An opinion has been requested as to whether a University of Maryland research program may purchase a limited item and engage in donation relationships with a private business in which a faculty member involved with the program has a financial interest and Board member relationship. We advise based on the very limited procurement relationship described here that an exception can be applied to allow this relationship as long as the interactions between the University and the entity are limited as described.
The Requestor is a professor of electrical engineering at the University of Maryland College Park (UMCP). He has previously been at another graduate school, and is one of the early developers of work in focused ion beam technology. He has done research in this area and apparently also been involved in commercializing this technology for use by the semiconductor industry. He therefore has substantial expertise and reputation related to the early development work on ion beam technology and was recruited by the University to be a lead participant in its development of a Laboratory for Ion Beam Research and Applications (LIBRA). In this capacity, in addition to his teaching duties, the Requestor develops research proposals and generates funding for them, directs the research of graduate students, and directs research programs at the University. The LIBRA program, funded primarily by a federal research grant of $7.5 million, awarded prior to the Requestor's being affiliated with the University, is designed to advance ion beam technology and its use in the semiconductor and computer industries of the American economy. One of the research projects involved in this activity entails a $600,000 grant for advanced ion source research from the Advanced Research Projects Agency of the Department of Defense.
Apparently as an outgrowth his previous affiliation, the Requestor established with another colleague a small company to design and exploit ion and electron beam technology (the Company). The Requestor serves on the Company's Board of Directors. He is a shareholder and currently with his spouse and two adult children owns approximately 7.5 percent of the Company's outstanding shares. He indicates that there have never been any dividends paid on the shares and his only compensation (other than past consulting services) has been annual compensation for Board meetings. Originally quite small, the Company currently has about 100 employees and annual revenues in excess of $20 million. It has been at the center of the development of ion technology and related equipment and products such as focused ion beam workstations. It markets equipment, supplies and services throughout the world. It has developed a specialized kind of oriented single crystal wire, and we are advised that it is the only producer of this wire.
This request involves the application of the Ethics Law to the Requestor's affiliations with the Company in view of the proposed purchase from it of the oriented single crystal wire necessary for the ARPA research. The Requestor and other University managers indicate that this wire is absolutely essential as a technical matter to the conduct of this research. He says, however, that the demand is quite small as use is measured a tenth of an inch at a time and total output is measured in inches. He says that the maximum purchase could be as much as $1000 per year, but is more likely to be in the area of $500 or under. Purchase would be in lots of $100 a time, which would last a long time. The Requestor recognizes that he has substantial management and research direction responsibilities as to LIBRA activities generally and the ARPA project. He advises, however, that the wire purchase relates only to the ARPA project, which represents less than 10 percent of the total funded program of LIBRA. He says that the primary operational decisions are made by a post-doctoral fellow who has ongoing responsibility for the research.
A second aspect of this request has to do with the proposal that the Company be solicited to donate equipment to the University for use in its ion beam research program. University representatives indicate that this is a practice frequently used in the university setting, where research contracts, grants and other cooperative support is often solicited from private businesses. Donations are often made of equipment rather than money, primarily for tax benefits and to advance corporate image, and because the academic research is anticipated to advance knowledge and technical capability in a given field. The University indicates that any equipment acquired by gift would be the property of the University and remain with the University even if the Requestor were to leave the institution. Though it recognizes that there are benefits accruing to a donor if the University succeeds in becoming a world center for ion beam research, it does not believe that accepting such gifts would result in an improper benefit to any private company. It would enter into similar cooperative relationships with any private company prepared to support the effort with donated gifts or other financial assistance.
This request presents issues primarily under the outside employment and interest prohibitions of §3-103(a) of the Public Ethics Law (Article 40A, §3-103(a), Annotated Code of Maryland, the Ethics Law). This section bars officials and employees from being employed by or having an interest in an entity that contracts with or is subject to the authority of their agency.1 As the Requestor has both an employment and interest relationship with the Company, and the proposed sales transaction is a contract with his agency, his continued Board service2 and stock ownership could be prohibited by §3-103(a). This section, however, allows for exception from the prohibition pursuant to Commission regulations where it is determined that the particular situation presents no conflict of interest or appearance of conflict. The Commission's regulations implementing the employment portion of this provision (COMAR 19A.02.01) define circumstances where the relationships between an employee's official duties or his agency and the private employment or interest are sufficiently remote that the possibility of a conflict or appearance of conflict is unlikely.
