Kurt J. Starman
Cities and other local government agencies frequently contract for goods, services, and public works construction. These contracts are often approved with little scrutiny. In many cities, procurement contracts are routinely placed on the consent agenda and approved without discussion. As explained in the following, however, there are potential ethical and legal perils which public officials and municipal attorneys must keep in mind when procuring goods, services, and public works construction. Violations of Idaho law may result in civil penalties, criminal penalties, or both. Thus, public officials and municipal attorneys must be knowledgeable about these potential perils.
This article is intended to highlight some common procurement concerns and, more importantly, emphasize the notion that cities must adhere to high ethical standards. To that end, this article addresses conflicts of interest, prohibitions on contracting with public officials, prohibitions on splitting purchases, and bidding requirements for public works construction.
Conflicts of Interest
The Ethics in Government Act, which is found in Chapter 4, Title 74, Idaho Code, centers on conflicts of interest. The Act is based, in large part, on the premise that public service is a public trust. Therefore, the Act is intended to ensure honesty and impartiality in state and local government.
A conflict of interest is defined as an official action, decision, or recommendation by “a public official, the effect of which would be to the private pecuniary benefit of the person or a member of the person’s household, or a business with which the person or a member of the person’s household is associated [. . .].”[i] The term “public official” includes elected officials, appointed officials, public employees, and certain consultants.[ii]
If a conflict of interest exists, a public official must disclose the conflict prior to taking an official action or making a formal decision or recommendation.[iii] The method of disclosure varies. An elected official, for example, must disclose the conflict of interest prior to acting on a matter and follow the “rules of the body of which he/she is a member [. . .].”[iv] Appointed officials, public employees, and consultants must “prepare a written statement describing the matter required to be acted upon and the nature of the potential conflict, and [. . .] deliver the statement to his appointing authority.”[v]
The Ethics in Government Act does not preclude a public official from taking an action, rendering a decision, or making a recommendation. Instead, the Act requires the public official to (1) disclose the conflict of interest and (2) adhere to the city’s rules concerning conflicts. A public official who fails to comply with the disclosure requirements, however, is subject to civil penalties.”[vi]
Prohibition Against Contracts with Officers Act
The Prohibition Against Contracts with Officers Act, contained in Chapter 5, Title 74, Idaho Code, includes prohibitions concerning contracts involving public officers.[vii] Under the Act, public officers “must not be interested in any contract made by them in their official capacity, or by any body or board of which they are members.”[viii] Additionally, public officers “must not be purchasers at any sale nor vendors at any purchase made by them in their official capacity.”[ix] Any contract made in violation of these provisions “may be avoided at the instance of any party except the officer interested therein.”[x]
Stated differently, a contract made in violation of the Act is voidable by any party to the contract other than the offending public officer. Moreover, an “officer charged with the disbursement of public moneys, who is informed by affidavit that any officer whose account is to be settled, audited, or paid by him, has violated any of the provisions of [the Act], must suspend such settlement or payment, and cause such officer to be prosecuted for such violation.”[xi] A violation of the Act is a misdemeanor, punishable by a fine of up to $1,000 and incarceration.[xii]
There are two notable exceptions to the general prohibition against contracting with public officers. Under the first exception, a public officer with a “remote interest” may enter into a contract with that officer’s city. However, the public officer must disclose the remote interest, the matter must be noted in the minutes, and the city council must “authorize, approve, or ratif[y] the contract in good faith by a vote of its membership sufficient for the purpose without counting the vote or votes of the officer having the remote interest.”[xiii]
There are four categories of remote interests.[xiv] The first category pertains to non-salaried officers of not-for-profit corporations. The second category concerns employees and agents of a contractor, but only when they receive a fixed wage or salary. The next category covers landlords or tenants of a contracting party. The final category pertains to public officers holding a limited number of shares in a contracting corporation.
Even if a public officer falls into one these four categories, however, the officer cannot “influence or attempt to influence any other officer of the board [. . .] to enter into the contract.”[xv] A violation of this provision is a misdemeanor.[xvi] Additionally, the contract in question is, as a matter of law, void.[xvii]
The second exception to the general prohibition against contracting concerns uncompensated public officials.[xviii] Under the Act, an uncompensated public official “shall not be prohibited from having an interest in any contract made or entered into by the board of which he is a member, if he strictly observes the procedure set out in Section 18-1361A, Idaho Code.”[xix] Section 18-1361A, in turn, lists four requirements. First, the contract must be competitively bid and the public servant (or the public servant’s relative, if applicable) must submit the low bid. Second, the public servant may not participate in the preparation or approval of the bid specifications or contract. Next, the public servant must disclose, in writing, his/her interest and intent to bid on the contract. Finally, the public servant must adhere to all other procurement statutes.
