New Jersey Local Unit Pay To Play Laws Where We’ve Been and Where We’re Going

Rutgers Public Purchasing Educational ForumCenter for Government ServicesAtlantic City, April 30, 2014

PROGRAM PANELMichael Long, Esq.PartnerLowenstein Sandler LLP

Joseph A. Valenti (Ret.)Former Chief, Bureau of Local Management ServicesDivision of Local Government Services New Jersey Department of Community Affairs

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OUTLINE OF PRESENTATION The Basics

Definitions & Rules

Local Procurement & Contracting Fair & Open Contracts Window Contracts Quotations

The Laws State-level County & Local

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PAY TO PLAY DEFINED Pay to play laws regulate the political

activity of companies that do business with government

Public perception that government officials expect companies to “pay” (i.e., make political contributions) in order to “play” (i.e., be considered for government work)

Includes making and soliciting contributions

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BASIC TYPES OF PAY TO PLAY LAWS(1)Disqualification Laws

Penalty is disqualification from certain gov’t contracts

Can be severe – 5 years or more

(2) Disclosure Laws Periodic disclosure – can be “per contract” or “per

year”

Can be extremely burdensome

Penalties for nondisclosure can vary

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RELEVANT CONTRIBUTIONSDollar Threshold

Rule of Thumb -- in excess of $300

Attribution Rules Whose contributions are attributed to the

business? May include:

• Entities: Major shareholders, subsidiaries• Individuals: Officers, directors, partners,

LLC members, spouses, resident children

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RELEVANT CONTRIBUTIONS (CONT.)Aggregation Rules

Small contributions can be combined to exceed $300.

For candidates -- per election (primary or general).

For political organizations -- per calendar year.

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RELEVANT RECIPIENTS OF CONTRIBUTIONS Which contributions are prohibited? Differs considerably under the various laws May include

• Candidates for / holders of elective office at various level of government

• State, county, or local political party committees

• Legislative leadership committees

• PACs (a/k/a “continuing political committees”)

• Inaugural expense committees

• Ballot question committees

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RELEVANT CONTRACTSDollar Threshold -- More Than

$17,500

Contracts valued at $17,500 or less are excluded from most pay to play laws.

• Not linked to the agency’s bid threshold

• Will not increase based on index rate

• Includes some contracts with non-profits

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RELEVANT CONTRACTSDollar Threshold – Multi-Year

Contracts

For determining the $17,500 threshold, value of the contract over its entire term is considered.

Contractor receiving a non-fair and open contract cannot make disqualifying contributions during the life of the contract.

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RELEVANT CONTRACTSDollar Threshold – Aggregation

Rules

Multiple contracts/purchases between a contractor/vendor and a government agency in a single product/service category

• Aggregated for the purpose of the $17,500 threshold

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RELEVANT CONTRACTS (CONT.)Fair and Open vs. “Non-Fair and Open” (Alternate Process)

(1) Public competitive bidding;

(2) Competitive contracting (RFP); OR

(3) minimum requirements for “fair and open” process (see next slide)

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RELEVANT CONTRACTS (CONT.)Fair and Open – Minimum Requirements

Public advertisement (either conventionally in newspapers OR posted on the entity’s website) with “sufficient time to give notice” (10 days or more); and

Award under “a process that provides for public solicitation of proposals OR qualifications”; and

Established on the basis of an award and disclosure process documented in writing prior to any solicitation; and

Publicly opened and announced when awarded by the governing body.

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RELEVANT CONTRACTS (CONT.)Window Contracts

Contracts over $17,500 but less than the agency’s bid threshold.

Are subject to the law as a fair and open or non-fair and open process.

Fair and open contracts must now be awarded by the governing body, not by the purchasing agent.

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RELEVANT CONTRACTS (CONT.)Quotations

Are still permissible, but must comply with pay to play laws.

i.e., use a “fair and open” process OR comply with Ch. 19 and Ch. 271.