The criteria include consideration of an employee's dealings with the private employer or entity in the context of official State duties, as well as consideration of how his private activities relate to the agency program or the employee's duties. They also include an evaluation of the specific employment circumstances to ensure that they do not otherwise create a conflict of interest or appearance of conflict, and, as to financial interests, consider the value of the contractual relationship to the private entity. In this situation the significance of the issues presented under the criteria is a factor of the nature of the impact and the substance of the relationships. We note, for example, that the value of the transaction is very small in dollar amount and the transaction is limited to a commodity sale. There appear to be no consulting, service or similar ongoing relationships that would flow from the wire purchase. Nor, apparently, would any other purchases be anticipated. Also, from the information provided, it appears that the wire is required and there are no other suppliers. It would thus appear that the Requestor as the supervisor has little impact on the purchase transaction, as there is apparently little discretionary or subjective decision-making involved. The University strongly supports the request to make this purchase and does not believe that it would compromise the integrity of its program.
Under all of these circumstances, we conclude that an exception can be allowed to permit this limited purchase transaction for acquisition of the single crystal wire required for the ARPA project. We assume in making this determination that the value of the wire to be purchased does not change significantly, and that the contractual relationships between the University and the Company are in fact limited to this commodity purchase. Our conclusion, of course, also relies substantially on the understanding that the wire is necessary and otherwise unavailable and that therefore the purchase involves no discretionary decision-making by the Requestor specifically or the LIBRA program as a general matter. We also note that Respondent has, consistent with the regulatory requirements, filed a Financial Interest Exception Disclosure Form detailing the nature of his financial interest and the nature of this transaction.
The other question presented here involves the proposal that the Company or other companies may be asked to donate equipment for use by the University in its LIBRA program. The Ethics Law provisions that could have application here would be the §3-104 prestige provision and the prohibition in §3-106 against solicitation and receipt of gifts. The University points out that any solicitation would be solely for the benefit of the University and that any equipment acquired would be the property of the University.
The Ethics Commission, particularly in recent years, has been involved in weighing Ethics Law and agency program considerations in these kinds of situations, recognizing that to some extent solicitation and gift activities that are clearly part of the agency mission are matters for agency policy makers rather than the Ethics Law. We have, however, recently issued an opinion regarding solicitation of travel and membership fees from regulated entities or contractors,3 and have in the past issued opinions relating to solicitation of private contributions for agency award programs4.. The approaches taken in these situations have reflected our concerns that the economic interests of the private entities involved not be improperly advanced by virtue of their donor relationships with the State program that contracts with or has authority over them.
We acknowledge the University's position that cooperative efforts with private companies, including receipt of materials, equipment and other donations from various companies, may advance the University's research activities. We continue to believe, however, given the substantial economic and commercial interests involved in these types of relationships, that the University as a public institution must take special care to control and monitor this type of solicitation and receipt of gifts. This is particularly so in a situation where, as here, faculty and others directly involved in a program also have personal economic relationships with the private companies. We therefore advise the University that though donations of equipment and related materials may be accepted from the Company, such transactions must be consistent with constraints set forth in other opinions, as well as University System and College Park procedures and policy. The Requestor should not participate on behalf of the University or the Company in any negotiation or other discretionary or policy aspects of the transaction. Additionally, it should be clear in any documentation or other articulation of the transaction that any donated equipment becomes solely the property of the University and is not to be transferred with the Requestor if he subsequently leaves the University. Finally, the exception granted here is for the specific activity described in this opinion. The acceptance of donated equipment would not be the basis for future contractual relationships with the company or related Ethics Law exceptions.
Mark C. Medairy, Jr., Chairman
Michael L. May
Robert J. Romadka
April E. Sepulveda
Date: December 7, 1994
1 It should be noted that §3-109 of the Ethics Law establishes specific procedures for exemption for faculty from some ethics requirements where they have affiliations with entities involved in sponsored research. This would not seem to apply here, however, since the issue is presented as a result of involvement with an entity not involved in sponsored research.
2 Note that this service is compensated, and under prior Commission opinions would be viewed as employment in any case.
3 Opinion No. 94-6.
4 Opinions No. 93-15, No. 88-17 and No. 81-34.