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NATIONAL CONTRACT MANAGEMENT ASSOCIATION
A PRACTICAL GUIDE TO ORGANIZATIONAL CONFLICT OF INTEREST FAR SUBPART 9.5
DAVID A. BOLTONASSOCIATE GENERAL COUNSELUNITED SPACE ALLIANCE, LLC
NCMA [email protected]
February 18, 2010
SPACE CITY CHAPTER
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What Is An Organizational Conflict of Interest?
As defined in FAR Subparts 2 and 9.5: Organizational Conflicts of Interests (OCI) can occur when a contractor may be unable to
provide impartial advice or assistance, its objectivity in performing a contract is impaired, or it may obtain an unfair competitive advantage.
An instance where contractor activities or access to information give it an unfair advantage over competitors for future Government contract work.
Where a contractor is viewed as being unable to render impartial assistance or advice to the government, that is, the contractor’s objectivity in performing contract work is viewed as impaired.
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OCI Types
Access to Non-Public Information (also called “Informational” OCI) – These are cases where the contractor is furnished access to non-public information that can be viewed as affording it a competitive advantage related to a later competition. In this cases, competitors for future related contract work are not afford this same information access and thus could be put at a competitive disadvantage.
Biased Ground-Rules – This is the case where the contractor alone could be provided the opportunity to essentially write the requirements for a future procurement they are participating in. Examples include writing statements of work or specifications that will be used in a future competitive procurement. The primary concern is that whether intentionally or not, the contractor could skew the competition in favor of itself. The key question to be asked in Biased Ground-rule situations is whether contractor inputs can be shown “to lead directly and predictably” to requirements in Government procurements the company is pursuing.
Impaired Objectivity – Conflicting roles cases where the contractor is put in the position of evaluating its own contract work, that of one of its prime contractors on another contract or a competitor on behalf of the Government. The principle concern in these cases is the contractor’s ability to render impartial advice to the Government.
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What Constitutes Impaired Objectivity?
General Accountability Office (GAO) cases:
Overlook Systems Technologies, Inc., B-208099.4, November 28, 2006. An impaired objectivity OCI is created whenever a contractor’s judgment and objectivity in performing contract requirements may be impaired due to the fact that the substance of the contractor’s performance has the potential to affect other interests of the contractor.
Johnson Controls World Services, Inc., B-286714.2, Feb 13, 2001. An impaired objectivity OCI typically occurs where a firm is evaluating its own (or a related firm’s) activities, because the objectivity necessary to impartially evaluate performance may be impaired by the firm’s interest in the entity being evaluated.
Impaired objectivity OCIs can also occur when government contractors attempt to acquire or
divest corporate assets. • Alion Science and Technology Corp., B-297342, et al., Jan. 9, 2006 • Greenleaf Constr. Co., B-293105.18 et al., Jan. 17, 2006
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The General Rules
FAR Part 9.5 is the only FAR where the phrases “common sense” and “good judgment” are used!
9.505 General rules. The general rules in 9.505-1 through 9.505-4 prescribe limitations on contracting as the means of avoiding, neutralizing, or mitigating organizational conflicts of interest that might otherwise exist in the stated situations. Some illustrative examples are provided in 9.508. Conflicts may arise in situations not expressly covered in this section 9.505 or in the examples in 9.508. Each individual contracting situation should be examined on the basis of its particular facts and the nature of the proposed contract. The exercise of common sense, good judgment, and sound discretion is required in both the decision on whether a significant potential conflict exists and, if it does, the development of an appropriate means for resolving it.
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The GAO’s View
Daniel Gordon, GAO’s Managing Associate General Counsel for bid protests: A number of reasons can be offered as possible explanations for the increasing number of OCIs in
federal procurements: First, the consolidation within the industries serving the U.S. Government, particularly in the
information technology and defense industries, has caused OCIs to be a more common problem. Second, the Government is obtaining more and more services from contractors, and those
services are increasingly likely to entail the exercise of judgment rather than merely obtaining computer-repair services from private firms.
Third, the use of contract vehicles that invite “marketing” by the contractor risks fostering OCIs. More and more frequently, the federal government is awarding “umbrella” contracts such as indefinite-delivery/indefinite-quantity contracts.
Companies should fully disclose and alert the Contracting Officer to what they believe to be the potential OCIs and offer a solution that will work. Understating or hiding the effect of potential OCIs is a risky strategy for the contractor and agency.
