CONFLICT OF INTEREST

BUSINESS OF MEMBER OF THE BOARD OF TRUSTEES OF A STATE UNIVERSITY
APPLYING FOR A GRANT FROM THE UNIVERSITY'S
DIVISION OF SPONSORED RESEARCH

To: Office of the General Counsel (University of West Florida)

SUMMARY:

A Member of the Board of Trustees of a State University will not have a conflict of interest under Section 112.313(7)(a), Florida Statutes, when his or her business applies for a grant from the University's division of sponsored research due to the application of Section 112.313(12)(h), Florida Statutes, assuming the President of the University and the Chair of the Board of Trustees approve the transaction and assuming compliance with reporting requirements to the Governor and Legislature is achieved. Referenced are CEO 95-23, CEO 98-4, CEO 11-13, and CEO CEO 13-26.

QUESTION:

Is a prohibited conflict of interest created where a business owned in part by a Trustee of a State University applies for a grant administered through the University's division of sponsored research?

Under the circumstances presented, this question is answered in the negative.

Your inquiry indicates that the University of West Florida (UWF) has a grant agreement with the State of Florida Department of Economic Opportunity whereby the State allocates public money to a fund administered by the University. The fund is called the Industry Resilience and Diversification Fund (IRDF) and it was created by an appropriation of the Legislature. Ch. 2011-142,§ 498, Laws of Florida. The appropriation originally assigned the funds to be held and managed by the Office of Economic Development and Engagement of the University of West Florida. Ch. 2011-142,§ 498(3), Laws of Florida. In 2020, operational funding for the Office of Economic Development and Engagement was vetoed and, at that time, the Office of Research Administration and Engagement (RAE), which is the University's "division of sponsored research," as that term is applied in Section 1004.22, Florida Statutes, began administering the IRDF.

The session law creating the IRDF allows qualified businesses to apply for and receive grants of up to $2 million from the fund. The IRDF is created "for the charitable purpose of developing and implementing an innovative economic development program for promoting research and development, commercialization of research, economic diversification, and job creation in [northwest Florida]." Ch. 2011-142, § 498(2), Laws of Florida. The IRDF is governed by a grant agreement between the University and the Department of Economic Opportunity, which specifies that the IRDF is an "economic development program for the promotion of research and development, commercialization of research, economic diversification, and job creation in Florida's counties that were disproportionally affected by the Deepwater Horizon Oil Spill," an industrial disaster that occurred in the Gulf of Mexico in 2010.

When RAE awards a grant from the IRDF, the awardee will enter into a contract with the University that can allow the University a cause of action against the awardee in the event the awardee breaches the contract.

According to you, grant awards from the IRDF are based on objective and subjective criteria¹ and those subjective criteria may form the basis for awarding the limited grant funds to some eligible applicants, but not others. In fact, you state that a similar predecessor grant program did deny eligible applications as part of its competitive application process. As part of the application review process, UWF has a review committee that conducts a financial review of the applicant companies to ensure those companies can meet their obligations under the grant.

According to the Office of the General Counsel for UWF, the IRDF is not maintained in a permanent sponsored research fund.² RAE manages IRDF separately from any permanent sponsored research fund, but the method for managing IRDF is substantially similar to how RAE manages its permanent sponsored research funds.

Also, according to the Office of General Counsel for UWF, RAE typically receives grants, sometimes referred to as prime awards, from which it makes sub-grants or sub-awards to other parties. The act of making a sub-grant is common for UWF's division of sponsored research and the authority for that is typically derived from the prime grant agreement.

You state that some companies in which members of the University Board of Trustees³ have at least a five percent ownership interest have inquired about applying for IRDF grants. You ask whether these Trustees will have a conflict of interest if RAE awards IRDF grant funds to the businesses of the Trustees.

Your inquiry acknowledges that the Trustees would have a facial conflict under Section 112.313(7)(a), Florida Statutes,⁴ unless they otherwise benefit from an exception. If RAE awarded the Trustees' businesses an IRDF grant, then those Trustees would have employment or a contractual relationship with a business entity (their businesses) doing business with their agency (the University⁵). Such a dynamic, without the benefit of an exemption, would violate the first clause of Section 112.313(7)(a).

One exception that may be available is found at Section 112.313(12)(h), Florida Statutes. Section 112.313(12), Florida Statutes, reads:

[N]o person shall be held in violation of . . . subsection (7) if:

(h) The transaction is made pursuant to s. 1004.22 or s. 1004.23 and is specifically approved by the president and the chair of the university board of trustees. The chair of the university board of trustees shall submit to the Governor and the Legislature by March 1 of each year a report of the transactions approved pursuant to this paragraph during the preceding year.

