“protecting the department and its clients from legal risks” march 1 & 8, 2001

“PROTECTING THE DEPARTMENT AND ITS CLIENTS

FROM LEGAL RISKS”

March 1 & 8, 2001

Kate LaheyMasuda MedcalfVernon Stejskal

TODAY’S TOPICS

• Introduction (Kate)

• Subcontracting (Masuda)

• Conflicts of Interest (Vernon)

• Insurance & Indemnification (Kate)

• Records Management (Masuda)

SUBCONTRACTING

DUTIES OF SUBCONTRACTORS

Comply with all provisions and requirements of the original contract between the contractor and DHS, including:• program services

• insurance and indemnification

• fiscal record keeping and reporting

• conflicts of interest

ORIGINAL CONTRACTOR

DHS

SUBCONTRACTOR

WHAT IS A SUBCONTRACTOR?

ORIGINAL CONTRACTOR

DHS

SUBCONTRACTOR

SUBCONTRACTOR?

SUBCONTRACTOR?

SUBCONTRACTOR?SUBCONTRACTOR?

SUBCONTRACTOR?

SUBCONTRACTOR?

SUBCONTRACTOR?


• Is the entity contracting with the original contractor to perform the services that the contractor agreed to provide to DHS?

• Is the entity (or a combination of entities) taking on all or most of the contractual duties of the contractor or a subcontractor?


“Subcontractor” means an individual or entity that has entered into an agreement with the original Contractor to perform the services or provide the goods for which that original Contractor is responsible under the terms of this Contract.

“Subcontractor” also refers to individuals or entities that contract with any subcontractor if:• those individuals or entities have agreed to perform all or most of the subcontractor's duties under the contract; or

• federal law requires the contract to apply to such individuals or entities.

“All or Most” Analysis

Quantity and Nature of contractual

duties running to the new entity.

(Services to Community)

• residential care and services• inpatient• outpatient care and services• 24-hour crisis care and services• medication management• rehabilitation services and vocational training• case management• in-home services• respite services

EXAMPLE:

Subcontractor

DHS Contractor

EXAMPLE:

Subcontractor enters into the following contracts:

1. Agrees to divide the community services in 1/2 with another entity.

2. Gives each of the 9 duties to 9 different entities.

•Your Questions and Examples

CONFLICTSOF

INTEREST

Conflicts of Interest

• Purpose

• To assure goods and services are provided to DHS at commercially reasonable quality and cost

• To strengthen public confidence in DHS and its employees


•Definition

•A Conflict of Interest includes any situation where the Contractor (including any owners, officers, employees or agents), because of a special relationship, is motivated in any transaction by a desire for private gain for themselves or others


• Other ways of defining Conflicts of Interest

• Any impairment of a person’s independence of judgment in the performance of his or her duties

•Any attempt to use a person’s official position to secure special privileges for that person or others


• Includes influencing the favor of others

• Does not always involve financial impropriety

Types of Conflicts

Three Categories of Conflicts

1. Dual Employment

2. Related-Party Transactions

3. Independent Judgment Otherwise Impaired

Dual Employment

• Are any of the Contractor’s owners, officers, employees, or agents also employees of the State of Utah or any of its agencies or political subdivisions?

• If yes, DHS must ensure compliance with the Utah Public Officers’ and Employees’ Ethics Act (Utah Code 67-16-1 et seq.)

Ethics Act• Ethics Act draws clear distinction between

Public Duties v. Private Interests

• Public Employees must not:

– use their State position to further their own economic interest

– use their State position to secure special privileges or exemptions for themselves or others

Related-Party Transactions

Are there any transactions taking place between the Contractor and any related party in furtherance of the Contract?


“Related-Party Transaction” means

payments made by the Contractor to a Related Party in any manner or description (including, but not limited to, administrative costs, capital expenditures, program expenditures, and payments for goods, services, facilities, leases, salaries, wages, professional fees or similar expenses) which have financial implications on this Contract.


