If a state board member also works for a private contractor, can that contractor still bid on state work, and what are the conflict-of-interest rules?

Plain-English summary

Rep. Dale Carr asked AG Slatery how Tennessee's conflict-of-interest rules apply to a member of the Underground Storage Tanks and Solid Waste Disposal Control Board whose employer wants to bid on state contracts.

The opinion sets out a three-step framework.

Step 1: Are board members "employees" of the state? No. Board members are appointed by the governor, serve four-year terms, and earn fifty dollars a day plus expenses for performing official duties. Tenn. Code Ann. § 68-211-111. They are not under a "contract of hire" the way an employee is. Tennessee courts treat appointed board members as "public officials," not employees. Sitton v. Fulton, 566 S.W.2d 887 (Tenn. Ct. App. 1978); Gamblin v. Town of Bruceton, 803 S.W.2d 690 (Tenn. Ct. App. 1990). The General Assembly sometimes treats officials as employees by statute (for example, the Defense of State Employees provisions, Tenn. Code Ann. § 8-42-103, which let the AG provide representation when an official is sued for acts in office). But for public-contract purposes, the General Assembly has kept the official/employee distinction.

Step 2: What does Tenn. Code Ann. § 12-4-101 say about a board member's interest in a state contract? Subsection (a) bars a public official from being "directly interested" in any contract that the official has a duty "to vote for, let out, overlook, or in any manner to superintend." A "direct interest" includes any contract with the official personally or with a business in which the official is the sole proprietor, a partner, or the controlling-interest holder.

Step 3: When does the rule actually kick in? Two conditions must both be true: the board member has a duty to vote on, award, oversee, or superintend the contract, AND the board member is directly interested in the contract. If either is missing, § 12-4-101(a) does not bar the contract.

That gives a contractor with a board-member employee or subcontractor a clear path. As long as the board member has no role in the contract being bid, the contractor can compete. So a contractor whose employee sits on the Underground Storage Tanks and Solid Waste Disposal Control Board can bid on a contract for, say, IT services with a different state agency, because that board member has no duty to oversee the IT contract.

The narrow exception is the "sole supplier" rule in § 12-4-101(b). If the board member is directly interested in a contract he or she would supervise, but the member is the only available supplier of the goods or services in the relevant municipality or county, the law treats the interest as merely indirect. The contract can go forward, but the board member must publicly acknowledge the interest. Public disclosure cures what would otherwise be a forbidden direct interest in a sole-supplier situation.

The opinion warns that other statutes or local-government charter provisions may impose additional restrictions in particular cases, so the analysis here is the floor, not necessarily the ceiling.

Currency note

This opinion was issued in 2018. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: My employee sits on a state board. Can my company bid on a state contract?
A: Under the opinion, generally yes, as long as your employee is not in a position where they would vote on, award, oversee, or superintend the specific contract you are bidding on. If they would, and the company is directly interested in the contract, § 12-4-101(a) bars it unless the sole-supplier exception in § 12-4-101(b) applies.

Q: What does "directly interested" actually mean?
A: It means the contract is with the official personally, OR with a business where the official is the sole proprietor, a partner, or the controlling-interest holder. "Controlling interest" includes ownership of the largest single block of outstanding shares. An employee who owns no equity is not directly interested through that ownership criterion alone.

Q: What is "indirectly interested"?
A: Any interest in the contract that does not qualify as a direct interest. Indirect interests are allowed under § 12-4-101(b) if the official publicly acknowledges them. The same subsection treats a directly-interested but sole-supplier-in-county arrangement as merely indirect, so the disclosure remedy applies.

Q: How does this differ from the rules for state employees?
A: Tenn. Code Ann. § 12-4-103 specifically governs the sale of goods by state employees and officials. For state officials, the AG has previously opined that § 12-4-101 takes precedence over § 12-4-103 with respect to sales of goods. See Tenn. Att'y Gen. Op. 84-298.

