March 23, 1989

Mr. Dennis R. Jones Commissioner Texas Department of Mental Health and Mental Retardation P. 0. Box 12668 Austin, Texas 78711-2668 OpinionNo. JR-1031

Re: Authority of the Department of Mental Health and Mental Retardation to imposecertain requirements
on contracts for communitybased mental health and mental retardation services (RQ-1599)

DearMr. Jones:

You inform us that the Texas Department of Mental Health and Mental Retardation enters into numerous contracts for community-based mental health and mental retardation servicespursuant to section 2.13 of article 5547-202, V.T.C.S. This provision states as follows:

The Departmentmay cooperate,negotiate and contract with local agencies, hospitals, private organizations and foundations, community centers,physiciansand persons to plan, develop and provide community-based mental health and mental retardation services.

V.T.C.S. art. 5547-202, !j2.13.

The department is consideringa policywhich would prohibit its facilities from entering into such contracts with former employees of the department for a specificperiod of time.1 The *'facilities*' of the department consist of the central office of the departmentand the state hospitals, state schools, and other institutionsset out in section

1. You refer to ~*employees,~* but, forpurposes of this opinion,we presume that *'employees" includesboth employees and officers.

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2.01 of article 5547-202, V.T.C.S. The department is also consideringprohibiting community mental health and mental retardation centers from entering into contracts for serviceswith their former employees for a specific period of time. You first ask the followingquestion:

Does the Texas Department of Mental Health and Mental Retardationhave the authority to prohibit its facilities from entering into contracts for community-basedmental health and mental retardation serviceswith former employees, their spouses, or business entities inwhich the former employees or their spouseshave a substantial financial interest for a specific period after the employees have terminated employment with the Department?

What the department contemplates is a restriction on its own authority to contractunder section 2.13 that would prohibit contracts in which former employees or their spouseshave a substantial financial interest. It is not a proposal to restrict former employees from working for a third party that the department regulates. The contemplated policy is thereforeunlike the post-employment restrictions of the public Utility Regulatory Act, which bar former employees fromworking for certainpublic utilities or from representingcertainbusiness entitiesbefore the commission
or a court. See V.T.C.S. art. 1446c, 5 6(i), (j).

We findno provision requiring that contracts entered intounder section 2.13be awarded on competitivebids. The department's authority to cooperate and to negotiate with various entities for community-basedservices is inconsistent with a competitivebidding requirement. See aenerallv Attorney General Opinion MW-296 (1981) (citymay not negotiate contract terms with lowestbidder when statute requires competitivebidding);Attorney General Opinion MW-55 (1979) (discussingdepartment'sauthorityunder section 2.13 of article 5547-202). Thus, we need not consider whether the proposed restriction would constitute an impermissible restriction on the competition requiredby a competitive biddina statute. See Texas Hiahwav Comm*nv. Texas Ass'n of Steel imvorters. Inc 372 S.W.2d 525 (Tex.1963);
v. Bell, 240 S.W.2d '416 (Tex.Civ.App. Sterrett

- Dallas 1951, no writ): Attorney General Opinions MW-440 (1982); MW-139 (1980);H-1219 (1978);H-1086, H-972 (1977).

The Board of Mental Health and Mental Retardation has the followingrule-makingauthority:

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The Board shall formulate the rules and the basic and general policies, consistent with the purposes, policies, principles, and standards stated in this Act, to guide the Department in administeringthis Act.

V.T.C.S. art. 5547-202, 5 2.11(a).

The purpose of the Mental Health and Mental Retardation Act is to "provide for the effective administrationand coordination of mental health services at the state and local levels." V.T.C.S. art. 5547-201, 5 1.01(a). The state's goal in adopting the act is to provide a comprehensiverange of services formentally ill andmentally retarded persons "who are in need of publicly supportedcare, treatment, or habilitation." Id. !j1.01(b). It is also a purpose of the act to provide for a continuum of services, which is to include %ommunity servicesprovided by the department and other entities through contractswith the department.** Id.
s 1.01(c).

The proposedpolicy appearsdesigned to prevent former employees of the department fromusing their contacts with the department and an insider'sknowledge of its procedures to receive favored treatment in the award of contractsunder section 2.13. If the board determines that adopting such a policywould contribute to the effective administration of mental health servicesand would otherwise be consistent with the purposes and policies of the Act, we believe it could adopt a reasonablepolicy or rule to that effect,

InAttorney General OpinionMB-540 (1982),this office determined that the Texas EmploymentCommissionhad authority to adopt a nepotismpolicy stricter than that set out in article 5996a,V.T.C.S., the nepotism statute. The opinion stated as follows:

The proposed nepotism policy

. . . merely prescribes the duties and limits the powers of those persons to whom the commission has delegated authority to hire, promote, or approve the hiring or promotion of other persons.
Attorney General OpinionMW-540 (1982),at 2.

