Employee Acceptance of Commercial Discounts and Benefits under the
Standards of Ethical Conduct, 5 C.F.R. part 2635

     Among the more common issues that ethics officials regularly
confront is the question of whether employees may take advantage of
this or that commercial discount without running afoul of ethics
restrictions.  Clearly ethics rules prohibit employees from
accepting certain gifts from outside sources.  But do the rules
treat discounts as gifts?  And, if they do so as a general matter,
are there nevertheless exceptions that allow acceptance of
discounts in some circumstances?  Perhaps because of the
proliferation of marketing gimmicks in recent years, such questions
seem to arise with ever increasing frequency.  In order to assist
ethics officials in resolving them, these comments set forth a
framework for analyzing discounts issues, address the regulatory
provisions that have particular relevance to discounts issues, and
discuss a number of the discounts questions that the Office of
Government Ethics (OGE) has decided to date.  

     Analysis of questions involving commercial discounts and
related benefits (collectively referred to as discounts questions)
begins with subpart B of the Standards of Ethical Conduct
(Standards), 5 C.F.R. part 2635, which sets forth rules on gifts
from nonGovernment sources.  These Standards provide that employees
may not solicit or accept "gifts" that are either "[f]rom a
prohibited source" or "[g]iven because of the employee's official
position," unless an applicable exception applies.  5 C.F.R.
&#167; 2635.202(a); see 5 C.F.R. &#167; 2635.203(b).  They define a
"prohibited source" as--
          
          any person(1)who:

               (1)  Is seeking official action by the employee's
          agency;
               (2)  Does business or seeks to do business with the
          employee's agency;
               (3)  Conducts activities regulated by the employee's
          agency;
               (4)  Has interests that may be substantially affected
               by
          performance or nonperformance of the employee's
          official duties; or
               (5)  Is an organization a majority of whose members are
          described in paragraphs (d)(1) through (4) of this
          section.

5 C.F.R. &#167; 2635.203(d).  The Standards provide further that:

          [a] gift is solicited or accepted because of the
     employee's official position if it is from a person other
     than an employee and would not have been solicited,
     offered, or given had the employee not held the status,
     authority or duties associated with his Federal position.

5 C.F.R. &#167; 2635.203(e) (emphasis added).(2)

Assuming a discount is from a prohibited source or given because of
official position,(3)the threshold issue is whether the discount is
a "gift" under the Standards and, therefore, subject to the
prohibition on employee acceptance.  See 5 C.F.R. &#167; 2635.202(a).

                     IS A DISCOUNT A GIFT?
                                
     Subject to certain exclusions, the term "gift" is broadly
defined in section 2635.203(b) to include "any . . . discount . . .
having monetary value."  Nevertheless, it is important to note that
"a discount is not necessarily a gift." The Informal Advisory
Letters and Memoranda and Formal Opinions of the United States
Office of Government Ethics, OGE Informal Advisory Letter  96x20,
at p. 98; OGE Informal Advisory Memorandum 85x13, at p. 566
(emphasis added).  There are a number of so-called discounts which
are not considered gifts; the Standards, therefore, do not preclude
employees from taking advantage of them.

     1.   Discounts available to the public or to a class consisting
     of all Government employees or all uniformed military personnel,
     even if restricted geographically

     5 C.F.R. &#167; 2635.203(b)(4) of the Standards specifically
excludes from the definition of "gift":

          [o]pportunities and benefits, including favorable rates
     and commercial discounts, available to the public or to
     a class consisting of all Government employees or all
     uniformed military personnel, whether or not restricted
     on the basis of geographic considerations.

This exclusion is intended to cover "commercial discounts that are
offered to all Federal employees on the same terms."  OGE Informal
Advisory Letter 92x26, at p. 111 (emphasis added).  For example,
under this exclusion employees may accept discounts on automobile
rentals or hotel rates that are offered to all Government
employees.  In contrast, the exclusion does not cover discounts or
benefits to subgroups of employees, such as free magazine
subscriptions offered to all agency field inspectors, see id. at
p. 112; or discounts on automobiles if the offer is extended only
to United States diplomats, OGE Informal Advisory Letter 94x19, at
p. 96.  Similarly, it would not cover discounts offered to all
Government employees who work at agencies with more than a
specified number of employees or to all employees who work at
agencies that have a contractual relationship with the business
offering the discount.  

