Texas’ New Certificate of Interested Parties (Form 1295) – How do you comply?
Does your Firm enter into contracts with governmental entities or state agencies in the state of Texas? If so, then be prepared to determine if you must complete and file a Form 1295 the next time your Firm submits a contract for professional services to be signed by a governmental entity or state agency in the state of Texas. If required to be filed, your contract cannot be approved until it is filed.
On September 1, 2015, §2252.908 of the Texas Government Code became effective. §2251.908 provides that on and after January 1, 2016, a governmental entity or state agency may not enter into certain contracts with a business entity unless the business entity submits a disclosure of interested parties (Form 1295) to the governmental entity or state agency at the time the business entity submits the signed contract to the governmental entity or state agency. This disclosure requirement applies to contracts with a governmental entity or state agency that either: (1) require an action or vote by the governing body of the entity or agency before the contract may be signed; or, (2) has a value of at least $1 million.
The procedure for complying with this new law is as follows: (1) use the application on the Texas Ethics Commission’s website (www.ethics.state.tx.us) to enter the required information to be included on Form 1295; (2) print a copy of Form 1295 and the separate certification of filing that contains a unique certification number; (3) sign the printed copy of Form 1295 and have your signature notarized; (4) file the completed Form 1295 and certification of filing with the governmental entity or state agency with which you are entering into the contract. The governmental entity or state agency then notifies the Texas Ethics Commission of receipt of the Form 1295 and the Texas Ethics Commission then will post the completed Form 1295 on its website for all to see.
That’s the easy part. Our A/E clients, in addition to expressing concerns about having to publicly disclose their private information, have expressed frustration in determining who the interested parties are that must be disclosed on Form 1295. We share our A/E clients’ concerns and frustration. The requirement of public disclosure of private entity information itself is a topic for another time and, based upon our review of the new law, determining who is an “Interested party” is ambiguous at best and at worst confusing.
§2252.908 defines “Interested party” as a person who has a controlling interest in a business entity or an intermediary who actively participates in facilitating a contract or negotiating the terms of a contract. Two questions immediately come to mind. One, what does “controlling interest” mean? Two, who is an “intermediary”? The Texas Legislature failed to define either. So, where do you go for answers to these questions? The answer: The Texas Ethics Commission Rules.
§§46.3(c) and 46.3(e) of the Texas Ethics Commission Rules respectively define “controlling interest” and “intermediary”. Unfortunately, the commission’s definitions still leave unanswered questions too numerous to adequately discuss in the space allowed. To further complicate this determination, the Texas Legislature failed to grant the Texas Ethics Commission any authority to enforce or interpret the new law. Thus, business entities have been left with little or no guidance on how to complete Form 1295 when required.
What are your “takeaways” from this? First, if your Firm contracts with governmental entities or state agencies in the state of Texas, then you must determine if you are required to complete and submit a Form 1295. Second, if your Firm is required to complete and submit a Form 1295, then, until the Texas Legislature provides, or authorizes the Texas Ethics Commission to provide guidance on the interpretation of the new law, you will need to review the requirements for filing this form carefully to determine if your Firm must disclose “interested parties”. Seek professional assistance necessary in making this determination.
As published in the American Council of Engineering Companies of Kansas' (ACEC of Kansas) February 2016 edition of "The Right Angle - Private Practice News from the Leading Edge".