Organizational Conflict of Interest

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In the face of an actual or potential organizational conflict of interest (OCI), the potential solutions are often limited. There are several options for contractors and the government that are broadly categorized as mitigation, avoidance, neutralization, limitations on future contracting, and exclusion. Although used sparingly, the FAR also provides that the government can “waive” actual or potential OCIs. Specifically, FAR 9.503 states: “The agency head or a designee may waive any general rule or procedure of this subpart by determining that its application in a particular situation would not be in the Government’s interest.”

A recent GAO decision sheds light on how contractors and agencies should think about OCI waivers. CACI, Inc.-Federal; General Dynamics One Source, LLC, B-413860.4, et al., Jan. 5, 2018.

Continue Reading GAO Lets Stand an Agency’s OCI Waivers in Face of a Multi-Prong Challenge

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On Wednesday, May 11th, 2016 at 1 PM Eastern, join our Crowell & Moring attorneys for a webinar entitled: “Organizational and Personal Conflicts of Interest: New and Pending Rules.” During this 90-minute webinar, our experts will clarify key principles, including a review of 2014 proposed amendments to the 2011 FAR conflict of interest rules. From the regulatory framework, to best practices to identify, avoid, mitigate and manage actual or potential conflicts of interest, you’ll learn how best to protect your business from bid protests and even prosecution under the False Claims Act.

Please note that Thompson Information Services charges a fee for this webinar. Registration information can be found here.

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On Thursday, January 15 at 2 PM Eastern, join our Crowell & Moring attorneys for a webinar entitled: “Organizational and Personal Conflicts of Interest: New and Pending Rules.” During this 90-minute webinar, our experts will clarify key principles, including a review of 2014 proposed amendments to the 2011 FAR conflict of interest rules. From the regulatory framework, to best practices to identify, avoid, mitigate and manage actual or potential conflicts of interest, you’ll learn how best to protect your business from bid protests and even prosecution under the False Claims Act.

Please note that Thompson Information Services charges a fee for this webinar. Registration information can be found here.

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At 1:00 pm (Eastern) on March 7, 2013, Crowell & Moring attorneys Peter Eyre and James Peyster will conduct a webinar on behalf of L2 Federal Resources entitled “Organizational Conflicts of Interest (OCIs) and Personal Conflicts of Interest (PCIs): New and Pending Rules.” This 90-minute webinar will provide an overview of key principles of conflicts of interest old and new, including a review of the personal conflict of interest rules which took effect on December 2, 2011 and a preview of the pending changes to the rules for addressing organizational conflicts of interest.  Having established the regulatory framework, the webinar will also provide best practice tips for identifying, avoiding, mitigating, and managing actual or potential conflicts of interest so that the government becomes your ally in the process, rather than your adversary.

Further details and registration information are available at http://l2federalresources.com/2013/organizational-conflicts-of-interest-ocis-and-personal-conflicts-of-interest-pcis-new-and-pending-rules/.

L2 Federal Resources requires a registration fee for its webinars.

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At 1pm EST on February 9, 2012, Crowell & Moring government contracts attorneys Peter Eyre and James Peyster will be conducting a webinar entitled “Conflicts of Interest in Government Contracting: Reducing Risk in an Age of Increased Visibility” on behalf of L2 Federal Resources. This webinar will provide an overview of the key principles of conflicts of interest law old and new, including a review of the new personal conflict of interest rules which took effect on December 2, 2011 and a preview of the pending changes to the rules for addressing organizational conflicts of interest. Having established the regulatory framework, the webinar will also provide best practice tips for identifying, avoiding, mitigating, and managing actual or potential conflicts of interest.  Peter and James will welcome audience questions in the final 15 minutes of the 90-minute event. 

Details about the webinar and on-line registration are available at http://l2federalresources.com/2012/conflicts-of-interest-in-government-contracting-reducing-risk-in-an-age-of-increased-visibility/ 

Please note that L2 Federal Resources requires a registration fee for its webinars.

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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.

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On April 26, 2011, the government issued a proposed rule governing organizational conflicts of interest.  This proposed rule diverges substantially from the current framework in FAR 9.5, from the DFARS rule proposed last year, and from certain aspects of decades of decisional law from GAO and the Court of Federal Claims. Please click here for our summary of the FAR proposal.

There are four differences that are particularly interesting:

  •  Analysis Of Risk. The proposed FAR provision asserts that there are two kinds of risk that can flow from OCIs – (i) harm to the integrity of the competitive acquisition system and (ii) harm to the government’s business interests. The proposed rule sets forth different treatment based on that distinction.
  •  Acceptance Of Risk Of Harm To Government Business Interests. In circumstances where the OCI harms the competitive acquisition system, the OCI must be substantially reduced, eliminated, or waived. However, in contrast, the FAR Councils’ proposal provides that the risk of harm to the government’s business interests may sometimes be assessed as an acceptable performance risk and further action may not be necessary to address the conflict.
  •  Recognition Of Corporate Structural Barriers And Internal Controls. The proposed FAR provision recognizes that corporate structural barriers – such as independent boards of directors – may, in some circumstances, constitute sufficient mitigation.
  •  Removal Of Unequal Access To Nonpublic Information From The OCI Framework. The proposed FAR provision removes the concept of unequal access to nonpublic information from the definition of OCIs, and treats it separately under FAR Part 4.