     The only permissible restriction is one based on "geographic
considerations."  Section 2635.203(b)(4).  Thus, where a utility is
authorized to operate in only a particular area of the country,
such as the Rocky Mountain states, a discount on services offered
only to Federal employees within those states would be permissible. 
See OGE Informal Advisory Letter 93x29 at p. 136.  At the other
extreme, however, the exclusion would not cover a discount
geographically restricted to a single Government facility.  Id.

     Section 2635.203(b)(4) also excludes from the definition of
"gift" commercial discounts that are "available to . . . all
uniformed military personnel, whether or not restricted on the
basis of geographic considerations."  A discount offered by a fast
food chain to all uniformed personnel, regardless of rank or other
distinguishing characteristic, would be covered, as would a
discount offered by, for example, an appliance store.

     Finally, this exclusion also covers discounts "available to
the public."  Id.  Examples would include the discounted prices at
discount book or drug stores, as well as the temporary seasonal
sale at the local department store, provided the right to purchase
at the offered price is not restricted to a particular subgroup of
prospective purchasers.  Taking advantage of discounts like these
is not a problem, even for employees who work at agencies for which
most commercial entities, including such vendors, are prohibited
sources.
     
     There are of course a number of discounts that would not seem
to raise genuine conflicts concerns but that, nevertheless, would
not fall within the exclusion at section 2635.203(b)(4).  Consider,
for example, an advance sale at which discounts are offered to
"preferred" customers such as credit card holders -- clearly a
subgroup of the public -- or a discount offered on the basis of a
fairly narrow geographic restriction.  Just because one provision
in the Standards may not authorize employee acceptance of the
discount does not mean that other exclusions or exceptions would
not apply and authorize acceptance.  As regards the examples noted,
see the gifts exception at 5 C.F.R. &#167; 2635.204(c)(2)(i), discussed
infra at pp. 11-14.

     2.   Goods or services for which the employee pays "market value"
     or "fair value"

     Another exclusion from the definition of "gift" that has
relevance to discounts is the exclusion at 5 C.F.R.
&#167; 2635.203(b)(9) for "[a]nything for which market value is paid by
the employee."  With the exception of tickets to events,
entertainment, and such, and regarding which the face value of the
ticket generally governs, "market value" is defined to mean "the
retail cost the employee would incur to purchase the gift." 
5 C.F.R. &#167;  2635.203(c).  The Standards provide further that, "[a]n
employee who cannot ascertain the market value of a gift may
estimate its market value by reference to the retail cost of
similar items of like quality."  Id. 

     How might this exclusion apply in the discounts area? 
Consider the vendor who, in the course of promoting his
merchandise, advertises or refers to his selling price as a
"discount" price when in fact the price is not lower than the
"market value" price.  In such case, an employee paying the so-
called "discount" price clearly does not receive a "gift" because
he is paying "market value."

     The more difficult question is whether an employee seeking to
take advantage of a so-called discount price receives a "gift" if
he pays what is clearly "fair value" for a commodity or service. 
The question arose in connection with a "discount" on automobile
insurance offered by an insurance company to executive branch
employees at Grade GS-11 or higher (senior level discount).  OGE
96x20.  In this case, there was no doubt that the senior level
discount was extended "because of official position" because it was
available only to Federal employees at or above the specified
grade.  It was also clear that none of the exceptions to the gift
prohibition applied.  Nevertheless, OGE concluded that the
Standards did not preclude employees from purchasing the insurance
at the discount price:

          While the term "gift" is broadly defined in the Standards
     of Conduct so that it may include a discount, see
     section 2635.203(b), the term ought not to be understood
     as encompassing items or services for which the employee
     "pays the fair value."  Preamble to Standards of Conduct,
     57 Fed. Reg. 35006, 35014 (Aug. 7, 1992); see also id.
     (discussion of exclusion at section 2635.203(b)(9) for
     "anything for which market value is paid by the
     employee").

Id. at p. 2.  While the "discount" price was not readily available
in the marketplace and, therefore, could not be regarded as "market
value," there were compelling indications that the price paid was
"fair value," i.e., a price sufficient to cover the company's
anticipated costs and allow for a fair profit.  Thus, the price was
based on:

          actuarial statistics that demonstrated that the cost of
     providing automobile insurance to those in the discount
     group is less than the cost of providing insurance to
     others because those within the discount group are
     statistically less likely to be in automobile accidents.

