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TEXAS ETHICS COMMISSION

Texas State Seal

Opinion History

ETHICS ADVISORY OPINION NO. 185

January 27, 1994

Whether "paying or agreeing to pay an employee or outside consultant a commission fee for soliciting, acquiring and closing underwriting projects for state bond issuers constitute[s] a violation of Section 305.022 of the Government Code." (AOR-206)

The Texas Ethics Commission has been asked whether "paying or agreeing to pay an employee or outside consultant a commission fee for soliciting, acquiring and closing underwriting projects for state bond issuers constitute[s] a violation of Section 305.022 of the Government Code."

Section 305.022 of the Government Code prohibits the payment of contingent fees for certain lobby activity. Specifically, it provides as follows:

(a) A person may not retain or employ another person to influence legislation or administrative action for compensation that is totally or partially contingent on the passage or defeat of any legislation, the governor's approval or veto of any legislation, or the outcome of any administrative action.

(b) A person may not accept any employment or render any service to influence legislation or administrative action for compensation contingent on the passage or defeat of any legislation, the governor's approval or veto of any legislation, or the outcome of any administrative action.

(c) For purposes of this section, a sales commission payable to an employee of a vendor of a product is not considered compensation contingent on the outcome of administrative action.

(d) This section does not prohibit the payment or acceptance of contingent fees:

(1) expressly authorized by other law; or

(2) for legal representation before state administrative agencies in contested hearings or similar adversarial proceedings prescribed by law or administrative rules.

Gov't Code § 305.022 (emphasis added). The question raised here is whether section 305.022 prohibits a contingent fee for efforts to influence a state agency's selection of a provider of investment banking services.

The prohibition applies to contingent fees for certain efforts to influence administrative action. "Administrative action" means "rulemaking, licensing, or any other matter that may be the subject of action by a state agency, including the proposal, consideration, or approval of the matter." Gov't Code § 305.002(1). An Ethics Commission rule in effect until July 19, 1993, provided that the term "administrative action" did not include "purchasing decisions."1 Tex. Ethics Comm'n, 17 Tex. Reg. 6893 (1992) (adopting new rule 40.5(c)). The main effect of that rule was to except from required lobby registration a person who either received compensation for efforts to influence a state agency's purchasing decisions or made expenditures to influence a state agency's purchasing decisions. See generally Gov't Code § 305.003(a) (a person must register as a lobbyist if he meets either a compensation threshold or an expenditure threshold in connection with direct communications to influence administrative action). Another effect of the rule, however, was to except contingent fees for efforts to influence state agency purchasing decisions from the contingent fee prohibition in section 305.022.2

The current rule regarding purchasing decisions provides that compensation for efforts to influence state agency purchasing decisions is not included in determining whether a person is required to register as a lobbyist under the compensation threshold.3  In other words, there is now a "purchasing decisions exception" under the compensation threshold for lobby registration, but not under the expenditure threshold. Tex. Ethics Comm'n, 18 Tex. Reg. 7061, adopted 18 Tex. Reg. 9748 (1993) (to be codified at title 1, section 30.19, of the Texas Administrative Code). Because purchasing decisions are no longer excluded from the definition of "administrative action," the rule change also raises the question whether it is now impermissible for a person to accept a contingent fee for efforts to influence state agency purchasing decisions.4

We adopted the rule change regarding purchasing decisions because we concluded that the making of expenditures for the personal benefit of state officers and employees to influence state agency purchasing decisions should be regulated by the lobby law. We did not intend to change the law in regard to contingent fees. We conclude, therefore, that section 305.022 of the Government Code does not prohibit contingent fees for efforts to influence state agency purchasing decisions.5

SUMMARY

Section 305.022 of the Government Code does not prohibit contingent fees for efforts to influence state agency purchasing decisions.


1 This rule, adopted in 1992, codified a 1984 opinion of the Secretary of State determining that the phrase "administrative action" did not include the purchasing decisions of a state agency. Lobby Law Opinion No. 3 (1984). The stated reason for that conclusion was that purchasing decisions affect only the internal operations of a state agency and that the lobby law was intended to regulate persons who attempt to influence matters affecting the rights of the public.

2 There is a statutory exception to the prohibition on contingent fees for a sales commission payable to an employee of a vendor of a product . Gov't Code § 305.022(c). In some circumstances, this exception has the same effect in regard to contingent fees as did the exclusion of purchasing decisions from the definition of administrative action. The phrase "purchasing decisions," however, has been interpreted to include more than decisions about buying products . See Lobby Law Opinion No. 4 (1985) ("purchasing decisions" includes decisions to purchase services); Ethics Advisory Opinion No. 160 (1993) ("purchasing decisions" includes a state agency's selection of an investment banker to underwrite bond issued by the agency).

3 Former commission rule 40.5(c), effective July 19, 1993, excluded purchasing decisions from the definition of "administrative action" only for purposes of registration under the compensation threshold. Tex. Ethics Comm'n, 18 Tex. Reg. 2345, adopted 18 Tex. Reg. 4299 (1993) (amending rule 40.5(c)). Effective December 31, 1993--as part of a comprehensive revision of the lobby rules--new commission rule 30.19(a)(11) provides, simply stated, that "communicating to a member of the executive branch concerning the purchasing decisions of a state agency, or the negotiations regarding those decisions" is not to be considered in determining whether a person is required to register as a lobbyist under the compensation threshold. For purposes of this opinion, the effect of the two rules is the same: purchasing decisions are no longer expressly excepted from the definition of "administrative action" for purposes of the contingent fee prohibition in section 305.022.

4 See note 2 (explaining that there is a statutory exception for certain purchasing decisions about products). The question here is whether the Ethics Commission continues to recognize a broader exception, or at least to read that exception broadly. 

5 We have already determined that a state agency's decision in regard to the selection of a provider of investment banking services is a purchasing decision. Ethics Advisory Opinion No. 160 (1993). Therefore, section 305.022 does not prohibit a contingent fee for efforts to influence such a decision.

Lobby Law Opinion No. 3 (pdf file) | (high resolution pdf file)