Resolution 2024-005: Statutory Conflicts of Interest Contracting with your Town

TOWN OF PEQUAYWAN
ST. LOUIS COUNTY, MINNESOTA
Document Number: C6000
Revised: October 2021

BE IT RESOLVED, that the Town Board of Pequaywan, St, Louis County, Minnesota, hereby adopt the Statutory Conflicts of Interest Contracting with Your Town.

Amendments. The Board may amend this policy by resolution.

Adopted this 9th day of April, 2024.

BY THE PEQUAYWAN TOWN BOARD:

Approved by Supervisors Douglas Dressen, Douglas Nelson, James Wilson; and attested by Clerk Lita Wallace

 

 

 

 TOWN OF PEQUAYWAN
ST. LOUIS COUNTY, MINNESOTA

RESOLUTION # 2024- 005
STATUTORY CONFLICTS OF INTEREST
Contracting with Your Town
Document Number: C6000
Revised: October 2021

For town officers, the phrase “conflict of interest” is used in several contexts. Two of the most common reference conflicts that prohibit a supervisor from voting on a particular issue because the supervisor has a direct interest in the outcome of the vote (often referred to as a “common law conflicts of interest”). The other type of conflict prohibits certain township officers from having a financial interest in a contract made with the town (referred to as statutory conflicts of interest). The two types of conflicts are often related, but this document focuses on statutory conflicts of interest.[1] Supervisors are strongly encouraged to take the application of the statutory conflict of interest laws seriously because violating them carries criminal penalties.

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  1. CONFLICT PROHIBITION

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For townships, two statutes set out the conflict of interest prohibitions, the relevant parts state:

  • “a supervisor or town board must not be a party to, or be directly or indirectly interested in, a contract made or payment voted by the town board.”[2]
  • “a public officer who is authorized to take part in any manner in making any sale, lease, or contract in official capacity shall not voluntarily have a personal financial interest in that sale, lease, or contract or personally benefit financially therefrom.”[3]

However, it is best to summarize the idea of conflicts of interest as:

“A town officer is prohibited from having a direct or indirect interest in a contract with  their town unless a statutory exception allowing the interest exists, and it follows the requirements of the exception.”

When taking the previous statements together, the legislature has created a broad prohibition against public officers interested in a contract with their community. The potential penalties involved with violating these sections includes the possibility for violating officers to be prosecuted of following penalties, a misdemeanor, a gross misdemeanor, and removal from office.[4] Penalties for misdemeanors

include fines up to $1,000 and up to 90 days in jail, and penalties for gross misdemeanors include fines

of up to $3,000 and one year of imprisonment.[5] The Minnesota Court of Appeals has indicated a violating officer may be removed from office, even if no one criminally prosecuted the person for the violation.[6] Additionally, courts will likely void contracts made through a conflict of interest.[7]

However, the conflict of interest prohibition does not preclude a town officer from ever having a financial interest in a contract with the town. There are limited exceptions to these conflicts of interest rules that permit an officer to be interested in contracts that would otherwise be prohibited.[8]

  

Buying Township Property:

 

A separate but related prohibition dissallows any town officer or employee to purchase property or materials from the town and perhaps other public entities. No officer or employee may sell to another officer or employee any publicly owned property or materials unless they follow certain conditions. Any person who violates this section is guilty of a misdemeanor (Minn. Stat. 15.054).

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  1. APPLICATION OF THE CONFLICT RULES

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Knowing the basics of the statutory conflicts of interest rule, we will now turn to a more in-depth
discussion of each of the key points, including who is covered and when the rule is applicable.

  1. Who is Covered by the Conflict of Interest Prohibition?

At the heart of the conflict doctrine is the idea that a person should not be permitted to use their public office to form a contract on behalf of the governmental entity that will benefit them personally. As such, conflicts are typically only applied to those governing board members who are authorized to decide who receives a contract (i.e., supervisors). While the clerk and treasurer should also avoid to benefit from contracts with the town under their positions, the conflict doctrine rarely applies to them due to their lack the authority to vote on the contract. If the clerk or treasurer is actively involved in making the contract, the town should nonetheless be careful of conflicts of interest.

