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Opinion

Opinion EC-COI-87-37

Date: 09/16/1987
Organization: State Ethics Commission

State employees may participate in a discount negotiated by a state agency for all state employees where similar discounts are negotiated in the public and private sector and the process by which the benefit accrued to state employees was competitive, public and fair.

Facts*

Beginning in April, 1985, the state Office of Management Information Systems (OMIS) procured bids from interested vendors for stand-alone micro-computers. The original invitation for bids, dated April 90, 1985, has subsequently been amended and extended from time to time. In basic terms, the invitation lists a number of system configurations and each configuration contains technical specifications.[1] OMIS accepts the lowest two bidders pertaining to each configuration. The selected vendors are called "blanket
vendors" because any state agency may buy equipment from the vendor without having to go through the usual bidding procedures applicable to an RFP. Each of the 46 vendors which currently participate in the program signs the same blanket contract with the state. The blanket contract in question here is limited to stand- alone microcomputers. The contract, which is one out of seventeen blanket contracts administered by OMIS, is distinct from the others in that it contains a so-called employee discount provision which
is a mandatory condition applicable to all bidders. Specifically, the discount term provides that employees may purchase any of the listed micro-computers and compatible peripheral equipment and software at a discount of at least 20%. Under this discount procedure, employees interested in obtaining a micro-computer go directly to the contract vendor and present to the vendor appropriate state employee identification. According to the terms of the contract, the vendor is then obligated to provide the employee a 20% discount for the applicable equipment or software.

OMlS distributes an informational mailing to approximately 850 department heads or data processing clerks for each state agency. You estimate that at least two people in each agency receive OMIS mailings. A copy of the blanket contract for stand alone microcomputers, with the accompanying vendor list, configurations, technical requirements, and the availability of the employee discount, would have been received by such department heads and/or data processing clerks at least once a year since April of 1985. Included in the package from OMIS is a notice for employees announcing the opportunity to purchase micro-computers at significant discounts. This notice contains a statement from OMIS requesting that copies of this notice be posted in all employee work areas. The degree to which state employees are actually notified of the employee discount depends on the diligence of the department heads and data processing clerks in posting the OMIS notice.

You have stated that use of similar employee discounts is prevalent in the private and public sector for major customers who enter into high volume or high dollar level purchase agreements. For example, IBM has an agreement with Travelers Insurance Company where by employees of Travelers may purchase equipment at a substantial discount by paying the corporation directly for the computer equipment. OMIS, while providing for a similar discount, has chosen not to act as intermediary so as to avoid the administrative cost of holding state employees' money.

You state that no part of the employee discount cost is built into the state's contract costs for micro-computer equipment given the fact that OMIS accepts the two lowest compliant bidders for each configuration. In addition, OMIS assures that vendors' bids meet the procurement technical specifications and has disqualified vendors whose equipment did not meet those technical specifications. You believe that the existence of configurations permits comparison and evaluation of vendors bids based on objective criteria, and that the combination of competitive bidding and the configuring of systems negates the potential that vendors build into the cost of their bids the employee discount.[2]

Question

By requiring the availability of the discount, is OMIS securing for state employees an unwarranted privilege of substantial value which is not properly available to similarly situated individuals within the meaning of s.29(b)(2) of the conflict law?

Answer

No.

Discussion

Section 23(b)(2) regulates the granting of discounts or other gifts of substantial value given to public employees. Where the granting of a benefit is expressly authorized either by statute or made available by common industry-wide practice to all employees of participating organizations, we do not believe that the granting

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of the benefit ordinarily constitutes an "unwarranted privilege ... not properly available to similarly situated individuals." See,EC-COI-86-17. On the other hand, a benefit selectively provided to a single individual, EC-COI-87-7, or to a discreet group of employees, EC-COI-86-14, 83-4, will not be regarded as permissible for the purposes of s.23(b)(2).

Based on the information you have provided, we find that the 20% equipment discount arranged under OMIS vendor contracts is available not only to at least 60,000 state employees but also to a substantially large number of other public and private sector employees who work for organizations which have negotiated similar employee discounts with the same companies. The OMIS discount is consistent with a common industry-wide practice and is therefore properly available to similarly situated individuals. We find that the benefit is warranted because the availability of the discount has been communicated to eligible employees and the negotiation of a discount is a commonly accepted business practice in the
microcomputer industry. [3]

Issues would arise under s.23 if the availability of the discount were not widely publicized or known by all state employees. In such a case, it might reasonably appear that employees of OMIS or other officials who had participated in the formulation of the terms of the invitation for bids would have an inside track or advantage in obtaining an item of substantial value not de facto available to other employees. Based on the facts as you have presented them, however, it appears that OMIS has made reasonable efforts to notify state employees through department heads and computer personnel.

In this case, the discount is offered by a participating vendor because it is a condition of the invitation to bid. Because the condition is stated publicly as part of a competitive bid process there is no opportunity for one vendor to gain advantage over another. Therefore, this case is unlike the situation where a particular company attempts to gain an advantage by winning the gratitude or general good will of a discreet group of public officials.

For example, in EC-COI-86-I4, the Commission found improper a discount that was available only to law enforcement officers, and that other public or private groups would not qualify. Further, in EC-COI-86-14, only one company offered the discount, the very same company whose cars would be driven by law enforcement officers. In this case, there is no potential for an appearance that one computer company/vendor would have an advantage over another.

The phrases "similarly situated individuals" and "unwarranted privilege" are not defined in the conflict of interest law. The Commission is entitled to apply common experience and common sense in the interpretation of those words. See, Langlitz v. Board of Registration of Chiropractors, 396 Mass. 374, 381(1985). The officials at OMIS properly recognize that the economic power of the state regarding purchases of stand alone micro-computers enables them to bargain on behalf of all state employees a benefit, just like any other large organization. The process by which this benefit accrued to state employees was competitive, public, and presumably fair. There is no appearance of any advantage to any particular vendor or to any specific or discreet group of state employees. [4]

Therefore as long as OMIS takes reasonable steps to assure that all state employees are given notice of the opportunity to participate in the employee discount program applicable to stand- alone micro-computers, we conclude that there is not an unwarranted privilege not properly available to similarly situated individuals within the meaning of s.23(b)(2) of the conflict law.

 

* Pursuant to G.L. c. 268B, s.3(g), the requesting person has consented to the publication of this opinion with identifying information.

[1] For example, configuration #12 is a configuration for an 80286/based micro computer system. This configuration lists the technical specifications which in this case establishes a basic 512KB ram computer with a 20MB hard disk drive. There are at least 14 other such configuration.

[2] We have great difficulty in accepting your contention that the state's contract costs do not reflect the employee discount cost. See, note 4, infra.

[3] Unlike the case of the selective discount encountered in EC-COI-86-14, the broad-based employee discount eligibility negotiated by OMIS precludes any appearance that employees have been selected for a discount because they may be in an official position to benefit the giver. Inasmuch as the discount is available to all employees, it does not appear that the discount has been offered to OMIS employees "for or because of their official acts." G.L. c. 268A, s.3; EC-COI-87-29. We note, however, that questions would be raised under both s.3 and s.23(b)(2) if OMIS employees who administer the contract were eligible to receive a greater discount than other employees.

[4] Were the state's purchase cost increased because of the discount requirement, the increased cost to taxpayers for a private discount for employees may very well constitute an unwarranted privilege. Our conclusion under s.23(b)(2) nonetheless remains the same because the discount is available to similarly situated individuals, i.e., persons working for large private and public sector employers.

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