When the North Carolina Insurance Commissioner retains experts at an insurance acquirer's expense to review a proposed acquisition of control, does the state's consultant contracting law apply?
Plain-English summary
Peter Kolbe of the Department of Insurance asked the AG several questions about retaining experts under N.C.G.S. § 58-19-15(f), part of the Insurance Holding Company System Regulatory Act. That statute lets the Insurance Commissioner retain attorneys, actuaries, economists, accountants, or other experts at the acquiring person's expense to assist in reviewing a proposed acquisition of control.
Senior Deputy AG Reginald Watkins and Assistant AG Sue Little answered four questions.
Question 1: must the Commissioner follow a bid process to retain these professionals? The answer hinged on whether Article 3C of Chapter 143 applied. The AG had previously concluded in an August 24, 2001 advisory opinion that § 58-65-131(e) (Article 65, dealing with certain insurance contexts) exempts Article 65 contracts from Article 3C. But § 58-19-15(f) contained no parallel exemption, and § 58-2-25(a) made no exception for Article 19 contracts. So Article 3C applied to § 58-19-15(f) contracts.
That did not mean a comprehensive bid was required. Article 3C does not impose the Article 3 competitive-bidding procedure under § 143-52. It does require competitive proposals when "wherever practicable" under § 143-64.22 and 1 N.C.A.C. 5D.0201. But 1 N.C.A.C. 5D.0204(3) allows negotiated contracts without competitive proposals if the Division of Purchase and Contract and the Governor determine that price or performance competition is unavailable, or that the contract price is too small to justify proposals. So the Commissioner could retain experts under § 58-19-15(f) without a strict bid process if either condition applied and the Division/Governor signed off.
Question 2: are there limitations on what the retained professionals can be paid? Yes. § 143-64.21(3) requires the Governor to find that the estimated cost is reasonable as compared with the likely benefits before granting written approval of a consultant contract. The reasonableness requirement effectively caps payment.
Question 3: can the Commissioner pay travel expenses to the professionals in excess of state employee limits? Yes. The professionals are not state employees. 1 N.C.A.C. 5D.0209 explicitly provides that no consultant contract creates an employer-employee relationship. § 38-6, which governs travel allowances for state officers and employees, does not apply. Travel and related expenses are negotiated in the contract.
Question 4: does it make a difference whether the contract is with a firm or an individual? No. The reasonableness standard applies regardless. Article 3C contracts do not distinguish between contracts with individuals and contracts with entities.
The structural point is that the legislature signaled its choices in § 58-65-131(e) (Article 65 exemption) by including explicit exemption language. The absence of such language in § 58-19-15(f) meant the legislature did not intend an Article 19 exemption from Article 3C. The Article 3C-Plus-Exemption-Mechanism approach gave the Commissioner flexibility within a default framework rather than abandoning the framework entirely.
Currency note
This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The Insurance Holding Company System Regulatory Act and the state consultant services procurement framework have been amended over the years. Anyone evaluating a current Insurance Commissioner expert retention should consult current statutes, current Department of Administration rules, and any recent appellate decisions before relying on this analysis.
Background and statutory framework
The Insurance Holding Company System Regulatory Act. Article 19 of Chapter 58 governs review of proposed acquisitions of control over insurance holding companies. Section 58-19-15(f) gives the Commissioner authority to retain experts at the acquirer's expense to assist in reviewing the proposed acquisition. The mechanism shifts the cost of regulatory review from state funds to the regulated party, which is sensible: the acquirer is the one creating the regulatory burden.
Article 3C generally. Chapter 143's consultant services article requires state agencies to obtain written gubernatorial approval before entering into consultant contracts. Approval requires multiple findings, including that funds are appropriated or otherwise available (§ 143-64.21(4)), that the cost is reasonable compared to benefits (§ 143-64.21(3)), and that Department of Administration rules have been or will be followed (§ 143-64.21(5)). Section 143-64.23 makes contracts non-binding until the approval requirements are met.
The Article 65 exemption. § 58-65-131(e) expressly exempts certain Article 65 (hospital, medical, and dental service corporations) consultant contracts from Article 3C requirements. The 2001 opinion's prior August 24 advisory opinion (not in this record) construed that exemption.
Why § 58-2-25(a) reinforces the conclusion. § 58-2-25(a) is a general provision saying that all Commissioner contracts to perform Department work, "except those provided for in Articles 36 and 37 of this Chapter," must follow Article 3C. The legislature listed Article 36 and Article 37 exemptions explicitly. The absence of Article 19 from the list confirmed that Article 19 contracts are not exempt.
