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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 5768 September 3, 1980 CONFLICT OF INTEREST: Contracts between public entity and corporation whose stockholder is a full-time public servant of the public entity CORPORATIONS: Contracts between public entity and corporation whose stockholder is a full-time public servant of the public entity A public entity is not prohibited from entering into a contract with a corporation whose stockholder is a full-time public servant of the public entity and who holds more than 1% of the outstanding stock where the public servant does not, directly or indirectly, solicit the contract, represent either party in negotiating the contract or otherwise take part in negotiating or approving the contract. However, if the contract is, in effect, an indirect contract between the public entity and its own public servant, it is prohibited. Honorable Charlie J. Harrison, Jr. State Representative The Capitol Lansing, Michigan 48909 You have asked my opinion on the following question: 'Does 317 P.A. 1968, MCLA 15.321 et seq, (1) prohibit a public entity from entering into a contract with a corporation whose stock is not listed on a stock exchange if one of such corporation's stockholders holding more than one percent of the outstanding stock of any class is a public servant who is paid for working more than an average of 25 hours per week for a public entity, where such public servant did not solicit the contract, represent either party in negotiating the contract, or otherwise take part in negotiating or approving the contract?' 1968 PA 317, supra, regulates the conduct of public servants (2) in respect to contracts with public entities. In 1968 PA 317, supra, Sec. 2, the legislature has provided: '(1) No public servant shall be a party, directly or indirectly, to any contract between himself and the public entity of which he is an officer or employee, except as provided in section 3. '(2) No public servant shall directly or indirectly solicit any contract between the public entity of which he is an officer or employee and (a) himself; (b) any firm (meaning a co-partnership or other unincorporated association) of which he is a partner, member or employee; (c) any private corporation in which he is a stockholder owning more than 1% of the total outstanding stock of any class where such stock is not listed on a stock exchange or stock with a present total market value in excess of $25,000.00 where such stock is listed on a stock exchange or of which he is a director, officer or employee; or (d) any trust of which he is a beneficiary or trustee; nor shall he take any part in the negotiations for such a contract or the renegotiation thereof or amendment thereto or in the approval thereof; nor shall he represent either party in the transaction; except as provided in section 3.' MCLA 15.322; MSA 4.1700(52) [Emphasis added.] Thus, in 1968 PA 317, Sec. 2, the Legislature has prohibited certain conduct of public servants with respect to contracts with public entitles. Accord, OAG, 1973-1974, No 4799, footnote 2, supra. Not only is a public servant prohibited from being a party, directly or indirectly, to any contract between the public servant and the public entiry which the public servant serves, 1968 PA 317, Sec. 2(1), supra, but he or she is prohibited from soliciting or taking part in any manner in the negotiations of the agreement between the public entity and a private entity, or representing either party in the transaction, in which he or she has a relationship as outlined in 1968 PA 317, Sec. 2(2), supra. The prohibitions of 1968 PA 317, Sec. 2, supra, are made inapplicable by 1968 PA 317, Sec. 3, supra, which provides for disclosure of interest, and approval of the contract by a vote of 2/3 of the full membership of the approving body without the vote of the member of the public body making such disclosure. 1968 PA 317, Sec. 3, supra, provides: 'The provisions of section 2 hereof shall apply to all public servants who are paid for working more than an average of 25 hours per week for a public entity, but such provisions shall not apply to any other public servant: (1) if he shall promptly disclose his pecuniary interest in the contract to the official body which has power to approve the same, which disclosure shall be made a matter of record in its official proceedings; and (2) if the contract is approved by a vote of 2/3 of the full membership of such approving body without the vote of a member thereof if any, making such disclosure.' MCLA 15.323; MSA 4.1700(53) [Emphasis added.] Your question, however, deals with public servants who are paid for working more than 25 hours per week and, therefore, this disclosure-forgiveness provision may not be invoked. The 'non-application' provision set forth in 1968 PA 317, Sec. 4(b), supra, permits a public servant to be a party to a contract with the entity which is served, where a conflict of interest otherwise exists under the act, when the procedure of competitive bidding to the lowest qualified bidder is used to award the contract and the contract is not with the public servant. 1968 PA 317, Sec. 4(b), supra, provides the prohibitions of section 2 of the act shall not apply to: '(b) Contracts awarded to the lowest qualified bidder, other than a public servant, upon receipt of sealed bids pursuant to a published notice therefor provided such notice does not bar, except as authorized by law, any qualified person, firm, corporation or trust from bidding. This subsection shall not apply to amendments or renegotiations of a contract nor to additional payments thereunder which were not authorized by the contract at the time of award; . . .' MCLA 15.324(b); MSA 4.1700(54)(b) [Emphasis added.] If all the requirements of 1968 PA 317, Sec. 2(2), supra, are followed, a corporation with a shareholder who holds in excess of 1% of the outstanding stock and who is a public servant of the public entity, is not prohibited from contracting with the public entity unless the contract is, in effect, an indirect contract between the public entity and the public servant of such public entity. Such an indirect agreement would exist, for example, if the corporation were organized for the purpose of evading 1968 PA 317, Sec. 2(1), supra. It is, therefore, my opinion that a public entity is not prohibited from entering into a contract with a corporation whose stockholder is a full-time public servant of the public entity and who holds more than 1% of the outstanding stock, where the public servant does not directly or indirectly solicit the contract, represent either party in negotiating the contract or otherwise takes part in negotiating or approving the contract. (3) Frank J. Kelley Attorney General (1)
(2)
'Public servants' of a public entity as used in 1968 PA 317, supra, includes both officers and employees of the public entity involved. However, the term 'officer' does not include state officers and members of the legislature as covered by 1968 PA 318, MCLA 15.303; MSA 4.1700(23). OAG, 1973-1974, No 4799, p 116 (February 1, 1974).(3)
It should be noted that OAG, 1979-1980, No. 5489, p ___ (May 11, 1979), held that 1968 PA 318, MCLA 15.301 et seq; MSA 4.1700(21) et seq, which defines a substantial conflict of interest for members of the Legislature and state officers, prohibits a state university from contracting with a law firm once a partner in the law firm is appointed to the governing body of the university. However, the standards set forth in 1968 PA 318, supra, vary from the standards of 1968 PA 317, supra, governing conflict of interest for all other public employees.
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