GAO reviews the reasonableness of an agency’s actions. The GAO will not “second guess” or perform its own de novo reviews.
Review an acquisition for OCIs as early in the process as feasible, optimally at the planning stages, to permit agency and contractors to effectively address OCIs before the award process.
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The GAO’s View
Apparent vs. Actual OCIs One hears reference to an “apparent OCI,” which sounds like a contrast to an “actual OCI.” It may be more appropriate, however, to say that OCIs are always a matter of appearance. The issue is not the reality of the individuals’ conduct and its fairness, but the reality of the
conflict that the individual faced. Where an award that has been made is alleged to have been tainted by an OCI, the OCI has
already arisen. • There is the possibility of demonstrating that the award was untainted.
Where the award process is untainted, but the firm awarded the contract will face an OCI in performance, the OCI is prospective.
• Where the conflict is prospective, there is no way to prove that it will cause no harm. For the prospective OCI cases (and occasionally in allegedly tainted award cases, too), the case
turns on the nature of the services to be provided in the future. The factors leading to OCIs are unlikely to disappear:
The consolidation within the industrial sectors selling to the government, Mergers and acquisitions leading to the presence of multifaceted corporations selling a wide
range of goods and services to the government, The reliance on umbrella contracts, and public/private competitions.
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Missile Defense Agency Statement of Policy Regarding OCI
In one-on-one discussions with industry, two misconceptions have arisen that need to be dispelled.
“A key misconception is that impaired objectivity OCIs can be adequately mitigated through firewalls and separate corporate divisions. The GAO and court decisions clearly state these measures do not resolve impaired objectivity OCIs. An impaired objectivity OCI is not mitigated when a contractor performs a development effort and a firewalled affiliate or separate organizational component evaluates the development effort.”
“A second misconception is that all OCIs can simply be resolved through the submission of a mitigation plan. Mitigation plans cannot be accepted unless all OCIs are resolved to the satisfaction of the contracting officer.”
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Weapons Reform Act 2009 - New Defense Regulations on OCI Section 207 of the Act directs the Secretary of Defense, within 270 days of enactment, to revise the
Defense Federal Acquisition Regulation Supplement “to provide uniform guidance and tighten existing requirements for organizational conflicts of interest by contractors in major defense acquisition programs.”
The Four Key Concerns: “Lead system integrator” contracts
• LSIs may lead to follow-on contracts [to the same or an affiliated company] on the same program, particularly contracts for “production.”
“Systems engineering”• Congress expressed its concern where “systems engineering or technical assistance
functions, professional services, or management support services in relation to major defense acquisition programs” are being or have been performed by companies that simultaneously own business units competing to perform as either the prime contractor or the supplier of a major subsystem or component under the same program that is or was being engineered, assisted, managed or supported by the systems engineering or similar companies.
A prime contractor awarding subsystem contracts to its affiliates (particularly where the award involves “software integration or the development of a proprietary software system architecture”).
The basic concern expressed in the statute is the conflict of interest that could arise where a contractor performs or assists “in technical evaluations on major defense acquisition programs.”
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Identifying An OCI – A Contracting Officer’s 12 Step Program*
* Contract Management December 2007Continued on next slide
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Identifying An OCI – A Contracting Officer’s 12 Step Program
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The Government and Contractor Assessment & Mitigation Process
Potential New Constellation TaskIdentified
NASA providesUSA scope of
work
USA initiates OCI Assessmentand identifies appropriate OCI
Mitigation Plan
USA forwards OCI Assessmentand Mitigation Plan to JSC or KSC
Procurement for Approval
Tuesday, April 03, 2007
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JSC and KSC OCI Assessment & Mitigation Process
Constellation Program Office
Constellation Program Office
USA Contracts Management
USA Contracts Management
NASA reviewsand staffs plan internally within
NASA KSC
NASA formallynotifies USA of comments orapproval of assessment and
mitigation plan
NASA notifies contracting personnel that OCIassessment and identification of mitigation
requirements have been met and partnering/contract change can proceed
USA documents OCI file and initiates actionsrequired in mitigation plan (e.g., assignment ofpersonnel to effort, OCI training, completion of
Information Protection and Non-DisclosureAgreement, etc)
JSC and KSC Procurement
JSC and KSC Procurement
JSC and KSC Procurement
USA Contracts Management
Yes
No
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Practical Advice Understand the OCI regulations, the different categories of OCIs, and GAO opinions. Pay particular attention to "impaired objectivity" OCIs. Consider your company’s long-range business plan for a particular procurement.