The 1 N.C.A.C. 5D.0204(3) safety valve. This rule allows the Division of Purchase and Contract and the Governor to authorize negotiated contracts without competitive proposals where competition is impractical or the contract price is small. For specialized expert retentions in complex acquisition reviews, this rule can be a useful path because qualified experts in specific niches may be limited.
Why retained experts are not state employees. 1 N.C.A.C. 5D.0209 explicitly says no consultant contract creates an employer-employee relationship. The retained experts work as independent contractors, with terms governed by the contract rather than by state employment statutes. § 38-6 travel allowances do not constrain them.
The reasonableness check on cost. § 143-64.21(3) requires the Governor to find that "the estimated cost is reasonable as compared with the likely benefits or results." This is the operative limit on expert compensation, replacing a fixed-rate framework with a reasonableness review. The acquirer pays, but the state still has interest in ensuring the cost is not abusive (an unduly expensive expert engagement could function as an indirect penalty on the acquirer).
Common questions
Q: Can the Insurance Commissioner pick any expert without any oversight?
A: No. Article 3C and its administrative-rule implementation impose oversight even when no competitive bid is required. The Governor (through Department of Administration) reviews the contract for reasonableness of cost and other approval criteria. The Commissioner has wider latitude than under Article 3 but not free reign.
Q: Does the acquirer have any say in who is retained?
A: § 58-19-15(f) authorizes the Commissioner to retain experts at the acquirer's expense. The statute does not give the acquirer veto power. The reasonableness review under § 143-64.21(3) is the main protection against abuse.
Q: What if the contract price is small enough to avoid competitive proposals?
A: 1 N.C.A.C. 5D.0204(3) allows the Division of Purchase and Contract and the Governor to authorize negotiated contracts when the price is too small to justify competitive proposals. The threshold for this finding is set by the Division and Governor.
Q: Can the retained expert work full-time alongside Insurance Department staff?
A: The work arrangement is set in the contract. 1 N.C.A.C. 5D.0209 forbids creating an employer-employee relationship, so the expert remains an independent contractor regardless of how much time is spent at the Department.
Citations
Statutes:
- N.C.G.S. § 38-6 (travel allowances of State officers and employees)
- N.C.G.S. § 58-2-25(a) (Insurance Commissioner contracting, with Article 36/37 exceptions)
- N.C.G.S. § 58-19-15(f) (Insurance Holding Company System Regulatory Act expert retention)
- N.C.G.S. § 58-65-131(e) (Article 65 Article 3C exemption)
- N.C.G.S. § 143-52 (competitive bidding)
- N.C.G.S. § 143-64.20(b) (Article 3C consultant contract definition)
- N.C.G.S. § 143-64.21 (gubernatorial approval findings)
- N.C.G.S. § 143-64.22 (competitive proposal rules)
- N.C.G.S. § 143-64.23 (contract binding only after compliance)
- 1 N.C.A.C. 5D.0201 (consultive services competition principle)
- 1 N.C.A.C. 5D.0204(3) (exception for negotiated contracts)
- 1 N.C.A.C. 5D.0209 (no employer-employee relationship)
Prior AG opinion:
- August 24, 2001 advisory opinion on § 58-65-131(e) Article 65 exemption (cited within the opinion)
Source
Original opinion text
Questions presented:
- Must the Commissioner "follow any sort of bid process" in retaining the professionals listed in N.C.G.S. § 58-19-15(f)?
- Are there limitations on what the retained professionals can be paid?
- May the Commissioner pay travel and other related expenses to the professionals in excess of the maximum allowed for State employees?
- Does it make a difference if the professional services contract is with a firm, not an individual?
N.C.G.S. § 58-19-15(f), which is included within the Insurance Holding Company System Regulatory Act, provides as follows:
The Commissioner may retain, at the acquiring person's expense, any attorneys, actuaries, economists, accountants, or other experts not otherwise a part of the Commissioner's staff as may be reasonably necessary to assist the Commissioner in reviewing the proposed acquisition of control.
Generally, contracts entered into by a State agency to obtain consultant services are addressed in Article 3C of Chapter 143. Subsection (b) of N.C.G.S. § 143-64.20 mandates, in pertinent part, that "[n]o State agency shall contract to obtain services of a consultant or advisory nature unless the proposed contract has been justified to and approved in writing by the Governor of North Carolina . . .." The Governor must make certain findings before granting written approval of a contract to obtain consultant services, including a finding "[t]hat the General Assembly has appropriated funds for such contract or that such funds are otherwise available." N.C.G.S. § 143-64.21(4). Another required finding is "[t]hat all rules and regulations of the Department of Administration have been or will be complied with." N.C.G.S. § 143-64.21(5).