The goal of the law is to limit self-dealing, and any officer with have difficulty self-dealing when
they have no authority to make the deal. Yet, the law does not allow a supervisors to avoid a conflict
by simply not voting on the contract. The authority to vote on the contract that the officer benefits
from itself, violates the conflict of interest laws, not whether the supervisor actually votes.

Because this prohibition also covers indirect interests in contracts, contracts with spouses and children of supervisors may also be covered under the doctrine. Whenever a close family member is involved, the board must make a factual determination of whether the town officer would directly or indirectly receive a personal financial benefit from the contract.[9] If the board proposes to contract with a supervisor’s spouse, it is safe to assume a conflict exists. For children, conflicts usually occur while the child lives in the same house as the supervisor or if the child has not yet emancipated.[10]

If there is a suspected financial interest, the town should not contract with the spouse or child unless
it falls within one of the exceptions discussed below.

The board needs to record its factual determinations as to the existence of a conflict in the meeting
minutes. This explanatory record of the findings and conclusions can be critical to avoiding successful challenges to the contract and reducing the potential for criminal charges.

  1. When Does the Conflict Prohibition Apply?

The wording of the statutes prohibiting a conflict is so broad that they seem to apply to all payments
to supervisors, including payments made for activities such as attending meetings. However, these
prohibitions do not have that broad of an application. Although, it is not always clear when a supervisor performing work for the town triggers the conflict prohibition.

Towns are unique among other units of government, in that supervisors often perform various manual labor types of tasks for the town that elected officials do not perform. These tasks often result from the fact that the town has no employees to perform the tasks, and it is impractical to hire someone every time an odd job arises. Similarly, towns may assign a supervisor to complete certain duties that the other supervisors do not perform. For instance, many towns designate a road supervisor and assign certain additional duties regarding roads (e.g., inspections) that becomes part of the supervisors’ role. The town compensates the road supervisor for work that the other supervisors do not perform but which the town made part of the supervisor’s position. The same could be true if the board designates a supervisor as a park supervisor, community center supervisor, etc. While the basis for these designations is not on statutory authority, they constitute a division of labor and convey a limited delegation of board authority onto the designated supervisor.

Because of these expanded duties, the board should consider when a supervisor’s activities go beyond the “normal” role of a supervisor. For instance, regularly operating town machinery, undertaking a large project, or regularly performing other services will indicate that the supervisors is acting like a contractor or a town employee, which will trigger a conflict. Furthermore, being designated as a road supervisor does not mean operating the town’s road grader becomes part of the supervisor’s duties as a board member. It is not always easy to make the distinction. Still, any time a supervisor is getting paid to do work outside the supervisor’s role as an elected official is a conflict of interest. A conflict could exist whenever a supervisor is getting paid to do work that the town could hire someone else to do. If the board is not clear on which side of the line the work falls, it is better to be on the side of caution and assume a conflict of interest exists.

If the town identifies a potential conflict of interest, the supervisor may not perform the work unless one of the exceptions listed in Minnesota law applies to the services or goods to be supplied by the supervisor.[11] If an exception covering the contract exists, the town must follow the statutory requirements of the exception to the letter, or the contract with the supervisor is prohibited. If the town cannot find an exception for the particular contract (financial interest), a supervisor may not enter into the contract with the town.

It is important to realize that the conflict prohibition is not limited to only written contracts.

Even if the town does not develop a written contract related to the services or goods to be provided by a supervisor, the prohibition still applies if the supervisor has a direct or indirect interest in the contract or payment.