Winning a small, preliminary contract could create conflicts on a future more significant business opportunity.
Be aware of the potential restrictions on follow-on contracts that may accompany SETA work. Consider the OCI potential as an incumbent and any competitive advantage gained thereby when
preparing a proposal. Advise your company to consider OCI potentials in every proposal and implementation of an OCI
mitigation plan when necessary. Engage your Contracting Officers.
Contracting Officers are independently required to identify potential OCIs “as early in the acquisition process as possible.”
Consider the degree of risk present of a conflict. “As indicated at the outset of this analysis, the dispute now before our Office turns on the
degree of risk present, not on whether there is, or is not, a possibility of a conflict of interest.” Overlook Systems Technologies, Inc., B-208099.4, November 28, 2006.
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Practical Advice Think broadly - OCIs are created at a company-wide level, not simply a division or sector level.
As demonstrated in the GAO’s decision in Greenleaf and Alion’s recent purchase of certain assets from Anteon, a contractor must be aware of potential OCI issues arising out of mergers, acquisitions, or divestitures.
A contractor should be prepared to address government concerns regarding potential OCIs and for a planned merger or acquisition to be conditioned on the divestiture of certain contracts that present OCI issues.
OCIs might be mitigated by shifting work to a subcontractor that deals directly with the Government and that signs a non-disclosure agreement prohibiting certain communications with the prime contractor.
OCIs might be mitigated by declining to seek award of a particular task order, particularly under a multiple award Indefinite-Delivery/Indefinite-Quantity (“IDIQ”) contract.
OCIs might be mitigated by securing a waiver from the Contracting Officer.
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GAO Cases - Results of Impaired Objectivity Protests Johnson Controls World Services, Inc., B-286714.2, Feb 13, 2001. Protest that awardee has
impaired objectivity type of organizational conflict of interest is sustained where record shows that, under the terms of another contract, proposed subcontractor will be making recommendations that could benefit the awardee, and the proposed subcontractor could be called upon to evaluate the performance of the awardee team.
Nortel Government Solutions, Inc., B- 299522.5, December 30, 2008. Where offeror will be required to review and provide input on designs proposed by itself under separate contract with same agency, agency unreasonably failed to determine the extent of offeror's OCI and unreasonably concluded that offeror's mitigation plan was acceptable, where it did not avoid, mitigate, or neutralize the OCI and instead relied on agency's existing process that made government responsible for final decisions.
Alion Science & Tech Corp., B-297342, Jan 9, 2006. Protest is sustained where record does not support the agency's conclusion that awardee's conflicts of interest will be minimal, with limited impact on quality of contract performance, where awardee, a manufacturer of spectrum-dependent products, will perform analysis and evaluation and exercise subjective judgment regarding formulation of policies and regulations that may affect the sale or use of spectrum-dependent products manufactured by the awardee or the awardees’ competitors, and those deployed by the awardee's customers.
Aetna Government Health Plans, Inc.; Foundation Health Federal Services, Inc., B-254397.15, July 27, 1995. While a firewall arrangement may resolve an unfair access to information OCI, it is virtually irrelevant to an OCI involving potentially impaired objectivity.
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Protests Involving Corporate Divisions and Firewalls
ICF Inc., B-241372, Feb 6, 1991. An OCI is created by the relationship between firms and its parent and other sister corporations. Protester was potentially unable to render impartial assistance or advice to the government due to its relationship with other sister corporations holding other contracts with the agency.
Overlook Systems Technologies, Inc., B-208099.4, November 28, 2006. While walling off employees using a firewall arrangement (sometimes referred to as a “Chinese wall” arrangement) may resolve other types of conflicts of interest (such as those involving unfair access to information), it does not resolve an OCI involving potentially impaired objectivity.
Nortel Government Solutions, Inc., B- 299522.5, December 30, 2008. The firewall does not avoid, mitigate, or neutralize the impaired objectivity OCI resulting from [the contractor’s] performance of dual roles reviewing and providing input of its own designs.