Id. In addition, the fact that the automobile insurance industry is
regulated by the states provided insurance that fair value was
paid.  But perhaps most significantly, the "nature and size" of the
discount group suggested that employees within the group were not
receiving a gift or windfall:

          [T]he discount is broadly available to employees
     throughout the executive branch, albeit only those at
     Grade GS-11 or higher, and is not targeted at employees
     whose official duties might be performed in a manner that
     could benefit the Company; employees who work at agencies
     having a unique relationship with the Company; or
     employees whose official positions carry such prestige
     that, beyond the profit associated with sales to such
     employees, a seller would derive a unique benefit from
     having them as purchasers.  If the discount were extended
     only to employees in the latter categories one might
     infer that the Company's motive is to improperly
     influence Government employees, to exploit the status or
     potential influence of particular employees, or in some
     other way to secure a benefit beyond payment for the
     services provided.  In such case, one might have concerns
     that employees purchasing at the discount price are not
     paying "fair value."  In fact, however, employees in
     those categories likely comprise only a very small
     percentage of the vast group of employees to whom the
     discount is extended.
          
Id. at p.3.

     In sum, the opinion makes clear that, in an appropriate case,
a showing that an employee paid "fair value" may rebut any
presumption that a discount is a gift.  At the same time, however,
OGE would caution ethics officials to carefully examine the facts
in any case in which they consider invoking the "fair value" rule
and to be wary of situations where the vendor appears to be
receiving something other than or additional to payment in exchange
for the services or goods provided.

     One particularly difficult application of the "fair value" or
"market value" rule involves situations where an employee and an
outside vendor negotiate the selling price of property or a
service.  Nothing in the Standards specifically addresses such
situations; however, the fact that a price is negotiated will not
necessarily insulate the transaction from operation of the gift
rules. In certain situations, a negotiated price will reflect a
discount and that discount may prove to be a prohibited gift.

     Even though employees generally may enter into bona fide
private negotiated business transactions with persons outside the
Government, these transactions may be subject to considerable
scrutiny in some circumstances.  Consider, for example, the case of
an employee who has primary responsibility for administering his
agency's contract with company X.  If the employee negotiates, in
his personal capacity, to purchase the vacation home of company X's
chief contracting officer, and if the negotiated selling price of
the property seems to be lower than the selling prices of
comparable properties, the employee could be receiving a "gift"
from the seller.

     On the other hand, negotiated fees or payments do not
necessarily reflect a windfall to the purchaser that will be
considered a gift.  The facts, for example, may establish that an
employee paid fair value as evidenced by objective measures of the
vendor's costs or a product's value.  See OGE 96x20.  In the case
of a used car, reference may be made to the "Blue Book" value.  The
fair value of land may be determined by examining the sale price of
comparably situated properties.  Of course these points of
reference may be only a starting point in determining whether an
employee paid fair value.  The value of a used car may be affected
by the number of miles it has been driven.  Regarding real
property, even where, as above, it appears at first that the
selling price is below that of properties that seem comparable in
terms of acreage, river frontage, quality of school system and so
forth, further inquiry may reveal that the lower price is justified
by the fact that the property encompasses a protected wetland area
or has been used as a dumping site for toxic waste. 

     In many such cases, there will be a range of amounts that may
reasonably be considered fair value.  The transaction will involve
a gift only if the employee pays less than an amount that falls
within the range that may be considered fair value.  The amount of
the gift would be the difference between the fair value and the
amount actually paid.

     Measuring the value of a negotiated item or service by
reference to objective criteria may be especially important when an
employee enters a transaction with a prohibited source.  Consider,
along with the above example, the hypothetical case of a Government
employee who holds a senior position in the division of investment
management at the Securities and Exchange Commission (SEC) and who
purchases investment brokerage services from a regulated brokerage
firm at a fraction of the firm's standard rates.  In such a case,
it is not sufficient to assert that the price agreed upon is the
fair consequence of tough bargaining on the part of the SEC
employee. The employee should ensure that the rate he is charged is
within the range that the firm customarily charges clients with
similar types of accounts.  Where the firm cannot demonstrate that
the fees it is charging the SEC employee are consistent with its
normal billing practices, the reasonable inference is that the
difference between the reduced price and the firm's customary
charges constitutes a gift. 

