GOVERNMENTAL ETHICS - Illinois



Procurement Ethics

I. Background – the Procurement Code and the procurement environment

A. Prescription of procurement methods (e.g.: IFB, RFP, etc.)

B. Actors:

1. Independent: CPOs, SPOs, and PCMs

2. Agency: APOs, procurement staff, evaluators, management

II. What is/are Ethics?

A. Moral principles that govern a person’s behavior or the conducting of an activity [usually plural] (en.)

B.

1. (pl. or sing.) a system of moral principles

2. (pl.) the rules of conduct recognized in respect to a particular class of human actions or a particular group, culture, etc.

C. merriam-

1. Set of moral principles; a theory or system of moral values

2. Principles of conduct governing an individual or group

3. Guiding philosophy

4. A consciousness of moral importance

5. Distinguish moral from ethics: often synonymous, but can distinguish

a) “Morals” as describing an individual’s particular values concerning what is right and what is wrong

b) “ethics” may refer broadly to moral principles, but is often applied to questions of correct behavior within a relatively narrow area activity

III. Procurement Code (30 ILCS 500) as Ethics

A. Procurement legislation as defining right and wrong

1. Early history – Federal level

2. Thus, procurement methods as ethics

B. General Principles expressed in Code

1. Fairness to those who wish to provide goods or services to the State

2. Fairness to the State - purchasing should be done to maximize value to the State

3. Decision makers must put interests of the State above personal interests

4. Try to avoid doing business with unethical people. Persons may be prohibited from doing business with the State based upon prior conduct.

IV. Fair competition

A. Policy: principles of competitive bidding and economical procurement practices shall be applicable to all purchases and contracts by or for any State agency (§1-5) (subject to exceptions)

B. Transparency

1. Publication of notice of procurement opportunities in procurement bulletin (15-25), including

a) All requirements

b) Evaluation factors

c) Pricing factors

2. Publication of award notices

C. Standards for award

1. IFB (invitation for bids) – lowest responsive and responsible bidder (unless SPO determines best interest of State requires otherwise)

2. RFP (request for proposals)– most advantageous to the State

3. P&A (professional and artistic services) RFP – best qualified, subject to negotiation of fair and reasonable pricing (which is also ranked)

4. RFI (request for information (used for leasing of real property) – best interest of the State (justification req’d if not lowest price)

5. Concessions – highest price or best offer

6. Exceptions

a) Emergency

b) Sole economically feasible source

D. Requirements for drafting of specifications (§20-50)

1. Prepared in accordance with consistent standards promulgated the CPO by rule

2. Standards shall include a prohibition against the use of brand-name only products, except

a) Products intended for retail sale

b) As specified by rule (44 Ill. Admin. Code 1.2050 and 4.2050)

3. All specifications shall

a) seek to promote overall economy for the purposes intended

b) encourage competition in satisfying the State’s need and

c) not be unduly restrictive

4. Specifications can be used to steer contracts

E. Procurements shall not be artificially divided so as to constitute a small purchase

F. Opportunity to dispute or contest

1. Protests – each CPO with rules establishing protest procedures per §20-75

2. Judicial review

a) Not expressly provided, but §20-70 provides that determinations made by CPO, SPO, or a purchasing agency under the Code are final and conclusive unless they are clearly erroneous arbitrary, capricious, or contrary to law.

b) Writ of certiorari, not administrative review

1) Basically, the same procedure and standard of proof

2) Different time frame for bringing action

G. Prohibited assistance (§50-10.5(e))

1. A person or business who has assisted a State employee in the reviewing, drafting, directing, or preparing any IFB, RFP, or RFI, or has provided similar assistance

a) is prohibited from submitting a bid or offer, making a submission to a vendor portal, or entering into a contract under the Code

b) if the employee has, by the nature of his or her duties, the authority to participate personally and substantially in the decision to award a contract

c) Exception: the assistance is part of a publicly available opportunity to review drafts of all or part of these documents

d) Prohibition does not apply if the person or business

1) initiates a communication with an employee to provide general information about products, services, or industry best practices;

