Existing law prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Existing law authorizes the Fair Political Practices Commission to commence an administrative or civil action against persons who violate this prohibition, as prescribed, and includes provisions for the collection of penalties after the time for judicial review of a commission order or decision has lapsed, or if all means of judicial review of the order or decision have been exhausted. Existing law identifies certain remote interests in contracts that are not subject to this prohibition and other situations in which an official is not deemed to be financially interested in a contract. Existing law makes a willful violation of this prohibition a crime.

This bill would establish that an independent contractor, who meets specified requirements, is not an officer for purposes of being subject to the prohibition on being financially interested in a contract. The bill would authorize a public agency to enter into a contract with an independent contractor who is an officer for a later phase of the same project if the independent contractor did not engage in or advise on, as specified, the making of the subsequent contract.

This bill would establish that a person who acts in good faith reliance on these provisions is not in violation of the above-described conflict-of-interest prohibitions and would prohibit them from being subject to criminal, civil, or administrative enforcement under those prohibitions if the initial contract includes specified language and the independent contractor is not in breach of those terms. The bill would provide that it is a complete defense in any criminal, civil, or administrative proceeding if the person acts in good faith reliance on these provisions, and meets specified conditions, but fails to include the specified language in the initial contract.

Existing law prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Existing law authorizes the Fair Political Practices Commission to commence an administrative or civil action against persons who violate this prohibition, as prescribed, and includes provisions for the collection of penalties after the time for judicial review of a commission order or decision has lapsed, or if all means of judicial review of the order or decision have been exhausted. Existing law identifies certain remote interests in contracts that are not subject to this prohibition and other situations in which an official is not deemed to be financially interested in a contract. Existing law makes a willful violation of this prohibition a crime.

This bill would establish that an independent contractor, who meets specified requirements, is not an officer for purposes of being subject to the prohibition on being financially interested in a contract. The bill would authorize a public agency to enter into a contract with an independent contractor who is an officer for a later phase of the same project if the independent contractor did not engage in or advise on, as specified, the making of the subsequent contract.

This bill would establish that a person who acts in good faith reliance on these provisions is not in violation of the above-described conflict-of-interest prohibitions and would prohibit them from being subject to criminal, civil, or administrative enforcement under those prohibitions if the initial contract includes specified language and the independent contractor is not in breach of those terms. The bill would provide that it is a complete defense in any criminal, civil, or administrative proceeding if the person acts in good faith reliance on these provisions, and meets specified conditions, but fails to include the specified language in the initial contract.

Existing law prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Existing law authorizes the Fair Political Practices Commission to commence an administrative or civil action against persons who violate this prohibition, as prescribed, and includes provisions for the collection of penalties after the time for judicial review of a commission order or decision has lapsed, or if all means of judicial review of the order or decision have been exhausted. Existing law identifies certain remote interests in contracts that are not subject to this prohibition and other situations in which an official is not deemed to be financially interested in a contract. Existing law makes a willful violation of this prohibition a crime.

This bill would establish that an independent contractor, who meets specified requirements, is not an officer for purposes of being subject to the prohibition on being financially interested in a contract. The bill would authorize a public agency to enter into a contract with an independent contractor who is an officer for a later phase of the same project if the independent contractor did not participate in engage in or advise on, as specified, the making of the subsequent contract and specified requirements are met. contract.

This bill would prohibit establish that a person who acts in good faith reliance on these provisions from being subject to criminal, civil, or administrative enforcement for is not in violation of these the above-described conflict-of-interest prohibitions and would prohibit them from being subject to criminal, civil, or administrative enforcement under those prohibitions if the initial contract includes specified language and the independent contractor is not in breach of those terms. The bill would further state that compliance with the conditions described in this bill can be relied upon as provide that it is a complete defense in any criminal, civil, or administrative proceeding, even if the initial contract does not include the language specified in the bill. proceeding if the person acts in good faith reliance on those provisions, and meets specified conditions, but fails to include the specified language in the initial contract.

Existing law prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Existing law authorizes the Fair Political Practices Commission to commence an administrative or civil action against persons who violate this prohibition, as prescribed, and includes provisions for the collection of penalties after the time for judicial review of a commission order or decision has lapsed, or if all means of judicial review of the order or decision have been exhausted. Existing law identifies certain remote interests in contracts that are not subject to this prohibition and other situations in which an official is not deemed to be financially interested in a contract. Existing law makes a willful violation of this prohibition a crime.

This bill would establish that an independent contractor, who meets specified requirements, is not an officer for purposes of being subject to the prohibition on being financially interested in a contract. The bill would authorize a public agency to enter into a contract with an independent contractor who is an officer for a later phase of the same project if the independent contractor did not participate in the making of the subsequent contract and specified requirements are met.

Existing law prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Existing law authorizes the Fair Political Practices Commission to commence an administrative or civil action against persons who violate this prohibition, as prescribed, and includes provisions for the collection of penalties after the time for judicial review of a commission order or decision has lapsed, or if all means of judicial review of the order or decision have been exhausted. Existing law identifies certain remote interests in contracts that are not subject to this prohibition and other situations in which an official is not deemed to be financially interested in a contract.

This bill would establish that an independent contractor, who meets specified requirements, is not an officer for purposes of being subject to the prohibition on being financially interested in a contract.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 334

Author:(Blanca Rubio)

As Amended Ver:June 7, 2023

Majority vote

SUMMARY

Clarifies the circumstances under which a public entity that employed an independent contractor for one phase of a project may contract with that same contractor for a subsequent phase of the same project without violating a state law prohibiting conflicts of interests in public contracts.

Senate Amendments

1. Provide that a person who acts in good faith reliance on this bill's requirements is not in violation of the state law prohibiting conflicts of interests in public contracts, and shall not be subject to a criminal, civil, or administrative enforcement action for such a violation, if both of the following conditions are met:
   1. A statement is included in the initial contract between the public entity and the independent contractor specifying all of the following:
      1. The contractor's duties under the agreement do not involve engaging in or advising the public entity on the preparation of contracts for subsequent phases of the project, as specified;
      2. Any involvement by the contractor in the development of plans or specifications for a subsequent contract are limited to conceptual, preliminary, or initial plans or specifications, as specified; and,
      3. The contractor shall cooperate with the public entity to ensure that all bidders for a subsequent contract have access to any such conceptual, preliminary, or initial plans or specifications.
   2. The independent contractor is not in breach of the contractual obligations set forth above.
2. Provide that if a person acts in good faith reliance on this bill's requirements but fails to include the language specified above in the initial contract between the public entity and the independent contractor, compliance with the bill's other requirements may nevertheless be relied on as a complete defense to a violation of the state law prohibiting conflicts of interests in public contracts in any criminal, civil, or administrative proceeding, as specified.
3. Make technical, clarifying, and conforming changes, and recast the provisions of the Assembly-approved version of the bill.

COMMENTS

Government Code Section 1090 (Section 1090) generally prohibits a public official or employee from making a contract in the person's official capacity in which the person has a financial interest. In addition, a public body or board is prohibited from making a contract in which any member of the body or board has a financial interest, even if the member does not participate in making the contract.

When considering whether a public official is involved in the making of a contract for the purposes of Section 1090, legal opinions generally have broadly construed the "making" of a contract to include governmental actions that go beyond the award of the contract. For example, courts have found that for the purposes of Section 1090, the "making" of a contract includes preliminary discussions, negotiations, compromises, reasoning, planning, drawing of plans and specifications, and solicitation for bids. (Millbrae Association for Residential Survival v. City of Millbrae (1968) 262 Cal.App.2d 222.) Furthermore, courts have interpreted Section 1090 to apply to the actions of consultants to and independent contractors of public agencies in situations where the consultant or contractor serves as a trusted advisor to the governmental body and carries out public contracting duties on the government's behalf. (Campagna v. City of Sanger (1996) 42 Cal.App.4th 533. Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114. Davis v. Fresno Unified School Dist. (2015) 237 Cal.App.4th 261. People v. Superior Court (Sahlolbei) (2017) 3 Cal. 5th 230.)