Q: What does the "sole supplier" exception look like in practice?
A: A small-county example: if a board member is the only paving contractor in a rural county and a state agency needs paving work in that county, § 12-4-101(b) treats the interest as indirect. The board member must announce the interest on the public record before the contract is signed. Outside the sole-supplier scenario, even disclosure cannot save a forbidden direct interest.

Background and statutory framework

The Underground Storage Tanks and Solid Waste Disposal Control Board is a 14-member body appointed by the governor. Its job is to promulgate rules under the Tennessee Petroleum Underground Storage Tank Act (Tenn. Code Ann. § 68-215-107(f)) and to manage solid waste and hazardous materials policy under Title 68, Chapters 211 and 212. The Board also hears appeals from the Commissioner of Environment and Conservation.

Tennessee distinguishes "public officers" from employees through the Sitton/Gamblin test: someone "appointed or elected in a manner prescribed by law, who has a designation or title given him by law, and who exercises the functions concerning the public assigned to him by law" is a public officer. Members of state boards and commissions consistently fall on the public-officer side. The AG has reached the same conclusion for the Commission on Continuing Legal Education (Tenn. Att'y Gen. Op. 88-153), the Board of Directors of Tennessee Economic Development Corporation (Op. 87-50), and the Tennessee Prison Agri-Industries Board (Op. 80-449).

The public-contract conflict-of-interest framework lives in Tenn. Code Ann. §§ 12-4-101 to -117. Section 12-4-101 is the main rule for officials: prohibition on direct interest in contracts the official has a duty to control, with the indirect-interest disclosure path and the sole-supplier exception as the main carve-outs.

Citations

• Tenn. Code Ann. § 8-42-101(3)(A); § 8-42-103(a)
• Tenn. Code Ann. §§ 12-4-101 to -117; § 12-4-101(a), (b); § 12-4-103
• Tenn. Code Ann. § 50-6-102(12)(A)
• Tenn. Code Ann. § 68-211-111(a)(1)(A), (b), (f), (h); § 68-215-107(f)
• Sitton v. Fulton, 566 S.W.2d 887 (Tenn. Ct. App. 1978)
• Gamblin v. Town of Bruceton, 803 S.W.2d 690 (Tenn. Ct. App. 1990)
• Tenn. Att'y Gen. Op. 80-449 (Sept. 16, 1980); Op. 84-298 (Nov. 7, 1984); Op. 87-50 (Mar. 25, 1987); Op. 88-153 (Aug. 24, 1988); Op. 06-159 (Oct. 9, 2006); Op. 08-192 (Dec. 29, 2008); Op. 09-111 (June 8, 2009)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2018/op18-20.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
April 23, 2018
Opinion No. 18-20

State Board Member's Ability to Contract with State Agencies

Question 1
Is a member of the Underground Storage Tanks and Solid Waste Disposal Control Board a state employee?

Opinion 1
A member of the Underground Storage Tanks and Solid Waste Disposal Control Board is a state official. While state officials are treated as "state employees" for some purposes, state officials are not treated as "state employees" for the purpose of procuring a public contract.

Question 2
If a contractor has an employee or subcontractor who serves as a member of the Underground Storage Tanks and Solid Waste Disposal Control Board, may the contractor respond to a request for proposal or a request for qualifications to provide services under a contract with a state agency whose services are not overseen by the Board?

Opinion 2
In the absence of a specific statutory or local governmental charter provision that dictates otherwise, such a contractor may respond to a request for proposal or a request for qualifications to provide services under a contract with a state agency when the Board member does not have a duty "to vote for, let out, overlook, or in any manner superintend any work or any contract" in which the state agency is interested.

Question 3
To what extent is a contractor described in question #2 disqualified from contracting with the State to provide state services as the result of a conflict of interest?

