CEO 95-13 -- June 1, 1995
CONFLICT OF INTEREST
CITY MAYOR VICE PRESIDENT OF INSURANCE
FIRM DOING BUSINESS WITH CITY
To: (Name withheld at the person's request.)
A prohibited conflict of interest does not exist under Sections 112.313(3) and 112.313(7)(a), Florida Statutes, where a city mayor is vice president and general manager of a firm that provides insurance services to the city. Section 112.316, Florida Statutes, acts as a "grandfather clause" to negate conflicts based upon a contract entered into between the firm and the city prior to the mayor taking office but after his qualification for office. However, a prohibited conflict of interest would be created were the city to renew the contract with the firm unless one of the exemptions of Section 112.313(12), Florida Statutes, applies. CEO's 76-213, 80-88, 82-51, and 94-8 are referenced.
Does a prohibited conflict of interest exist where a city's mayor is vice president and general manager of a firm that provides insurance services to the city?
Under the circumstances set forth below, your question is answered in the negative.
By your letter of inquiry and by additional information provided to our staff via telephone by a member of your law firm, we are advised that ... serves as Mayor of the City of Cocoa, having been elected on November 8, 1994 and having qualified for election to that office on September 6, 1994. In addition, we are advised that he has never before held elective office in the City. As Mayor, we are advised further, he is a member of the City Council, serves as its chairman, and is entitled to cast a vote in all matters requiring Council action.
The Mayor, you advise, is employed as a vice president/general manager by a corporation (hereinafter "corporation") that has provided insurance services to the City since 1978. On September 27, 1994 (between the Mayor's qualification for office and his election to office), you advise, the City Council, by unanimous vote, renewed the insurance service contract with the corporation for an additional one-year term. You emphasize that the Mayor did not hold office at the time of this renewal and, therefore, that he did not vote to renew the contract.
You describe the City's relationship with the corporation as follows:
[The corporation's] status with [the City] can be described as that of a sub-broker--whereby it assists [the City] in obtaining property, general liability, automobile, professional liability, and bond coverage from another independent broker. (The independent broker has no relationship or association with the Mayor, [the corporation], or [the corporation's] shareholders.) The independent broker serves as the authorized insurance agent on [the City's] insurance policies. [The corporation] has no authority to modify or bind coverage in any form or fashion.
Continuing, in regard to the corporation's provision of services to the City, you advise:
[The corporation] collects all underwriting information (i.e., property values, number of employees, specific revenues and payrolls) from [the City] which will be relevant in providing the aforesaid coverage. [The corporation] will then take this information out to other insurance brokers to solicit price quotes for coverage. Once all the quotes are received by [the corporation], [the corporation] will present the quotes exactly as received to [the City]. [The City's] City Council then evaluates the quotes and selects the best and most responsive quote. In addition, [the corporation] will assist [the City] in updating coverages throughout the year and correcting any discrepancies which may arise in the policy.
Further, you advise that the Mayor has no direct involvement in behalf of the corporation concerning the City's account and state:
The Mayor has no direct involvement concerning [the City's] account at [the corporation]. (The account is being managed by another [corporate] employee, and the Mayor has, by office memorandum, formally announced to all [corporate] employees that he will not in any way be involved with [the City's] account.) The Mayor receives a yearly salary from [the corporation] and[,] in addition, he has never received any commission or other monies from [the corporation] which is directly related to [the City's] business with [the corporation]. Neither the Mayor nor his spouse or child is an owner, director, or shareholder of [the corporation].
For [its services provided to the City], [the corporation] receives a commission equal to ten percent (10%) of the insurance premium paid by [the City]. Once [the corporation] receives the commission, the full commission is utilized to cover [the corporation's] operating overhead. The [corporation's] agent currently handling [the City's] account is only paid salary and does not receive any of the 10% as a personal commission.
We are advised that basically the corporation is an insurance agency that performs a liaison function between the City and other insurance agencies which are the insurance agencies of record on the City's policies or insurance coverages issued or underwritten by the insurance companies.
