                       March 23, 1989




Mr. Dennis R. Jones               Opinion No. JR-1031
Commissioner
Texas Department of Mental        Re:   Authority of the De-
  Health and Mental Retardation   partment of Mental Health
P. 0. Box 12668                   and Mental Retardation to
Austin, Texas 78711-2668          impose certain requirements
                                  on contracts for community-
                                  based mental health     and
                                  mental retardation services
                                  (RQ-1599)
Dear Mr. 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
services pursuant to section 2.13 of article 5547-202,
V.T.C.S. This provision states as follows:
        The Department may cooperate, negotiate and
        contract with local agencies,      hospitals,
        private   organizations   and    foundations,
        community centers, physicians and persons to
        plan, develop and provide community-based
        mental health and mental retardation ser-
        vices.
V.T.C.S. art. 5547-202, !j2.13.
     The department is considering a policy which would pro-
hibit its facilities from entering into such contracts with
former employees of the department for a specific period of
time.1 The *'facilities*'of the department consist of the
central office of the department and the state hospitals,
state schools, and other institutions set out in section


     1. You refer to ~*employees,~*but, for purposes of this
opinion, we presume that *'employees"includes both employees
and officers.




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Mr.   Dennis R. Jones - page 2   (JM-1031)




2.01 of article 5547-202, V.T.C.S. The department is also
considering prohibiting community mental health and mental
retardation centers from     entering into contracts   for
services with their former employees for a specific period
of time. You first ask the following question:
          Does the Texas Department of Mental Health
          and Mental Retardation have the authority to
          prohibit its facilities from entering into
          contracts for community-based mental health
          and mental retardation services with former
          employees, their spouses, or business enti-
          ties in which the former employees or their
          spouses have a substantial financial interest
          for a specific period after the employees
          have terminated employment with the Depart-
          ment?
     What the department contemplates is a restriction on
its own authority to contract under section 2.13 that would
prohibit contracts in which former employees or their
spouses have 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 therefore unlike the post-employment restrictions
of the public Utility Regulatory Act, which bar former em-
ployees from working for certain public utilities or from
representing certain business entities before the commission
or a court. See V.T.C.S. art. 1446c, 5 6(i), (j).
     We find no provision requiring that contracts entered
into under section 2.13 be awarded on competitive bids. The
department's authority to cooperate and to negotiate with
various entities for community-based services is inconsis-
tent with a competitive bidding requirement.   See aenerallv
Attorney General Opinion MW-296 (1981) (city may not nego-
tiate contract terms with lowest bidder when statute re-
quires competitive bidding); Attorney General Opinion MW-55
(1979) (discussing department's authority under section 2.13
of article 5547-202).   Thus, we need not consider whether
the proposed restriction would constitute an impermissible
restriction on the competition required by a competitive
biddina statute. See Texas Hiahwav Comm*n v. Texas Ass'n of
Steel imvorters. Inc   372 S.W.2d 525 (Tex. 1963); Sterrett
v. Bell, 240 S.W.2d '416 (Tex. Civ. App. - 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 following rule-making authority:




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Mr. Dennis R. Jones - Page 3    (JM-1031)




        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 administering this 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 administration and co-
ordination 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 comprehensive range
of services for mentally ill and mentally retarded persons
"who are in need of publicly supported care, 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 services provided by the department and
other entities through contracts with the department.** Id.
s 1.01(c).
     The proposed policy appears designed to prevent former
employees of the department from using their contacts with
the department and an insider's knowledge of its procedures
to receive favored treatment in the award of contracts under
section 2.13. If the board determines that adopting such a
policy would contribute to the effective administration of
mental health services and would otherwise be consistent
with the purposes and policies of the Act, we believe it
could adopt a reasonable policy or rule to that effect,
     In Attorney General Opinion MB-540 (1982), this office
determined that the Texas Employment Commission had author-
ity to adopt a nepotism policy 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 Opinion MW-540 (1982), at 2.
     In Attorney General Opinion JR-188 (1984) we considered
whether the Texas Department of Human Resources could pro-
hibit its child protective service workers from performing
court ordered social studies on their own time.           We




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Mr. Dennis R. Jones - Page 4   (JM-1031)




concluded that the department could adopt a rule prohibiting
such dual employment when a conflict of interest resulted
from employees' competition with the department for the same
appointments and fees.
     Thus, prior rulings of this office demonstrate that a
state agency may adopt policies designed to prevent favor-
itism in hiring decisions and conflicts of interest between
the agency and its employees. The Board of Mental Health
and Mental Retardation may adopt restrictions necessary to
prevent favoritism of former employees in contracting deci-
sions 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 contract with the de-
partment. The duration of the restriction, the definition
of "substantial financial interest," and other provisions 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 Retardation have the authority to
        require by contract community centers estab-
        lished   pursuant   to   Article    5547-203,
        V.T.C.S., to implement a policy similar to
        that in question number 1, above, regarding
        contracting for services with former em-
        ployees of community centers?
     Article 5547-203, V.T.C.S., authorizes 'a county, a
city, a hospital district, a school district, or any
organizational combination of two or more of these, to
establish and operate a community center for mental health
and mental retardation services. Such community centers
formerly received grants-in-aid allocated by 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 legislature replaced the authorization for grants-
in-aid for community centers with provisions for financing
community-based services through contracts with community
centers and other local providers. 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 insureIIthat specified community-
based mental health and mental retardation services are
available in each service area and shall identify and
contract with one or more designated providers for each




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    Mr.   Dennis R. Jones - Page 5    (JM-1031)




    local service area. V.T.C.S. art. 5547-204, 5 4.03(a), (b).
    Preference in identifying providers is to be given to a
    community center. &   5 4.03(b).
          Section 4.01(a) provides as follows:
             me Devartment shall vrescribe such rules.
             g                                      'stent
             with the Constitution and laws of this State,
             as *            n                      t    to
             Dure   adeouate vrovision of communitv-based
             menta1 health and mental retardation sex-vices
             bv devartmental facilitv outreach vroarams or
               Y communitv centers and other vroviders
             receivina contract funds as desianated nro-
             yiders vursuant to Se tion 4.03 of this Act.
             Each designated    przvider contract     shall
             contain a provision authorizing the Depart-
             ment to have unrestricted access to all
             facilities, records, data, and other informa-
             tion under the control of the designated
             provider or subcontractor of the designated
             provider as necessary to enable the Depart-
             ment to audit, monitor, and review         all
             financial   and    programmatic    activities
             and services associated with the contract.
             (Emphasis added.)
    V.T.C.S. art. 5547-204, 5 4.01(a).
         This provision gives the department broad 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 services by the department's own facilities.
    See also V.T.C.S. art. 5547-204, s 4.03(c).        Community
    centers and other providers are moreover fully accountable
    to the department for the use of the funds they receive
    under contract.
         The department may adopt rules that are "necessary and
    appropriate to insure adequate provision of community-based
    mental health and mental retardation services" by community
    centers receiving contract     funds.   If the    department
    reasonably determines that it would be necessary         and
    appropriate under 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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Mr. Dennis R. Jones - Page 6     (JM-1031)




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 Retardation has authority under sec-
        tion 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 services with 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
        employees have terminated employment with 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 department under section 4.03 of article
        5547-204. V.T.C.S.




                                   JIM     MATTOX
                                   Attorney General of Texas
MARYKELLER
First Assistant Attorney General
Lou MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General




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