The VitaPro Case: Ethical Pitfalls in Procurement

1. The VitaPro Case: Ethical Pitfalls in Procurement Katherine “Missy” Cary General Counsel Wes Ogilvie Assistant Attorney General General Counsel Division

2. VitaPro Background • Background • First purchase – made early in 1994 through General Services Commission (GSC) • Subsequent purchases – “direct purchase” • Accompanied by memo describing plan to resell VitaPro (Public/Private Partnership?) • First purchase order (November 7, 1994) from Texas Department of Criminal Justice (TDCJ) obligated TDCJ to purchase 17 metric tons/month until August 31, 1995, with options for four one-year renewals • Second purchase order (July 1995) – five-year term, 39 metric tons/month • First and second purchase orders claimed exemption from GSC as “direct purchase” • Shipments delivered to Texas Correctional Industries (TCI) for repackaging

3. VitaPro Background Continued • Limited success with reselling to other entities. Most TCI shipments sold to TDCJ. • TDCJ inmates and staff both complained about VitaPro. • TDCJ stopped acceptance and the Office of the Attorney General filed for a declaratory judgment claiming no contract existed. VitaPro counterclaims for declaration that contract is valid and for damages for breach. • Trial court held for TDCJ. • Appeals court reversed and held there was an issue of material fact as to whether VitaPro is an agricultural commodity under direct purchasing statute.

4. The Texas Supreme Court Review Subsequent appeal by TDCJ to the Texas Supreme Court State of Texas, ex rel. Department of Criminal Justice, Petitioner v. VitaPro Foods, Inc., 8 S.W.3d 316 (Tex. 1999).

5. Primary Ethical Trap in VitaPro • Primary Ethical Trap – Going Beyond Statutory Authority

6. Going Beyond Statutory Authority • Examples from VitaPro case • Claimed VitaPro was an agricultural commodity under Direct Purchasing Statute • Claimed VitaPro was a raw material or supply under Direct Purchasing Statute • Claimed exemption from GSC as a good for resale or auxiliary enterprise • Texas Supreme Court also held that neither TCI nor TDCJ had independent statutory contracting authority

7. Other Ethical Lessons That Can Be Inferred From VitaPro • Ethical dilemmas with sole source/proprietary procurements

8. Other Ethical Lessons That Can Be Inferred From VitaPro • Formal policy for signature delegation • Many state agencies have a signature delegation matrix • Formal board/commission action • Minute Order

9. Other Ethical Lessons That Can Be Inferred From VitaPro • Internal and external pressures to complete a deal

10. Other Ethical Lessons That Can Be Inferred From VitaPro • Step back – What are you trying to accomplish? In this case, confusion between buying VitaPro for TDCJ use and partnering to repackage and merchandise VitaPro.

11. Other Ethical Lessons That Can Be Inferred From VitaPro • Consult legal counsel and consider consulting with your agency’s AAG

12. Questions and Assistance Katherine Cary General Counsel Office of the Attorney General katherine.cary@texasattorneygeneral.gov (512) 936-1395 Wes Ogilvie Assistant Attorney General, General Counsel Division Office of the Attorney General wesley.ogilvie@texasattorneygeneral.gov (512) 936-1408