“Related Party” means

1) any person related to the Contractor by blood or marriage, which includes a father, mother, husband, wife, son, daughter, sister, brother, uncle, aunt, nephew, niece, first cousin, mother‑in‑law, father‑in‑law, brother‑in‑law, sister‑in‑law, son‑in‑law, or daughter‑in‑law.


“Related-Party” also means:2) all business associates of the Contractor

a) who are partners, directors, or officers, in the same business entity as the Contractor; or

b) who have authority to make decisions or establish policies in the same business entity as the Contractor; or

c) who directly or indirectly own 10% or more in the same business entity as the Contractor.

Independent Judgment Impaired

• Is the Contractor involved in any other transactions which have the appearance of being motivated by a desire for private gain or which appear to be other than an arms-length transaction between neutral parties?

Independent Judgment Impaired

• What types of relationships does this cover?

• “Catch All”

• Close friends

• Reciprocal Business Dealings

• Authority relationships

• Any Other Relationship which Removes Independence

Smell Test

• If a transaction doesn’t smell right because of the existence of any relationship or because the terms of the transaction appear to be disproportionately one-sided, there is probably a Conflict of Interest that needs to be disclosed

Safeguards• Contractor must familiarize its owners, officers employees and agents with the Conflict of Interest concepts

• Contractor must have written policy in place requiring disclosure of existing, potential, and contemplated Conflicts of Interest

•Contractor must establish effective procedures to regularly review any disclosures and its own operations to reasonably assure DHS that Conflicts of Interest are avoided

Disclosure Statement

• Contractor must attach a disclosure statement to the Contract at its inception disclosing all existing Conflicts of Interest

• Contractor has a continuing duty to monitor its operations for Conflicts of Interest and to immediately disclose them to DHS as they arise or are discovered


• For Contracts in excess of one year, a new disclosure statement is due each July 1

• Contractor has a continuing duty to disclose to DHS contemplated transactions involving Conflicts of Interest before they take place for DHS review


• What to Disclose?

– Anyone having dual employment.– What is the perceived Conflict?– Who are the individuals involved and what

is their relationship?– How does this Conflict effect the DHS

Contract?– How does Contractor protect DHS from

negative effects from Conflict?

DHS Response to Disclosures

• DHS shall submit a written response to the Contractor’s disclosure statement within 14 days


• The response shall advise the Contractor that:

• DHS will not require any additional information or remedial action, with regard to the disclosures made, before executing the Contract; or


• DHS requires additional information or disclosures or requires the Contractor to undertake specific remedial action before executing or continuing the Contract; or


• DHS is disapproving identified transactions and is requiring the Contractor to discontinue those transactions or this Contract will be declared breached and terminated.

Monitoring Contractor’s Compliance

• DHS retains the right to continue investigations into any disclosures made, and to require remedial action at any time

• DHS reserves the right to audit or otherwise review the Contractor’s records to assure compliance with these Conflict of Interest provisions

DHS Remedies for Non-Compliance

• DHS has authority to rescind or void the Contract and any related subcontracts without paying for services provided and without returning any consideration received for the Contractor’s violation of the Ethics Act

DHS Remedies for Non-Compliance

• DHS also has authority to disallow the Contractor’s expenditures, to adjust DHS’ payments to the Contractor, and to require the Contractor to immediately reimburse DHS for any payments previously made for the Contractor’s material breach of these Conflict of Interest provisions

Examples for Discussion

•DHS contracts with X corp. for janitorial services

•DCFS Supervisor is 1/3 owner of X corp.

