Crowell & Moring

The US Court of Federal Claims recently granted preliminary injunctive relief against a Federal contractor for an organizational conflict of interest, in a decision casting a deeply skeptical eye on an awardee’s improper access to competitor information–and the government’s lackadaisical attempt to police the impropriety.

The case, Netstar-1 Gov’t Consulting, Inc. v. United States, centered on a program management support services contract with the US Department of Homeland Security Immigration and Customs Enforcement (ICE) Office of Chief Information Officer. ICE awarded ALON, Inc. the contract. Both ALON and the protestor, NetStar-1, had performed previous related ICE contracts.

NetStar-1 alleged ALON used its previous access to ICE data – including NetStar-1’s labor categories, job categories, and labor rates – to improperly craft a winning proposal. The Federal Acquisition Regulations (FAR) definition of an organizational conflict of interest (OCI) includes situations where competitors have unequal access to procurement-related information, thereby giving one or more offerors an unfair bidding advantage. Judge Francis M. Allegra held that the facts established ALON had an OCI. ALON argued no unequal access existed because both firms had access to NetStar-1’s data—an argument the judge dismissed as “frivolous.” But it was the government’s conduct that drew much of his ire.

NetStar-1 alleged the ICE contracting officer (CO) involved failed to adequately mitigate the OCI. The FAR requires CO’s to “analyze planned acquisitions in order to (1) [i]dentify and evaluate potential organizational conflicts of interest as early in the acquisition process as possible; and (2) [a]void, neutralize, or mitigate significant potential conflicts before contract award.” In this case, the CO failed to make pre-award identification of ALON’s prior access to proprietary NetStar-1 data. “[E]ven more remarkable,” Judge Allegra noted, was that ALON’s other ICE contracts – negotiated by the same CO — had clauses specifically warning that ALON would have future OCIs.

Judge Allegra continued: “The mitigation plan adopted by the contracting officer has some interesting features.” (One can almost hear the judge’s “ahem” come off the page.) The CO had obtained declarations from ALON employees saying they had not obtained NetStar-1 data. However, it turned out that the CO sought declarations from the wrong people—she never contacted the dozen ALON employees who actually had access to the data. Furthermore, the court found that the CO relied on incomplete non-disclosure statements from ALON and verbal pledges by the company. “Indeed, if the latter were enough, one must wonder why the drafters of the FAR bothered to develop an extensive set of rules to deal with such conflicts,” wrote Judge Allegra in his May 27, 2011 opinion.

Based on these facts, the court concluded NetStar-1 had demonstrated the likelihood of success on the merits, the key requirement for obtaining preliminary injunctions. The court also found the three other injunction factors weighing in NetStar-1’s favor. The court enjoined the contract and set dates for a merits trial. The case demonstrates not only the imperative that Federal contractors to investigate competitors’ potential OCI’s, but also the need to demand that the government honor its FAR policing duties. Timely government contracts counseling can alert contractors to precisely such issues.