     When an employee negotiates a price with a person who is not
a prohibited source, the employee may not solicit a discount based
on his official position.  For example, if the head of an agency
asks a car dealer to agree to a deep discount on the purchase of a
luxury car because it will enhance the dealer's reputation to sell
to a highly-visible Government official, the difference between the
price paid by the employee and the range of prices typically paid
by purchasers of that model car at that dealership would appear to
be a gift solicited because of official position.  Of course, it
may be considerably more difficult to determine whether a discount
is being offered because of official position.  In some cases,
however, a vendor  may explicitly state that this is his motivation
and, in some cases, even in the absence of an explicit
acknowledgment, the facts will suggest it.  Where an apartment
building lessor, for example, offers the well-known head of an
agency a lease at a fraction of the going rental rate, the official
should consider whether the lessor would be offering him the
discount if he did not hold the status or exercise the authority or
duties associated with his Federal position.

     3.   Goods or services paid for by the Government or secured by
     the Government under Government contract 

     Another relevant provision in the Standards is 5 C.F.R.
&#167; 2635.203(b)(7), which excludes from the definition of gift
"[a]nything which is paid for by the Government or secured by the
Government under Government contract."  The preamble to the final
rule explains the rationale underlying the exclusion: "[I]tems
secured under Government contract . . . accrue to the employee from
the Government and, thus, are not gifts from an outside source." 
57 Fed. Reg. 35006, 35013 (Aug. 7, 1991) (emphasis added).  See
also preamble to proposed rule, 56 Fed. Reg. 33778, 33781 (July 23,
1991).

     The exclusion disposes of discounts issues more often than one
might think.  Thus, it would permit employees to accept discounts
on parking fees or concierge services provided for in their
agency's lease for building space.  Moreover, if a building owner
or lessor opened a health club in an agency's building during the
lease term, and if the agency decided that the discounted
memberships could also be accepted under the lease agreement, then
the exclusion would allow employees to accept those discounts too
without running afoul of the gift prohibition.  See Preamble to
final rule, 57 Fed. Reg. 35006, 35013 (Aug. 7, 1993) (discount on
health club memberships extended by building owner or manager and
made available to all tenants of building housing a Government
agency are a "consequence of the Government's lease for that
space").  On the other hand, however, it seems highly unlikely that
an agency could accept, under the contract, certain types of
benefits not provided for in the contract.  Consider, for example,
the case of  basketball tickets offered to the head of the agency
by the building lessor.

     Recently, a number of agencies have been called upon to
consider the applicability of section 2635.203(b)(7) to discounts
on cellular phone service offered to employees in their private
capacities by companies that provide or seek to provide cellular
phone service to agencies for official purposes.(4) Some agencies
have allowed acceptance of the discounts under 
section 2635.203(b)(7) as "secured by the Government under
Government contract."  Others have not.  In general, a
determination that a benefit is "secured by Government contract" is
a matter within the discretion of the employing agency.  Section
2635.203(b)(7) simply makes clear that where such a determination
is made, the gifts prohibition in subpart B of the Standards will
not preclude an employee from accepting the benefit.  Agencies are
responsible for ensuring that such arrangements are otherwise
appropriate under applicable law, including their authorizing
statutes, procurement law, and principles prohibiting unauthorized
augmentation of appropriations.  Thus, for example, if a contract
proposed by a vendor and conferring benefits on agency employees
did little to advance agency purposes yet entailed expenditure of
agency time and resources to promote or administer sales of a
product to agency employees, an agency might decide not to enter
into the contract because of concerns about agency authority.  

     Two other limitations on the use of the exclusion at
section 2635.203(b)(7) to accept discounts and benefits are also
worth noting.  The first of these concerns certain benefits offered
to employees in connection with their official travel. A note
following section 2635.203(b)(7) cautions employees that frequent
flier and related benefits "earned on the basis of Government-
financed travel belong to the agency rather than to the employee
and may be accepted only insofar as provided under [the General
Services Administration's Federal Travel Regulation (FTR) at]
41 C.F.R."  The current relevant provision in the FTR is 41 C.F.R. 
part 301-53, (5) which elaborates on this limitation as follows:

          What must I do with promotional benefits or materials I
     receive from a travel service provider?

               Any promotional benefits or material you receive
     from a private source in connection with official travel
     are considered property to the Government.  You must:

               (a)  Accept the benefits or materials on behalf of the
          Federal Government; and

               (b)  Turn the benefits or material over to your agency
          in accordance with your agency's procedures
          established under 41 C.F.R. &#167; 101-25.103.