In light of the information outlined above about the broad construction of Section 1090, an entity that is hired by a governmental body to advise it on a project can have a Section 1090 conflict that prohibits the entity from being awarded contracts for subsequent phases of the same project.

Since the Fair Political Practices Commission (FPPC) was given the authority to issue legal advice regarding Section 1090 and related laws through the passage of AB 1090 (Fong), Chapter 650, Statutes of 2013, the FPPC has issued almost 500 advice letters relating to Section 1090. Since the start of 2017, the FPPC has issued more than 40 letters in situations where governmental bodies sought advice about whether a contractor or consultant who performed preliminary work on a project would be eligible to be awarded a contract for subsequent work on the same project. The time and uncertainty associated with needing to get an advice letter from the FPPC before awarding certain contracts for public projects could lengthen the time necessary to complete those projects and reduce the pool of willing bidders for public contracts.

In light of the foregoing information, there may be policy benefits associated with having clearer rules describing the circumstances under which a consultant or contractor's participation in an early phase of a project will prevent that consultant or contractor from being awarded contracts for subsequent aspects of the same project.

In October 2020, the FPPC issued two documents that summarize Section 1090 and the advice the FPPC has given in interpreting that law. Both documents discuss the situations in which Section 1090 may apply to independent contractors, especially as it relates to questions about whether a public entity that has entered into a contract with an independent contractor to perform one phase of a project may enter into a second contract with the same contractor for a subsequent phase of the project. This bill seeks to codify the FPPC's guidance.

The Senate amendments to this bill recast and clarify the provisions of the Assembly-approved version of the bill, and add safe-harbors for persons who rely on the bill's requirements in good faith. This bill, as amended in the Senate, is generally consistent with prior Assembly actions.

According to the Author

"AB 334 will clarify Government Code Section 1090 according to previous court rulings and FPPC guidance regarding arrangements with independent contractors and will return control to public agencies to once again determine for themselves their own contracting decisions. Public agencies will still retain the right to set their own contract requirements or disallow contracts for any reason they desire."

Arguments in Support

The sponsor of this bill, the American Council of Engineering Companies, California, writes in support, "Public agencies are experiencing an alarming contracting issue when seeking to partner with independent contractors on their projects. For example, when agencies seek to contract with engineers, land surveyors, architects, and geologists on public works infrastructure projects, these design professionals are increasingly – and inappropriately – being subjected to the terms of Government Code Section 1090 as a result of unclarity in the law and case law. In consequence, well-qualified professionals are being precluded from participating in subsequent phases of work if they had any involvement in an earlier phase…The public is at great risk if qualified consultants and contractors are prohibited from working on certain phases of our projects. Public agencies should be free to choose through a competitive process who the most qualified professional is to partner with them and deliver projects to their constituents."

Arguments in Opposition

None received

FISCAL COMMENTS

According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

VOTES:

ASM ELECTIONS: 7-0-1

YES: Bryan, Lackey, Bennett, Essayli, Lee, Pellerin, Blanca Rubio

ABS, ABST OR NV: Low

ASM APPROPRIATIONS: 16-0-0

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Robert Rivas, Sanchez, Weber, Wilson

ASSEMBLY FLOOR: 66-0-14

YES: Addis, Aguiar-Curry, Alanis, Bains, Bennett, Berman, Boerner, Bryan, Calderon, Wendy Carrillo, Chen, Connolly, Megan Dahle, Davies, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Low, Lowenthal, Maienschein, Mathis, McKinnor, Muratsuchi, Stephanie Nguyen, Pacheco, Papan, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Weber, Wicks, Wilson, Zbur, Rendon

ABS, ABST OR NV: Alvarez, Arambula, Bauer-Kahan, Bonta, Juan Carrillo, Cervantes, Dixon, Hart, Lee, McCarty, Ortega, Jim Patterson, Ward, Wood

SENATE FLOOR: 38-0-2

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Glazer, Gonzalez, Grove, Hurtado, Jones, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

ABS, ABST OR NV: Eggman, Laird

UPDATED

VERSION: June 7, 2023

CONSULTANT: Ethan Jones / ELECTIONS / (916) 319-2094 FN: 0001253

 CONSENT  

Bill No: AB 334

Author: Blanca Rubio (D), et al.

Amended: 6/7/23 in Senate

Vote: 21

SENATE ELECTIONS & C.A. COMMITTEE: 7-0, 6/6/23

AYES: Glazer, Nguyen, Allen, McGuire, Menjivar, Newman, Umberg

SENATE JUDICIARY COMMITTEE: 11-0, 7/6/23

AYES: Umberg, Wilk, Allen, Ashby, Caballero, Durazo, Laird, Min, Niello, Stern, Wiener

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 66-0, 5/11/23 (Consent) - See last page for vote

SUBJECT: Public contracts: conflicts of interest

SOURCE: Author

DIGEST:

This bill specifies that an independent contractor is not a public officer for the purpose of a state law prohibiting conflicts of interests in public contracts, if certain conditions are met.

ANALYSIS:

Existing law:

1. Prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Prohibits state, county, district, judicial district, and city officers or employees from being purchasers at any sale or vendors at any purchase made by them in their official capacity. Prohibits an individual from aiding or abetting a violation of these provisions.
2. Provides that an officer shall not be deemed to be interested in a contract for the purposes of Government Code Section 1090 (Section 1090) if the officer has only a remote interest, as defined, in the contract. Enumerates various financial interests that are considered a “remote interest,” for these purposes.
3. Enumerates various financial interests for which an officer or employee is deemed not to be interested in a contract for the purposes of Section 1090.
4. Provides that a contract made in violation of Section 1090 may be voided by any party to the contract, except for the officer who had an interest in the contract in violation of Section 1090, as specified.
   
5. Provides that a person who willfully violates Section 1090, or who willfully aids or abets a violation of Section 1090, is punishable by a fine of not more than $1,000 or by imprisonment in the state prison, and is forever disqualified from holding any office in the state. Gives the Fair Political Practices Commission (FPPC) the authority to commence an administrative or civil enforcement action for a violation of Section 1090 and related laws, as specified.
6. Permits the FPPC to issue an opinion or advice with respect to a person’s duties under Section 1090 and related laws, as specified.
   

This bill:

1. Provides that a public entity that has entered into a contract with an independent contractor to perform one phase of a project and seeks to enter into a subsequent contract with that independent contractor for a later phase of the same project, the independent contractor is not an “officer” under existing law pertaining to prohibitions and restrictions on public officers if the independent contractor’s duties and services related to the initial contract did not include engaging in or advising on public contracting on behalf of the public entity.
2. Defines “engaging in or advising on public contracting” as preparing or assisting the public entity with any portion of the public entity’s preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity.
3. Provides that, if an independent contractor is an officer under 1) above, then it is not a violation of this article for the public entity to enter into a subsequent contract with that independent contractor for a later phase of the same project if the independent contractor did not engage in or advise on making of the subsequent contract through its performance of the initial contract.
4. Provides that an independent contractor does not “engage in or advise on the making of the subsequent contract” by participating in the planning, discussions, or drawing of plans or specifications during an initial stage of a project if that participation is limited to conceptual, preliminary, or initial plans or specifications and all bidders or proposers for the subsequent contract have access to the same information, including all conceptual, preliminary, or initial plans or specifications.
5. Provides that a person who acts in good faith reliance on this section is not in violation of this article and shall not be subject to criminal, civil, or administrative enforcement under this article if both of the following conditions are met:
   1. Specified language, or substantially similar language, is included in the initial contract between the public entity and the independent contractor. Specifically, “Contractor/consultant’s duties and services under this agreement shall not include preparing or assisting the public entity with any portion of the public entity’s preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity. The public entity entering this agreement shall at all times retain responsibility for public contracting, including with respect to any subsequent phase of this project. Contractor/consultant’s participation in the planning, discussions, or drawing of project plans or specifications shall be limited to conceptual, preliminary, or initial plans or specifications. Contractor/consultant shall cooperate with the public entity to ensure that all bidders for a subsequent contract on any subsequent phase of this project have access to the same information, including all conceptual, preliminary, or initial plans or specifications prepared by contractor pursuant to this agreement.”
   2. The independent contractor is not in breach of the contractual obligations set forth in a).
6. Provides that if a person acts in good faith reliance but fails to include the language set forth in a), above, in the initial contract between the public entity and the independent contractor, it is a complete defense to a violation of this article in any criminal, civil, or administrative proceeding if either of the following apply:
   1. The independent contractor is not an officer pursuant to subdivision 1).
   2. If the independent contractor is an officer pursuant to subdivision 1), the independent contractor did not engage in or advise on the making of the subsequent contract as provided in 3).