The applicability of the exception hinges on whether the potentially conflicting transaction is made "pursuant" to Section 1004.22 or Section 1004.23, Florida Statutes.⁶ Section 1004.22 allows State Universities to create divisions of sponsored research, the purpose of which are to "serve the function of administration and promotion of the programs of research, including sponsored training programs, of the university at which they are located." Section 1004.22(1), Florida Statutes. University officials overseeing a division of sponsored research are authorized "to negotiate, enter into, and execute research contracts; to solicit and accept research grants and donations; and to fix and collect fees, other payments, and donations that may accrue by reason thereof." Section 1004.22(3), Florida Statutes. The funding for a division of sponsored research is "financed from the moneys of a university which are on deposit or received for use in the research or related programs of that particular university. Such moneys shall be deposited by the university in a permanent sponsored research development fund." Section 1004.22(4), Florida Statutes. The statute further specifies that "[m]oneys deposited in the permanent sponsored research development fund of a university shall be disbursed in accordance with the terms of the contract, grant, or donation under which they are received." Section 1004.22(5), Florida Statutes. Divisions of sponsored research have reporting requirements, rules for purchasing, rules for advancing or reimbursing per diem expenses, and rules for advancing funds to principal investigators on grants. Sections 1004.22(7), (9), (11), and (12), Florida Statutes.

In only three prior opinions, and only briefly in each, we have discussed the exception found at Section 112.313(12)(h). In CEO 13-26, Question 2, we found a conflict of interest under Section 112.313(3), Florida Statutes, would exist if the Chair of the Neurology Department at a state university's medical school began to take a salary from a nonprofit organization he or she started to serve the medical needs of those afflicted by certain diseases while the University funded the nonprofit for certain research endeavors. In that instance, though, with the facts available, we were unable to determine whether the exception in Section 112.313(12)(h) could be applied. The exception was briefly discussed, but not applied, in two other opinions, as well. See CEO 95-23 (where no facial conflict was found and, thus, no analysis of the exception was required) and CEO 98-4 (the exception was found not to be applicable because the conflicting employment had already been accepted without the required approval from the university president and chancellor of the State University System, as was required under a previous version of the statute).

In the situation presented, the exception contained in Section 112.313(12)(h) appears to apply to negate the conflict, assuming the appropriate approvals are acquired and the proper reports are filed. As a threshold matter, the exception requires that the otherwise conflicting transaction be made "pursuant to" Section 1004.22. It appears the proposed transaction will be made pursuant to Section 1004.22 because, first, the IRDF is housed in and administered by RAE and RAE is a division of sponsored research and, second, Section 1004.22, Florida Statutes, seems to authorize RAE to issue grants such as those offered through IRDF. Section 1004.22(1) states that the purpose of a division of sponsored research is to "serve the function of administration and promotion of the programs of research . . . of the university at which they are located," and the main purpose of IRDF is to issue grants. The focus of Section 1004.22(1) on the advancement and administration of research programs is consistent with some of the goals and purposes of the IRDF, among which are the promotion of "research and development" and "commercialization of research" in areas harmed by the Deepwater Horizon Oil Spill. Ch. 2011-142, § 498(2), Laws of Florida (emphasis added). In short, we are persuaded by the facts that IRDF has purposes and goals relating to research, IRDF is housed in and administered by RAE, and RAE is a division of sponsored research.

In this instance, though, we recognize there may be more knowledgeable authorities on how Section 1004.22 applies to the proposed grant from IRDF. We have said in the past, when discussing the requirement in the Section 112.313(12)(h) exemption that the transaction must be made pursuant to Section 1004.22, that determining "whether a particular contract would constitute such a transaction might very well require input from sources or authorities other than the Commission on Ethics." CEO 95-23. The Office of the General Counsel of UWF has offered its legal opinion to Commission staff that the IRDF is properly administered by UWF's division of sponsored research, and that Section 1004.22 gives such divisions the authority to award grants. Given that Office's expertise with the statute and that its legal opinion is consistent with our own observations of the statute, above, we find it is appropriate to defer to their view. We, therefore, find that the transaction, as described, would be made pursuant to Section 1004.22.⁷

That, however, is not the end of the analysis; the statute has some other requirements to perfect the exemption. We note that that President of the University and the Chair of the Board of Trustees must specifically approve the transaction and the Chair of the Board of Trustees must submit to the Governor and the Legislature by March 1 of each year a report of the transactions that were approved though the application of Section 112.313(12)(h). See Section 112.313(12)(h). Assuming these requirements are met, a member of the Board of Trustees of UWF will not have a prohibited conflict of interest when his or her business is awarded a grant from IRDF by RAE.

Your question is answered accordingly.

ORDERED by the State of Florida Commission on Ethics meeting in public session on September 10 2021, and RENDERED 15th day of September, 2021.

____________________________________

John Grant, Chair

^[1]In addition to submitting a complete IRDF application to RAE through the economic development office or organization responsible for the area in which the company wants to relocate or expand, the applications for grants from the IRDF are judged and/or limited by the following criteria:

1. the companies must create/retain at least 10 net new jobs in at least one of the eight counties affected by the 2010 Deepwater Horizon oil spill and covered by the IRDF program. Those counties are Escambia, Santa Rosa, Okaloosa, Walton, Bay, Gulf, Franklin and Wakulla;