Pay-to-Play Comes to Newark

On February 7, 2007, Mayor Cory Booker issued Executive Order MEO-07-001, which subjects pay-to-play restrictions on persons and entities doing business with or hoping to do business with the City of Newark. Read more for specifics on the EO. The EO, which became effective on March 31, 2007, applies to all post-March 30, 2007 “no-bid contracts” with the City of Newark, which includes all municipal agencies, offices, boards, commissions or independent authorities responsible for arranging and entering into such contracts. A “no-bid contract” under the EO includes agreements, contracts (or any amendments thereto) awarded without public bidding on or after March 31, 2007. Also included in the Order’s definition of a “no-bid contract” are “fair and open” process contracts valued at $17,500 or less. Thus, unlike P.L. 2004, c. 19 (the statewide law, which governs county and municipal government contracts), the Newark Executive Order does not provide an exception for contracts of $17,500 or less or for contracts awarded through a “fair and open” process. Rather, only no-bid contracts are exempt from the law’s requirements. The following persons and entities are covered by the Order’s prohibitions, restrictions and limitations:

• The Business Entity seeking the contract;
• Principals (persons and entities) who own or control more than 10% of the profits, assets or stock of the Business Entity;
• Partners and Officers of the Business Entity (without regard to interest);
• Subsidiaries directly or indirectly controlled by the Business Entity;
• Any PAC/CPC directly or indirectly controlled by the Business Entity; and
• If the Business Entity is a natural person (i.e., sole proprietor), his or her resident spouse and children are also included.

The above-listed persons and entities may not, within 1-year immediately preceding the award of covered no-bid contract, make political contributions in excess of the following limits:

• $300/year to the candidate committee of any holder of or candidate for municipal public office in the City of Newark.
• $300/year to a Newark municipal political party committee.
• $300/year to an Essex County political party committee.
• $300/year to any PAC/CPC which regularly engages in or is formed for the purpose of engaging in the support of candidates or political parties in municipal elections in the City of Newark.

The Newark Executive Order also prohibits all persons and entities falling within the definition of a “business entity” from annually contributing more than $3,000/year in the aggregate to all of the recipients set forth above. After a business entity is awarded a post-March 30, 2007 no-bid contract in the City of Newark, the Newark Executive Order prohibits the business entity itself and all covered persons and entities associated with the business entity from making a contribution in ANY amount to the above-listed recipients during the term of any such contract. The penalties for violating the Newark Executive Order are severe and include:

• Being deemed in material breach of a post-March 30, 2007 no-bid contract;
• Being disqualified from any future no-bid contracts in the City of Newark for a period of one (1) year from the date of the violation for the first offense and for a period of two (2) years from the date of any and all subsequent offenses; and
• Where a violation is knowing or intentional, being disqualified from eligibility for any future no-bid contracts with the City of Newark for a period of four (4) years from the date of the violation.

Note: The original form of this article appeared in the April 16, 2007 Genova, Burns & Vernoia Corporate Political Activity Law Update.