InAttorney General OpinionJR-188 (1984)we considered whether the Texas Department of Human Resources could prohibit its child protective serviceworkers from performing court ordered social studies on their own time. We

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concluded that the department could adopt a rule prohibiting such dual employment when a conflict of interest resulted from employees' competitionwith the department for the same appointments and fees.
Thus, prior rulings of this office demonstrate that a state agencymay adopt policies designed to prevent favoritism inhiring decisions and conflicts of interest between the agency and its employees. The Board of Mental Health and Mental Retardationmay adopt restrictionsnecessary to prevent favoritismof former employees in contracting decisions and to ensure that while an employee is on the staff he will serve the department's interests, rather than his
own anticipated interest in a future contractwith the department. The duration of the restriction,the definition of "substantial financial interest,"and otherprovisions of the rule must be reasonable in light of all the facts and circumstances.

Your second question is as follows:

Does the Texas Department of Mental Health and Mental Retardationhave the authority to requireby contract community centers established pursuant to Article 5547-203, V.T.C.S., to implementa policy similar to that in question number 1, above, regarding contracting for services with former employees of community centers?

Article 5547-203, V.T.C.S., authorizes 'a county, a city, a hospital district, a school district, or any organizationalcombination of two ormore of these, to establish and operate a community center formental health andmental retardation services. Such community centers formerlyreceived grants-in-aidallocatedby the Department of Mental Health and Mental Retardation from appropriated funds. See, e.a, Attorney General Opinions JM-424 (1986); JM-12 (1983);H-241 (1974);M-314 (1968);C-584 (1966). In 1985 the legislaturereplaced the authorization for grantsin-aid for community centers with provisions for financing community-based services through contracts with community centers and other localproviders. Acts 1985, 69th Leg., ch. 496, at 4155;Attorney General Opinion JM-424 (1986). These provisions are set out in article 5547-204,V.T.C.S.

The department "shall insureII that specified communitybased mental health andmental retardation services are available in each service area and shall identify and contractwith one or more designatedproviders for each

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Mr. DennisR. Jones - Page 5 (JM-1031)

local service area. V.T.C.S. art. 5547-204, 5 4.03(a), (b). Preference in identifyingproviders is to be given to a community center. & 5 4.03(b).

Section 4.01(a)provides as follows:

me Devartment shallvrescribe such rules. g 'stent with the Constitutionand laws of this State,
as * n t to Dure adeouatevrovision of communitv-based menta1 health andmental retardation sex-vi ces bv devartmental facilitvoutreachvroarams or Y communitv centers and other vroviders receivina contract funds as desianated nroyiders vursuant to Se tion 4.03 Each designated przvider of this Act. contract shall contain a provision authorizingthe Department to have unrestricted access to all facilities,records,data, and other information under the control of the designated provider or subcontractor of the designated provider as necessary to enable the Department to audit, monitor, and review all financial and programmatic activities and services associated with the contract. (Emphasisadded.)

V.T.C.S. art. 5547-204, 5 4.01(a).

This provision gives the departmentbroad authority to make rules applicable to community centers that receive contract funds under section 4.03. The same rules that apply to community centers also apply to the provision of community-based servicesby the department's own facilities. See also V.T.C.S. art. 5547-204, s 4.03(c). centers and other providers Community
aremoreover fully accountable to the department for the use of the funds they receive under contract.

The departmentmay adopt rules that are "necessary and appropriate to insure adequateprovision of community-based mental health andmental retardation services"by community centers receiving contract funds. If the department reasonably determines that it would be necessary and appropriateunder the statutory standard to adopt a rule prohibiting the community centers receiving state funds from making contracts for community-based services in which former employees or their spouses have a substantial interest,the department could adopt such a rule. The rule

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itself, the duration of the restriction, the definition of "substantial financial interest," and any other provisions of the rule must be reasonable in light of the surrounding facts and circumstances.

SUMMARY

The Texas Department of Mental Health and Mental Retardationhas authorityunder section 2.11(a) of article 5547-202, V.T.C.S., to adopt reasonable rules prohibiting its facilities from entering into contracts for community-based mental health and mental retardation serviceswith former officers and employees, their spouses, and business entities in which the former employees or their spouses have a substantial financial interest for a specific period after the employeeshave terminated employmentwith the department. The department also has authority to adopt such rules for community centers established under article 5547-203, V.T.C.S., that receive contract funds from the departmentunder section 4.03 of article 5547-204.V.T.C.S.

JIM MATTOX Attorney General of Texas

MARYKELLER FirstAssistant Attorney General

Lou MCCREARY ExecutiveAssistant Attorney General

JUDGE ZOLLIE STEAKLEY SpecialAssistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Preparedby Susan L. Garrison AssistantAttorney General

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