CEO 76-85 -- May 17, 1976
CONFLICT OF INTEREST
INSURANCE ADVISORY COMMITTEE MEMBERS SELLING INSURANCE TO CITY
To: J. H. Roberts, Jr., City Attorney, Lakeland
A prohibited conflict of interest exists where a municipal insurance advisory committee which prepares bid specifications for the city's insurance requirements, reviews those bids, and makes a recommendation to the city commission is comprised of licensed insurance agents who either own or are employed by insurance agencies doing business with the city. Because the committee members themselves are permitted to submit bids for the city's insurance needs, Florida Statute s. 112.313(3)(1975), prohibiting a public officer from acting in a private capacity to sell services to his own political subdivision, is violated. Further, the commission has previously held that one may not prepare bid specifications and then submit a bid conforming to those specifications. See CEO 75-203. Further, the Code of Ethics prohibits a public officer from holding employment with a business entity which does business with his agency. Fla. Stat. s. 112.313(7).
An additional conflict is deemed to exist in the insurance advisory committee members receiving as compensation 40 percent of a successful bidder's commission earned on insurance sales to the city. Committee members are third-party beneficiaries to such contracts between the successful bidder and the city and therefore violate s. 112.313(7) which prohibits a public officer from having a "contractual relationship" with a business entity doing business with his agency. Moreover, where compensation is directly related to the amount of the successful bid, the impartiality of the selection process is severely threatened in contradiction to the clear legislative intent as expressed in s. 112.311(1) and (5).
1. Does a prohibited conflict of interest exist where the members of a city's insurance advisory committee (IAC) privately bid for the city's insurance requirements?
2. Does a prohibited conflict of interest exist where IAC members receive 40 percent of the successful bidder's commission after having prepared the bid specifications, evaluated the bids, and made a recommendation to the city commission?
Question 1 is answered in the affirmative.
Your letter of inquiry advises us the IAC was established by motion of the city commission and that there is no ordinance enumerating the duties of the committee. We understand from the information you have provided that the IAC prepares bid specifications for the city's insurance requirements, reviews those bids, and makes a recommendation to the city commission. The committee members who are appointed by the city commission are licensed insurance agents who either own or are employed by insurance agencies doing business with the city. The members are permitted to submit bids for the city's insurance needs. Although each member participates in preparing the bid specifications for contracts on which they plan to bid, a bidding member does not participate in the evaluation of his own bid.
The situation you have described violates the Code of Ethics for several reasons, the first being that the Code of Ethics for Public Officers and Employees prohibits a public officer from acting in a private capacity to sell realty, goods, or services to his own political subdivision. Fla. Stat. s. 112.313(3)(1975). Please find enclosed a copy of CEO 76-7, the rationale of which is equally applicable to this situation.
Secondly, this commission previously has held that one may not prepare bid specifications and then submit a bid conforming to those specifications. Please find enclosed a copy of CEO 75-203 which fully explains this position.
Further, the code prohibits a public officer from having employment with a business entity which is doing business with his agency. Fla. Stat. s. 112.313(7)(1975). Please find enclosed a copy of CEO 76-15, which reflects this view.
In your letter of inquiry you query whether an exemption found in s. 112.313(7) would apply to the situation you have described. That exemption reads:
(b) This subsection shall not prohibit a public officer or employee from practicing in a particular profession or occupation when such practice by persons holding such public office or employment is required or permitted by law or statute. [Fla. Stat. s. 112.313(7)(b)(1975).]
This exemption states that s. 112.313(7) does not forbid a public officer from practicing in a particular profession or occupation if such practice is required or permitted by ordinance. However, we are not construing s. 112.313(7) to prohibit members of the IAC from practicing in the insurance profession. Rather, we are construing the subsection to prohibit the IAC members from having employment with a firm that is doing business with the city. Accordingly, s. 112.313(7)(b) does not limit the application of s. 112.313(7) in this situation.
Summarizing, the IAC members are prohibited from preparing bid specifications and then submitting bids for the same insurance contracts, from selling insurance to the city, and from being employed by a business entity which is doing business with the city commission.
Question 2 is answered in the affirmative.
You have advised us that the city indirectly compensates IAC members by requiring the successful bidder to share 40 percent of his commission with the committee members. The committee consists of three members who do not represent all of the insurance interests in the city.