Furthermore, the prohibition applies even if the town pays the supervisor less than the market value for the services or goods. It is not the amount of money received that raises the concern; it is the fact that the supervisor is making any money from the town outside of the supervisor’s role. Doing jobs for cheaper is perhaps the largest pitfall for supervisors. It is difficult for some supervisors to believe that there is something “wrong” with performing services for their town far less than what it would cost to hire a contractor to perform the work. However, no matter how good a deal the supervisor is giving the town (e.g., performing the services for pennies on the dollar) or how noble the intentions, a town must find or follow an exception or not pay the supervisor for the work.

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III. EXCEPTIONS – WHEN A CONFLICT IS ALLOWED

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If a supervisor has a direct or indirect financial interest in a contract with the town, it may only form
the contract if it falls under one of the specific exceptions provided in the statutes.[12] To rely on any exceptions, the board must unanimously vote, with the interested officer abstaining, to authorize the contract. The following will discuss the exceptions most applicable to towns. Remember, even if the town identifies an applicable exception, failing to follow all the exception’s statutory requirements will likely void the exception, leading to a breach in the conflicts of interest rules. In other words, courts will consider the supervisor and the board to have acted without authority in violation of the statute.

  1. Contracts Not Requiring Competitive Bids.[13]

This exception is very broad because it allows any “contract for which competitive bids are not required by law.”[14] Competitive bids are required when a contract is estimated to exceed $175,000. Therefore, any contract estimated to be less than $175,000 is potentially permissible.[15]

Keep in mind that the requirements of the municipal contracting law, as well as other procedural requirements, may also apply. For example, if a supervisor is a contractor and has expressed a willingness to undertake a culvert installation project for the town estimated to cost $30,000, the board is required under the municipal contracting law to obtain at least two written quotes before it can award the contract.[16] The supervisor would need to submit a written quote or not be eligible to receive the contract. Other procedural requirements may apply and will need to be satisfied as part of entering into the proposed contract. Board members should not develop tunnel vision in these situations, focusing only on the conflict of interest.

Because of this exception’s broad application, the legislature has imposed additional requirements that towns must follow each time they rely on one.[17] The first of these requirements is that the board must authorize the contract by resolution in advance of its performance. The resolution must contain certain  information.[18] Prior authorization is not required in the exceedingly rare cases where an emergency makes the procedure impracticable.[19] In such emergencies, the town must pass the resolution when payment on the contract is authorized, and it must state the facts of the emergency. However, this after-the-fact process is only available in true emergencies in which public safety is at risk.

The second requirement is that before the town pays the claim on the contract, the interested officer must file an affidavit with the clerk setting forth certain information.[20] The supervisor must submit the affidavit with each claim for payment on the contract. Failure to follow either requirement will render the contract void.[21]

  1. Contracts for Construction Materials or Services (population under 1,000).

An exception exists that applies only to cities and towns with a population of under 1,000.[22] This exception allows contracts to provide construction materials or services, or both. Perhaps the most significant aspect of this exception is that it contains no restrictions on the contract amount.

To rely on this exception, all the following must be true:

  1. The contract involves providing the town with construction materials and/or construction services;
  2. The town has a population of 1,000 or less according to the last federal census;
  3. The town is using the sealed bid procedure;
  4. The board unanimously approves the contract; and
  5. The interested officer does not vote on the contract.

The meeting minutes at which the town accepted the supervisor’s bid should reflect that the interested supervisor abstained from voting on the contract award to satisfy these requirements. The other supervisors unanimously approved the vote to award to the interested supervisor.[23]

  1. Supervisors Employed by Contractors

The following exception is unique to towns; it allows a town to enter into a contract governed by the uniform municipal contracting law,[24] even if the town supervisor is an employee of the contractor. However, the supervisor must have “no role in preparing the contractor’s bid or negotiation for the contract with the township.”[25]

The exception indicates that the law does not preclude the supervisor from continuing to serve on the board, but the supervisor must:

  1. Abstain from voting on any official action relating to the contract; and
  2. The supervisor must disclose his or her reason for the abstention in the town meeting’s official minutes.

