OPINION NUMBER - 154
ADOPTED - 1995/02/10
SUBJECT - Conflicts of Interest/Interest in a contract.
REQUESTED BY: Mark B. Horton, M.D., M.S.P.H., Director of the Nebraska Department of Health.
QUESTION: (1) Does a state employee's service as an officer of a nonprofit organization constitute a "business association" even when that service is by virtue of his public position? 2) Are there circumstances in which the provisions of §49-1499 and §49-14,102 both apply? 3) Do the described circumstances constitute an open and public process as contemplated by §49-14,102? 4) Do the described circumstances constitute an "action" or "decision" by a state employee as contemplated by §49-1499?
As to Question #1, yes. As to Question #2, yes. As to Question #3, no. As to Question #4, see analysis.
The Nebraska Department of Health, in cooperation with a five member panel appointed by Governor Nelson, has been engaged in studies on the health licensing system. The Nebraska Department of Health regulates a number of health care professions including doctors, nurses, optometrists, etcetera. Studies of the health care licensure laws have included the areas of discipline of health care professionals; fees for licensure and certification; boards of examiners; examinations given to health care professionals; and licensure needs. In order to secure an unbiased analysis the Department of Health is considering entering into a contract with the Council on Licensure, Enforcement and Regulation (CLEAR) and the Council of Governors' Policy Advisors (CGPA) to conduct a study on Nebraska's system for regulating health care professionals.
CGPA is a membership organization of policy and planning staff of the nation's governors. It leads strategic planning exercises, conducts research on policy and technical matters, publishes materials and provides other assistance to states.
CLEAR is an international association of governmental agencies and officials involved in professional and occupational regulation. If offers training and is a resource for the sharing of information on licensure and other regulatory issues. CLEAR is a section 501(c)(3) nonprofit corporation.
The Department of Health has a regular membership in CLEAR as an entity of state government engaged in professional regulation. It regularly sends employees from its professional licensing staff, planning staff or legal staff to attend CLEAR seminars. Investigative staff also attend specialized investigator training offered by the organization.
An employee of the Department of Health currently holds the position of president-elect of CLEAR. His term of office continues through October of 1995. He will then take office as president for a one year term. Thereafter, he will serve as immediate past president. In all of these capacities he also serves as a member of the board of directors of CLEAR and as a member of its executive committee. The employee receives no director fee or other compensation for his service as an officer or director. When the employee engages in duties on behalf of CLEAR, his expenses are normally reimbursed by the Nebraska Department of Health. Occasionally meals or lodging may be provided to him by CLEAR or other sources. The employee does not have an individual membership in CLEAR. His connection with CLEAR, including his service on the board of directors and his service as an officer, is the result of the department's institutional membership.
The employee in question is the Health Program Administrator in the Bureau of Health Planning and Data Management of the Nebraska Department of Health. In that capacity he is the Department of Health's coordinator with the Nebraska Board of Health. The Nebraska Board of Health has previously been engaged in studying the state's health care professional licensing laws. The Board of Health also has the authority to adopt and promulgate rules and regulations governing the Bureau of Examining Boards of the Department of Health and to determine the policies of the Bureau of Examining Boards. The examining boards are those bodies that directly regulate health care professionals. See §71-2610.01 of the Nebraska Statutes.
Another duty of the employee has been to coordinate agency studies pursuant to the Nebraska Regulation of Health Care Professions Act. See §71-6201 et seq. Pursuant to this Act, the Nebraska Department of Health reviews the applications of regulated groups to determine if changes ought to be made in the scope of the practice of the regulated groups. For example, optometrists, a regulated health care profession, may apply to have the regulations pertaining to their profession broadened so that the scope of permissible practice would include the prescribing of certain specified drugs for certain specified purposes. In addition, under the Nebraska Regulation of Health Professions Act, the department would do studies to determine if licensing of currently non-regulated health care professionals is in the public interest. An example might be a determination as to whether midwifery ought to be a licensed and regulated health care profession. As to all of these matters the Board of Health receives reports and makes recommendations to the Director of the Nebraska Department of Health. The Director may recommend legislation in certain areas and the employee may provide advise in these areas to the Director.
In addition, the employee is considered to be an expert in the area of the licensing of health professionals. As such he responds to public, media, or professional inquiries regarding the regulation of health professionals in Nebraska.