In addition, the government has asked industry to focus on specific issues in formulating comments (which are due on or before June 27, 2011), including:

  •  Is the definition of “organizational conflict of interest” sufficiently comprehensive to address all potential forms of such conflicts?
  •  Do the enumerated techniques for addressing OCIs adequately address the Government’s interests? Are any too weak or overbroad? Are there other techniques that should be addressed?
  •  Do the proposed solicitation provisions and contract clauses adequately implement the policy framework set forth in the proposed rule? For example, is a clause limiting future contracting an operationally feasible means of resolving a conflict? Would it be beneficial and appropriate for this information generally to be made publicly available, such as through a notice on FedBizOpps? Do the solicitation provisions and contract clauses afford sufficient flexibility to help an agency meet its individual needs regarding a prospective or actual conflict?
  •  Does the proposed rule strike the right balance between providing detailed guidance for contracting officers and allowing appropriate flexibility for dealing with the variety of forms that organizational conflicts of interest take and the variety of circumstances under which they arise?
  •  Are there certain types of contracts, or contracts for certain types of services, that warrant coverage that is more strict than that provided by the proposed rule?
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On December 29, 2010, DoD issued a final amendment to the Defense Federal Acquisition Regulation Supplement (“DFARS”) relating to organizational conflicts of interest (“OCI”) in major defense acquisition programs. The highlights of that rule are summarized here. One of the most interesting issues is what the rule does NOT cover.

The final rule is significantly narrower than the approach that DoD had outlined in April, 2010, when it issued a proposed rule. The proposed rule set forth a comprehensive approach, which would have been applicable to virtually all DoD procurements. DoD explained that finalizing the comprehensive approach in the proposed rule would have caused delay and possible confusion, and decided to limit the final rule. The proposed rule raised some important issues that have been left open to be dealt with in a proposed OCI rule to be issued by the FAR Council that will be effective government-wide and is expected to be issued soon. Examples of these issues include:

• Definition of OCIs
• Types of OCIs
• Required timing of OCI analysis
• Disclosure of information from offerors to assist contracting officers in identifying OCIs
• Guidance about specific mitigation techniques
• Waiver

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By now, most government contractors are (or most certainly should be) aware of the Federal Acquisition Regulation (“FAR”) provisions governing organizational conflicts of interest. While OCIs have been a hot issue for some time in the federal procurement world, OCIs are becoming an increasing risk area in the state procurement arena as well.   

By way of background, pursuant to the FAR, an “OCI arises when, because of other relationships or circumstances, a contractor may be unable, or potentially unable, to render impartial advice or assistance to the government, the contractor’s objectivity in performing the contract work is or might be impaired, and/or the contractor would have an unfair competitive advantage.” FAR 2.101. There are three general categories of OCIs: biased ground rules; impaired objectivity; and, unequal access to information. If not adequately mitigated or, when necessary, avoided, an actual or potential OCI can result in a vendor’s disqualification.      

Many contractors have been surprised to learn that a growing number of states have adopted OCI rules that follow these FAR principles. Some states, such as Maryland, Virginia, Minnesota, and Illinois have codified OCI rules in their respective state administrative or procurement codes. In other states OCI rules have been adopted at the agency-level. For instance the California, Tennessee and Washington Departments of Transportation have adopted OCI rules. Some states, such as California, have also adopted OCI rules via standard state contract provisions. 

Even where there is no specific state OCI rule or standard contract clause,  state contractors are not necessarily off the OCI hook. For instance, where federal grant money is used at the state level, such as in healthcare and education procurements, federal regulations sometimes require that the state grantee consider OCI issues before making award.   Moreover, many state procurement codes have rules that mirror the general federal procurement requirements regarding competition and fair and equitable treatment. Thus, for instance, a disappointed bidder could argue in the context of a post-award state protest that an awardee with an unequal access OCI has an unfair competitive advantage that runs afoul of the general state requirements for competition. 

In short, OCIs are not simply a federal procurement matter. State contractors must also beware.     

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On Thursday, May 20, from 2:00 pm – 3:00 pm ET, please join Tom Humphrey, John McCarthy, and Peter Eyre from Crowell & Moring’s Government Contracts Group for an in-depth discussion of the proposed rules, how these rules might impact strategic business decisions, and the implications for bid protests at GAO and the Court of Federal Claims.

The Department of Defense has issued proposed rules (.pdf) regarding organizational conflicts of interest (“OCI”), which would apply to all DoD procurements. Even for non-DoD contractors, these proposed rules merit careful attention because it is likely that the revisions to the FAR OCI provisions (which are currently underway) will closely resemble the proposed DoD rules. The proposed rules generally track decades of GAO and Court of Federal Claims decisions interpreting FAR 9.5. But there are some new elements as well. For instance, if implemented, these new rules would require many contractors to submit extensive disclosures – e.g., "any other work performed on contracts, subcontracts, grants, cooperative agreements, or other transactions within the past five years that is associated with the offer it plans to submit" – to allow agencies to analyze actual and potential OCIs. In addition, the proposed rules, implementing a specific mandate from the Weapons System Acquisition Reform Act of 2009, would prohibit (subject to a few limited exceptions) a contractor performing systems engineering and technical assistance functions for a major acquisition program from participating as a contractor or major subcontractor in the development or construction of a weapon system under such program.