Background

Section 1090 generally prohibits a public official or employee from making a contract in the person’s official capacity, in which the person has a financial interest. Legal opinions generally have broadly construed the “making” of a contract to include governmental actions that go beyond the award of the contract. For example, an entity that is hired by a governmental body to advise the body on a project can have a Section 1090 conflict that prohibits the entity from being awarded contracts for subsequent phases of the same project, as such advisement can set the parameters for future contracts.

Since 2017, the FPPC has issued more than 40 advice letters regarding whether a contractor or consultant that preformed preliminary work on a project is eligible for subsequent project contracts. In a significant majority of those letters, the FPPC concluded there was not a conflict of interest, suggesting Section 1090 does not impose a de facto ban on contractors being awarded multiple contracts for different portions of the same project. Rather, the FPPC’s analysis is very fact specific, making it difficult for a contractor to determine whether a conflict of interest exists. The absence of such certainty can limit the pool of bidders willing to work on early phases of projects.

Comments

According to the author, this bill clarifies Government Code Section 1090 according to previous court rulings and FPPC guidance regarding arrangements with independent contractors and will return control to public agencies to once again determine for themselves their own contracting decisions. Public agencies will still retain the right to set their own contract requirements or disallow contracts for any reason they desire.

Related/Prior Legislation

AB 626 (Quirk-Silva, 2019) would have provided that specified design professionals who provide certain preliminary services on a public project shall not be deemed financially interested in a contract to provide services on a subsequent portion of that project, pursuant to Section 1090, if the work product for the preliminary services is publicly available. AB 626 was approved by the Assembly Committee on Elections & Redistricting, but was not taken up for a vote on the Assembly Floor and died on the Assembly’s Inactive File.

SB 952 (Torres, Chapter 483, Statutes of 2014) prohibited an individual from aiding or abetting a public officer or person in violating the law prohibiting financial conflicts of interest, and extended the penalties under existing law to apply to the individual who willfully aids or abets, as specified.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 8/16/23)

American Institute of Architects, California

American Public Works Association

Associated General Contractors of America, San Diego Chapter

Associated General Contractors of California

Association of California Cities - Orange County

Association of California Water Agencies

California & Nevada Civil Engineers and Land Surveyors Association

California Association of Recreation and Park Districts

California Geotechnical Engineers Association

California Land Surveyors Association

California Special Districts Association

California State Association of Counties

City of Belmont

City of Mountain View

City of Redwood City

City of San Marcos

City of Thousand Oaks

Coachella Valley Water District

County of Del Norte

Elsinore Valley Municipal Water District

Fair Political Practices Commission

Irvine Ranch Water District

Lake Shastina Community Services District

League of California Cities

McKinleyville Community Services District

Municipal Utilities Association

Orange County Sanitation District

Structural Engineers Association of California

Water Replenishment of Southern California

One Individual

OPPOSITION: (Verified 8/16/23)

None received

ASSEMBLY FLOOR: 66-0, 5/11/23

AYES: Addis, Aguiar-Curry, Alanis, Bains, Bennett, Berman, Boerner, Bryan, Calderon, Wendy Carrillo, Chen, Connolly, Megan Dahle, Davies, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Low, Lowenthal, Maienschein, Mathis, McKinnor, Muratsuchi, Stephanie Nguyen, Pacheco, Papan, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Weber, Wicks, Wilson, Zbur, Rendon

NO VOTE RECORDED: Alvarez, Arambula, Bauer-Kahan, Bonta, Juan Carrillo, Cervantes, Dixon, Hart, Lee, McCarty, Ortega, Jim Patterson, Ward, Wood

Prepared by: Scott Matsumoto / E. & C.A. / (916) 651-4106

8/16/23 15:05:02

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: AB 334 (Author:Blanca Rubio)

Version: June 7, 2023

Hearing Date: July 6, 2023

Fiscal: Yes

Urgency: No

Consultant: AWM

SUBJECT

Public contracts: conflicts of interest

DIGEST

This bill specifies that an independent contractor is not a public officer for the purpose of a state law prohibiting conflicts of interests in public contracts, subject to certain conditions, and provides a safe harbor for parties who rely in good faith on the bill’s requirements, subject to certain conditions.

EXECUTIVE SUMMARY

Existing law generally prohibits a public official or employee from making a contract in the person’s official capacity in which the person has a financial interest. To avoid even the appearance of impropriety—which can erode the public trust as much as actual conflicts of interest—the prohibition is broad, and includes conflicts of interest in the preparation of a contract and participation in the bid solicitation process. Case law has also extended the law’s prohibition on public officials or employees to include independent contractors retained or appointed by a public entity when their duties include engaging in or advising on public contracting.

According to the author and sponsor, there is currently ambiguity in the law regarding when independent contractors are considered to have a conflict of interest—thereby preventing them from entering into a contract with a public entity—as a result of the contractor’s work on a prior phase of the same project. Although the Fair Political Practices Commission (FPPC) has issued comprehensive administrative guidance on the matter, the FPPC’s guidance does not have the force of statute and would not, for example, bind a district attorney who sought criminal penalties for a violation under a different interpretation of the law. The author and sponsor state that this ambiguity is preventing local entities from entering into contracts with independent contractors who are the best candidates for the job, even if the contract complies with the FPPC’s guidance.

This bill is intended to provide clarity in public contracting by codifying the FPPC’s guidance, along with related case law, into a unified statute setting forth when an independent contractor’s work on an earlier phase of a project disqualifies them from working on a subsequent phase. The bill also provides safe harbors for persons who rely on the bill’s requirements in good faith.

This bill is sponsored by the American Council of Engineering Companies of California and is supported by almost 30 local governments and agencies and professional organizations. There is no known opposition. The Senate Elections and Constitutional Amendments Committee passed this bill with a vote of 7-0.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Prohibits members of the Legislature, state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members; and a state, county, district, judicial district, and city officers or employees from being purchasers at any sale or vendors at any purchase made by them in their official capacity. (Gov. Code, § 1090 (Section 1090).)
2. Provides that an officer shall not be deemed to be interested in a contract entered into by a body or board of which the officer is a member within the meaning of 1) if the officer has only a remote interest, as defined, in the contract and the fact of the interest is disclosed to the body or board of which the officer is a member, the interest is noted in the official record, and the body or board approves or ratifies the contract by a good faith vote of its membership sufficient for that purpose without counting the interested person’s vote. (Gov. Code, § 1091.)
3. Provides penalties for a violation of 1) as follows:
   1. Every officer or person prohibited from making or being interested in contracts, or from becoming a vendor or purchaser at sales, or from purchasing scrip or other evidences of indebtedness, including any member of the governing board of a school district, who willfully violates any of those provisions of those laws, is punishable by a fine of not more than $1,000 or by imprisonment in the state prison, and is forever disqualified from holding any office in this State.
   2. An individual who willfully aids or abets an officer or person in violating a prohibition by the laws of the state pursuant to 3)(a) is punishable by a fine of not more than $1,000 or by imprisonment in a state prison, and is forever disqualified from holding any office in this State. (Gov. Code, § 1097.)
4. Grants the FPPC jurisdiction to commence an administrative or civil action against a person from engaging in a violation of 1), as specified and subject to procedural requirements. (Gov. Code, §§ 1097.1-1097.5.)
5. Requires, notwithstanding any other provision of law, the selection by a state or local agency head for professional services of private architectural, landscape architecture, engineering, environmental, land surveying, or construction management firms to be on the basis of demonstrated competence and on the professional qualifications necessary for the satisfactory performance of the services required.
   1. In order to implement this method of selection, state agency heads contracting for such services shall adopt by regulation, and local agency heads may adopt by ordinance, procedures that assure that these services are engaged on the basis of demonstrated competence and qualifications for the types of services to be performed and at fair and reasonable prices to the public agencies.
   2. The procedures must assure maximum small business firms, as defined.
   3. The procedures shall specifically prohibit practices which might result in unlawful activity and government agency employees from participating in the selection process when those employees have a relationship with a person or entity seeking a contract under this section which would subject those employees to prohibitions on conflicts of interest. (Gov. Code, § 4526.)