41 C.F.R. &#167; 301-53.1.  See also, id. at &#167;&#167; 301-53.2-53.10.  Thus,
the general rule is that, notwithstanding that airline or hotel
bonus points may be offered to employees as a result of the
Government's contract with the airline or hotel, employees may not
accept such benefits for personal use.(6)

See also Section 6008, Pub. L. No. 103-355, 108 Stat. 3367, 5 U.S.C.A.
&#167; 5702, note (awards granted under frequent traveler programs offered
by airlines, hotels, and car rental vendors, if accrued through
official travel, shall be used only for official travel).  There are,
on the other hand, exceptions to this rule.  See, e.g., 41 C.F.R. &#167;
301-53.10.  OGE therefore advises that employees and ethics officials
consult with their agency counsel or the General Services
Administration (GSA) if they have questions about specific benefits
offered to employees in connection with official travel.

     The other limitation of which ethics officials should be aware
is that employees may not use the exclusion -- even outside the
area of official travel -- to accept for personal use benefits to
which the Government is entitled under Government contract or
otherwise as the result of Government expenditures.  While this
limitation is not expressly mentioned in connection with the
exclusion, it is necessarily implicit there and is, indeed,
codified at section 2635.204(c)(3), which provides: 

          An employee may not accept for personal use any benefit
     to which the Government is entitled as the result of an
     expenditure of Government funds.

The Standards illustrate application of this principle  as follows:
     
          The administrative officer for a district office of the
     Immigration and Naturalization Service has signed an INS
     order to purchase 50 boxes of photocopy paper from a
     supplier whose literature advertises that it will give a
     free briefcase to anyone who purchases 50 or more boxes. 
     Because the paper was purchased with INS funds, the
     administrative officer cannot keep the briefcase which,
     if claimed and received, is Government property.

Example 3, following section 2635.203(c)(3).  

     There is, to be sure, some inherent tension between this
principle and the contract-based exclusion at
section 2635.203(b)(7).  Section 2635.204(c)(3) suggests personal
acceptance is improper if the benefit is one to which the
Government is entitled as a result of an expenditure of Government
funds; section 2635.203(b)(7), on the other hand, would seem to
allow employees to accept benefits offered as a result of the
Government's contractual relationship with an outside source.  The
difference in outcomes results from the fact that, in the one case,
there is an official determination that the Government is entitled
to the benefit and, in the other, there is an official
determination that the employee may accept the benefit.

     Except in the area of official travel, where the GSA
regulation controls, such determinations will have to be made by
agencies themselves, based on consideration of their own contracts
and other applicable law.  Section 2635.203(b)(7) provides only
that where agencies construe their contracts as securing personal
benefits for their employees, the gift rules will not prohibit
employees from accepting such benefits.(7)

                             * * *

     Thus far we have discussed three of the exclusions from the
definition of "gift" that have particular relevance to discounts
questions.  If any one of these -- or any of the other exclusions
at section 2635.203(b) -- applies, then the discount is not
considered a gift and is not subject to the prohibition on
acceptance of gifts from prohibited sources or given because of
official position. (8)  If there is no applicable exclusion, however,
then the prohibition will apply in the absence of an applicable
exception.  Accordingly, familiarity with the relevant exceptions
is needed to determine whether employees may accept offered
discounts.

                IS THERE AN APPLICABLE EXCEPTION?

     There are a number of exceptions that apply to discounts and
benefits questions just as they would to any other gifts questions. 
For example, an employee might accept a free mouse pad offered by
a new computer store under the $20 de minimis exception,
section 2635.204(a), even though the store does business with his
agency.  Where an employee's uncle has an appliance business and
sells appliances to family members at cost, certainly the employee
may accept a discount on a new refrigerator under the exception for
gifts based on a personal relationship, section 2635.204(b),
notwithstanding the fact that his uncle's business is regulated by
his agency.  Similarly, the  exception for gifts based on outside
employment relationships, section 2635.204(e)(1), permits an
employee to make use of discounted theatre tickets that his wife's
office makes available to its employees, even though that office is
a prohibited source for the employee.

     But in addition to these commonly used exceptions, there are
a group of exceptions set forth under the caption "Discounts and
similar benefits" at section 2635.204(c) which have particular
relevance to discounts.  Section 2635.204(c) comprises four
distinct exceptions; the gift prohibition will not apply if the
requirements of any one of the four are met. (9) Ethics officials
should be aware, however, that none of the four applies to a
discount or benefit extended on an individual basis; rather, all
are intended to apply only where a discount or benefit is extended
to a group or class of individuals.  Each of the four exceptions is
discussed below.

1.  Certain discounts offered by professional organizations

     The first discounts exception allows employees to accept:

          [r]educed membership or other fees for participation in
     organization activities offered to all Government
     employees or all uniformed military personnel by
     professional organizations if the only restrictions on
     membership relate to professional qualifications.