The Code of Ethics states in relevant part:
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP. --
(a) No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he is an officer or employee, excluding those organizations and their officers, who when acting in their official capacity, enter into or negotiate a collective bargaining contract with the state or any municipality, county, or other political subdivision of the state; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. [Fla. Stat. s. 112.313(7)(1975).]
The above-quoted provision prohibits a public officer from having a contractual relationship with a business entity which is doing business with his agency, or which will create a continuing and frequently recurring conflict between his private interests and the performance of his public duties, or that would impede the full and faithful discharge of his public duties. The question turns on whether IAC members have a contractual relationship with the insurance company insuring the city by virtue of the contract provision requiring that the successful bidder pay the committee members 40 percent of his commission. We believe that a contractual relationship does exist between such insurance company and the IAC members who are third party beneficiaries to the contract.
A third party beneficiary is one, not a party to the contract, who will benefit from the making of the contract. Persons who only incidentally benefit from the contract are deemed incidental beneficiaries and, although they are third party beneficiaries, they have no right to enforce the contract. However, where the contracting parties specifically intend to confer a benefit upon a third party, that person does have the right to enforce the contract. 5 Fla. Law and Prac. Contracts ss. 47,48(1956).
For purposes of the Code of Ethics, we do not believe that a mere incidental beneficiary should be considered as having a contractual relationship with the contracting parties. On the other hand, one upon whom the contracting parties specifically intend to confer a benefit is able to sue to enforce the contract and therefore does have a contractual relationship within the meaning of the Code of Ethics.
Had the Florida Legislature intended that only contracting parties were to be affected by the prohibitions found in s. 112.313(7), they could easily have limited the legislation accordingly. Instead, the much broader phrase "contractual relationship" was chosen. In the absence of ambiguity, we must follow the plain meaning of the language employed. In this instance it is evident that the subject insurance contracts do create a relationship between IAC members and the respective insurance companies doing business with the City of Lakeland and that relationship is contractual in nature.
Furthermore, it is the expressly stated purpose of the code to prohibit situations such as the one you describe. The pertinent provisions state in part:
LEGISLATIVE INTENT AND DECLARATION OF POLICY. --
(1) It is essential to the proper conduct and operation of government that public officials be independent and impartial and that public office not be used for private gain other than the remuneration provided by law . . . .
(5) It is hereby declared to be the policy of the state that no officer or employee of a state agency or of a county, city, or other political subdivision of the state, and no member of the Legislature or legislative employee, shall have any interest, financial or otherwise, direct or indirect; engage in any business transaction or professional activity; or incur any obligation of any nature which is in substantial conflict with the proper discharge of his duties in the public interest . . . . [Fla. Stat. s. 112.311(1), (5)(1975).]
In our view, the situation presented in this inquiry violates these stated objectives of the Code.
IAC has three main duties: The preparation of bid specifications, the evaluation of the bids, and the making of purchase recommendations to the city commission. Each of these stages provides members with the opportunity for manipulation, motivated by their personal financial interest, in the outcome of the selection procedure. We understand that the primary objective of having insurance agents on the IAC is to give the committee the expertise to advise the city commission of the city's insurance needs and to aid the city commission in attaining adequate coverage at a reasonable cost. We acknowledge the need for qualified advisory bodies and appreciate the valuable contribution which such groups, often serving without pay, render to the operation of government. In the instant case, however, we feel each recommendation of the IAC would be tainted by the conflicting private interests of the members involved.
In our view it is not reasonable to expect a public official to put personal financial considerations aside when judging public matters which directly affect his personal finances. While there may be situations in which it is unavoidable that a public officer consider public business which will affect him privately, this is not the case here. There appears to be no compelling reason to compensate IAC members in a manner which is based upon the size of the successful bidder's commission. This policy not only tends to put bidders who receive larger commissions in a more favorable position but also encourages IAC members to recommend higher insurance limits than may actually be necessary.
For the above reasons, it is our view that the current system of compensation is in substantial conflict with the official duties of IAC members and makes it impossible for them to be independent and impartial. Consequently, we find that the committee members may not be compensated by receiving a portion of the successful bidder's commission.