This bill:

1. Provides that, for a public entity that has entered into a contract with an independent contractor to perform one phase of a project and seeks to enter into a subsequent contract with that independent contractor for a later phase of the same project, the independent contractor is not an “officer” under this article if the independent contractor’s duties and services related to the initial contract did not include engaging in or advising on public contracting on behalf of the public entity.
2. Defines, for purposes of 1), “engaging in or advising on public contracting” as preparing or assisting the public entity with any portion of the public entity’s preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity.
3. If an independent contractor is an officer under 1), then it is not a violation of Section 1090 for the public entity to enter into a subsequent contract with that independent contractor for a later phase of the same project if the independent contractor did not engage in or advise on the making of the subsequent contract during its performance of the initial contract.
4. States, for purposes of 3), that an independent contractor does not “engage or advise on the making of the subsequent contract” by participating in the planning, discussions, or drawing of plans or specifications during an initial stage of a project if that participation is limited to conceptual, preliminary, or initial plans or specifications and all bidders or proposers for the subsequent contract have access to the same information, including all conceptual, preliminary, or initial plans of specifications.
5. Provides that a person who acts in good faith in reliance on 1)-4) is not in violation of Section 1090 and shall not be subject to criminal, civil, or administrative enforcement under Section 1090 if both of the following conditions are met:
   1. The initial contract between the public entity and the independent contractor contains a statement that reads, or is substantially similar to: “Contractor/consultant’s duties and services under this agreement shall not include preparing or assisting the public entity with any portion of the public entity’s preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity. The public entity entering this agreement shall at all times retain responsibility for public contracting, including with respect to any subsequent phase of this project. Contractor/consultant’s participation in the planning, discussions, or drawing of project plans or specifications shall be limited to conceptual, preliminary, or initial plans or specifications. Contractor/consultant shall cooperate with the public entity to ensure that all bidders for a subsequent contract on any subsequent phase of this project have access to the same information, including all conceptual, preliminary, or initial plans or specifications prepared by contractor pursuant to this agreement.”
   2. The independent contractor is not in breach of the obligations specified in 5)(a).
6. Provides that, if a person who acts in good faith in reliance on 1)-4) but does not include the language set forth in 5)(a) in the contract between the public entity and the independent contractor, it is a complete defense to a violation of Section 1090 in any criminal, civil, or administrative if either of the following applies:
   1. The independent contractor is not an officer pursuant to 1).
   2. If the independent contractor is an officer pursuant to 1), the independent contractor did not engage in or advise on the making of the subsequent contract as provided in 3).

COMMENTS

1. Author’s comment

According to the author:

AB 334 will clarify Government Code section 1090 according to previous court rulings and FPPC guidance regarding arrangements with independent contractors and will return control to public agencies to once again determine for themselves their own contracting decisions. Public agencies will still retain the right to set their own contract requirements or disallow contracts for any reason they desire.

2. Background on the restrictions and requirements for government contracts

As explained by the FPPC:

Government Code Section 1090 [(Section 1090)] prohibits an officer, employee, or agency from participating in making government contracts in which the official or employee within the agency has a financial interest. Section 1090 applies to virtually all state and local officers, employees, and multimember bodies, whether elected or appointed, at both the state and local level.

“Making” a contract includes final approval of the agreement, as well as involvement in preliminary discussion, planning, negation, and solicitation of bids.   

A broad range of agreements are considered a contract under Section 1090. Generally, there is a contract when an offer is made and accepted and there is something of value bargained for and exchanged by each party. This includes written contracts, purchase of goods or services, employment agreements, leases, development agreements, etc…

Violations of Section 1090 can result in the voiding of contracts, criminal, civil, and administrative penalties, as well as a ban on holding public office.^[1] 

Section 1090 arises from “the general principle that no man can faithfully serve more than two masters whose interest are or may be in conflict,” and is therefore “concerned with any interest, other than perhaps a remote or minimal interest, which would prevent the officials from exercising absolute loyalty and undivided allegiance to the best interests of the city.”^[2] Courts have interpreted Section 1090’s proscriptions broadly; while the statute refers only to contracts “made,” the term has been held to “encompass such embodiments in the making of a contract as preliminary discussions, negotiations, compromises, reasoning, planning, drawing of plans and specifications and solicitation for bids.”^[3]

In 2017, the California Supreme Court held that Section 1090’s restrictions extend to an independent contractor “who has been retained or appointed by a public entity and whose actual duties include engaging in or advising on public contracting,” because such a contractor “is charged with acting on the government’s behalf.”^[4] The FPPC has since set forth a two-step analysis to determine whether an independent contractor is covered by Section 1090. The first step “is a determination of whether the independent contractor had responsibilities for public contracting on behalf of the public entity under the initial contract.”^[5] If “any part of their contractual duties or responsibilities under the first contract involved public contractor,” the analysis moves onto the second step.^[6] In the second step, “the analysis focuses on whether the independent contractor participated in making the subsequent contract for purposes of Section 1090…through its performance of the initial contract.”^[7] If so, the independent contractor may not enter into the subsequent contract with the public entity.^[8]

According to the author, the FPPC’s guidance regarding when independent contractors are covered by Section 1090 provides useful clarity to agencies and independent contractors. But the FPPC is not the only agency that enforces Section 1090; a willful violation of Section 1090 may be prosecuted as a misdemeanor in an action brought by the Attorney General or a district attorney.^[9] According to the author, the risk of prosecution deters agencies from entering into contracts that comply with the FPPC’s guidelines. Stakeholders also point out that the current ambiguity regarding Section 1090’s scope creates a conflict with the requirement that local agencies select private architectural, landscape architecture, engineering, environmental, land surveying, and construction management firms on the basis of demonstrated competence and on the professional qualifications necessary for the satisfactory performance of the job;^[10] they argue that applying overly stringent restrictions on when independent contractors may prevent local agencies from selecting the best, most qualified firm for the job.

3. This bill codifies FPPC guidance and case law on Section 1090

This bill is intended to give local agencies and independent contractors legal clarity when entering into subsequent contracts on the same project. The bill incorporates current FPPC guidance and case law into a new section in the Government Code that specifically addresses independent contractors.

First, the bill implements the FPPC’s two-step analysis to determine whether Section 1090 applies to the contracts. The bill provides that an independent contractor who worked on one phase of a project is not considered an “officer” for purposes of Section 1090 if the contractor’s duties and services in the first phase did not include engaging in or advising on public contracting on behalf of the public entity. “Engaging in or advising on public contracting” means preparing or assisting the public entity with any portion of its preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity. The bill then provides that, even if an independent contractor is an “officer” under step one, the public entity may enter into a subsequent contract with the independent contractor if the independent contractor did not engage or advise in the making of the subsequent contract during its performance of the initial contract. “Engaging in or advising on the making of the subsequent contract” does not include participating in the planning, discussions, or drawing of plans or specifications during an initial stage of a project if that participation is limited to conceptual, preliminary, or initial plans or specifications and all bidders or proposers for the subsequent contract have access to the same information, as specified.

Next, the bill establishes two safe harbors. The first provides that a person who acts in good faith reliance on the framework above is not in violation of Section 1090 and related statutes if two conditions are met. First, the initial contract must contain a statement identical or substantially similar to the following:

Contractor/consultant’s duties and services under this agreement shall not include preparing or assisting the public entity with any portion of the public entity’s preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity. The public entity entering this agreement shall at all times retain responsibility for public contracting, including with respect to any subsequent phase of this project. Contractor/consultant’s participation in the planning, discussions, or drawing of project plans or specifications shall be limited to conceptual, preliminary, or initial plans or specifications. Contractor/consultant shall cooperate with the public entity to ensure that all bidders for a subsequent contract on any subsequent phase of this project have access to the same information, including all conceptual, preliminary, or initial plans or specifications prepared by contractor pursuant to this agreement.