Opinion 3
The contractor described in question #2 may not contract with a state agency if the Board member has a duty "to vote for, let out, overlook, or in any manner superintend any work or any contract" in which the state agency is interested and the Board member is "directly interested" in the contract, as defined in Tennessee Code Annotated § 12-4-101(a). The only exception is the "sole supplier" provision in Tennessee Code Annotated § 12-4-101(b). If the Board member is "directly interested" in the contract but is the sole supplier of the services in a municipality or county, the Board member is treated as being only "indirectly interested" in the contract. In that instance, for the contract to be valid, the Board member must publically acknowledge his or her interest.

ANALYSIS

The Underground Storage Tanks and Solid Waste Disposal Control Board (the "Board") is created by state statute. Tenn. Code Ann. § 68-211-111. The Board has two primary roles. The Board is empowered to promulgate rules and regulations to implement the Tennessee Petroleum Underground Storage Tank Act, see Tenn. Code Ann. § 68-215-107(f), and to ensure the proper management and disposal of solid waste and hazardous materials, as set forth in Chapters 211 and 212 of Title 68 of the Tennessee Code. The Board also hears appeals from orders, assessments, and other actions of the commissioner of environment and conservation. See Tenn. Code Ann. §§ 68-211-111(f); 68-212-107(e), -117, -215, -312; 68-215-119, -123.

The Board has fourteen members who are appointed by the governor. Tenn. Code Ann. § 68-211-111(a)(1)(A). The Board's membership includes one representative of county governments; one representative of municipal governments; ten individuals engaged in various fields, including but not limited to petroleum, manufacturing, and the management of solid wastes or hazardous materials; and two ex officio voting members, the commissioner of economic and community development (or designee) and the commissioner of environment and conservation (or designee). Id.

Members of the Board are appointed for four-year terms. Tenn. Code Ann. § 68-211-111(b). Each member of the Board, other than the ex officio members, is entitled to be paid fifty dollars for each day that the member discharges his or her official duties. Tenn. Code Ann. § 68-211-111(h). Each member is also entitled to be reimbursed for traveling expenses and other necessary expenses that the member incurs while engaged in the performance of his or her official duties. Id.

1. Under this statutory scheme, a member of the Board is not an "employee" of the State. An "employee" is generally defined as "[s]omeone who works in the service of another person (the employer) under an express or implied contract of hire, under which the employer has the right to control the details of work performance." Black's Law Dictionary 639 (10th ed. 2009). See Tenn. Code Ann. § 50-6-102(12)(A) ("employee" under Workers' Compensation Act is defined as "every person . . . in the service of an employer . . . under any contract of hire or apprenticeship, written or implied"). A member of the Board does not provide services to the State under a "contract of hire"; rather, the member is appointed to perform functions and duties authorized by state law.

Our courts have found that "an individual who has been appointed or elected in a manner prescribed by law, who has a designation or title given him by law, and who exercises the functions concerning the public assigned to him by law" is a "public officer" or "public official," not an employee. Sitton v. Fulton, 566 S.W.2d 887, 889 (Tenn. Ct. App. 1978) (quoting 67 C.J.S. Officers § 2); Gamblin v. Town of Bruceton, 803 S.W.2d 690, 692-693 (Tenn. Ct. App. 1990). Accordingly, on several occasions, this Office has opined that persons who serve on state boards and commissions, like the Board here, are state officials. See, e.g., Tenn. Att'y Gen. Op. 88-153 (Aug. 24, 1988) (Commission on Continuing Legal Education); Tenn. Att'y Gen. Op. 87-50 (Mar. 25, 1987) (Board of Directors of Tennessee Economic Development Corporation); Tenn. Att'y Gen. Op. 80-449 (Sept. 16, 1980) (Tennessee Prison Agri-Industries Board).

State officials are treated as "state employees" only when the General Assembly declares so. For instance, Title 8, Chapter 42 of the Tennessee Code addresses the "Defense of State Employees." The crux of this chapter is found in Tennessee Code Annotated § 8-42-103, which provides in part:

When a civil action for damages is commenced in any court by any person against any state employee as defined in this chapter for any acts or omissions of the state employee within the scope of the employee's employment, except for willful, malicious, or criminal acts or omissions or for acts or omissions done for personal gain, the attorney general and reporter has the discretion to provide representation to the employee. . . .

