The Massachusetts EC Fixes a Poor Conflict Provision with an Exemption

Ethics commissions are often stuck with one or more ethics provisions that they are know are, in some ways, irresponsible. They can recommend amendments to the provisions, but the legislative body is free to ignore such recommendations.

If this happens, an EC is not always powerless. It can often promulgate a regulation that can interpret the language in a provision, or provide exemptions, so that the provision is more responsible. The Massachusetts EC, which has jurisdiction over local officials, has done just this with a draft exemption (attached; see below) to a provision that effectively makes it a violation to have a conflict of interest, including a pre-existing contract with the government.

Two months ago, I wrote a blog post about this provision, and the conflict situation that gave rise to this particular exemption. The conflict provision is so problematic that the Massachusetts EC has already created 31 exemptions to it. What is good about the new draft amendment to the EC's Rules and Regulations is that it goes well beyond the particular situation. It effectively turns a wrongheaded provision into one that is far more fair and responsible, at least with respect to pre-existing contracts.

The stated Purpose is a good one:  "to allow public employees who had business interests involving government before they entered public service to retain those interests, while providing safeguards to ensure that they do not use their public positions to advance their business interests." In other words, having a conflict – in this case a contract – is not a problem, but it is important that officials with a pre-existing contract are not able to misuse their office with respect to that contract.

This is not an optimal solution, but it is better than leaving the law as it is, because a law that prohibits having a contract keeps many officials from running for office or taking a government job, or requires an unnecessary sacrifice, when they can deal with their contract by disclosing it and withdrawing from participation in anything that relates to it. Especially at the local level, the public loses many good government officials due to such laws.

A good thing about an exemption like this is that it goes into more detail than most ethics codes with respect to the responsible handling of a pre-existing contract. The second part of the basic exemption provision states:

The public employee may retain the financial interest for the remainder of the pre-existing contract term ... if that contract, by its own terms, automatically renews on identical terms without any action required by either party to the contract.

This is good language. However, it would be good if there were a review of each such contract at the time a contractor was hired or took office, so that the EC could consider whether the terms of the contract were normal and fair and, if they were not clearly both, require that the contractor and the contracting agency sufficiently explain any abnormalities or possible unfair (to the public) aspects of the contract. If the EC is not satisfied, it should be allowed to require that the contract be amended so that there is no question that a candidate for office or a government job did not use the power of the future position to get special terms.

Such special terms might include a longer term than usual, renewal provisions that are consistent with the regulation but do not allow re-bidding of the contract, and the possibility of change orders, which allow an official who is also a contractor to use his influence to benefit further from a pre-existing contract.

Restrictions on Use of Exemptions
The final section of the regulation, entitled "Restrictions on Persons Using Exemption," is especially good. There are two principal restrictions. One, the official may not, as an official, "participate in or have official responsibility for any activities of the contracting public agency." That is, an official cannot have a contract with her own agency, or with any agency over which she has official responsibility, which I assume means that a city manager cannot have a contract with any executive agency. In other words, withdrawal is not enough where an official has influence.

The only problem here is the one that I see so often:  nothing is said about oversight. The same restriction should apply to any agency that has oversight responsibility over the contracting public agency or any aspect of the contract itself. For example, if a council, inspector general, auditor, or the like has any oversight responsibility over contracts, council members and officials in these offices should not enter into any contracts with their governments. Yes, these officials may withdraw from participation in oversight of their contracts, but their colleagues and subordinates are placed in an uncomfortable position having to oversee their colleagues and superiors. And to the public, oversight by an official's colleagues and subordinates looks very much like oversight by the contracting official herself.

The second restriction (§6.26(4)) prohibits ex parte communications between the contracting official "in his official or private capacity, ... directly or indirectly, with any public agency concerning any public contract in which he or she has a financial interest, or with any public agency which is a party to any contract in which he or she has a financial interest." The official can communicate with such agencies, but not with respect to the particular matter.

The "Substantially Similar" Exemption and a Waiver Process
The most problematic part of the regulation is the second exemption, for contracts that are "substantially similar" to the pre-existing contract. A contract is  "substantially similar" to another contract "if the two contracts involve the same, or substantially the same, provision of services, goods, benefits, opportunities, or access to premises. Contracts may be substantially similar even though the parties are not the same."

I'm sure that, in most cases, this is a reasonable exemption. And there are several criteria that have to be met for a  "substantially similar" contract to be allowable. But I wonder if this could not be employed as a loophole to allow contracting officials to use the influence of their position to expand their contracts. As with pre-existing contracts, it would be valuable not only to have criteria that have to be met, but also for the agency to have to make a case to the EC for "substantially similar" contracts and receive the EC's approval.

The approval process that I recommend with respect to both exemptions is nothing more than a recognition that an exemption is essentially a waiver. It could be argued that a pre-existing contract is not a violation and, therefore, the exemption is not really an exemption, but rather an improvement on the ethics provision that applies to such contracts. But "substantially similar" contracts are new contracts and, therefore, would be violations to the extent they are not "substantially similar." Therefore, a waiver process is definitely appropriate here.

The EC Is Seeking Comments
The Massachusetts EC is seeking comments on the draft regulation. Comments on the draft regulation may be submitted to Deirdre Roney, the EC's General Counsel, at [email protected], or at the following address:  State Ethics Commission, One Ashburton Room 619, Boston, MA  02108. Hearings will be held on December 13 and 17. For more, see the notice on the EC's website.

Robert Wechsler
Director of Research-Retired, City Ethics

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