Second, the contractor must comply with the terms of the statement, above, i.e., not bid for a contract in which they assisted with the public entity’s preparation of a request for proposal or qualifications or other solicitations regarding a subsequent agreement.

The second safe harbor is narrower: it provides that, if a person acts in good faith reliance on the framework above but the initial contract does not include the statement, it is a complete defense to an alleged violation if the independent contractor either did not qualify as an officer under step one of the framework, or the independent contractor did not engage in or advise on the making of the subsequent contract under step two of the framework. This provision will ensure that parties who executed the initial contract before this bill took effect—and therefore had no reason to add the contractual language above—but who would qualify for this bill’s protections can raise their compliance with this bill as a defense.

4. Arguments in support

According to the FPPC:

Under existing law, a state or local government officer or employee is generally prohibited from participating in making a government contract in which the officer or employee is financially interested. In some cases, if an independent contractor engaged in, or advised on, the making of a subsequent contract while performing duties and services under an initial contract for the same project, the independent contractor may be prohibited from being hired for that subsequent contract, since they had participated in the making of a government contract in which they would have a financial interest.

Existing law does not state the specific types of activities that constitute engaging in, or advising on, a subsequent contract for an independent contractor, creating uncertainty as to what activities during performance of the initial contract are permissible in this context. AB 334 would address this issue by clarifying the circumstances under which an independent contractor’s activities during the initial contract would not bar the independent contractor from being hired for a subsequent contract for the same project. The bill would also add safe harbor provisions to protect independent contractors who are complying in good faith with these provisions from prosecution, or provide them with a complete defense.

SUPPORT

American Council of Engineering Companies of California (sponsor)

American Institute of Architects

American Public Works Association

American Society of Civil Engineers

Associated General Contractors of California and the Associated General Contractors of America, San Diego Chapter

Association of California Cities – Orange County

Association of California Water Agencies

California & Nevada Civil Engineers and Land Surveyors Association

California Association of Recreation and Park Districts

California Geotechnical Engineers Association

California Land Surveyors Association

California Municipal Utilities Association

California Special Districts Association

California State Association of Counties

City of Belmont

City of Mountain View

City of Norwalk

City of Redwood City

City of San Marco

City of Thousand Oaks

Coachella Valley Water District

County of Del Norte
Fair Political Practices Commission

Irvine Ranch Water District

Lake Shastina Community Services District

League of California Cities

McKinleyville Community Services District

Orange County Sanitation District

Structural Engineers Association of California

Water Replenishment of Southern California

OPPOSITION

None known^[11]

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation:

AB 626 (Quirk-Silva, 2019) would have provided that an officer or employee shall not be deemed to be interested in a contract if their interest is in that of an engineer, geologist, architect, landscape architect, land surveyor, or planner in performing its services, including, but not limited to, master planning, capital improvement planning, entitlement, environmental, assessments, feasibility studies, conceptual analysis, surveying, preliminary design services, preconstruction, or assisting with plans, specifications, or project planning services on any portion or phase of a project when proposing to perform services on any subsequent portion or phase of the project, if the work product for prior phases is publicly available, as specified. AB 626 died in the Assembly Appropriations Committee.

SB 704 (Gaines, Ch. 495, Stats. 2015) provided that an officer or employee shall not be deemed to be interested in a contract if their interest is in that of an owner or partner of a firm serving as an appointed member of an unelected board or commission of the contracting agency if the owner or partner recuses himself or herself from providing any advice to the contracting agency regarding the contract between the firm and the contracting agency and from all participation in reviewing a project that results from that contract.

PRIOR VOTES:

Senate Elections and Constitutional Amendments Committee (Ayes 7, Noes 0)

Assembly Floor (Ayes 66, Noes 0)

Assembly Appropriations Committee (Ayes 16, Noes 0)

Assembly Elections Committee (Ayes 7, Noes 0)

**************

1. FPPC, Section 1090 (2023), https://www.fppc.ca.gov/learn/section-1090.html. All links in this analysis are current as of June 30, 2023. ↑

2. Thomson v. Call (38 Cal.3d 633, 647-648. ↑

3. Millbrae Ass’n for Residential Survival v. City of Millbrae (1968) 262 Cal.App.2d 22, 237. ↑

4. People v. Superior Court (Sahlolbei) (2017) 3 Cal.5th 230, 240. ↑

5. FPPC, An Overview of Section 1090 and FPPC Advice (Oct. 2020), p. 4, available at https://www.fppc.ca.gov/content/dam/fppc/NS-Documents/LegalDiv/section-1090/Section%201090%20-%20Overview%20-%20Oct%202020.pdf. ↑

6. Ibid. ↑

7. Ibid. ↑

8. Id. at p. 5. ↑

9. Gov. Code, § 1097. ↑

10. Id., § 4526. ↑

11. The California District Attorneys Association opposed a prior version of the bill but formally removed its opposition following the May 30, 2023, amendments. ↑

SENATE COMMITTEE ON

ELECTIONS AND CONSTITUTIONAL AMENDMENTS

Senator Steven Glazer, Chair

2023 - 2024 Regular

Bill No: AB Hearing Date: 6/6/23

Subject: Public contracts: conflicts of interest

DIGEST

This bill specifies that an independent contractor is not a public officer for the purpose of a state law prohibiting conflicts of interests in public contracts, if certain conditions are met.

ANALYSIS

Existing law:

1. Prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Prohibits state, county, district, judicial district, and city officers or employees from being purchasers at any sale or vendors at any purchase made by them in their official capacity. Prohibits an individual from aiding or abetting a violation of these provisions.
2. Provides that an officer shall not be deemed to be interested in a contract for the purposes of Government Code Section 1090 (Section 1090) if the officer has only a remote interest, as defined, in the contract. Enumerates various financial interests that are considered a “remote interest,” for these purposes.
3. Enumerates various financial interests for which an officer or employee is deemed not to be interested in a contract for the purposes of Section 1090.
4. Provides that a contract made in violation of Section 1090 may be voided by any party to the contract, except for the officer who had an interest in the contract in violation of Section 1090, as specified.
   
5. Provides that a person who willfully violates Section 1090, or who willfully aids or abets a violation of Section 1090, is punishable by a fine of not more than $1,000 or by imprisonment in the state prison, and is forever disqualified from holding any office in the state. Gives the Fair Political Practices Commission (FPPC) the authority to commence an administrative or civil enforcement action for a violation of Section 1090 and related laws, as specified.
6. Permits the FPPC to issue an opinion or advice with respect to a person’s duties under Section 1090 and related laws, as specified.
   

This bill:

1. Provides that a public entity that has entered a contract with an independent contractor to perform one phase of a project and seeks to enter into a subsequent contract with that independent contractor for a later phase of the same project, the independent contractor is not an “officer” under existing law pertaining to prohibitions and restrictions on public officers, if the independent contractor did not have responsibilities for public contracting on behalf of the public entity under the initial contract.
2. Provides that an independent contractor does not “have responsibilities for public contracting” if both of the following exist: (A) the public entity at all times retains responsibility for public contracting, including with respect to any subsequent phase of a project, and (B) the independent contractor’s duties under the initial contract do not include preparing or assisting the public entity with the public entity’s preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity.
3. Provides that, if an independent contractor is an officer under 1) above, then it is not a violation of this article for the public entity to enter into a subsequent contract with that independent contractor for a later phase of the same project if the independent contractor did not participate in the making of the subsequent contract through its performance of the initial contract.
4. Provides that an independent contractor does not “participate in the making of the subsequent contract” if both of the following exist: (A) the independent contractor’s participation in the planning, discussions, or drawing of plans or specifications during an initial stage of a project are limited to conceptual, preliminary, or initial plans or specifications, and (B) all bidders or proposers for the subsequent contract have access to the same information, including all conceptual, preliminary, or initial plans or specifications.
5. Provides that a person who acts in good faith reliance on this section shall not be subject to criminal, civil, or administrative enforcement under this article provided both the following conditions are met:
   1. Specified language, or substantially similar, is included in the initial contract between the public entity and the independent contractor, which clarifies contractor/consultant and the public entity’s duties, responsibilities and limitations, including cooperation to ensure that all bidders for a subsequent contract on any subsequent phase(s) of this project have access to all conceptual, preliminary, and/or initial plans or specifications prepared by contractor pursuant to this agreement.
   2. The independent contractor is not in breach of the contractual obligations set forth in a).
   3. In the event the language set forth in a) is not included in the initial contract between the public entity and the independent contractor, compliance with a) and b) may nevertheless be relied on as a complete defense in any criminal, civil, or administrative proceeding.