For example, in a motion to authorize a change order request on a contract, the supervisor employed by the contractor must abstain from voting on the issue. The minutes need reflect an explanation of the abstention, such as: “Supervisor John Doe abstained from voting on the matter because the contractor that requested the change order employs him.”

  1. Miscellaneous Exceptions.

The following are summaries of some additional exceptions that may apply. Always refer to the actual statute to confirm the exception and its requirements:

  1. Doing business with a bank that a supervisor has an interest in;[26]
  2. Designating an official newspaper that a clerk is interested in;[27]
  3. Contract with a cooperative association of which a treasurer is a shareholder, but not an officer or manager;[28]
  4. Contract with a volunteer fire department for payment of compensation to its members or payment of retirement benefits;[29]
  5. Contract with a volunteer ambulance service for payment of compensation to its members or payment of retirement benefits;[30]
  6. Benefit from a federal or state grant program for housing, community, or economic development, but the officer must abstain from voting on measures related to the grant.[31]

When relying on one of these exceptions, the meeting minutes discussing the issue should indicate that the vote on authorizing the interest/relationship was unanimous, with the interested officer abstaining from the vote.

Towns with questions regarding the application of the conflict of interest prohibitions need to seek legal assistance.

 

APPENDIX A

PROCEDURAL SUMMARY FOR RELYING CONFLICT OF INTEREST EXCEPTIONS
(Minn. Stat. § 471.88, subd. 5.)

The exception to the conflict of interest prohibition most often relied upon by town officers is Minn. Stat. § 471.88, subd. 5. This exception permits contracts otherwise prohibited as a conflict of interest if the law does not require the contract to be let by competitive bids. It is arguably the broadest of the exceptions, but it also involves the greatest number of procedural requirements.

The following provides an overview of the procedural requirements associated with relying on this particular exception. Remember, other statutory requirements imposed by the municipal contracting law and other laws must also be complied with to award a contract to a supervisor. The summary only discusses the requirements associated with relying on the Minn. Stat. § 471.88,

subd. 5 exception.

Note:

  • Refer to the text of the document for information on when a statutory conflict of interest exists.
  • A conflict can exist even if the town is not using a formal written contract.
  • A conflict can exist even if the officer provides the goods or services at far below market value.
  • Other contracting and legal requirements may apply in a given situation that is not part of this summary.
  • The attached samples will need to be modified to fit their situation. Still, the statute requires them to contain specific information, so do not delete sections of the forms unless you are certain the information Minn. Stat. § 471.89 or other statutes do not require.
  1. Identify the Need. The town needs goods or services that an officer could provide, but which would constitute a conflict of interest for the supervisor to provide without first identifying and relying on a statutory exception to the prohibition.
  2. Determine if Competitive Bids are not Required. The board determines that the contract to obtain the goods or services does not require the solicitation of competitive bids.[32] In most cases, a contract does not require competitive bids because the total estimated amount of the goods or services is below the bid threshold. In towns, the law does not require competitive bids unless the contract will exceed $175,000. There are other situations in which the law does not require competitive bids, but the dollar threshold is the most common standard. The board must make a good faith estimate of the total cost of the goods or services it will obtain from the officer. If the total is near the competitive bid threshold, it is better to look for another exception to authorize the contract.
  3. Determine the Contract Price. The board needs to determine whether the contract’s price with the officer would be as low or lower than the price the board could obtain elsewhere.
  4. Develop a Resolution. Develop a resolution that satisfies the requirements of Minn. Stat. § 471.89, subd. 2[33]

APPENDIX A

  1. Pass the Resolution. At a board meeting, a non-interested supervisor makes a motion to adopt the resolution. Before voting, the interested officer should state. The clerk should record in the minutes that they are abstaining from voting on the resolution because they have a financial interest in the contract. The board must pass the motion by a unanimous vote of the remaining supervisors.
  2. Complete Contracting Steps. The board should complete the standard steps with a contract of that type.
  1. Provide an Affidavit when Receiving Payment. Before the town may pay the interested officer for the goods or services provided, the supervisor must submit an affidavit to the clerk that satisfies the requirements of Minn. Stat. § 471.89, subd. 3.[34] Though the law is not entirely clear on this point, the supervisor should submit an affidavit each time they submit a claim for payment for the goods or services covered by the resolution.
  1. Preserve Records. The clerk needs to file and preserve a copy of the resolution and affidavits. If practicable, the interested supervisor may want to keep a copy of the documents as a backup for their protection.