Section 2635.204(c)(1).  This exception addresses the two-tiered
pricing system that some professional associations employ. It would
cover a discount on a training course offered by a professional
association of accountants or lawyers to members of the association
who work for the Government.  It would also allow Government
economists, for example, to accept a discount on the fee for
attending a conference sponsored by a professional association of
economists where the discount is extended to all association
members who work in Federal, state, or local government. 

     2.   Certain discounts offered to a class in which membership is
     unrelated to Government employment

     A second discounts exception provides that employees may
accept:

          [o]pportunities and benefits, including favorable rates
     and commercial discounts not precluded by paragraph
     (c)(3) of this section . . . [o]ffered to members of a
     group or class in which membership is unrelated to
     Government employment.

Section 2635.204(c)(2)(i).  This exception would cover and permit
employee acceptance of discounts made available to members of an
environmental organization, a womens' organization, an automobile
emergency service organization, or an organization comprised of
friends of the local symphony because there is no reason to believe
that membership in such organizations is "related to Government
employment."  Accordingly, even those Government employees for whom
the vendor is a prohibited source -- nearly always the case for
employees at a few agencies -- may accept the offered discount.  At
the other end of the spectrum, the exception clearly would not
cover discounts made available to members of the Senior Executive
Service, or to Federal Marshals, or Federal IRS auditors, because
membership in such groups depends entirely on Federal employment. 
A great many of the discounts questions addressed to ethics
officials, however, fall in a less certain area between these
poles.  Within this area, it seems clear that the phrase "unrelated
to Government employment" should not be construed so broadly that
the exception would not allow employees to accept for personal use
those trivial or benign discounts that have only an insignificant
connection to Federal employment; nor should it be construed so
narrowly that it would allow employees to accept discounts
presenting substantial concerns about impartiality or use of public
office for private gain.

     With these concerns in mind, OGE has adopted a three-part test
interpreting "unrelated to Government employment" in
section 2635.204(c)(2)(i) to mean (1) it is not necessary to be a
Federal employee to be included in the group or class to which the
discount is offered; (2) it does not appear that Federal employees
are being targeted; and (3) the employee seeking to accept the
discount is not in the group or class to which the discount or
benefit is offered because of some actual or perceived power,
influence, or status associated with his job or position within the
Government.  The fact that the employee would not be in the group
or class if he were not a Federal employee is not in itself
disqualifying.

     The first prong of this test focuses on the criteria for
inclusion in the group or class to which the discount is offered. 
If the criteria are such that one has to be a Federal employee to
be a member, then the exception will not apply.  For example, a
discount offered to all Executive Schedule employees or all United
States diplomats would not pass muster under this prong.

     The second prong precludes artful targeting of Federal
employees -- for example, the situation where a class is described
in a seemingly neutral way to include private sector as well as
public employees but where the class, in fact, consists mostly of
Federal employees.  A very narrowly drawn geographic limitation
might arouse a suspicion of targeting.  

     The third prong of the test focuses on the donor's perceived
motivation in offering the discount and asks whether the employee
seeking to accept the discount is in the discount group because of
some power, influence, or status associated with his position. 
Perhaps the most important part of the test, this prong is designed
to minimize use of the exception to accept discounts that raise
impartiality concerns or that suggest certain uses of public office
for private gain.  Because of this third prong, an employee who
serves as the computer procurement official for his agency could
not use the exception to accept a discount on computer equipment
offered by a computer company to all computer procurement officials
in large organizations.  Neither could Federal law enforcement
officials accept certain discounts offered to all law enforcement
officials -- for example, discounts on food offered by fast food
chains, guns offered by weapons vendors, or bus fare offered by bus
companies.  Similarly, a Cabinet level Federal official could not
use the exception to accept free or discounted opera tickets
offered to all heads of organizations with 1000 or more employees. 
In all these cases, even though it is not necessary to be a Federal
employee to take advantage of the offer and even though Federal
employees may not be targeted, the benefits seem to be offered by
the donor because of some actual or perceived power, status, or
influence associated with the officials' jobs or positions.