TDS, Inc., B-292674, November 12, 2003. Protest that awardee's proposed subcontractor has an impermissible “impaired objectivity” organizational conflict of interest by virtue of another contract with the agency, is denied where record fails to show that firm will be in a position to evaluate the performance or activities of the prime contractor as part of its responsibilities under that other contract.
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The Mitigation Plan
Daniel Gordon, GAO’s Managing Associate General Counsel: Neither the FAR nor case law provides specific guidance regarding appropriate. Any mitigation plan needs to be tailored to the nature of the specific OCI. In an “unequal access to information” OCI, sharing more information with competing offerors
may adequately mitigate the OCI. It would also seem feasible to put a “firewall” around the individuals with access to the “extra”
information to ensure that they do not share the information with individuals who could use it to gain an unfair competitive advantage.
Where an “impaired objectivity” OCI is at issue there have been a number of decisions finding reasonable an agency’s reliance on a mitigation plan under which a subcontractor would handle situations where the prime contractor would be conflicted (or vice versa).
• Deutsche Bank, B-289111, Dec. 12, 2001, 2001 CPD ¶ 210 (protest is denied where, in a procurement for loan support services, record showed that the agency reasonably determined that the awardee’s proposal adequately mitigated any conflict of interest through the use of a subcontractor to perform loan servicing on those properties where awardee had previously been involved in handling administrative matters for the agency related to the same properties).
See Lockheed Martin Corporation OCI Plan for a sample. http://www.lockheedmartin.com/suppliers/bu_info/space/site_7742/special_flowdown/SN002A_10-13-08.pdf
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Mitigating Unequal Access to Information OCIs
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Mitigating Biased Ground Rules and Impaired Objectivity OCIs
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The Mitigation Plan Checklist General Considerations
Does the Mitigation Plan (the Plan) clearly state a corporate commitment and sensitivity of OCI for this acquisition?
Does the Plan provide for annual corporate certification for Plan compliance?
Definitions Does the Plan clearly define all terms and acronyms used?
Descriptions of the Requirement and the OCI Situation Is the potential OCI adequately described? Are the details of the situation(s) that place the contractor in an OCI situation explained? Does the Plan include a copy of the Organization Chart? Does the Plan include a copy of the Parent Organization Chart? Does the Plan include a copy of all Subcontractor Plans? Does the Subcontractor Plan include Organization Charts? Does the Subcontractor Plan include the Organization Chart for the Parent? Is the Plan signed by a senior corporate official (applicable for Prime and Subcontractor Plans)?
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The Mitigation Plan Checklist – Management of the Plan Is a primary point of contact or responsible individual identified for oversight and administration of
the Plan? Is the primary point of contact or responsible individual identified to maintain all documentation
related to the Mitigation Plan? Is the documentation maintained in one location easily accessible by the Government ? Are written corporate operating procedures in place for management of information and document
control? Are written corporate operating procedures in place for management of subcontractors and other
vendors requiring access to OCI related materials? Are company processes in place to effectively execute the Plan? Are the processes fully documented in the Plan? Are copies of referenced corporate policies/plans attached? Does the Plan describe how organizational separation will be used as an OCI mitigation tool? Are separate Cost Accounting Standards disclosure statements necessary? Are separate cost estimating systems and cost collection systems necessary? Does each division have provisional billing rates and separate labor rate structures in place? Does the Plan describe how physical performance separation and protection will be used as an OCI
mitigation tool? Is physical workspace separation with continually controlled access areas used in addition to
separation provided within the program areas where sensitive information is involved? Are badge accesses controlled? Are access lists used to document those with restricted access to potential OCI material information?
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The Mitigation Plan Checklist – Management of the Plan Are data separation and protection processes in place? Does the contractor require all mitigation responsibilities? If any categories of personnel are not required to execute NDAs yet will support the contract, is their
involvement adequately described to preclude even the appearance of an OCI? Are separate computers and networks maintained with adequate firewalls to preclude data from
being accessed outside program/project channels? Is Government electronic isolation (e.g., restricted file access on shared disk drive) used? Is data sufficiently password protected among all personnel to preclude inadvertent release of
sensitive OCI material? Are release and approval procedures in place to preclude release of either hard or soft copy
information (including emails) without prior approval of a designated individual? Are document marking procedures established for control of program/project reports and products? Are storage containers and procedures in place for safeguarding program/project material? Are employee transfers limited to exclude the inadvertent flow of sensitive information to competing
parts of the company where inside information could be used inappropriately? Does the Plan provide for access lists to be maintained for personnel acquiring access to sensitive
information? Does the plan prohibit involvement of its personnel participating in Government source selection
activities when other corporate entities are potential or actual competitors? Does the Plan require personnel to sign NDAs when they obtain access to other contractors'
proprietary material? Does the Plan require obtaining consent from other contractors prior to releasing their proprietary
information for legitimate program purposes?
