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NYS Comptroller


The Academy for New York State's Local Officials

Protecting the Public’s Interest: A Tutorial on Local Government Ethics and Transparency in New York State

Module 3 - Case Studies on Conflicts of Interest

Discussion of Situation 3

A village needs an environmental review for a park project. After competitive bidding, the contract was awarded to a firm whose primary stockholder (who owns 33% of the firm’s stock) is one of the village trustees. The trustee did not participate in the village board’s discussion and vote on the contract and will not perform any of the actual work under the contract.

Does the trustee have a prohibited interest in the contract? Why or why not? If the trustee does not have a prohibited interest, are there any other issues with which the village should be concerned?

This is an example of prohibited interest in a contract.

  1. According to the facts, there is a “contract” between the village and the engineering firm.
  2. The village board member is deemed to have an “interest” in the contract because he is a stockholder in the engineering firm.
  3. As a village trustee, he has Section 801 powers and duties in relation to the contract (e.g., the power to approve the contract and to audit claims under the contract).
  4. No exceptions apply. This is not a pre-existing contract. The trustee owns one-third of the firm’s stock – well above the 5% that would be considered a minimal holding. Because the trustee’s interest arises from his status as a stockholder, the fact that he is not performing any of the actual work under the contract is irrelevant.

Therefore, in this instance, the trustee’s interest in the contract is prohibited because he has Section 801 powers and duties and none of the statutory exceptions apply to the interest.

Other Issues to Consider:

Even if the trustee abstained from participating in the board’s discussions or decisions on this contract, the trustee’s interest in the contract would still be prohibited. It is the existence of Section 801 powers and duties, not whether they are exercised in a particular instance, that causes an interest in a contract to be prohibited. Moreover, there is no statutory exception for recusal and abstention.

  Next: Situation 4