2) responds to a communication initiated by an employee of the State for the purposes of providing information to evaluate new products, trends, services, or technologies;

3) asks for clarification regarding a solicitation, so long as there is no competitive advantage to the person or business and the question and answer, if material, are posted to the Illinois Procurement Bulletin as an addendum to the solicitation;

4) is a vendor developing technology, goods, or services and is bidding or offering to supply that technology or those goods or services if the subject demonstrated to the State represents industry trends and innovation and is not specifically designed to meet the State’s needs;

5) is a person performing construction-related services and is initiating contact with a business that performs construction for the purpose of obtaining market costs or production time to determine the estimated costs to complete the construction project.

2. No person or business shall submit specifications to a State agency unless requested to do so by an employee of the State.

3. No person or business who contracts with a State agency to write specifications for a particular procurement need shall submit a bid or proposal or receive a contract for that procurement need.

4. For this purpose, “business” includes all individuals with whom a business is affiliated, including, but not limited to, any officer, agent, employee, consultant, independent contractor, director, partner, or manager of a business.

H. Reporting of Procurement Communications (§50-39 and 2 Ill. Adm. Code 1620.825) Written or oral communications received by a State employee with authority to participate personally and substantially in the decision to award a State contract must report the communication to the Procurement Policy Board if

1. The communication imparts or requests material information or makes a material argument regarding potential action concern an active procurement matter, including, but not limited to a contract or a project;

a) “Active procurement matter” means a procurement process beginning with requisition or determination of need by an agency and continuing through the publication of an award notice or other completion of a final procurement action, the resolution of any protests, and the expiration of any protest or Procurement Policy Board review period, if applicable. “Active procurement matter” also includes communications relating to change orders, renewals, or extensions.

b) “Material information” means information that a reasonable person would deem important in determining his or her course of action and pertains to significant issues, including, but not limited to, price, quantity, and terms of payment or performance.

c) “Material argument” means a communication that a reasonable person would believe was made for the purpose of influencing a decision relating to a procurement matter. “Material argument” does not include general information about products, services, or industry best practices or a response to a communication initiated by an employee of the State for the purposes of providing information to evaluate new products, trends, services, or technologies.

2. The communication does not fall within the several listed exceptions.

a) statements by a person publicly made in a public forum;

b) statements regarding matters of procedure and practice, such as format, the number of copies required, the manner of filing, and the status of a matter;

c) statements made by a State employee of the agency to the agency head or other employees of that agency, to the employees of the Executive Ethics Commission or to an employee of another State agency who, through the communication, is either (a) exercising his or her experience or expertise in the subject matter of the particular procurement in the normal course of business, for official purposes, and at the initiation of the purchasing agency or the appropriate State purchasing officer, or (b) exercising oversight, supervisory, or management authority over the procurement in the normal course of business and as part of official responsibilities;

d) unsolicited communications providing general information about products, services, or industry best practices before those products or services become involved in a procurement matter;

e) communications received in response to procurement solicitations, including, but not limited to, vendor responses to a request for information, request for proposal, request for qualifications, invitation for bid, or a small purchase, sole source, or emergency solicitation, or questions and answers posted to the Illinois Procurement Bulletin to supplement the procurement action, provided that the communications are made in accordance with the instructions contained in the procurement solicitation, procedures, or guidelines;

f) communications that are privileged, protected, or confidential under law;

g) communications that are part of a formal procurement process as set out by statute, rule, or the solicitation, guidelines, or procedures, including, but not limited to, the posting of procurement opportunities, the process for approving a procurement business case or its equivalent, fiscal approval, submission of bids, the finalizing of contract terms and conditions with an awardee or apparent awardee, and similar formal procurement processes.

h) communications regarding the administration and implementation of an existing contract, except communications regarding change orders or the renewal or extension of a contract.

i) communication asking for clarification regarding a contract solicitation so long as there is no competitive advantage to the person or business and the question and answer, if material, are posted to the Illinois Procurement Bulletin as an addendum to the contract solicitation.