We are advised that the corporation may be the only source of such services located within the City because the corporation can handle the City's needs based on its extensive data base concerning the number and type of City employees and concerning inventory of the City's property holdings and further because the corporation has extensive experience with this type of insurance procurement for the City. We are advised that in order for the corporation to provide these services to the City it is required by law to employ insurance agents who possess "220" (property and casualty) insurance agent licenses. Further, we are advised, there are only three other firms located in the City which have agents who are "220-licensed." One of these three, we are advised, has a clientele that basically consists of homeowners, small businesses, and other small, nongovernmental insureds. Another of the three, we are advised, has never performed services of the type that the corporation performs for the City, and the third cannot provide such services to the City because it is bound by a noncompetition agreement between it and the corporation which was entered into on September 4, 1991 and which will expire on September 4, 1999. In addition, we are advised that since 1979 no firm other than the corporation has bid for or sought to perform this type of service for the City.
You inquire whether the situation or scenario set forth above embodies a prohibited conflict of interest for the Mayor, whether Section 112.316, Florida Statutes, acts as a "grandfather clause" to negate the conflict, if any, whether future conflicts could be avoided if the City precisely follows the requirements of the "competitive bid" exemption found at Section 112.313(12)(b), Florida Statutes, whether the "sole source of supply" exemption found at Section 112.313(12)(e), Florida Statutes, is applicable to the Mayor's situation, and whether the determination that the corporation is the sole source of supply within the City would be determined by the City Manager, the City Council, or an independent person or entity.
The provisions of the Code of Ethics for Public Officers and Employees which are applicable to your inquiry provide:
DOING BUSINESS WITH ONE'S AGENCY.--No employee of an agency acting in his official capacity as a purchasing agent, or public officer acting in his official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his own agency from any business entity of which he or his spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or his spouse or child, or any combination of them, has a material interest. Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to his own agency, if he is a state officer or employee, or to any political subdivision of any agency thereof, if he is serving as an officer or employee of that political subdivision. The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator's place of business or when such offices are on property wholly or partially owned by the legislator. This subsection shall not affect or be construed to prohibit contracts entered into prior to:
(a) October 1, 1975.
(b) Qualification for elective office.
(c) Appointment to public office.
(d) Beginning public employment.
[Section 112.313(3), Florida Statutes.]
CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.--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 . . .; 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. [Section 112.313(7)(a), Florida Statutes.]
. . . no person shall be held in violation subsection (3) or subsection (7) if:
(b) The business is awarded under a system of sealed, competitive bidding to the lowest or best bidder and:
1. The official or his spouse or child has in no way participated in the determination of the bid specifications or the determination of the lowest or best bidder;
2. The official or his spouse or child has in no way used or attempted to use his influence to persuade the agency or any personnel thereof to enter such a contract other than by the mere submission of the bid; and
3. The official, prior to or at the time of the submission of the bid, has filed a statement with the Department of State, if he is a state officer or employee, or with the supervisor of elections of the county in which the agency has its principal office, if he is an officer or employee of a political subdivision, disclosing his interest, or the interest of his spouse or child, and the nature of the intended business.
(e) The business entity involved is the only source of supply within the political subdivision of the officer or employee and there is full disclosure by the officer or employee of his interest in the business entity to the governing body of the political subdivision prior to the purchase, rental, sale, leasing, or other business being transacted. [Sections 112.313(12)(b)&(e), Florida Statutes.]
CONSTRUCTION.--It is not the intent of this part, nor shall it be construed, to prevent any officer or employee of a state agency or county, city, or other political subdivision of the state or any legislator or legislative employee from accepting other employment or following any pursuit which does not interfere with the full and faithful discharge by such officer, employee, legislator, or legislative employee of his duties to the state or the county, city, or other political subdivision of the state involved. [Section 112.316, Florida Statutes.]
