Recent Developments in State Pay-to-Play Law

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"Pay-to-play" rules that impose disclosure requirements and political-contribution prohibitions on government contractors are increasingly numerous and complex. This trend is expected to accelerate in the wake of high-profile scandals such as those surrounding Illinois Governor Rod Blagojevich. The article below reviews important and recent pay-to-play developments in Colorado, Illinois, New Jersey, and South Dakota.


Colorado
On November 4, 2008, Colorado voters approved Amendment 54, an amendment to Colorado's constitution that places restrictions on political contributions by certain government contractors. Amendment 54 became effective on December 31, 2008, and the Colorado Department of Personnel and Administration advises that the Amendment is applicable to all "sole source government contracts," including modifications to existing contracts, entered into on or after December 31, 2008.

The law requires "sole source government contracts" to include a clause that would prevent contract holders from making, causing or inducing contributions to any state or local political party or candidate during the term of the contract and for two years thereafter. In addition, persons who make or cause to be made any contribution to influence a ballot issue are prohibited from entering into a sole source government contract relating to that ballot issue.

To aid in the measure's enforcement, every holder of a sole source government contract must promptly prepare and deliver a Government Contract Summary to the Executive Director of the Colorado Department of Personnel and Administration.


Illinois
In 2008, the Illinois Governor and General Assembly enacted separate "pay-to-play" requirements. The Governor's Executive Order Number 3 established new restrictions on campaign contributions and solicitations by Illinois State contractors, bidders, and their affiliates. The Executive Order went into effect on January 1, 2009. Also effective January 1, 2009, the General Assembly's Public Act 095-0971 which contains new registration and reporting requirements for state vendors and bidders, as well as additional contribution and solicitation restrictions on Illinois contractors, bidders, and affiliates.

Executive Order 3 prohibits a business entity with more than $50,000 in contracts and/or bids with a state agency (including the state retirement systems) from soliciting or making contributions to certain state officers, candidates for state office, and political parties.

The prohibition lasts during the bid period and/or the term of the contract, and for two years thereafter. It applies to the business entity itself and to all "affiliated" persons and entities. Penalties for violation of the Order entitle the state to terminate the contract without additional compensation. Three or more violations within a 36 month period results in a ban on contracting with the state agencies for a period of three years.

Public Act 095-0971 requires any business entity whose aggregate bids, proposals and/or contracts with the state total more than $50,000 to electronically register with the Illinois State Board of Elections and submit a copy of its certificate of registration to the applicable chief procurement officer. On these registration forms, a business entity must disclose contact information for "affiliated" persons and entities, including executive employees and their families. Business entities with state contracts or bids of more than $50,000 in the aggregate as of January 1, 2009, must register with the Board by February 2, 2009.


New Jersey
New Jersey has a robust pay-to-play regime which was found constitutional in a State Supreme Court case decided January 15, 2009. Specifically, the Court upheld the strict contribution limits and disclosure requirements imposed on state vendors.

Executive Order 117, signed by Governor Corzine earlier this year, prospectively expands the scope of the upheld state contract pay-to-play laws by increasing the number and type of covered contributions. The Executive Order took effect November 15, 2008 and applies to contributions made and contracts executed on or after that date.

When awarded a contract, state contractors must complete both a certification verifying compliance with the pay-to-play restrictions and a report listing all contributions made during the preceding four years to a New Jersey continuing political committee, or PAC. The New Jersey Division of Purchase and Property will soon release a permanent certification form, but has already issued an interim certification form to be used temporarily. Under a separate, pre-existing statute, state contractors may have additional disclosure requirements. For example, contractors may be required to report contributions made during the prior twelve months to certain state and local political candidates and committees as well as information about the various contracts they have with the state. Although not discussed here, the state pay-to-play restrictions also apply to partnerships, limited liability partnerships, limited liability companies, and persons affiliated with those entities.


South Dakota
On November 4, 2008, South Dakota voters rejected Initiated Measure 10. Among other provisions, the Measure would have prohibited holders of no-bid contracts and their employees from making political contributions or independent expenditures to candidates for elected office in the state or any of its political subdivisions. It also would have prevented officeholders responsible for awarding a contract from accepting political contributions from competitively bid contract holders.