BACKGROUND

Conflict of Interest. Section 1090 generally prohibits a public official or employee from making a contract in the person’s official capacity, in which the person has a financial interest. Legal opinions generally have broadly construed the “making” of a contract to include governmental actions that go beyond the award of the contract. For example, an entity that is hired by a governmental body to advise the body on a project can have a Section 1090 conflict that prohibits the entity from being awarded contracts for subsequent phases of the same project, as such advisement can set the parameters for future contracts.

Since 2017, the FPPC has issued more than 40 advice letters regarding whether a contractor or consultant that preformed preliminary work on a project is eligible for subsequent project contracts. In a significant majority of those letters, the FPPC concluded there was not a conflict of interest, suggesting Section 1090 does not impose a de facto ban on contractors being awarded multiple contracts for different portions of the same project. Rather, the FPPC’s analysis is very fact specific, making it difficult for a contractor to determine whether a conflict of interest exists. The absence of such certainty can limit the pool of bidders willing to work on early phases of projects.

COMMENTS

1. According to the author: AB 334 will clarify Government Code §1090 according to previous court rulings and FPPC guidance regarding arrangements with independent contractors and will return control to public agencies to once again determine for themselves their own contracting decisions. Public agencies will still retain the right to set their own contract requirements or disallow contracts for any reason they desire.
2. Suggested Amendment. This bill creates a new section in the Elections Code related to conflict of interest. The current language in the bill has been developed by the author and sponsor in consultation with the FPPC and is intended to reflect the FPPC’s guidance and court decisions on the subject. The current bill includes safe harbor language which is a legal provision to reduce or eliminate legal or regulatory liability in certain situations as long as certain conditions are met. Committee staff recommends that the bill be amended with language vetted by the FPPC staff. Specifically, amend the current language to provide: 1) greater detail and clarification to provisions relating to defining duties and services in an agreement that determine whether or not an independent contractor is an “officer” and 2) clarifying and conforming language in the safe harbor provision.
3. Argument in Support. In a letter supporting AB 334, the American Council of Engineering Companies of California states, in part, the following:

Public agencies are experiencing an alarming contracting issue when seeking to partner with independent contractors on their projects. For example, when agencies seek to contract with engineers, land surveyors, architects, and geologists on public works infrastructure projects, these design professionals are increasingly – and inappropriately – being subjected to the terms of Government Code Section 1090 as a result of unclarity in the law and case law. In consequence, well qualified professionals are being precluded from participating in subsequent phases of work if they had any involvement in an earlier phase. Engineers and architects conceive, design, and oversee much of the state’s infrastructure projects, including roads, buildings, airports, tunnels, dams, bridges, rail, and water systems.

The public is at great risk if qualified consultants and contractors are prohibited from working on certain phases of our projects. Public agencies should be free to choose through a competitive process who the most qualified professional is to partner with them and deliver projects to their constituents.

1. Double Referral. If approved by this committee, AB 334 will be referred to the Committee on Rules.

RELATED/PRIOR LEGISLATION

AB 626 (Quirk-Silva) of 2019 would have provided that specified design professionals who provide certain preliminary services on a public project shall not be deemed financially interested in a contract to provide services on a subsequent portion of that project, pursuant to Section 1090, if the work product for the preliminary services is publicly available. AB 626 was approved by the Assembly Elections & Redistricting Committee, but was not taken up for a vote on the Assembly Floor and died on the Assembly inactive file.

SB 952 (Torres), Chapter 483, Statutes of 2014, prohibited an individual from aiding or abetting a public officer or person in violating the law prohibiting financial conflicts of interest, and extended the penalties under existing law to apply to the individual who willfully aids or abets, as specified.

PRIOR ACTION

POSITIONS

Sponsor: American Council of Engineering Companies, California

Support: American Institute of Architects, California

American Public Works Association

Associated General Contractors of California

Associated General Contractors of America, San Diego Chapter

Association of California Cities - Orange County

Association of California Water Agencies

California & Nevada Civil Engineers and Land Surveyors Association

California Association of Recreation and Park Districts

California Geotechnical Engineers Association

California Land Surveyors Association

California Special Districts Association

California State Association of Counties

City of Belmont

City of Mountain View

City of Redwood City

City of San Marcos

Coachella Valley Water District

County of Del Norte

Elsinore Valley Municipal Water District

Irvine Ranch Water District

Lake Shastina Community Services District

League of California Cities

McKinleyville Community Services District

Municipal Utilities Association

Orange County Sanitation District

Structural Engineers Association of California

Water Replenishment of Southern California

One Individual

Oppose: None received

-- END --

Date of Hearing: May 3, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 334

Author:(Blanca Rubio) – As Introduced Ver:January 30, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill provides that an independent contractor that meets specified requirements is not an officer subject to the existing prohibition on being financially interested in a contract generally applicable to government officers.

Specifically, this bill provides that an independent contractor that enters into a contract with a public entity to perform one phase of a project and seeks to enter into a subsequent contract for a later phase of the same project is not an “officer” subject to conflict-of-interest prohibitions if either of the following conditions are met:

1. The independent contractor did not have responsibilities for public contracting on behalf of the public entity under the initial contract.
2. The independent contractor did not participate in making the subsequent contract through its performance of the initial contract.

FISCAL EFFECT:

Minor and absorbable costs to the FPPC to update informational materials and answer questions.

COMMENTS:

1. Purpose. According to the author:

AB 334 will clarify Government Code [Section] 1090 according to previous court rulings and FPPC guidance regarding arrangements with independent contractors and will return control to public agencies to once again determine for themselves their own contracting decisions. Public agencies will still retain the right to set their own contract requirements or disallow contracts for any reason they desire.

1. Support and Opposition. This bill is sponsored by the American Council of Engineering Companies, California, which argues “when agencies seek to contract with engineers, land surveyors, architects, and geologists on public works infrastructure projects, these design professionals are increasingly – and inappropriately – being subjected to the terms of Government Code Section 1090.” As a result, “well-qualified professionals are being precluded from participating in subsequent phases of work if they had any involvement in an earlier phase.” This bill is also supported by other contractor groups and local governments.

This bill is opposed, unless amended, by the California District Attorneys Association (CDAA), to strike the definitions of “have responsibilities for public contracting” and “participate in the making of the subsequent contract.” CDAA argues these definitions “would prevent District Attorneys and the Attorney General from prosecuting and investigating conflicts of interest involving state, county, and local governments, and officials in their potential conflict-of-interest dealings”

1. Conflict of Interest. Government Code Section 1090 generally prohibits a public official or employee from making a contract in the person’s official capacity, in which the person has a financial interest. Legal opinions generally have broadly construed the “making” of a contract to include governmental actions that go beyond the award of the contract. For example, an entity that is hired by a governmental body to advise the body on a project can have a Section 1090 conflict that prohibits the entity from being awarded contracts for subsequent phases of the same project, as such advisement can set the parameters for future contracts. Since 2017, the FPPC has issued more than 40 advice letters regarding whether a contractor or consultant that preformed preliminary work on a project is eligible for subsequent project contracts. In a significant majority of those letters, the FPPC concluded there was not a conflict of interest, suggesting Section 1090 does not impose a de facto ban on contractors being awarded multiple contracts for different portions of the same project. Rather, the FPPC’s analysis is very fact specific, making it difficult for a contractor to determine whether a conflict of interest exists. The absence of such certainty can limit the pool of bidders willing to work on early phases of projects.