     Ethics officials should be aware, however, that this third
prong will not preclude acceptance of discounts related to an
employee's more general status as a Federal employee, as opposed to
status, power, or influence associated with a position held within
or function performed for the Federal Government.   In other words,
the fact that an employee would not be in the class to which the
discount is offered if he were not a Federal employee is not in
itself disqualifying.  For example, an employee could accept from
a new store that is a prohibited source a discount offered to
anyone working within the store's zip code or a discount offered on
clothing or other merchandise to anyone working at an organization
with more than 100 employees.(10) While in both cases Federal
employees are members of the group to which the discount is
extended because of their status as Federal employees generally,
the relationship to Federal employment is not a meaningful one and
the discounts do not suggest a motivation on the part of the vendor
that would raise ethics concerns.

     OGE anticipates that, when analyzed under the third prong of
the test, discounts extended to members of associations with
professional licensing or other membership requirements will fare
far more favorably than will discounts extended to groups of
persons informally defined according to job function.  For example,
an employee serving as a librarian at a large Federal agency could
not accept a discount on books offered by a publisher to all
librarians at organizations with more than 500 employees; he could,
however, accept the same discount if offered to all members of a
particular librarians' association.  The existence of an
independent association may not eliminate concerns about
impartiality and use of public office for private gain but it does
assuage those concerns to some degree.  Where an association is
involved, the discount is more likely to be based on a reduction in
marketing or other costs, rather than a motivation on the part of
the vendor that raises ethics concerns.  For example, a vendor may
agree to offer a reduced price to members of a professional
association in exchange for the association's undertaking to
endorse the vendor's product and, in effect, market the product to
association members for the vendor.  In addition, even in the
situation where a vendor has interests that could be affected by
how the employee performs his job, when a discount is extended to
members of a professional or other association, the association
tends to function as a buffer between the employee and the vendor,
thereby minimizing any sense of obligation to the vendor on the
part of the employee.  Finally, where a discount is offered based
on membership in an association, especially an association with a
professional licensing requirement, the relationship between that
membership and Federal employment will often be especially tenuous. 
Thus, where a vendor offers a discount to all members of a
professional association of nurses -- or pharmacists, doctors, or
lawyers -- it is likely that the employee would be a licensed
member even if he were not a Federal employee.

     3.   Certain discounts related to Government employment but
     broadly available outside Government

     A third discounts exception allows employees to accept:

          Opportunities and benefits, including favorable rates and
     commercial discounts not precluded by paragraph (c)(3) of
     this section . . . [o]ffered to members of an
     organization, such as an employees' association or agency
     credit union, in which membership is related to
     Government employment if the same offer is broadly
     available to large segments of the public through
     organizations of similar size.

Section 2635.204(c)(2)(ii). Common sense suggests that the
exception is intended to cover, for example, a discount on
appliances offered to members of DOD's employees' association which
is also available to the employees' associations at large private
sector corporations.  See also, Example 1 following section
2635.204(c).  Similarly, discounts on merchandise and services
offered to members of a Federal employees' union would be
permissible under this exception, provided that they are also
broadly available to the public through private sector unions or
other organizations of comparable size.  In such cases, "the
potential for abuse is minimal."  57 Fed. Reg. at 35017.  Rather,
the vendor is simply passing on to consumers certain marketing or
other cost savings achieved through the association's participation
in the arrangement. 

     The only OGE opinion construing section 2635.204(c)(2)(ii) to
date indicates that the exception was not intended to apply to
discounts offered to employees serving at or within a component of
an agency.  See OGE Advisory Letter 93x29, at p. 138 (discount
offered to employees working at a new agency facility is not a
discount offered to members of an employee organization).  Clearly
the concept of "membership" in an "organization" suggests something
other than an employee's relationship with his employing agency.

     4.   Certain discounts not from prohibited sources that do not
     favor those of higher rank or rate of pay and that do not
     discriminate based on type of official responsibility
     
     The last discounts exception allows employees to accept:

          [o]pportunities and benefits, including favorable rates
     and commercial discounts not precluded by
     paragraph (c)(3) of this section . . . [o]ffered by a
     person who is not a prohibited source to any group or
     class that is not defined in a manner that specifically
     discriminates among Government employees on the basis of
     type of official responsibility or on a basis that favors
     those of higher rank or rate of pay.

Section 2635.204(c)(2)(iii).

     As explained in the preamble to the proposed rule that first
suggested this exception, 56 Fed. Reg. 33778, 33782 (July 23,
1991), assuming its restrictions are satisfied, this exception will
"permit a discount offered by someone other than a prohibited
source to all employees of an agency or to all employees of an
agency in a particular city or county."  It would, therefore, allow
employees of an agency for which the new dry cleaner's opening down
the street is not a prohibited source to accept the store's offer
to all agency employees of a 20 percent discount on their first
visit even though the benefit is offered because of official
position. While the discount may only be offered, for example, to
Federal Bureau of Investigation (FBI) employees, so long as all FBI
employees are included, from janitors to investigators to the head
of the agency, the discount does not discriminate "on the basis of
type of official responsibility."

