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.