Bribery and Corrupt Influence Act
The Bribery and Corrupt Influence Act, found in Chapter 13, Title 18, Idaho Code, includes additional prohibitions concerning contracts involving public servants.[xx] Similar to the Prohibition Against Contracts with Officers Act, a public servant cannot “[b]e interested in any contract made by him in his official capacity, or by any body or board of which he is a member, except as provided in Section 18-1361, Idaho Code.”[xxi] The exceptions in Section 18-1361 apply when there are a limited number of potential suppliers and (1) the contract relates to a disaster or (2) procedures comparable to those found in Section 18-1361(A) are utilized, as delineated previously.
Similar to the Prohibition Against Contracts with Officers Act, any public servant who violates the Bribery and Corrupt Influence Act is guilty of a misdemeanor and subject to fines and incarceration.[xxii] Moreover, a violator “may be required to forfeit his office and may be ordered to make restitution of any benefit received by him to the governmental entity from which it was obtained.”[xxiii] If the violator is a public officer, forfeiture of office is automatic.[xxiv]
Circumventing Competitive Bidding Requirements
“Splitting a purchase” generally involves a single procurement which is “split” into two or more smaller transactions to circumvent competitive bidding requirements. A public official may not knowingly or willfully “split or separate purchases or work projects with the intent of avoiding compliance with” Idaho’s procurement statutes.[xxv] If this occurs, “the public entity which the officer or employee serves” is liable for civil penalties of up to $5,000 for each offense.[xxvi]
Public Works Contracts
The statutes described previously also apply, of course, to contracts for public works construction. Importantly, however, there are additional prohibitions specific to public works contracts.
Under Idaho law, it is “unlawful for any person to engage in the business or act in the capacity of a public works contractor within this state without first obtaining and having a license” unless an exemption applies.[xxvii] A common exemption, for example, is a public works project with an estimated cost of less than $50,000.[xxviii]
Moreover, when submitting a bid to a city for public works construction, a general contractor must list all subcontractors and their license numbers.[xxix] Before including a subcontractor on the list, the general contractor must receive some form of “communication” from the subcontractor.[xxx]
If a city enters into a contract for public works construction with an unlicensed or improperly licensed contractor, or knowingly awards a public works contract based on a bid that does not properly list all subcontractors, the city is a subject to an administrative fine of up to $5,000 per violation.[xxxi] If the Administrator of the Idaho Division of Building Safety receives a verified complaint from a licensed contractor about a potential violation, the Administrator is required by law to investigate the matter.[xxxii]
As explained, the offending city must pay any administrative fines – not the public officer. Nevertheless, public officers are subject to criminal penalties. Any “public officer who knowingly lets a public contract to [a contractor] who does not hold a license as required by [Idaho law] or knowingly fails to comply with the [statutes concerning the listing of subcontractors] shall be guilty of a misdemeanor [. . .].”[xxxiii]
This article is not intended to serve as a comprehensive review of Idaho’s procurement statutes. Rather, the primary purpose of the article is to emphasize that cities must adhere to high ethical standards when procuring goods, services, and public works construction. That is good government – and it is the law.
Kurt J. Starman is a Deputy City Attorney for the City of Meridian. Kurt has held several leadership positions in local government over the past 30 years – including 11 years as a city manager. He has encountered many challenging procurement issues.
[ii] Idaho Code § 74-403(10).
[iii] Idaho Code § 74-404.
[iv] Idaho Code § 74-404(4).
[v] Idaho Code § 74-404(5).
[vi] Idaho Code § 74-406(1) (“Any public official who intentionally fails to disclose a conflict of interest . . . shall be guilty of a civil offense, the penalty for which may be a fine not to exceed five hundred dollars . . . .”).
[vii] The Prohibition Against Contracts with Officers Act generally applies to “public officers,” but that term is not explicitly defined.
[viii] Idaho Code § 74-501.
[x] Idaho Code § 74-504.
[xi] Idaho Code § 74-508.
[xv] Idaho Code § 74-502(2).
[xix] Idaho Code § 74-510.
[xx] The Bribery and Corrupt Influence Act utilizes the term “public servant,” instead of “public official” or “public officer.” A public servant includes public officers, public employees, and certain consultants.
[xxi] Idaho Code § 18-1359(1)(d).
[xxiv] Idaho Code § 18-1307.
[xxv] Idaho Code § 59-1026.
[xxvii] Idaho Code § 54-1902(1).
[xxx] Idaho Code § 67-2310(2).
[xxxiii] Idaho Code § 54-1920(2).