The proposed contract would take approximately 18 months and may result in the proposal of legislation during the 1997 legislative session. It is contemplated that there will be a study team consisting of CLEAR staff, CGPA staff, and any consultants they may retain. The staff would work with the Director of the department's Bureau of Examining Boards so as to insure that the study team is provided with all necessary documents, information, and access to departmental personnel. In addition, there would be a team of departmental staff. This departmental team would serve to advise and consult with the Director of the Department Health on the contracting process, the study implementation, and its evaluation. The departmental team may include staff from legal services, staff from the Bureau of Examining Boards, the Director's Office of Communications, and staff from the Bureau of Health Planning. The department would like to include the employee in question in this team.
Section 49-1424 of the Nebraska Political Accountability and Disclosure Act defines the term government body as follows:
"Government body shall mean an authority, department, commission, committee, council, board, bureau, division, office, legislative body, or other agency in the executive, legislative, or judicial branch of state government . . ."
The term public employee is defined in §49-1442 as "an employee of the state or a political subdivision thereof." The Department of Health is a government body and the employee in question is a public employee.
Section 49-1407 defines the term business as "any corporation, partnership, limited liability company, sole proprietorship, firm, enterprise, franchise, association, organization, self employed individual, holding company, joint stock company, receivership, trust, activity, or entity." The definition of business does not distinguish between for profit and non-profit entities. CLEAR fits the definition of business.
Section 49-1408 of the Act defines "business with which the individual is associated" as a business in which "the individual is a partner, director, or officer." The state employee is both an officer and a director of CLEAR and has a business association with that entity.
Section 49-14,102 generally provides that ". . . no public official or public employee . . . or business with which the individual is associated shall enter into a contract valued at $2,000 or more, in any one year, with a governmental body unless the contract is awarded through an open and public process which includes prior public
notice and subsequent availability for public inspection . . . of the proposals considered and the contract awarded." We are informed that the contract will be valued at more than $2,000. The same section goes on to provide that "this section shall not apply to a contract when the public official or public employee does not in anyway represent either party in the transaction." Section 49-14,103 provides that a contract which is prohibited pursuant to §49-14,103 is voidable.
Given the employee's business association with CLEAR, CLEAR may not enter into a contract with the Department of Health unless the requirements of §49-14,102 are met. A failure to comply with §49-14,102 results in a potentially voidable contract.
Section 49-1499 of the Nebraska Political Accountability and Disclosure Act identifies a potential conflict of interests as a situation in which a public official or public employee is faced with making a decision or taking an action which may cause a financial benefit or detriment to: 1) the official or employee; 2) a member of his or her immediate family; or 3) a business with which the official or employee is associated. In addition, the benefit or detriment must be distinguishable from the effect experienced by the general public or a broad segment of it.
The application of §49-1499 to this situation is discussed below.
Business Association by Virtue of Public Employment
In Advisory Opinion #134 the Commission considered whether a county official or county employee would have a business association with a corporation when the official or employee serves on the governing body of the corporation by virtue of his or her public position. The Commission took the position that the official or employee would have a business association under those circumstances. Our conclusion is the same in this matter. We believe that our conclusions are strengthened by the actions of the Legislature during the 1992 legislative session.
During the 1992 legislative session, the Legislature considered the concept of a public official or public employee having a business association with an organization under circumstances in which the business association would not exist but for the individual's public office or public employment. The result was the passage of Legislative Bill 556. This bill amended §49-1499, as it applies to members of a commodity board. Specifically, it provided that a member of a commodity board could make or participate in the making of a governmental decision even if he or she had a potential conflict of interest based upon a business association if the business association existed only as the result of his or her position on a commodity board. The bill did not change the definition of the term business association. It did not provide that under these circumstances there would be no potential conflict of interest. It merely changed the manner in which members of commodities boards were required to deal with certain types of conflicts of interest. More importantly, LB556 is limited in application to members of specifically named commodities boards. The Legislature has thus acted with reference to one of the issues which is the subject of this opinion. The legislative action has resulted in a narrow exception to the application of one portion of §49-1499. That narrow exception is clearly not applicable here.
