This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.
CONFLICT OF INTEREST -- Powers and Duties (of individual on behalf of private corporation doing business with fire district not relevant for purposes of section 801 of the General Municipal Law) -- Purchases and Sales (assistant fire chief as stockholder of corporation doing business with fire district)
GENERAL MUNICIPAL LAW §801: An assistant chief of a fire district fire department who owns more than 5% of the stock of a corporation would not have a prohibited interest in contracts between the fire district and corporation for the sale of radios to, and the repair of radios for, the fire district if, as assistant chief, he or she does not have any of the powers and duties listed in General Municipal Law §801 in connection with the contract. This is so even though he or she, on behalf of the corporation, may exercise direction and control over employees of the corporation who may be involved in the contract for the corporation. The assistant chief, however, would be required to disclose his or her interest in the contract pursuant to General Municipal Law §803(1).
You ask whether an assistant chief of a fire district fire department who owns more than 5% of the stock of a corporation would have a prohibited interest in contracts between the fire district and the corporation for the sale of radios to, and the repair of radios for, the fire district. You indicate that the amount expended by the fire district on such transactions for the past year was approximately $7,600. You further indicate that, as assistant chief, the individual does not negotiate, prepare, authorize or approve any contract between the corporation and the fire district, authorize or approve payment under any such contract, or have the power to appoint anyone who has those powers. In addition, the individual does not, on behalf of the corporation, directly negotiate, prepare, authorize or approve any contract, but may exercise direction and control over corporate employees who perform such functions.
General Municipal Law, article 18 (§800 et seq.) contains provisions relative to conflicts of interest of municipal officers and employees and, inter alia, prohibits certain interests in municipal contracts. A municipal officer or employee has an "interest" in a contract with the municipality he or she serves if he or she receives a direct or indirect pecuniary or material benefit "as the result of the contract" (General Municipal Law §800[3]). A municipal officer or employee is also deemed to have an interest in contracts of a firm, partnership or association of which the officer or employee is a member or employee, and in contracts of a corporation of which the officer or employee is an officer, director, employee or stockholder (General Municipal Law §800[3][b]-[d]). Unless an exception applies (see, e.g., General Municipal Law §802[2][a]1), an interest in a contract is prohibited if the officer or employee, individually or as a member of a board, has the power or duty to: (a) negotiate, prepare, authorize or approve the contract or approve payment under the contract; (b) audit bills or claims under the contract; or (c) appoint an officer or employee who has such powers and duties (General Municipal Law §801[1]). Any contract willfully entered into by or with a municipality in which there is a prohibited interest is null, void and wholly unenforceable (General Municipal Law §804). In addition, any municipal officer or employee who willfully and knowingly violates the interest in contract provisions of article 18 shall be guilty of a misdemeanor (General Municipal Law §805). General Municipal Law §803 requires written disclosure of certain interests in contracts.
As a stockholder of the corporation contracting with the fire district, the assistant chief would be deemed to have an "interest" in contracts between the firm and the fire district. That interest would not be prohibited, however, because under the facts presented, the individual, as assistant fire chief, does not have any of the powers and duties listed in General Municipal Law §801 (see also Town Law §§176[4-a], 176-a; 1979 Opns St Comp No. 79-76, p 15). We note that the powers and duties listed in section 801 relate to the individual's municipal functions (see, e.g., D.E.P. v Village of Monroe, 131 AD2d 719, 516 NYS2d 953; Opn No. 79-76, supra). Therefore, the fact that an individual, on behalf of the corporation, may exercise direction and control over, or even appoint, employees of the corporation who negotiate, prepare, authorize or approve contracts between the corporation and the fire district, is not relevant for purposes of determining whether the individual has the powers and duties that may give rise to a prohibited interest in a fire district contract under section 801 (compare General Municipal Law §802[1]b]).
Although we conclude that the assistant chief in this instance would not have a prohibited interest, within the meaning of General Municipal Law, article 18, in the fire district's contracts with the corporation, the assistant chief would be required to disclose his or her interest in writing pursuant to General Municipal Law §803(1). The disclosure must be made publicly at a meeting of the board of fire commissioners and included in the minutes of the meeting (General Municipal Law §803[1]). Moreover, we note that General Municipal Law §806 authorizes each fire district to adopt a code of ethics setting forth, for the guidance of its officers and employees, the standards of conduct reasonably expected of them. We suggest review of the fire district's code of ethics, if it has adopted one, to determine whether it contains any pertinent provisions.
Finally, assuming the procurements in question continue to be below the monetary threshold triggering competitive bidding requirements (General Municipal Law §103[1])2, they nonetheless would be subject to the requirements of General Municipal Law §104-b. Section 104-b requires fire districts to adopt written internal policies and procedures governing all procurements of goods and services not required by law to be made pursuant to competitive bidding requirements. The stated objectives of section 104-b include assuring the prudent and economical use of public moneys in the best interest of the taxpayers and guarding against favoritism in the award of municipal contracts which are not subject to competitive bidding.
At a minimum, the policies and procedures adopted pursuant to section 104-b must provide, inter alia, that when competitive bidding is not required by law, alternative proposals or quotations will be secured by requests for proposals, written or verbal quotations, or other methods which further the purposes of section 104-b, except in limited circumstances (see General Municipal Law §104-b[2][b],[f]). Further, the policies and procedures must require justification and documentation of any contract awarded to other than the lowest responsible dollar offeror, setting forth the reasons the award furthers the purpose of section 104-b. Proper adherence to these procurement procedures and policies should help ensure that the contracts such as those in question are awarded in the best interest of the fire district.
December 31, 2001
Richard H. Murphy, Esq., Counsel
Ellwood Fire District No. 1
1 General Municipal Law §802(2)(a) provides an exception for contracts with a corporation in which a municipal officer or employee has an interest by reason of stockholdings when less than 5% of the outstanding stock is owned or controlled, directly or indirectly, by the officer or employee.
2 General Municipal Law §103(1) provides for a $10,000 threshold for purchase contract and a $20,000 threshold for contracts for public work.