Assembly Bill 334 (2023): CA Legislature Eases Conflict of Interests Law for Public Works

10.17.2023

Government Code section 1090 (“Section 1090”) prohibits public “officers” and “employees” from being financially interested in contracts “made” by such individuals in their official capacity. Over the years, however, California courts have broadly interpreted Section 1090. For example, a public “officer” or “employee” “makes” a contract if he/she plans a contract, engages in preliminary discussions regarding a contract, affects plans and specifications, or “had the opportunity to, and did, influence” the approval of a contract. More relevantly, the terms public “officer” and “employee” have been expanded to include independent contractors hired by public agencies such as construction contractors, architects, and more.

Case law has held that the term “employee” in Section 1090 “encompasses consultants hired by the local government,” including corporate consultants. Other cases have similarly found consultants/independent contractors to be public “officers” when such consultants have “responsibilities for public contracting similar to those belonging to formal officers….” (People v. Superior Court (Sahlolbei) (2017) 3 Cal.5th 230, 237.)

Recently, the Governor signed Assembly Bill 334 (2023) (“AB 334”) into law, which seeks to ease the foregoing rules for certain independent contractors. Effective January 1, 2024, AB 334 creates a new statute, Government Code section 1097.6, affecting consultants involved in one phase of a project but seeking to enter into a subsequent contract for a later phase of the same project. The statute provides:

A contractor is not an “officer” under Section 1090 if the contractor did not prepare or assist the public entity with any portion of a request for proposals, request for qualifications, or any other subsequent or additional contract with the public entity.
If a contractor does assist the public entity with contracting matters, the contractor may enter into a subsequent contract for a later phase of the same project, and there is no violation of Section 1090, only if:
- The contractor participated in the planning, discussions, or drawing of plans or specifications only during an initial stage of a project;
- The participation is limited to conceptual, preliminary, or initial plans or specifications; and
- All bidders or proposers for the subsequent contract have access to the same information, including all conceptual, preliminary, or initial plans or specifications.

Significantly, the new law exempts independent contractors from criminal, civil, or administrative enforcement of Section 1090 if the relevant contracts contain certain language. The law may also exempt independent contractors from criminal, civil, or administrative enforcement if the contractor acts in good faith reliance on the above-stated rules, as is further described in the new law.

It is currently uncertain, but it appears that Government Code section 1097.6 may affect design entities as well as construction contractors involved in public works. To ensure compliance with the new law, public entities should work with legal counsel to discuss the appropriate language for applicable contracts and/or how this statute may affect construction delivery methods such as lease-leaseback and design-build.