United States: Registration Deadline Nears for Illinois State Contractors and Bidders Subject to Strict New Campaign Contribution and Registration Requirements

Originally published January 26, 2009

Keywords: Illinois state contractors, procurement regulations, campaign contribution regulations, P.A. 95-97, Executive Order No. 3 (2008), Illinois Board of Elections,

Two new procurement and campaign contribution regulations are in effect in Illinois as of January 1, 2009. These regulations apply to certain state contractors and entities that bid on state contracts, as well as certain of their corporate affiliates, owners and executive employees (and the spouse and minor children of each owner and executive employee).

The first is P.A. 95-971 (the "New Ethics Law"), which requires certain state contractors and bidders and certain of their corporate affiliates, owners, and executive employees (and the spouse and minor children of each owner and executive employee) to register, by Feburary 2, 2009, with the State Board of Elections and to make certain notifications. It also prohibits certain state contractors and bidders for state contracts, as well as certain of their corporate affiliates, owners, and executive employees (and the spouse and minor children of each owner and executive employee) from contributing to certain state officeholders and candidates for state office. If a contractor fails to comply with the New Ethics Law, the contractor's state contracts may be voided.

The second is Executive Order No. 3 (2008) (the "Executive Order"), issued by Illinois Governor Rod R. Blagojevich on August 26, 2008, which regulates the political activities of this same group. The Executive Order is broader in scope than the New Ethics Law, covering more state contracts and prohibiting more political contributions. The Department of Central Management Services is prepared to implement the Executive Order in all state procurement processes as of January 1, 2009.

Background to the New Ethics Law

The Illinois General Assembly passed H.B. 824 on May 31, 2008. Governor Blagojevich issued an amendatory veto in an attempt to broaden the bill's scope. Concurrently, the Governor issued the Executive Order in order to enforce this broader scope through the procurement process. The General Assembly overrode the Governor's amendatory veto on September 22, 2008. The New Ethics Law, notwithstanding the Governor's veto, is effective as of January 1, 2009.

Compliance with the New Ethics Law

The New Ethics Law regulates state contractors and bidders for state contracts whose bids and contracts with the state, awarded under the Illinois Procurement Code, exceed $50,000 annually. The New Ethics Law also regulates certain affiliate businesses, non-profit entities, political committees, owners, executive employees, and the spouse and minor children of each owner and executive employee.

Registration. Each business entity regulated under the New Ethics Law must register with the Illinois State Board of Elections (the "Board"). The Board promulgated temporary, emergency rules that require e-mail or postal registration by February 2, 2009, using forms provided by the Board. Permanent rules are planned to be issued within six months. The temporary rules and registration forms can be viewed at www.elections.il.gov/BusinessRegistration/Welcome.aspx. Covered entities must also register their affiliated entities (including businesses, non-profit entities, and political committees) and their affiliated persons (including owners and executive employees and the spouse and minor children of an owner or executive employee). Covered entities must keep their registrations current, providing regular updates to the Board. The Board will create a publicly searchable database of registered entities and their affiliated entities and affiliated persons.

Notification of Registration. The Board will provide each registered business with a registration certificate, which must be provided to each registered affiliated entity and affiliated person within 10 days of registration. By March 31, 2009, each business entity required to register under the New Ethics Law must provide a copy of its registration certificate to each procurement officer responsible for its state contracts. Additionally, as of January 1, 2009, a bidder for a new state contract must certify that it either is registered or is not required to be registered, or else its bid may not be accepted. A bidder must submit a registration certificate with its bid to the state agency as evidence of its registration.

Notifications to Political Committees. Whenever a covered state contractor or bidder for a state contract, or any of their affiliated entities (including businesses, non-profits, and political committees) or affiliated persons (including owners and executive employees or the spouse or minor child of an owner or executive employee), contributes to an Illinois political committee, such entity or person must give notice of its registration to the political committee at the time of contribution.

Prohibited Contributions. Covered state contractors and bidders for state contracts, as well as their affiliated entities (including businesses, non-profits, and political committees) and affiliated persons (including owners and executive employees and the spouse and minor children of an owner or executive employee), may not contribute to the campaign of any incumbent state executive officeholder, or any declared candidate for such office, responsible for their contracts. The New Ethics Law presumes that the Governor is the state executive officeholder responsible for a contract unless the contract was awarded under the jurisdiction of another elected state executive officeholder.

Penalties. The New Ethics Law imposes civil penalties for failing to register, to update registration, or to give required notifications. If a covered entity or an affiliated person or affiliated entity makes a prohibited contribution, or if a covered entity fails to disclose required information in its registration, then the entity's bid or contract, as applicable, is voidable. If a covered entity makes prohibited contributions three or more times within three years, then all of its state contracts are void, and the entity may not bid on a new contracts for three years from the date of the last violation.

Compliance with the Executive Order

The Executive Order regulates state contractors and bidders for state contracts involved in state contracting processes as of January 1, 2009. Like the New Ethics Law, the Executive Order only regulates entities whose bids or contracts exceed $50,000 annually. However, the Executive Order governs all state contracts, not just those contracts awarded pursuant to the Illinois Procurement Code. The Executive Order also regulates certain affiliated businesses, non-profit entities, political committees, owners, executive employees, and the spouse and minor children of each owner and executive employee.

Bidding and Contracting. As of January 1, 2009, all state agencies are directed to include certain provisions and requirements in their bids and contracts. Bidders will be required to certify their compliance with the Executive Order. A contract will provide in its terms that the contract is voidable for violating the Executive Order.

Prohibited Contributions. The Executive Order prohibits political contributions to a wider range of candidates, officers, and political parties than the New Ethics Law. Under the Executive Order, neither the covered entity nor its affiliated entities (including businesses, non-profit entities, and political committees) or its affiliated persons (including owners and executive employees of the covered entity or its affiliate entities and the spouse and minor children of any such owner or executive employee) may contribute to the campaign of any incumbent state executive officeholder (whether or not that state executive officeholder was responsible for awarding the contract), any member of the General Assembly, any declared candidate for state executive or legislative office, or any political committees established by state political parties.

Penalties. The Executive Order penalizes covered entities through the contracting process. A state contract will provide that the contract is voidable for violating the Executive Order. A state agency may not consider bids or proposals from a covered entity that has violated the Executive Order three or more times within three years.

Compliance Plan

We recommend that any business that may be subject to the New Ethics Law or the Executive Order adopt a compliance plan to ensure that the business and other persons covered by the requirements (including corporate affiliates, owners, executive employees, and the spouse and minor children of each owner and executive employee) are properly registered with the State Board of Elections, that timely notifications are given to political committees, and that no prohibited contributions are made in violation of the New Ethics Law or the Executive Order. We also recommend that covered entities inform their key personnel, who have been designated as owners or executive employees, of their compliance obligations and develop a monitoring system to ensure company and personnel compliance.

Learn more about our Government Relations practice.

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Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Copyright 2009. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.

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