This bill provides an independent contractor is not subject to conflict of interest prohibitions if the contractor did not have responsibilities for public contracting on behalf of the public entity under the initial contract and did not participate in making the subsequent contract through its performance of the initial contract. This language closely tracks the language of the FPPC’s guidance on the subject. However, additional bill provisions go beyond the scope of FPPC guidance documents and seek to describe situations under which an independent contractor would not be deemed to have “had responsibilities for public contracting” or not to have “participated in the making of the subsequent contract” for purposes of the above-described two-step test. The FPPC has not publicly opined whether these provisions are consistent with its guidance and case law.

1. Prior Legislation. AB 626 (Quirk-Silva), of the 2019-20 Legislative Session, would have provided a similar conflict of interest determination for an engineer, geologist, architect, landscape architect, land surveyor, or planner that provides preliminary design and preconstruction services on a project when proposing to perform subsequent services. AB 626 was ordered to the Assembly Inactive File.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 19, 2023

ASSEMBLY COMMITTEE ON ELECTIONS

Isaac G. Bryan, Chair

ABPCA Bill Id:AB 334 (

Author:Blanca Rubio) – As Introduced Ver:January 30, 2023

SUBJECT: Public contracts: conflicts of interest.

SUMMARY: Specifies that an independent contractor is not a public officer for the purpose of a state law prohibiting conflicts of interests in public contracts, if certain conditions are met. Specifically, this bill:

1. Provides that an independent contractor who performs one phase of a project for a public entity, and who seeks to enter into a subsequent contract for a later phase of the same project, is not an “officer” for the purpose of a state law that prohibits public officers and employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members, if either of the following conditions are met:
   1. The independent contractor did not have responsibilities for public contracting on behalf of the public entity under the initial contract; or,
      
   2. The independent contractor did not participate in making the subsequent contract through its performance of the initial contract.
      
2. Provides, for the purposes of this bill, that an independent contractor does not “have responsibilities for public contracting” if both of the following are true:
   
   1. The public entity at all times retains responsibility for public contracting, including with respect to any subsequent phase of a project; and,
      
   2. The independent contractor’s duties under the initial contract do not include preparing or assisting the public entity with the public entity’s preparation of a request for proposals, request for qualifications, or any other solicitation regarding a subsequent or additional contract with the public entity.
      
3. Provides, for the purposes of this bill, that an independent contractor does not “participate in the making of the subsequent contract” if both of the following are true:
   1. The independent contractor’s participation in the planning, discussions, or drawing of plans or specifications during an initial stage of a project are limited to conceptual, preliminary, or initial plans or specifications; and,
   2. All bidders or proposers for the subsequent contract have access to the same information, including all conceptual, preliminary, or initial plans or specifications.

EXISTING LAW:

1. Prohibits members of the Legislature and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Prohibits state, county, district, judicial district, and city officers or employees from being purchasers at any sale or vendors at any purchase made by them in their official capacity. Prohibits an individual from aiding or abetting a violation of these provisions. (Government Code §1090)
   
2. Provides that an officer shall not be deemed to be interested in a contract for the purposes of Section 1090 if the officer has only a remote interest, as defined, in the contract. Enumerates various financial interests that are considered a “remote interest,” for these purposes. (Government Code §§1091, 1091.4)
3. Enumerates various financial interests for which an officer or employee is deemed not to be interested in a contract for the purposes of Section 1090. (Government Code §1091.5)
4. Provides that a contract made in violation of Section 1090 may be voided by any party to the contract, except for the officer who had an interest in the contract in violation of Section 1090, as specified. (Government Code §1092)
   
5. Provides that a person who willfully violates Section 1090, or who willfully aids or abets a violation of Section 1090, is punishable by a fine of not more than $1,000 or by imprisonment in the state prison, and is forever disqualified from holding any office in the state. (Government Code §1097) Gives the Fair Political Practices Commission (FPPC) the authority to commence an administrative or civil enforcement action for a violation of Section 1090 and related laws, as specified. (Government Code §1097.1)
   
6. Permits the FPPC to issue an opinion or advice with respect to a person’s duties under Section 1090 and related laws, as specified. (Government Code §1097.1)
   

FISCAL EFFECT: Unknown

COMMENTS:

1. Purpose of the Bill: According to the author:

AB 334 will clarify Government Code §1090 according to previous court rulings and FPPC guidance regarding arrangements with independent contractors and will return control to public agencies to once again determine for themselves their own contracting decisions. Public agencies will still retain the right to set their own contract requirements or disallow contracts for any reason they desire.

1. Government Code Section 1090: Section 1090 generally prohibits a public official or employee from making a contract in the person’s official capacity in which the person has a financial interest. In addition, a public body or board is prohibited from making a contract in which any member of the body or board has a financial interest, even if that member does not participate in the making of the contract. Contracts that are made in violation of Section 1090 can be voided by any party to the contract except the officer interested in the contract, as specified. The prohibitions against public officers being financially interested in contracts that are contained in Section 1090 date back to the second session of the California Legislature (Chapter 136, Statutes of 1851). A public official can be subject to felony penalties for a violation of Section 1090 even if the official did not intend to secure any personal benefit, did not intend to violate Section 1090, and did not know that their conduct was unlawful.
   
   Unlike conflicts of interest under the Political Reform Act, it is generally not sufficient for public officials who have financial interests in contracting decisions under Section 1090 to recuse themselves from participating in those decisions in order to avoid the conflicts. Instead, under Section 1090, the board or body of which the official is a member continues to be prohibited from making a contract in which one of its members is financially interested even if that member does not participate in the decision. This policy reflects a concern that remaining board members' knowledge of their fellow member's interest could lead the board to favor an award that would benefit the recused member.
   
   State law recognizes two categories of exceptions to Section 1090: "remote interests" and "non-interests." State law lists 15 types of financial interests that the Legislature has chosen to exclude from the scope of Section 1090, commonly referred to as "non-interests." Examples of "non-interests" include: an ownership interest of less than 3% of a for-profit corporation, as specified; interest in a spouse's employment, if the spouse has held the same job for at least one year before the official took office; or that of a public official being reimbursed for their actual expenses related to the performance of official government duties.

By contrast, where a government official has a "remote interest," the official must take three steps before the body on which the official sits may vote on that contract. First, the official must disclose the interest to the governmental body. Second, the interest must be noted in the governmental body's official records. Finally, the official with the "remote interest" must abstain from participating in making the contract. State law lists 18 situations that qualify as "remote interests," including that of an engineer, geologist, architect, or planner employed by an engineering, architectural, or planning consulting firm. While the willful failure of an officer to disclose a remote interest in a contract subjects that officer to the penalties outlined above, the contract itself is not subject to cancelation due to the violation unless the contracting party had knowledge of the fact of the remote interest of the officer at the time the contract was executed.

When considering whether a public official is involved in the making of a contract for the purposes of Section 1090, legal opinions generally have broadly construed the "making" of a contract to include governmental actions that go beyond the award of the contract. For example, courts have found that for the purposes of Section 1090, the "making" of a contract includes preliminary discussions, negotiations, compromises, reasoning, planning, drawing of plans and specifications, and solicitation for bids. (Millbrae Association for Residential Survival v. City of Millbrae (1968) 262 Cal.App.2d 222.) In an informal opinion from 1993, the California Attorney General concluded that a former member of a city planning commission would violate Section 1090 if he entered into a contract with the city to be a consultant with respect to the city's general plan revision, because when the person was still on the planning commission, it had adopted a policy to use consultants rather than employees for the plan revision. (Cal.Atty.Gen., Indexed Letter, No. IL 92-1212 (Jan. 26, 1993).)