     Two OGE opinions, to date, have addressed this exception.  The
first, OGE 93x29, found the exception inapplicable because the
discount was extended by a prohibited source.  The second concerned
a discount on certain high-end cars that was extended only to
persons whose official positions involved travel abroad.  OGE
94x19.  Under these circumstances, OGE found that the discount
discriminated on the basis of official responsibility and, on this
basis, concluded that the exception was inapplicable.  Id.  

     A third  requirement of the exception, that the discount not
discriminate among Government employees "on a basis that favors
those of higher rank or rate of pay," is illustrated by example 2
following section 2635.204(c):

          An Assistant Secretary may not accept a local country
     club's offer of membership to all members of Department
     Secretariats which includes a waiver of its $5,000
     initiation fee.  Even though the country club is not a
     prohibited source, the offer discriminates in favor of
     higher ranking officials.
	 
-----------------------------------------

1. The term "person" is defined at 5 C.F.R. &#167; 2635.102(k) to cover
organizations as well as individuals and to include officers,
employees, and agents of covered organizations and individuals. 

2. OGE issued the gift regulations pursuant to 5 U.S.C. &#167; 7353 and
Executive Order 12674, as modified by Executive Order 12731,
55 Fed. Reg. 42547 (Oct. 19, 1990). 

3. While in most cases application of the prohibition on gifts from
outside sources is reasonably narrow, given its limitation to gifts
from prohibited sources or given because of official position,
there are some agencies with responsibilities that affect a very
broad range of commercial entities and, as to which, accordingly,
an enormous range of commercial vendors are deemed prohibited
sources. Questions regarding discounts offered to employees of such
agencies therefore arise with greater frequency. 

4. Some companies offered the discount to all employees who work at
agencies with existing contracts for official cellular service;
others made the offer conditional on the agency's agreeing to
purchase some cellular service for official purposes; still other
companies made the offer conditional on the agency's agreeing to
purchase from the provider in the event that the agency decided in
the future to purchase cellular service. 

5. Effective July 1, 1998, GSA replaced 41 C.F.R. sections
301-1.103(b) and (f), the citations currently set forth in the note
following section 2635.203(b)(7), with 41 C.F.R. Part 301-53. See
63 Fed. Reg. 15950, 15954, 15970-71 (Apr. 1, 1998). 

6. The note is included to caution employees not to rely on the
exclusion as a justification for using official travel-related
benefits for personal use. See preamble to final rule, 57 Fed. Reg.
at 35014. Within the structure of the rules, personal use of, e.g.,
frequent flyer benefits would not be a violation of the gift
standards but, rather, the standard at section 2635.704 prohibiting
unauthorized use of Government property. See OGE Informal Advisory
Letter 92x13 at pp. 47-48.)

7. If the Government is entitled to the benefits, then the exclusion
at section 2635.203(b)(7) will not apply and neither will any of the
discounts exceptions at section 2635.204(c)(2)(i)-(iii). See sections
2635.204(c)(2), 2635.204(c)(3). 

8. Moreover, if an exclusion applies, then the limitations imposed by
sections 2635.202(c)(2)-(3) do not apply, with the result that there
is no prohibition on soliciting such discounts or on accepting such
discounts "on a basis so frequent that a reasonable person would be
led to believe the employee is using his public office for private
gain." Section 2635.202(c)(3); see section 2635.202; 57 Fed. Reg. at
35013, 35016. Where the Standards permit acceptance of a discount only
because of an applicable exception, however, the limitations of
sections 2635.202(c)(2)-(3) qualify the right of acceptance. 

9. However, to invoke any of the exceptions at sections
2635.204(c)(2)(i)-(iii), it is necessary that the opportunity or
benefit not be one to which "the Government is entitled as the result
of an expenditure of Government funds." Section
2635.204(c)(3)(emphasis added); see section 2635.204(c)(2)
(opportunities and benefits allowed under section 2635.204(c)(2)
exceptions include only those not precluded by section
2635.204(c)(3)). 

10. Where, however, the vendor makes the discount conditional on the
agency allowing the vendor to use agency time or resources in order to
promote or facilitate the discount sales program, an agency might
decide to effectively prohibit the program for reasons unrelated to
the gift rules.