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CHAPTER 19County & Local Contracting

Disqualification Law -- 1 year from prohibited contribution

“Willful and intentional” violations can be punished more severely:

• 5-year Debarment

• Fines up to $100,000

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CHAPTER 19 (CONT.) Fair & Open Exclusion

But, if Contract is “Non Fair & Open”:

• Certification of no disqualifying

contributions

• Continuing duty to disclose to ELEC later

made disqualifying contributions

Ch. 19 Applies to Non-Profits

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CHAPTER 19 (CONT.) Prohibited Contribution – in excess of $300

“Winner Rule” – in office at time contract awarded

For County:• County political party committees• County candidates/officeholders

• For Municipality:• County political party committees• County candidates/officeholders

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CHAPTER 19 (CONT.) Relevant Contributors – Attribution Rule

Applies to:• Business• 10%+ owners (shareholders, partners, LLC

members, etc.)• If proprietorship, also to proprietor’s spouse

and resident children

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DLGS CH.19 “DECISION TREE”

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CHAPTER 271County & Local Contracting

Disclosure Law (1) “Per Contract” Disclosure

• Business must disclose all reportable contributions 10 days before award of contract

(2) Annual Disclosure• ELEC Form BE

• Potential significant impact of a single

Non-Profits excluded from Ch. 271

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CHAPTER 271 (CONT.) Attribution Rules – broadest in NJ:

(1) the business

(2) 10%+ shareholders

(3) partners, members, officers, and

directors

(4) their spouses and resident children;

and

(5) subsidiaries or PACs controlled by the

business.

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CHAPTER 271 (CONT.) Relevant Recipients – broadest in NJ:

(1) State, county, and municipal political

parties;

(2) PACs;

(3) Legislative leadership committees; or

(4) any State, county, or municipal

candidate in the jurisdiction where the

contracting entity is located.

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CHS.19 & 271 – ADDITIONAL GUIDANCE Department of Community

Affairs http://www.state.nj.us/dca/divisions/dlgs/

programs/pay_2_play.html

Includes:

Local Finance Notices

Plain language guides

Forms

FAQs

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COUNTY & LOCAL PAY TO PLAY LAWS County, local, and other government units are

permitted to enact their own pay to play laws

and rules

Posted to the NJ Secretary of State Website

http://www.state.nj.us/state/dos_pay_to_play.html

Nearly 200 separate laws – county, municipal,

school board, authority, etc.

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COUNTY & LOCAL PAY TO PLAY LAWS Key possible differences to watch out

for:• Lower contract amount threshold• No “fair and open” exception• Broader attribution rules• Lower contribution limits• Different aggregation rules (Broader scope

of relevant recipients

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EO 134/CH 51 & EO 117 State Contracting

• Applies to all State executive agencies, authorities, instrumentalities, etc.

• Disqualification Law – at least 18 months disqualification

• NO “fair and open” exception

• Attribution rules – very broad

• Relevant recipients – very broad

EO 18 – FHWA Exclusion

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INDIRECT VIOLATIONSVery Important Concept

Circumvention of pay to play laws can be treated as a separate violation

Certain acts can result in criminal sanctions and other punishments

• E.g., intentional use of “strawmen” or sham companies to disguise contributions

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THE “HEADLINE PROBLEM” Media coverage is driven by scandal -- even

being associated with the words “pay to play” carries risk

“ELEC reports N.J. ‘pay to play’ money totaled $5.1B” (www.nj.com, April 4, 2009)

Pay to Play: How Rod Blagojevich Turned Political Corruption Into a National Sideshow (book by Elizabeth Brackett, 2009)

Bottom Line: You don’t want your name in the headline

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FURTHER DEVELOPMENTS1. Constitutional Challenges

2. Boxer Report

3. Reform Legislation

4. Lobbyist Registration Laws

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COMPLIANCE ISSUESLaws are New

vague wording limited guidance few judicial and appellate decisions

Laws are in Flux constantly evolving body of laws, rules,

regulations, and executive orders First Amendment and other challenges

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COMPLIANCE ISSUES (CONT.)Enforcement is Uncertain

lack of enforcement track record and transparency

unclear boundaries of enforcement authority

Limited/Non-Existence of “Good Faith” Defenses

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