3. EEC rule provides, notwithstanding the exemptions, a State employee must report any communication that imparts or requests material information or makes a material argument regarding a potential action concerning an active procurement matter

a) if that communication attempts to influence through duress, coercion or the direct or indirect offer or promise of anything of value to any person or entity in consideration for any benefit or preference in the procurement process.

b) if the employee reasonably believes the communication was made for any improper purpose, including, but not limited to, providing an improper benefit, monetary or non-monetary, to any person or entity.

4. Communications are to be reported with elements prescribed by §50-39, in accordance with PPB rules, and on PPB’s Communication Reporting System.

I. Reporting and anti-competitive practices (§50-40)

When, for any reason, any vendor, bidder, offeror, potential contractor, contractor, chief procurement officer, State purchasing officer, designee, elected official, or State employee suspects collusion or other anticompetitive practice among any bidders, offerors, potential contractors, contractors, or employees of the State, a notice of the relevant facts shall be transmitted to the appropriate Inspector General, the Attorney General, and the chief procurement officer.

V. Independent procurement gatekeepers to act in best interest of State

A. Background

1. Prior to Procurement Code

a) Purchasing Act

b) Each agency with rules

c) CMS could act as central purchasing agency

2. Procurement Code (30 ILCS 500/15.15, as enacted in P.A. 90-572, eff. 2/6/98 and 7/1/98)

a) Four CPOs,

1) Three ex officio – executive director of CDB, Secretary of Transportation, and Director of CMS

2) For public institutions of higher education, a representative designated by the Governor

b) State purchasing officers were to exercise procurement authority under the Code

1) CPO to appoint, and agency director to approve, SPO for each agency

2) CPO to exercise the procurement authority in the absence of an SPO

3. Illinois Reform Commission Report (Collins) (April 28, 2009)

a) Findings:

1) Gov. Blagojevich was able to manipulate the awarding of State contracts to benefit political friends and punish enemies

2) Gov. Ryan was able to manipulate the State’s procurement system to direct public benefits to his friends and supporters, often by pressuring the agency head to direct a State purchase to a particular vendor.

3) Commission noted the almost complete absence of any effective oversight, monitoring, or deterrence in the State’s procurement process.

4) State’s procurement system failed to stop pay-to-play abuse and resulted in widespread manipulation of the system in the awarding of State contracts.

5) Clouted and favored companies benefited from large contracts through corrupt processes, to the detriment of companies without the right connections (making vendors without clout or connections reluctant to participate in the system).

6) Reduced competition raises the cost of goods and services.

7) System where connected companies do best means tax dollars are leveraged for political advantage.

b) Recommendations:

1) move state procurement administrative officials into an insulated, central, independent procurement office;

2) eliminate loopholes and exemptions in the Procurement Code;

3) establish an Independent Monitor to oversee and review the procurement process;

4) mandate greater disclosure for contractors, lobbyists, and others; and,

5) enhance transparency in the procurement process.

B. New procurement structure (§§10-5 through 10-30) – short of independent procurement agency

1. independent CPOs, with Senate confirmation required

a) three appointed by EEC for Capital Development Board, Higher Education, and General Services

b) one appointed by Secretary of Transportation, approved by EEC.

c) Exercise all procurement authority created by the Code

d) Have the authority to promulgate rules to implement the Code

e) May determine the method of solicitation and contract for all procurements under the Code

2. SPOs appointed by CPOs without agency approval

a) Exercise procurement authority at the direction of the CPO

b) SPO decisions are subject to review by the CPO

3. PCMs appointed by EEC

4. All appointed for 5-year terms and can’t be removed except for cause after public hearing before the EEC.

C. Fiduciary duty to the State

1. Even in the absence of statute, courts have recognized that public officials have a fiduciary duty to the public to make governmental decisions in the public’s best interest:

Public officials inherently owe a fiduciary duty to the public to make governmental decisions in the public's best interest. If the official instead secretly makes his decision based on his own personal interests-as when an official accepts a bribe or personally benefits from an undisclosed conflict of interest-the official has defrauded the public of his honest services

United States v. Vrdolyak, 536 F. Supp. 2d 899, 909 (N.D. Ill. 2008), quoting from United States v. deVegter, 198 F.3d 1324, 1328 (11th Cir.1999)

“‘A fiduciary duty is the duty of an agent to treat his principal with the utmost candor, rectitude, care, loyalty, and good faith.’ Burdett v. Miller, 957 F.3d 1375, 1381 (7th Cir.1992). ‘Public officials inherently owe a fiduciary duty to the public to make governmental decisions in the public's best interest.’ United States v. Devegeter, 198 F.3d 1324, 1328 (11th Cir.2000).”

United States v. Bauer, No. 00 CR 81, 2000 WL 1720245, at *6 (N.D. Ill. Nov. 16, 2000)

“A public official owes to his principal duties of absolute loyalty and fidelity, and occupies a position of the highest public trust.” Vill. of Wheeling v. Stavros, 89 Ill. App. 3d 450, 453, 411 N.E.2d 1067, 1069 (1st Dist. 1980)

2. Specific provisions explicitly impose a fiduciary duty to the State

a) SPOs – §10-10(c)

b) PCMs – §10-15(d)

c) CPOs – §10-20(d)

d) For all – §10-30

D. Political activity prohibition.

CPOs, SPOs, and PCMs, as well as all other EEC and CPO staff are deemed subject to §20-5(f) of the State Officials and Employees Ethics Act (5 ILCS 430/20-5(f)), which provides that no commissioner or employee of the Executive Ethics Commission may during his or her term of appointment or employment

1. become a candidate for any elective office;

2. hold any other elected or appointed public office except for appointments on governmental advisory boards or study commissions or as otherwise expressly authorized by law;

3. be actively involved in the affairs of any political party or political organization; or

4. advocate for the appointment of another person to an appointed or elected office or position or actively participate in any campaign for any elective office.

VI. Avoiding conflicts of interest: Disclosure of personal interests

A. Statements of Economic Interest (Illinois Governmental Ethics Act (5 ILCS 420/4A-101 et seq.)

1. Must be filed by

a) Elected officers and candidates

b) Various appointed board and commission members

c) Certain employees who have various supervisory, regulatory, licensure or procurement responsibilities

2. Various types of outside sources of income

3. Time for filing – May 1

4. Penalties

a) $15 late fee plus $100 per day after May 15

b) forfeiture of office after May 31

c) willful filing of false or incomplete – Class A misdemeanor

A. Supplemental Statements of Economic Interest – Executive Order 15-09

1. Must be filed by employees of agencies in the Executive Branch who are required to file Statements of Economic Interest under the Ethics Act.

2. Additional interests to be disclosed include

a) Interests in real property in which employee, spouse or minor child has greater than 5% interest and in which the State has an ownership or beneficial interest in the property

b) Any non-governmental positions held

c) Any litigation involving the State where the employee is a party to, or has a financial interest in, the litigation

B. Vendor disclosures of potential conflicts under Illinois Procurement Code, (30 ILCS 500-50-35) and CPO authority to void offers and contracts

1. What financial interests must be disclosed

a) Definitions. For purposes of this discussion, “vendor” means

1) a bidder or offeror whose offer has an annual value of $50k or more

2) a subcontractor with a subcontract valued at $50k or more annually

3) a parent (100% owner of the entity disclosing)

b) Shares of ownership or distributive income must be disclosed if they exceed the lesser of the following thresholds:

1) 5% of total ownership or distributive income

2) 60% of the annual salary of the Governor,

c) Exceptions

1) A publicly traded company that is subject to Federal 10K reporting may submit its 10K disclosure instead