 

 

APPENDIX 

RESOLUTION AUTHORIZING CONTRACT WITH INTERESTED OFFICER UNDER
Minn. Stat. § 471.88, subd. 5

 WHEREAS, Town Board of Pequaywan Township, St. Louis County, Minnesota is seeking the performance or acquisition of the following service or goods:

WHEREAS, ______________________ is an officer of said Township and will be financially interested in the contract for the following described reason:

[select one of the following descriptions and modify it as needed to fit the particular circumstances]

  • He or she is an (employee/owner) of (business name) which is the provider of the service or goods.
  • He or she is directly providing the service or goods to the Township as an independent contractor.
  • He or she is directly providing the service as an employee of the Township.

NOW, THEREFORE, BE IT RESOLVED the Town Board, upon a unanimous vote of the supervisors with the interested officer abstaining, finds the contract price of $____________ is as low as, or lower than, the price at which the services or goods it could obtain elsewhere at this time; and

BE IT FURTHER RESOLVED, that the Town Board, pursuant to Minn. Stat. §§ 365.37; 471.88, subd. 5; and 471.89, does hereby authorize a contract with __________________ for a price of $_______________; payment to occur on the contract as agreed and upon the filing of a proper affidavit by the interested officer.

Adopted this _____________ day of _________________, 20___.

BY THE TOWN BOARD

____________________________________
Chairperson (or another supervisor if the chair is contracting)

Attest:_____________________________
Town Clerk

 

APPENDIX C

Sample Affidavit
(Partial Payment)

AFFIDAVIT OF OFFICIAL INTEREST IN CLAIM
(Minn. Stat. § 471.89, subd. 3)
State of Minnesota )
County of St. Louis ) ss.
Township of Minnesota )

________________________________________, being duly sworn states the following:

1) He/she is an officer of Pequaywan Township, St. Louis County, Minnesota.

2) On [list the date or range of dates the services or goods were supplied that are being supported by this affidavit], the following services were performed, or goods were supplied, by ____________________________________ for the Township:

[describe the services or goods provided]

 

 

3) This affidavit is being provided in support of a request for partial payment of the contract price for the services or goods provided on the date(s) indicated above

4) The contract price for such services or goods is $_________________ and the reasonable value of the services or goods is $______________. The amount of the partial payment of the contract price being request in conjunction with this affidavit is $__________________.

5) At the time such services were performed for, or goods provided to, the Township the affiant had the following interest in the contract:

[select one of the following descriptions and modify it as needed to fit the particular circumstances]

  • He or she is an (employee/owner) of (business name) which is the provider of the service or goods.
  • He or she is directly providing the service or goods to the Township as an independent contractor.
  • He or she is directly providing the service as an employee of the Township.

6) Affiant further states that to the best of his/her knowledge and belief the contract price is as low as, or lower than, the price at which the services or goods could be obtained from other sources.

 

APPENDIX C
Sample Affidavit
(Partial Payment)

7) Affiant further states that this affidavit constitutes a claim against the township for partial payment of the contract price.

I declare under the penalties of law that this account, claim, or demand is just and correct and that no part of it has been paid.

___________________________________
Interested Officer Signature

Subscribed and sworn to before me this _____ day of ______________, 20___.

