Conflict of Interest for Official Employed by Subcontractor

July 2003

The California Attorney General recently issued an opinion (No. 03-201) holding that a city council would have a prohibited financial interest in a public works contract with a firm whose subcontractor is a company in which the city’s mayor is a shareholder, officer and employee.
The Attorney General relied on Government Code section 1090, which prohibits officers and employees of specified public agencies (including school and community colleges, county boards of education and county superintendents of schools) 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. A prohibited financial interest on the part of one member precludes the entire governing body from entering into the contract—abstention by the interested official does not cure the problem.
Citing prior case law, the Attorney General notes the purpose of the conflict of interest statutes is not only to strike at actual impropriety, but also the appearance of impropriety.
The Attorney General found that none of the ‘’remote interests’‘ or ‘’non-interests’‘ specified in the Government Code would apply in this case. The facts did not support the one possible remote interest defined in the Code involving the interest of a supplier of goods or services supplied to the public agency for at least five years prior to the official’s appointment or election. (A remote interest requires disclosure of the interest and abstention of the affected officer, but does not disqualify the entire board from acting.)
In finding that the City was precluded from entering into the contract, the Attorney General also rejected the application of the ‘’rule of necessity,’‘ a doctrine which under some circumstances permits an agency to acquire essential goods and services despite a conflict of interest. In this case, the ‘’necessity’‘ was not present since other responsible bids were submitted.
We recommend you consult legal counsel in any instance where it appears a trustee or school official is affiliated with an entity seeking to contract with your district or county office to determine whether a prohibited conflict exists.