The Application of §49-1499 and §49-14,102
Section 49-14,102 clearly applies to situations involving contracts. Section 49-1499 is more generic. It refers to actions or decisions which could result in a financial benefit or detriment. Thus, there is some apparent overlap since a financial benefit or detriment could include a contract, but it could also include matters other than contracts. There are two possibilities. The first is that both statutes potentially apply to the circumstances described above. The second possibility is that one or the other, but not both, apply to the circumstances described above. The question is an important one in determining what activities of the employee are permissible or not permissible in connection with this contract.
It is our position that both sections 49-1499 and 49-14,102 apply. Our position is based upon a review of the manner in which §49-1499 interacts with other statutes.
The question raised as to the interaction between §49-1499 and §49-14,102 may also be raised as to the interaction between §49-1499 and §49-14,103.01 et seq. as it applies to county officials. Section 49-1499 applies to officials or employees in the executive branch of state government and to certain other categories of public officials or public employees. Among the included officials are elected county officials. Besides being subject to §49-1499, elected county officials are also subject to the provisions of §§49-14,103.01 through 49-14,103.07. These sections prohibit an elected county official from having an interest in a contract with his or her governing body either personally or through a business association, unless certain criteria are met. The criteria include a) a public disclosure of the interest, b) that the official abstain from participating or voting on the matter of granting the contract, and c) that the official not act on behalf of the governing body as to inspection or performance under the contract.
Section 49-14,103.07 provides that "individuals required to make disclosures pursuant to sections 49-1499.01 and 49-14,103.01 to 49-14,103.06 shall not be required to file potential conflict of interest statements pursuant to section 49-1499." Thus, there has been legislative acknowledgement that two sections of the Accountability Act may overlap and legislative action limiting or eliminating the applicability of one when the other applies. This occurs in another section of the Accountability Act as well.
Section 49-1499.01 of the Act governs the conduct of a public official or public employee under circumstances in which he or she employs, recommends the employment of, or supervises the employment of an immediate family member. This section prescribes a course of conduct "notwithstanding §49-1499." Again, there has been legislative acknowledgement that two sections of the Accountability Act overlap and the Legislature has acted to eliminate the applicability of one when the other applies.
We make two observations. The first observation is that the Legislature has not acted to limit the applicability of §49-1499 when §49-14,102 also applies. The second observation is that the application of only one of these statutes under certain circumstances can have strange consequences.
In circumstances involving a contract, the application of §49-1499, but not §49-14,102, renders §49-14,102 a nullity. Under the same set of circumstances the application of §49-14,102, but not §49-1499, has a result which is out of sync with other provisions of the Accountability Act. That is, there would be no public acknowledgement of the employee's interest in a contract and no prescription as to what behavior is permitted or prohibited under circumstances in which the employee has an interest in a contract. Thus, we believe that there are circumstances under which both §49-1499 and §49-14,102 apply. We conclude that both statutes apply to the circumstances which are the subject of this opinion.
Open Public Process
As stated, §49-14,102 requires that a contract between a governing body and a business with which a public employee is associated be entered into "through an open and public process which includes prior public notice. . ." The Director of the Nebraska Department of Health inquires if the August 3, 1994 press release as to the proposed contract and the subsequent news coverage constitutes prior public notice. It does not.
In the past the Commission was stated that a bidding process, by its nature, is an open public process which includes prior public notice. It has also stated that placing the matter of a contract on the agenda for a regular meeting of a governing body and publicizing the meeting in the normal manner constitutes an open and public process which includes prior public notice. Neither of these avenues is available to the Department of Health. The nature of the contract and the type of expertise required is such that competitive bidding is not necessarily a good approach. The organization of the Nebraska Department of Health is not one in which a group of public officials regularly meet at open public meetings to consider matters on an agenda. In addition, there is nothing in the state statutes pertaining to contracts involving state agencies for services of this nature which provides any guidance. This gives the agency a great deal of flexibility as to how it will provide public notice. However, we do not believe that the press release constitutes public notice.
The difficulty with using a press release as a means of providing public notice is that there is great uncertainty as to what portion, if any, of the press release will be published or broadcast. A publisher or broadcaster will make the determination as to whether the press release is newsworthy. It is the publisher or broadcaster which determines what portions of the press release to carry in a story. It is a rare press release that is published or broadcast in its entirety. An additional difficulty is that the process followed thus far does not appear to contemplate an opportunity for the public to comment on the proposed contract.