N.C.G.S. § 143-64.23, moreover, provides in pertinent part as follows:
No disbursement of State funds shall be made and no such contract shall be binding until the provisions of G.S. 143-64.21 and 143-64.22 have been complied with . . ..
(Emphasis supplied.)
N.C.G.S. § 58-2-25(a), with two exceptions, is consistent with the mandate of Chapter 143. N.C.G.S. § 58-2-25(a) provides in pertinent part as follows:
If the Commissioner considers it to be necessary for the proper execution of the work of the Department to contract with persons, except to fill authorized employee positions, all of those contracts, except those provided for in Articles 36 and 37 of this Chapter, shall be made pursuant to the provisions of Article 3C of Chapter 143 of the General Statutes.
(Emphasis supplied.)
We concluded in our August 24, 2001, advisory opinion that the clear and unambiguous language of N.C.G.S. § 58-65-131(e) exempts certain contracts with consultants from the requirements of Article 3C of Chapter 143, although N.C.G.S. § 58-2-25(a) fails to make an exception for contracts authorized under Article 65 of Chapter 58.
In direct contrast with N.C.G.S. § 58-65-131(e), N.C.G.S. § 58-19-15(f) omits language specifically exempting, from the requirements of Article 3C of Chapter 143, contracts with professionals retained by the Commissioner. N.C.G.S. § 58-2-25(a), moreover, makes no exception for contracts authorized under Article 19 of Chapter 58. It is our conclusion that contracts negotiated pursuant to N.C.G.S. § 58-19-15(f) are not exempt from the requirements of Article 3C of Chapter 143.
Article 3C does not mandate a comprehensive bidding procedure analogous to the procedure set forth in N.C.G.S. § 143-52, which is contained in Article 3 of Chapter 143. Article 3C, however, addresses the issue of competitive proposals. N.C.G.S. § 143-64-22 provides as follows:
The rules of the Department of Administration shall include provisions to assure that all consultant contracts let by State agencies shall be made with other agencies of the State of North Carolina, if such contract can reasonably be performed by them; or otherwise, that wherever practicable a sufficient number of sources for the performance of such contract are solicited for competitive proposals and that such proposals are properly evaluated for award to the State's best advantage.
(Emphasis supplied.)
Similarly, 1 N.C.A.C. 5D.0201 provides in pertinent part as follows:
State agencies shall acquire consultive services only when the contract is in the best interests of the State. In acquiring such services, competition shall be sought whenever practicable as determined by the Division of Purchase and Contract . . ..
(Emphasis supplied.)
Pursuant to 1 N.C.A.C. 5D.0204(3), an agency may "execute a negotiated contract(s) without competitive proposals if the Division of Purchase and Contract and the Governor have determined that performance or price competition is not available . . . or that the contract price is too small to justify soliciting competitive proposals." (Emphasis supplied.)
The appropriate response to your first question is that the Commissioner is not required to adhere to a bid process in retaining experts to assist in reviewing a proposed acquisition of control if either of two conditions is met. One condition is that the Division of Purchase and Contract and the Governor have determined that performance or price competition is not available. The other condition is that the Division of Purchase and Contract and the Governor have determined that the contract price is too small to justify soliciting competitive proposals.
It is our conclusion that the answer to your second question is "yes." N.C.G.S. § 143-64.21(3) provides that prior to granting written approval of a consultant contract, the Governor must find "[t]hat the estimated cost is reasonable as compared with the likely benefits or results . . .."
In response to your third question, it is our conclusion that experts retained by the Commissioner under N.C.G.S. § 58-19-15(f) are not State employees. 1 N.C.A.C. 5D.0209 declares that "[n]o contract for consultant services shall create an employer-employee relationship between the State of North Carolina and the consultant." The provisions of N.C.G.S. § 38-6, captioned "Travel allowances of State officers and employees," do not pertain to the retained experts. Travel and other related expenses should be addressed and resolved in the negotiated contract.
Finally, provided a "reasonable" standard is applied, we conclude that it is immaterial whether the professional services contract is with a firm or an individual. Consulting contracts do not distinguish between contracts with individuals and contracts with entities.
We hope that this advisory opinion will be useful to you. Please let us know if you have additional questions concerning this matter.
Very truly yours,
Reginald L. Watkins
Senior Deputy Attorney General
Sue Y. Little
Assistant Attorney General
SYL/gw