Tenn. Code Ann. § 8-42-103(a) (emphasis added). Because a "state official" is included in the definition of "state employee" in Tennessee Code Annotated § 8-42-101(3)(A), a state official is treated as a state employee for the limited purpose of requesting representation from this Office when sued for acts or omissions that stem from the official's duties.

In sum, a Board member is a state official except in those instances when the General Assembly statutorily treats state officials as state employees.

2. and 3. In the public-contract context, the General Assembly has retained the distinction between employees and officials. See Tenn. Code Ann. §§ 12-4-101 to -117 passim. Thus, a Board member's procurement of a public contract is governed by the provisions addressing the procurement of public contracts by officials.

Tennessee Code Annotated § 12-4-101 generally governs conflicts of interest with respect to officials and public contracts. Subsection (a)(1) forbids an official from being "directly interested" in a contract that the official has the duty "to vote for, let out, overlook, or in any manner to superintend." "'Directly interested' means any contract with the official personally or with any business in which the official is the sole proprietor, a partner, or the person having the controlling interest." Tenn. Code Ann. § 12-4-101(a). A "'[c]ontrolling interest' includes the individual with the ownership or control of the largest number of outstanding shares owned by any single individual or corporation." Id.

Subsection (b), though, does permit an official to be "indirectly interested" in a public contract if the official publically acknowledges that interest. "Indirectly interested" is defined as "any contract in which the officer is interested but not directly so, but includes contracts where the officer is directly interested but is the sole supplier of goods or services in a municipality or county." Tenn. Code Ann. § 12-4-101(b).

When subsections (a) and (b) are read together, the definition of "indirectly interested" provides an exception to the prohibition that an officer may not be directly interested in a contract that the officer has a duty to award or supervise. Even if an officer is otherwise "directly interested" in a contract, the officer is treated as being only "indirectly interested" if the officer is "the sole supplier of goods or services in a municipality or county."

Given these provisions, a contractor that has an employee or subcontractor who serves as a Board member will generally be able to respond to a request for proposal or a request for qualifications to provide services under a contract with a state agency when the Board member does not have a duty "to vote for, let out, overlook, or in any manner superintend any work or any contract" in which the state agency is interested. Conversely, if a Board member does have a duty "to vote for, let out, overlook, or in any manner superintend any work or any contract" in which the state agency is interested and the Board member is "directly interested" in the contract, the contractor may not contract with the state agency. The only exception is the "sole supplier" provision in Tennessee Code Annotated § 12-4-101(b). If the Board member is "directly interested" in the contract but is the sole supplier of the services in a municipality or county, the Board member is treated as being only "indirectly interested" in the contract. In that instance, for the contract to be valid, the Board member must publically acknowledge his or her interest. See Tenn. Code Ann. § 12-4-101(b).

[Footnote 1: This statutory provision governs contracts for the sale of services, as well as the sale of goods, by state officials. Tenn. Att'y Gen. Op. 84-298 (Nov. 7, 1984). See, e.g., Tenn. Att'y Gen. Op. 08-192 (Dec. 29, 2008); Tenn. Att'y Gen. Op. 06-159 (Oct. 9, 2006). While Tennessee Code Annotated § 12-4-103 specifically addresses the sale of goods by state employees and state officials, this Office has previously opined that Tennessee Code Annotated § 12-4-101 takes precedence over Tennessee Code Annotated § 12-4-103 with respect to the sale of goods by state officials. Tenn. Att'y Gen. Op. 84-298 (Nov. 7, 1984). See Tenn. Att'y Gen. Op. 09-111 (June 8, 2009).]

[Footnote 2: Other statutory provisions or local governmental charter provisions could apply, though, depending on the specific facts and circumstances surrounding the contract at issue and the identity of the Board member.]

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

LAURA T. KIDWELL
Senior Counsel

Requested by:
The Honorable Dale Carr
State Representative
568 Cordell Hull Building
Nashville, Tennessee 37243