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A09692 Memo:

BILL NUMBER:A9692

TITLE OF BILL:  An act to amend the state finance law, in relation to
establishing the ethical standards for state agency contractors act

PURPOSE: The purpose of this legislation is to establish ethical
standards for certain state agency contractors.

SUMMARY OF PROVISIONS: Section 1 sets forth the Legislature's findings
and intent.

Section 2. Provides that the proposal when enacted shall be known and
may be cited as "the ethical standards for state agency contractors
act."

Section 3. This bill amends the State Finance Law by adding a new
Section 148 relating to ethical standards for contractors performing
inherently governmental and mission-critical functions or rendering a
service or services pursuant to an information-risk contract. This
Section also defines "state agency contractor," "state agency,"
"employee," "inherently governmental and mission-critical function,"
"nonpublic information," "proprietary information," "information-risk
contract," "organizational conflict of interest," "personal conflict
of interest" and "state agency contract."

Additionally, this Section requires that any contract executed by a
state agency with a contractor performing inherently governmental and
mission-critical functions or rendering services pursuant to an
information-risk contract, prohibit contractors from organizational
conflicts of interest with respect to such state agency contract and
prohibit a contractor's employees performing inherently governmental
and mission-critical functions or rendering information-risk contract
services from personal conflicts of interest arising with respect to
such state agency contract. The contract must also include a
nondisclosure agreement or clause requiring the contractor to certify
that it has an executed nondisclosure agreement for each individual
employed by the contractor pursuant to a state agency contract as a
condition of access to nonpublic information. The contract must
require that agreements between contractors and third parties must
protect the state agency's nonpublic information and require such
contractors to obtain written consent from the state agency prior to
disclosing nonpublic information to subcontractors or others. The
contract must require contractors to train at least biannually its
employees and subcontractors, if any, rendering services on state
agency contracts regarding organizational conflicts of interest,
personal conflicts of interest and protection of nonpublic information
and the consequences for unauthorized disclosure or misuse of such
information. Finally, the contract must require contractors to
immediately notify the state agency regarding any such organizational
or personal conflicts of interest, or the misuse or unauthorized
disclosure of nonpublic information and impose consequences for
violations.

This Section also provides that contractors shall be responsible for
the security of any system relating to nonpublic information whether
such system is maintained electronically or otherwise. Contractors
involved in source selection and related activities supporting award


of state agency contracts shall be subject to laws and regulations
preventing the release of nonpublic information.

Contractors performing inherently governmental and mission- critical
services or information-risk contract services for which more than
five million dollars is to be paid and involving work in excess of one
hundred and twenty days shall be required to have a written code of
business ethics and conduct. The provisions of the Act shall not apply
to contracts for the purchase of commodities.

Finally, this Section authorizes the Comptroller, in his or her
discretion, to promulgate rules and regulations addressing the
appropriate content for a model written code of business ethics to be
utilized by contractors performing inherently governmental and
mission- critical functions, or rendering information risk contract
services, for the purpose of preventing organizational and personal
conflicts of interest and protecting nonpublic information.

Section 4. Provides for an immediate effective date.

PRIOR LEGISLATIVE HISTORY: New bill.

JUSTIFICATION: To a great extent, state agencies and public
authorities rely on contractors to help accomplish a broad array of
complex, inherently governmental and mission-critical functions.
State agencies and public authorities contract for services that
involve the contractors' exercise of judgment, providing operational
and policy advice to state officers and employees, overseeing other
contractors and, at times, working alongside state officers and
employees on the same projects. This intermingling of public and
private workforce reveals a need to assess what processes are in place
to ensure the integrity of government operations and maintain public
confidence.

While a majority of contractors deliver services with integrity, some
contractors could, nonetheless, engage in misconduct during the course
of the contract term -for example, engaging in acts for personal
financial gain, accepting inappropriate gifts, or inappropriately
negotiating for certain jobs.

Furthermore, in carrying out the day-to-day tasks for state agencies
and public authorities, contractors often require extensive access to
and use of nonpublic government information. Protection of nonpublic
information is critical, because unauthorized disclosure can erode the
integrity of government operations and lead to situations in which
such information is misused for private gain, potentially harming
important interests such as the privacy of individuals, commercial
business proprietary rights, security, and law enforcement.

Opportunities for organizational and personal conflicts of interest by
contractors, and the misuse of nonpublic information by contractors
through negligence or misconduct, can have a significant effect on the
government's ability to perform its primary functions, potentially
resulting in inappropriate use of taxpayer dollars, damaged
reputation, and loss of public trust.


While few cases of improper conduct by contractors have been publicly
identified, safeguards are lacking to identify whether organizational
or personal conflicts of interest exist among contractors. The cost to
the state of contractors or their employees engaging in actions
reaping organizational or personal gain - an outcome increasingly
likely based on sheer numbers - would likely never be known, let alone
calculable, as long as there is no transparency.

FISCAL IMPLICATIONS FOR STATE: This bill has no significant State
fiscal impact.

EFFECTIVE DATE: This act shall take effect immediately.
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