copy of the disclosure statement shall be filed with the awarding entity and the Department of Examiners of Public Accounts, and if it pertains to a state contract, a copy shall be submitted to the Contract Review Committee.

The definition of "public officials and employees" is the same under this new law as that found in the Ethics Law except that, for the purposes of the disclosure requirements, the terms shall only include "persons in a position to influence the awarding of a grant or contract who are affiliated with the awarding entity". The Act only applies when the grant or proposed contract exceeds $5,000, and does not apply to an entity which does not receive state funds. The Act goes into effect on December 1, 2001.

The new law provides for a civil penalty of $10,000 or 10 percent of the contract amount (whichever is less) for any knowing violation of the Act. All penalties will be deposited into the state general fund. A knowing violation also makes the contract voidable.

While the disclosure statement is not as a general rule required in county bids and contracts, family relationships with county officials or employees will be required on state bids, contracts, and grants. Additionally, counties will be impacted where they are involved as a participant in a state contract or grant.

Act No. 2001-956
Act No. 2001-956 amends Code of Alabama 1975, § 41-16-21 to make special provision for the purchase of professional services under the competitive bid law. The Act deals only with the State section of the competitive bid law, and does not directly affect county contracts. In fact, the law has a specific exclusion for counties or municipalities or their boards or authorities. Again, however, counties will be affected to some extent where they are involved in or dependant on a state contract.

Act No. 01-956 defines professional services as the services of physicians, architects, engineers, attorneys, and others who possess a high degree of specialized skill and knowledge where the experience and professional qualifications are particularly relevant to the provision of the required service. This is essentially what presently appears in the competitive bid law in its description of the professional services exemption from competitive bidding. However, it has not previously been specifically included in the law as a definition. Under the law, the finance director is given final authority to determine whether the definition has been met.

The law sets up specific procedures for the procurement of professional services, and requires that notice of need be "widely disseminated to the professional community in a full and open manner" by the agency seeking the services, and that agency shall evaluate candidates based on its qualifications-based selection process criteria. The Director of Finance shall establish and maintain lists of professional service providers other than those specifically named in the statute.

In addition to providing more detailed procedures for procuring professional services, the new law removes several existing exemptions. The following purchases are no longer specifically exempted from the provisions of the competitive bid law: superintendents of construction; tourist advertisement; certain hospital purchases; purchases by the Transportation Department of local material from property owners in the vicinity of a project on which local materials will be used; and purchases of manuscripts, maps, etc. for use in a state library. The sole source providers exemption is also altered to provide that no sole source purchases may be made without approval of the Director of Finance unless the agency is authorized by law to conduct its own purchasing activities. Additionally, while this has been the position of the attorney general's office for many years, Act No. 01-956 specifically provides that goods purchased in conjunction with professional services shall be competitively bid.

The Director of Finance is authorized under the new Act to promulgate rules or regulations in accordance with the Administrative Procedures Act. The Act also still provides for an emergency exemption. However, the emergency must now be declared in writing under oath to the Governor and Attorney General by the state entity claiming an emergency.

Act No. 01-956 includes a civil penalty of $500 to $5,000 for a willful or intentional violation, and any contract entered in violation of the Act is void. The Act does not apply to any entity that does not receive state funds, and as noted above, does not apply to counties and municipalities. It also does not apply to any state entity with respect to contracts related to issuance of debt, which is to be repaid from sources other than state funds. The Act goes into effect on December 1, 2001.

As mentioned in the introduction to this article, prior to the passage of these Acts, the Governor signed several Executive Orders aimed at ensuring ethical conduct by those involved in the state contracting and grant process. Some of these Orders may be superseded by implementation of the new laws. However, at least two recent Executive Orders were not otherwise dealt with through legislation that passed during the session, and will have an ongoing impact on the contracting and grant approval process in this state.

Executive Order No. 58
Executive Order No. 58, dated August 23, 2001, requires all state department and cabinet level officials and appointed agency directors to attend a two hour ethics continuing education session every two years beginning in 2002. The Ethics Commission is directed to administer the seminar. This Order had an immediate effective date. County officials are not required to attend these seminars.

Executive Order No. 59
Executive Order No. 59, signed on August 28, 2001, and effective immediately, is potentially the directive which will have the most severe impact on counties. This Order requires that funds distributed as grants by state agencies, authorities, and departments meet specific criteria to be developed and published by state agencies in conjunction with the previously-created performance-based budgeting task force. Under this Order, no appropriations shall be made as grants until that criteria is developed.

The Order requires that all grants made in the fiscal year ending September 30, 2001, be approved by the Governor, Finance Director, and Director of the awarding agency and be certified as furthering the goals and purposes of the agency and the appropriation. Henceforth, all state agencies, departments, and authorities will be required to prepare a report of all grants and contracts awarded in the previous fiscal year by November 1 of each year.

There were many other legislative proposals introduced in the last Special Session, some by the Governor and some by other parties and interest groups. It is almost certain that there will be another special session before the next regular session starts in January, and with an election year coming up, it is also almost certain that many of these failed proposals will reappear in future sessions. Stay tuned.