Furthermore, courts have interpreted Section 1090 to apply to the actions of consultants to and independent contractors of public agencies in situations where the consultant or contractor serves as a trusted advisor to the governmental body and where the consultant or contractor carries out public contracting duties on the government’s behalf. (Campagna v. City of Sanger (1996) 42 Cal.App.4th 533. Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114. Davis v. Fresno Unified School Dist. (2015) 237 Cal.App.4th 261. People v. Superior Court (Sahlolbei) (2017) 3 Cal. 5th 230.) In those situations, the courts have concluded that the contractors’ considerable influence over the decision making of the governmental body meant that the contractors were serving as public employees, and were therefore subject to Section 1090’s prohibition on public employees being financially interested in any contract made by them in their official capacity.

1. Infrastructure Projects and Section 1090: In light of the information outlined above about the broad construction of Section 1090, an entity that is hired by a governmental body to advise the body on a project can have a Section 1090 conflict that prohibits the entity from being awarded contracts for subsequent phases of the same project. In the case of infrastructure projects, for instance, a contractor that provides preconstruction services can be considered to have been involved in the making of the subsequent contract for construction services because the preconstruction work can set the parameters for subsequent work. In such a circumstance, the contractor that provided preconstruction services could be barred by Section 1090 from being awarded a contract for the construction of that project.
   
   In 2017, for example, the FPPC issued an advice letter concluding that an architectural firm that was awarded a contract to perform a jail needs assessment for a county was prohibited by Section 1090 from being awarded a subsequent contract to prepare plans and specifications for a new jail facility, and for related architectural services through construction of the new facility (Simon Advice Letter, No. A-17-148). In reaching that conclusion, the FPPC noted that the architectural firm “was integrally involved in the preliminary discussions, negotiations, reasoning, planning, and specifications that will result in the contract for the architectural design of a new jail,” and thus the firm “has the potential to exert considerable influence over the County’s decisions concerning the new…jail.”
   
   The fact that a contractor provided preconstruction services to a governmental body, however, does not necessarily mean that the contractor has a conflict under Section 1090 when it comes to subsequent contracts on the same project. Rather, courts and the FPPC have concluded that a contractor for a public agency is not considered a public employee for the purposes of Section 1090 if the contractor does not exert considerable influence over the decision making of the agency.
   
   Since the FPPC was given the authority to issue legal advice regarding Section 1090 and related laws through the passage of AB 1090 (Fong), Chapter 650, Statutes of 2013, the FPPC has issued almost 500 advice letters relating to Section 1090. Since the start of 2017, the FPPC has issued more than 40 letters in situations where governmental bodies sought advice about whether a contractor or consultant who performed preliminary work on a project would be eligible to be awarded a contract for subsequent work on the same project. In a significant majority of those letters, the FPPC concluded that Section 1090 did not prohibit a contractor or consultant who performed preliminary work from being awarded a subsequent contract for additional work on the same project. That fact seems to suggest that Section 1090 does not impose a de facto ban on contractors being awarded multiple contracts for different portions of the same project. On the other hand, the FPPC’s analysis of whether Section 1090 applies to a contracting situation is very fact specific, so it could be difficult for a contractor or consultant to determine whether their participation in early phases of a project would jeopardize their ability to be awarded contracts for subsequent phases of the same project. The absence of such certainty could limit the pool of bidders for work on early phases of projects. Additionally, the time and uncertainty associated with needing to get an advice letter from the FPPC before awarding certain contracts for public projects could lengthen the time necessary to complete those projects and could further reduce the pool of willing bidders for public contracts.
   
   In light of the foregoing information, there may be policy benefits associated with having clearer rules describing the circumstances under which a consultant or contractor’s participation in an early phase of a project will prevent that consultant or contractor from being awarded contracts for subsequent aspects of the same project.
2. FPPC Guide to Section 1090: In October 2020, the FPPC issued two documents that summarize Section 1090 and the advice the FPPC has given in interpreting that law. Both documents discuss the situations in which Section 1090 may apply to independent contractors, especially as it relates to questions about whether a public entity that has entered into a contract with an independent contractor to perform one phase of a project may enter into a second contract with the same contractor for a subsequent phase of the project. In those documents, the FPPC describes a two-step test it generally employs in determining whether it is permissible for a public entity to enter into a second contract with a contractor in that situation, as follows:

The first step…is a determination of whether the independent contractor had responsibilities for public contracting on behalf of the public entity under the initial contract. If the answer is “no,” the independent contractor is not subject to Section 1090 and the public entity may enter the subsequent contract with them for the same project. However, if any part of their contractual duties or responsibilities under the first contract involved public contracting, then the independent contractor is subject to Section 1090, and the analysis proceeds to the second step.

Under the second step, the analysis focuses on whether the independent contractor participated in making the subsequent contract for purposes of Section 1090, as discussed below, through its performance of the initial contract. If the answer is “no,” the public entity may enter the subsequent contract with them for the same project. However, if the independent contractor is found to have participated in the making of the contract for purposes of Section 1090, the public entity may not enter into the subsequent contract.

The language of subdivision (a) of Section 1097.6 of the Government Code, as proposed to be added to state law by this bill, closely tracks the language of the FPPC’s guidance documents, and appears to accurately reflect that guidance. The provisions of subdivision (b) of that section, however, go beyond the scope of the summary provided in the FPPC guidance documents, and seek to describe situations under which an independent contractor would be deemed not to have “had responsibilities for public contracting” or not to have “participated in the making of the subsequent contract” for the purposes of the two-step test described above. The sponsors and supporters of this bill believe that the language of proposed subdivision (b) is consistent with FPPC guidance and case law, while the California District Attorneys Association, as indicated below, does not. (County district attorneys have responsibility for criminal enforcement of Section 1090.) The FPPC has not communicated a position on this bill, nor has it publicly communicated whether it believes the provisions of this bill are consistent with its guidance and case law.

1. Arguments in Support: The sponsor of this bill, the American Council of Engineering Companies, California, writes in support:

Public agencies are experiencing an alarming contracting issue when seeking to partner with independent contractors on their projects.

For example, when agencies seek to contract with engineers, land surveyors, architects, and geologists on public works infrastructure projects, these design professionals are increasingly – and inappropriately – being subjected to the terms of Government Code Section 1090 as a result of unclarity in the law and case law. In consequence, well-qualified professionals are being precluded from participating in subsequent phases of work if they had any involvement in an earlier phase.

Engineers and architects conceive, design, and oversee much of the state’s infrastructure projects, including roads, buildings, airports, tunnels, dams, bridges, rail, and water systems. The public is at great risk if qualified consultants and contractors are prohibited from working on certain phases of our projects.

Public agencies should be free to choose through a competitive process who the most qualified professional is to partner with them and deliver projects to their constituents.

1. Arguments in Opposition: The California District Attorneys Association, which has an “oppose unless amended” position on this bill, writes:

While we would agree that subdivision (a) of the proposed Government Code §1097.6 appears to be consistent with that guidance, we believe that the entirety of subdivision (b) is not, and would prevent District Attorneys and the Attorney General from prosecuting and investigating conflicts of interest involving state, county, and local governments, and officials in their potential conflict-of-interest dealings. For this reason, we oppose the measure unless amended to remove subdivision (b).

1. Previous Legislation: AB 626 (Quirk-Silva) of 2019 would have provided that specified design professionals who provide certain preliminary services on a public project shall not be deemed financially interested in a contract to provide services on a subsequent portion of that project, pursuant to Section 1090, if the work product for the preliminary services is publicly available. AB 626 was approved by the Assembly Elections & Redistricting Committee (the predecessor to this committee) on a 7-0 vote, but was never taken up for a vote on the Assembly Floor and died on the Assembly inactive file.
   

REGISTERED SUPPORT / OPPOSITION:

Support

American Council of Engineering Companies of California (Sponsor)

American Institute of Architects California

Associated General Contractors of California

Associated General Contractors - San Diego Chapter

Association of California Cities - Orange County

California State Association of Counties

City of Mountain View

City of San Marcos

Coachella Valley Water District

County of Del Norte

Lake Shastina Community Services District

League of California Cities

McKinleyville Community Services District

Opposition

California District Attorneys Association (unless amended)

Analysis Prepared by: Ethan Jones / ELECTIONS / (916) 319-2094