Transcript Slide 1

New Jersey Local Unit
Pay To Play Laws
Where We’ve Been and Where We’re
Going
Rutgers Public Purchasing
Educational Forum
Center for Government Services
Atlantic City, April 30, 2014
PROGRAM PANEL
Michael Long, Esq.
Partner
Lowenstein Sandler LLP
Joseph A. Valenti (Ret.)
Former Chief, Bureau of Local Management
Services
Division of Local Government Services
New Jersey Department of Community Affairs
2
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
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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
CONTRIBUTIONS
Dollar 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
CONTRACTS
Dollar 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
CONTRACTS
Dollar 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
CONTRACTS
Dollar 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 19
County & 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 271
County & 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/divisio
ns/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
VIOLATIONS
Very 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
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FURTHER
DEVELOPMENTS
1. Constitutional Challenges
2. Boxer Report
3. Reform Legislation
4. Lobbyist Registration Laws
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COMPLIANCE ISSUES
Laws 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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