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The Mitigation Plan Checklist – Management of Personnel Are personnel policies in place to mitigate rotation of personnel on new tasks to avoid biased
judgment? Are OCI training and awareness briefings given and attendance recorded? Does the Plan describe how personnel are disciplined for non-compliance with the Plan and OCI
issues? Does the plan specify where disciplinary actions are documented? Does the Plan specify where OCI briefing and debriefing statements are maintained? Does the Plan provide for corporate oversight and audit of the OCI procedures? Does the Plan specify the frequency of the corporate audits? Does the Plan require annual certification of compliance with the terms of the Plan, signed by a
senior corporate official? Does the Plan specify where the certification documentation is maintained? Does the Plan specify where the records are maintained?
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Proposed Rule – Personal Conflict of Interest
FAR Case 2008-025 “Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions” requires contractors to: Establish procedures to screen “covered employees” for potential personal conflicts of interest;
obtain financial disclosure statements when employees are assigned to a contract task; and ensure the disclosure statements are updated at least annually or whenever there is a change to their personal or financial circumstances.
• What level of financial disclosure is required? See Office of Government Ethics Form 450 Confidential Financial Disclosure Report .
Prevent personal conflicts of interests by not assigning or allowing an employee that has a personal conflict to work on any task under a contract and prohibiting the use of non-public government information for personal gain.
Inform employees of their obligations to prevent personal conflicts of interest; not to use non-public government information for personal gain, and to avoid even the appearance of a conflict of interest; and to disclose changes in personal or financial circumstances.
Maintain effective oversight to verify compliance with personal conflict of interest safeguards. Taking appropriate disciplinary action when an employee fails to comply with the policies. Report any personal conflict of interest violations by covered employees to the Contracting
Officer “as soon as identified, including a description of the violation and action taken by the contractor in response to the violation.
Obtain a signed non-disclosure agreement to prohibit disclosure of non-public Government information.
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Proposed Rule – Personal Conflict of Interest
The proposed rule includes the following definitions:
“Acquisition functions closely associated with inherently governmental functions” are those “supporting or providing advice or recommendations” as to federal procurement activities, including planning acquisitions, awarding and administering contracts, and terminating contracts.
“Covered employees” subject to the proposed rule, are all contractor and subcontractor employees and consultants, partners, or sole proprietors that perform acquisition functions closely associated with inherently governmental functions.
“Personal conflict of interest” means a situation in which a covered employee has a financial interest, personal activity, or relationship that could impair the employee's ability to act impartially and in the best interest of the Government when performing under the contract.
• Examples of conflicts of interest that could impair an employee’s impartiality include: gifts; financial interests, e.g., compensation, stock ownership, business or real estate investments of the employee or his “close family members” in any procurement decision; and employment opportunities or relationships and negotiating prospective employment.
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Proposed Rule – Personal Conflict of Interest
The rule provides that contractors may submit a request through the Contracting Officer to the head of the contracting activity to seek approval of a plan to mitigate a conflict of interest or to waive a conflict. These requests are available only in exceptional circumstances.
The Government’s remedies under the proposed rule for violations include suspension of contract payments, loss of award fee for the performance period in which the Government determined non-compliance, termination for default or cause, disqualification of the contractor from subsequent related contractual efforts, or suspension and debarment.
The rule’s requirements must be flowed-down to all subcontracts in excess of $100K which involve acquisition support services.
What should contractors do today? Consider updating your ethics programs and codes of business ethics and conduct to cover
personal conflicts of interest policies and procedures, and monitor clarifications of functions that fall within the definition of “inherently governmental.”
See comments made by the Council Of Defense and Space Industry Associations at http://www.pscouncil.org/AM/Template.cfm?Section=Ethics_and_Compliance1&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=4411
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Questions?
“The exercise of common sense, good judgment, and sound discretion is required…”