_______________________________
Town Clerk

 

 

 

APPENDIX D

Sample Affidavit
(Payment in Full)

AFFIDAVIT OF OFFICIAL INTEREST IN CLAIM
(Minn. Stat. § 471.89, subd. 3)
State of Minnesota )
County of _______________ ) ss.
Township of _____________ )

________________________________________, being duly sworn states the following:

1) He/she is an officer of Pequaywan Township, St. Louis County, Minnesota.

2) On _______________________[list the date or range of dates the services or goods were supplied that are being supported by this affidavit], the following services were performed, or goods were supplied, by ____________________________________ for the Township:

[describe the services or goods provided]

 

3) This affidavit is being provided in support of a request for payment in full of the contract price for the services or goods provided on the date(s) indicated above

4) The contract price for such services or goods is $_________________ and the reasonable value of the services or goods is $______________. The total contract price for the services or goods provided is $__________________.

5) At the time such services were performed for, or goods provided to, the Township the affiant had the following interest in the contract:

[select one of the following descriptions and modify it as needed to fit the particular circumstances]

  • He or she is an (employee/owner) of (business name) which is the provider of the service or goods.
  • He or she is directly providing the service or goods to the Township as an independent contractor.
  • He or she is directly providing the service as an employee of the Township.

 

 

APPENDIX D
Sample Affidavit
(Payment in Full)

6) Affiant states further that to the best of his/her knowledge and belief the contract price is as low as, or lower than, the price at which the services or goods could be obtained from other sources.

7) Affiant further states that this affidavit constitutes a claim against the township for the contract price, that the claim is just and correct, and that no part of the claim has been paid.

I declare under the penalties of law that this account, claim, or demand is just and correct and that no part of it has been paid.

____________________________________
Interested Officer Signature

Subscribed and sworn to before me this _____ day of ______________, 20___.

_______________________________
Town Clerk

 

 

[1] For information on common law conflicts of interest refer to Document Number: TP7000. 2

[2] Minn. Stat. § 365.37, subd. 1.

[3] Minn. Stat. § 471.87.

[4] Minn. Stat. §§ 365.37, subd. 5; and 471.87.

[5] Minn. Stat. §§ 609.02, subd. 3 & 4.

[6] Elder v. La Crescent Township, 2002 WL 1465954 (Minn. App. 2002)(unreported)

[7] Op. Atty. Gen., 90-A, July 11, 1957.

[8] Minn. Stat. §471.88

[9] See, e.g. Op. Atty. Gen. 90c-5, My 25, 1966; and Op. Atty. Gen. 90-E-5, Aug. 25, 1955.

[10] See, e.g. Op. Atty. Gen. 90a, Dec. 29, 1958; and Op. Atty. Gen. 90A, Aug. 14, 1957.

[11] Minn. Stat. § 471.88, subd. 1.

[12] Id.

[13] Id., at subd. 5.

[14] Id.

[15] Minn. Stat. § 471.345, subd. 3.

[16] Minn. Stat. § 471.345, subd. 4.

[17] Minn. Stat. § 471.89.

[18] See APPENDIX B for a sample resolution.

[19] Minn. Stat. § 471.89, subd. 2.

[20] Id., at subd. 3 (See APPENDIX C for a sample affidavit).

[21] A summary of the procedure to exercise this exception is provided in APPENDIX A.

[22] Minn. Stat. § 471.88, subd. 12.

[23] Id., at subds. 1 & 12.

[24]  Minn. Stat. § 471.345.

[25] Minn. Stat. § 471.88, subd. 20.

[26] Id., at subd. 2.

[27] Id., at subd. 3.

[28] Id., at subd. 4.

[29] Id., at subd. 6.

[30] Id., at subd. 6a.

[31] Id., at subd. 17.

[32] Refer to Information Library Document Number: C4000 (Contracts and RFP’s) for additional information.

[33] See Appendix B for a sample

[34] Refer to APPENDIX C for a sample of an affidavit that would accompany a claim for partial payment and APPENDIX D for a sample affidavit to accompany a claim for payment in full.