Conflict of interest is a broad and often misunderstood concept. In Iowa, officers and employees of governmental entities are required to avoid “conflicts of interest.” There are numerous sections of the Code of Iowa and case law developed by Iowa courts over many decades that describe the types of activities that will constitute a conflict of interest. The consequences of a conflict of interest, both in terms of its impact on the validity of an action taken and in terms of the effect upon an official or employee engaging in a conflict of interest, vary depending on the application of the relevant laws or cases.
According to the Iowa Supreme Court, the basic premise and purpose of all conflict of interest requirements are “to avoid subjecting public officials to the difficult and often insoluble task of deciding between their duty to the public and their own private interest or advantage.” Keeping this principle in mind will help government officials and employees understand the purpose, intent and effect of all conflict of interest Code sections and case law.
Code of Iowa Section 68B.2A: Outside Employment and Activities
This section of the Code states that “Any person who serves or is employed by the state or a political subdivision of the state shall not engage in any outside employment or activity which is in conflict with the person’s official duties and responsibilities.” This section then lists a number of situations in which an unacceptable conflict exists. The list includes: Using city time or resources to give themselves or an immediate family member an advantage or benefit not available to members of the public.
This section includes a specific exception that allows police officers, firefighters and emergency medical care providers to provide private duty security, fire safety or emergency medical services while carrying their badge or wearing their uniform, provided that such off-duty employment has been approved by the agency or political subdivision that regularly employs such persons. Receiving compensation from anyone other than the city for performing an act that is part of official city duties. In the event a conflict of interest arises as described in these two situations, the city official or employee is required to immediately cease the activity. Engaging in outside employment or an activity that is subject to official control, inspection review, audit or enforcement of the person.
In the event of a conflict of interest as described in this third case, the officer or employee is either required to cease the outside employment or activity or to publicly disclose the existence of the conflict and refrain from taking any official action or performing any official duty that would detrimentally affect or create a benefit for the outside employment or activity. The choice of which of the two courses of action would be necessary to address such a conflict would be up to the employee’s superiors and depend upon the circumstances.
Code of Iowa Section 362.5: Interest in Public Contract Prohibited
This section of the Code states that “A city officer or employee shall not have an interest, direct or indirect, in any contract or job of work or material or the profits thereof or services to be furnished or performed for the officer’s or employee’s city. A contract entered into in violation of this section is void.” However, the section then outlines 13 instances or exceptions where this rule would not apply.
This provision is very broad. It not only prohibits the city from doing business with a company in which a city officer or employee has a direct interest, but it would also apply if the officer or employee had an indirect interest in such a company, such as if the officer’s or employee’s spouse or dependent child has an interest in a company doing business with the city. The prohibition also applies to any kind of work performed for the city and to the provision of goods or services to the city, whether there is a formal contract in place or not.
Although there are 12 exceptions to this rule, we will cover the most common to city officials: Contracts that are competitively bid, publicly invited and openedContracts with volunteer firefighters or civil defense volunteersContracts not otherwise permitted by this section, for the purchase of goods or services by a city, which benefits a city officer or employee, if the purchases benefiting that officer or employee do not exceed a cumulative total purchase price of six thousand dollars in a fiscal year.
(Note: SF283, passed in 2019, made several changes, including increasing the bid threshold from $2,500 to $6,000 (279.7A(2)), amending 262.5(3)(j) by removing the population threshold and increasing the cumulative purchase price from $1,500 to $6,000, and by striking 362.5(3)(k) and Iowa Code is still being updated to reflect the changes that were made during the 2019 legislative session.)
Section 362.5 also exempts contracts in which a city officer or employee has an interest solely by reason of employment if the contract is done through competitive bid, contracts with a corporation in which a city officer or employee has an interest by reason of stock holdings of less than 5 percent, and contracts that were made before the time the officer or employee was elected or appointed but such contracts may not be renewed.
The stakes for a company or person doing business with a city in violation of this section are significant. If it is found that a city officer or employee has either a direct or indirect interest in the contract, in the work, in the goods or services to be provided, or in the profits, and none of the listed exceptions apply, then the contract is “void.” This means under no circumstances can there be payment for the work performed or the goods or services provided.
For these reasons, it is very important for city officers and employees to carefully review any connections or interests they, their spouse or dependent children, have with a company doing business with or seeking to do business with the city. City officers or employees who find themselves in that position should immediately consult with their attorney to determine if there is a violation or potential violation. The officer or employee should then advise the city attorney of the situation and follow the city attorney’s advice to prevent or resolve the conflict.
Code of Iowa Section 362.5: Interest in Public Contract Prohibited
This section of the Code addresses conflicts of interest by city council members, providing that, “A measure voted upon is not invalid by reason of conflict of interest in an officer of a city unless the vote of the officer was decisive to passage of the measure.”
In this context, “measure” refers to any legislative matter coming before the city council – a motion, a resolution or an ordinance – where council members will be expected to vote. In those instances where a council member knows he or she has a conflict of interest, the appropriate thing is for that council member to declare the conflict and decline to vote. If a council member votes on a measure in which he or she has a conflict of interest, that measure is not invalid unless that member’s vote was necessary to its passage.
For instance, if the measure before a five-member council is an ordinance to rezone a business property that is owned by a member of the council, and that member casts the deciding third vote in a 3-2 vote to approve the rezoning, the rezoning would be invalid. On the other hand, if that measure passes on a 4-1 vote, with the member voting in favor of the rezoning, there would be no impact on the validity of the rezoning ordinance.