Section 112.313(3) prohibits the Mayor (as a public officer) from acting in his official capacity to purchase services for the City from the corporation (a business entity of which he is, as vice president, an officer), and it prohibits the Mayor from acting in a private capacity to sell the corporation's services to the City. One is deemed to "act in his official capacity" to purchase services when a body or board of which he is a member acts to purchase such services. See CEO 76-213. Also, one is deemed to "act in a private capacity" to sell goods, services, or realty to his agency or political subdivision when a corporation of which he is an officer or a director, or in which he owns a material interest, sells to his agency. See, for example, CEO 82-51.
By its express terms, Section 112.313(3)(b), Florida Statutes, would not serve to remedy a conflict under Section 112.313(3), since paragraph (b) only applies to contracts entered into prior to qualification for elective office and whereas the existing contract between the corporation and the City was entered into or "renewed" on September 27, 1994, approximately three weeks after the Mayor's qualification for office. Further, we have not had occasion previously to render an advisory opinion as to whether Section 112.316 operates to negate a conflict under Section 112.313(3) in those apparently rare situations in which a contract between a governmental entity and a business is entered into prior to a public officer's assuming public office but after his qualification for that office.
However, we have, on numerous occasions, recognized that Section 112.316 negates conflicts under Section 112.313(7)(a) in regard to contracts (between a public officer's or employee's public agency and a business entity with which the officer or employee is connected) that were entered into prior to the officer or employee assuming his public position. See, for example, CEO 80-88. This reading of Section 112.316 is grounded in the reasoning that a public officer cannot be tempted to disregard the performance of his public duties in favor of his private interests or those of his private employer regarding the business between the private entity and the public agency, much less actually disregard his public duties, when he has not yet acquired the status of a public officer or employee and thus has not yet acquired any public duties or responsibilities. See, for example, CEO 94-8. However, we find that it does no particular violence to the goals and purposes of the Code of Ethics for us to apply Section 112.316 to negate a conflict under Section 112.313(3) in the very limited circumstance in which a contract is entered into between the time a public officer qualifies for office and the time he actually takes office. The Mayor could not have "acted in his official capacity" to enter into the contract because during the brief window of time during which the contract was entered into he was not yet a public officer and thus possessed no official capacity in which to act. Further, while he would be deemed to have "acted in a private capacity" in behalf of the corporation to sell services to the City, he did not at the time of his private actions in entering to the contract occupy the status of a public officer. The prohibitions of Section 112.313(3) only apply to one who actually holds office, not to one who has merely qualified for office. See the applicable definition of "public officer" which provides that
[a]s used in this section, unless the context otherwise requires, the term 'public officer' includes any person elected or appointed to hold office in any agency, including any person serving on an advisory body. [Section 112.313(1), Florida Statutes.] [Emphasis supplied.]
Accordingly, under the facts and circumstances set forth above, we find that a prohibited conflict of interest does not exist under Sections 112.313(3) and 112.313(7)(a), Florida Statutes, where the Mayor's corporation provides insurance services to the City under a contract entered into after the Mayor's qualification for office but prior to his assumption of office.
However, inasmuch as a renewal of the contract would constitute a new agreement between the City and the corporation that would not be "grandfathered," such renewal would create a prohibited conflict of interest under Sections 112.313(3) and 112.313(7)(a) unless one of the exemptions set forth in Section 112.313(12) is applicable. Those exemptions include the "competitive bid" exemption and the "sole source of supply" exemption.
We find that the competitive bid exemption would be applicable, provided all of the requirements of that exemption are met. These requirements are set forth in the statute and include disclosure of interest and disclosure of the nature of the intended business, via utilization and filing of CE Form 3A, prior to or at the time of the submission of the bid. However, it does not appear to us that the Mayor's corporation would constitute a sole source of supply within the meaning of that exemption. While the corporation may be the most experienced, capable, or data-rich, it is not the only firm within the City that is licensed to perform the services. Nevertheless, a definitive determination of whether the corporation actually is the only source of supply of the services located within the City cannot be made by us within the factual framework of this advisory opinion.
ORDERED by the State of Florida Commission on Ethics meeting in public session on June 1, 1995, and RENDERED this _____ day of June, 1995.
R. Terry Rigsby