Having stated that the process followed thus far does not constitute an open public process and noting that there is nothing in the state statutes which provides guidance, the Commission is obliged to provide some guidance as to procedures which it believes would constitute an open and public process.
Process #1 - The Department of Health would publish a notice in a newspaper of general circulation stating its intent to enter into a contract with CLEAR and CGPA for the purpose of those entities studying the areas of discipline of health care professionals, fees for licensure and certification, boards of examiners, examinations given to health care professionals, and licensure needs. The department may also wish to have the notice state that the results of the study could form the basis for proposed changes to the current system. The notice would state a time and place at which the public could offer comments as to the contract.
Process #2 - This process would essentially be the same as the first process as far as the publishing of notice. However, instead of providing for some sort or public hearing, it would simply notify the public that written comments could be directed to a specific address and would be accepted until a specified date.
Either process would require that a copy of the proposed contract be available to the public.
The Nebraska Department of Health is not obliged to follow either of the processes described above. These are mere suggestions as to two processes which would meet the requirements of §49-14,102.
Actions and Decisions by the State Employee
The director of the Department of Health asks what would constitute actions or decisions by the state employee in connection with this contract which would be prohibited by law. As stated in §49-1499, a public official or public employee has a potential conflict of interest if he or she is required to take an action or make a decision which could result in a financial benefit or detriment to a business association. Thus, the state employee would be prohibited from making any decision or taking any action which could result in a financial benefit or detriment to CLEAR. This is a rather broad statement and we therefore provide guidance.
Clearly the area is which there is the greatest potential for an action or decision on the part of the employee to result in a financial benefit or detriment to CLEAR is in the process of negotiating the terms of the contract. Not only does there need to be a determination as to the amount which will be paid to CLEAR, but a determination as to how much or how little CLEAR will need to do in order to be entitled to the amount payable under the contract. The state employee in question should not participate in the process of negotiating the terms of the contract, nor should he provide advice as to the terms of the contract.
During the conduct of this study, the CLEAR/CGPA team will be seeking information from a variety of sources, including sources within the Department of Health. He may, upon request, provide documents or studies to the study team. He may provide information about which he has personal knowledge. He may provide opinions to the study team, when asked, on topics within his area of expertise or official duties.
Upon the completion of the study, the state employee may not evaluate the work of CLEAR for the purpose of determining or assisting in determining that CLEAR has fulfilled the terms of the contract and is thus entitled to payment under the contract. He may, however, evaluate the work of CLEAR for the purpose of determining how, or if, its recommendations ought to be implemented. He may participate in the process of determining which portions of the study or recommendations of CLEAR ought to be part of a legislative package.
It is not outside of the realm of possibility that the Department of Health would contact CLEAR for possible assistance in the implementation of some of CLEAR's recommendations. That is, the department may determine that it wishes to enter into a new or supplemental contract for further services from CLEAR. The state employee could not participate in this process.
We recognize that the Department of Health has two goals. The first goal is to enter into a process, through a contractual arrangement, which may ultimately result in a more efficient department. It also wishes to have the benefit of a valued and knowledgeable employee. However, one must consider the dynamics of the contractual process.
During the process of negotiating a contract, each of the parties is looking to its own best interests. One party is willing to pay a fair price for a service and the other party is willing to perform a service for a fair price. Typically, neither will initially agree as to what constitutes a fair price. Other terms and conditions can increase the cost and lessen the profit to the service provider. However, the other party wishes to have the best service possible. Proposals and counter proposals on different terms and conditions are made. This is not the type of situation into which should be injected an individual who has acknowledged that he has a fiduciary responsibility to both parties. A conscientious individual will often have a great deal of difficulty putting certain of those responsibilities aside.
In §49-1402 of the Nebraska Political Accountability and Disclosure Act the Legislature found that it is essential to the proper operation of democratic government that public officials and employees be independent and impartial. Having the state employee in question not participate in the negotiation of the contract helps to insure this desired impartiality and the appearance of impartiality. Compliance with the provisions of the Nebraska Political Accountability and Disclosure Act helps to insure that individuals acting on behalf of the State of Nebraska are able to do so in an objective manner without the presence of conflicting responsibilities.