•X corp. manager (not above supervisor) runs all day-to-day operations and makes all purchasing and personnel decisions

Examples for Discussion

•DHS has contract with X corp. to provide monthly employee training in Moab

•Training is always held at Mom’s Place

•Mom’s Place is owned and operated by the mother of X corp.’s majority owner

•Majority owner makes the decision to hold the meeting at Mom’s and refuses to look at other alternatives or compare prices

Analysis of Conflicts

• 1. Is there a Conflict of Interest?– Review employee

disclosures

– Internal review of Contractor Operations


• 2. Categorize Conflict

– Dual Employment

– Related-Party

Transaction

– Independent

Judgment Impaired


• 3. Is there a duty to Disclose?– Any effect on Contract with

DHS?• Potentially increases costs• Potentially provides inferior service• Has the appearance of impropriety


4. What to disclose?

• Refer to Disclosure Statement

• Additional information you would like to have from the Contractor to determine if their disclosure creates a Contract problem that requires corrective action?

We Want This

Not This

INSURANCEAND

INDEMNIFICATION

Allocationof

risk:

WHO PAYS?

“Slip Slidin’ Away”

• Provider is a group home

• Doesn’t shovel walk after big blizzard

• Neighbor slips, falls and breaks neck

• Provider has $250,000 policy of general liability and property insurance

“Wham!”

• Provider’s employee runs red light and collides with another vehicle.

• Two clients and other driver are injured.

• Employee was drunk.

• Employee had prior DUI convictions.

• Provider’s car insurance was $500,000.

“The Bad Provider”

• Provider is a child psychologist

• Provider abuses two DHS clients

• No professional liability insurance

Insurance Requirementsfor

Non-Governmental Contractors

• General liability and property insurance

– Commercial insurer or

– Self-insurance (if DHS approves)

• Automobile (if applicable)

• Professional liability (if applicable)

General liability and property insurance

($1 million)

• Bodily injury

• Personal injury

• Fire

• Property damage

• Broad form property damage liability

• Liability for property of others in Contractor’s care

Automobile Insurance

• Required only if Contractor transports clients or goods for DHS

• $1 million for each accident or occurrence

• Special provision for residential care services

Professional Liability Insurance

• Needed only if Contractor employs doctors, dentists, MH therapists or other professionals

• $1 million for each claim or occurrence

Insurance for GovernmentalContractors

• Governmental Immunity Act applies

• DHS and Contractor are each responsible and liable for their own wrongful or negligent acts

Insurance Required from Professionals (Doctors,

Dentists, Therapists and Other Professionals)

• General liability insurance• Professional liability (“malpractice”)

insurance• $500,000 for each occurrence• $1 million aggregate

INDEMNIFICATION

• Non-governmental Contractors shall indemnify DHS against all claims arising from Contractor’s acts or omissions.

• Governmental Contractors shall indemnify DHS but their obligation may not exceed $250,000.

Followthemoney

“Slip Slidin’ Away”

“Wham!”

“The Bad Provider”

RECORDSMANAGEMENT

CLIENT RECORDS

• Retention of Records

• Record Requests

RETENTION OF RECORDS6 Years After:

Last Payment from DHS, or Completion of Audits

initiated during 6 year period

Administrative Record

or Adult Client Record:

Record of Client

Who is a Minor:

6 Years After: Last Payment from DHS, or Completion of Audits initiated during 6 year period, Child reaches age 22

Contractor’s Early Destruction or Relocation of Records

• Contractor shall deliver the records to DHS or provide DHS photocopies (at Contractor’s expense)

• Contractor must request permission before destroying or relocating records (moving to a facility or site other than where contractor provides services)

RECORDS REQUESTS

CONFIDENTIALITY OF CLIENT RECORDS

Access to client records may be restricted under various state and federal laws.

NO CLIENT RECORDS SHOULD BE RELEASED UNLESS:

• State and Federal Laws allow it, or

• Client consents to the release.

• Beware that even with client’s consent, certain information may not be released (such as referent Information in CPS Records)

• State and Federal Laws are Complicated

RECORD REQUESTS

• Consult your Division GRAMA Specialist

The End

“protecting the department and its clients from legal risks” march 1 & 8, 2001

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