2) A privately held entity that is exempt from Federal 10K reporting but has more than 100 shareholders may submit:

a) The information that Federal 10K reporting companies are required to report under 17 C.F.R. §229.401 and

b) The names of any person or entity holding any ownership share that is in excess of 5%

2. What information, at least, must be disclosed with respect to each share required to be disclosed:

a) Names and addresses of each person (including entities) holding the disclosed share, dollar or proportionate share of ownership, and instrument of ownership or beneficial relationship

b) Notice of potential conflicts of interest resulting from the ownership or beneficial relationships of the persons disclosed who also have any of ten listed relationships, including

1) State employment, currently or in the previous 3 years, including contractual employment of services

2) State employment of spouse, father, mother, son, or daughter, including contractual employment for services in the previous 2 years

3) Holding of elective office of the State, the United States, or any unit of local government currently or in the past 3 years

4) Relationship to anyone holding elective office currently or in the previous 2 years; spouse, father, mother, son, or daughter.

5) Holding of appointive office of the State, the United States, or any unit of local government, which office entitles the holder to compensation in excess of expenses incurred in the discharge of that office, currently or in the past 3 years

6) Relationship to anyone holding appointive office currently or in the previous 2 years; spouse, father, mother, son, or daughter

7) Employment, currently or in the previous 3 years, as or by any registered lobbyist of the State government.

8) Relationship to anyone who is or was a registered lobbyist in the previous 2 years; spouse, father, mother, son, or daughter.

9) Compensated employment, currently or in the previous 3 years, by any registered election or re-election committee registered with the Secretary of State or any county clerk in the State of Illinois, or any political action committee registered with either the Secretary of State or the Federal Board of Elections.

10) Relationship to anyone; spouse, father, mother, son, or daughter; who is or was a compensated employee in the last 2 years of any registered election or re-election committee registered with the Secretary of State or any county clerk in the State of Illinois, or any political action committee registered with either the Secretary of State or the Federal Board of Elections.

c) Name and address of any registered lobbyist who has communicated, is communicating, or may communicate with any State officer or employee concerning the bid or offer

d) For any of the foregoing, any of various adverse actions that occurred within the last 10 years, including debarment, professional licensure discipline, bankruptcies and other judgments, admin findings, and felony convictions

e) Disclosures must also note any other current or pending contracts, proposals, subcontracts, leases, or other ongoing procurement relationships the entity has with any other unit of State government and shall clearly identify the unit and the contract proposal, lease or other relationship.

f) Vendors have a continuing duty to supplement the disclosures throughout the bidding process or during the term of any contract.

3. Procedure

a) Identification of conflicts

1) CPO or SPO shall send contract to PPB for review when potential for a conflict is identified, discovered, or reasonably suspected

2) PPB may find evidence of a potential conflict not originally disclosed by the contractor or subcontractor, in which case PPB gives notice and an opportunity for a hearing

b) Weighing best interest of the State, PPB to make recommendation writing whether to allow or void the contract, bid, offer, or subcontract,

1) All recommendations go to EEC

2) EEC must hold a hearing if the recommendation is to

a) void a contract or subcontract

b) void a bid or offer and CPO intends to award anyway

c) CPO intends to award despite PPB recommendation to void => CPO must wait until after the hearing

d) Recommendation and proceedings of hearings are publicly available

4. Other considerations

a) Purpose of the disclosure requirement is not to prevent any contract but to fully disclose any potential conflicts to CPO, SPO, their designees, and executive officers so they may adequately discharge their duty to protect the State.

b) Thresholds and disclosures do not relieve SPO and CPO and designees of reasonable care and diligence for any contract, bid, offer, or proposal; they are responsible for using any reasonably known and publicly available information to discover any undisclosed potential conflict of interest

c) The financial disclosure of each successful bidder or offeror and its subcontractors shall:

1) Be incorporated as a material term of the contract and

2) Become part of the publicly available contract or procurement file maintained by the CPO.

5. Consequences of bad disclosure

a) Disclosures are to be signed under penalty of perjury (Class 3 felony, 3 to 5 years)

b) Inadvertent or accidental failure to fully disclose, in discretion of CPO

1) Voidable if in best interest of State

2) May be cause for barring from future contracts for up to 2 years

c) Intentional, willful, or material failure

1) Voidable if CPO determines in best interest of State

2) Shall result in debarment from future contracts for 2 to 10 years, subject to reinstatement by CPO after 2 years but only after review and comment by the Governor or an ethics board designated by the Governor

C. Disclosure before State or unit of local government may enter into any contract relating to the ownership or use of real property Public Officer Prohibited Activities Act (50 ILCS 105/3.1)

1. Must disclose

a) The identity of every owner and beneficiary having any interest, real or personal, in such property

b) The identity of every member, shareholder, limited partner, or general partner entitled to receive more than 7 ½% of the total distributable income of any limited liability company, corporation, or limited partnership having any interest, real or personal, in such property

c) Exception where company is publicly traded and there is no readily known owner of more than 7 ½%

2. As condition of contract, the beneficiaries of a lease shall furnish the trustee of a trust subject to disclosure under this Section with a binding non-revocable letter of direction authorizing the trustee to provide the State with an up-to-date disclosure whenever requested by the State

3. For any entity that is wholly or partially owned by another entity, the names of the owners of the wholly or partially owning entity shall be disclosed, as well as the names of the owners of the wholly or partially owned entity.

VII. Prohibitions against having or acquiring financial interests

A. Public Officer Prohibited Activities Act (50 ILCS 105)

1. Public policy – prohibit self-dealing. The statute is aimed not only at the actual bad faith abuse of power for an officer's own personal benefit, but is also designed to prevent the creation of relationships which carry in them the potential of such abuse, by removing the possibility of temptation.’ (Brown v. Kirk, 64 Ill.2d 144, 151, 355 N.E.2d 12, 16 (1976))

2. Primary prohibition (§3): officer not to have interest in contract or work in the making or letting of which the officer may be called upon to act or vote

a) elements

1) no holder of elective or appointed office under the laws or Constitution of the State

2) may be in any manner financially interested

3) directly in his own name or indirectly in the name of any other person, association, trust, or corporation

a) spouse’s interest in contract, per se, is not deemed interest of the officer (People v. Simpkins, 45 Ill.App.3d 202 (5th Dist., 1977)(indictment alleged merely that the mayor’s wife worked for the city water department)), but facts such as joint tax return with supporting schedules, could show the officer has a financial interest in the spouse’s contract (see Bock v. Long, 3 Ill.App.3d 691 (1st Dist., 1972))

b) employment interests may suffice (e.g., 1974 Att’y Gen. Op. S-787 (insurance company employee has been elected as a school board member and school board has entered into contract with his insurance company for a group health insurance policy))

4) in any contract or the performance of any work

a) A public library district may acquire the property of one of its board members through the exercise of its eminent domain authority without a violation (1992 Op.Atty.Gen. No. 92-012., 1992 WL 469751)

b) Settlement agreement is a contract subject to the prohibition (People ex rel. Madigan v. Bertrand, Ill.App. 1 Dist. 2012, 365 Ill.Dec. 426, 978 N.E.2d 681 (agreement between board of trustees of township schools and trustee that settled trustee's claim for monetary damages and attorney fees arising from his action seeking a declaration ordering the board to honor election results and seat him as a trustee was void))

5) in the making or letting of which

6) such officer may be called upon to act or vote

7) good faith irrelevant (see Miller v. Lake County, 1980, 38 Ill.Dec. 798, 79 Ill.2d 481, 404 N.E.2d 222 (county board member owned share of bank used as a depository for county funds) (exception subsequently enacted))

b) exceptions

1) member of a governing body may provide goods or services if member has small ownership interest ( ................
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