In public contracting, whether at the federal, state, or local level, a contractor's organizational conflict of interest (OCI) can affect the integrity of the procurement process—possibly even the quality of the promised performance—such that an OCI might disqualify a contractor's proposal for a specific procurement. Even after a contract is awarded, previously undetected or newly created OCIs can taint performance, meaning an undisclosed or otherwise unresolved OCI can render the contractor in material breach of contract or give rise to liability for false claims. Laws and policies governing OCIs thus play a significant role in maintaining the integrity and fairness of the procurement process.
However, OCI and other conflicts policies are not uniform across jurisdictions. While there are some commonalities, there also are significant distinctions. Policies vary as to what constitutes a conflict, what suffices as mitigation, and how OCI issues may be enforced. To illustrate, this article starts by summarizing OCI requirements under the Federal Acquisition Regulation (FAR), which applies to procurement contracts. Second, we compare FARbased requirements with laws and regulations on OCIs for grants and other nonprocurement programs. Third, we address personal conflicts of interest under federal law, which are often a related issue. Fourth, and finally, we cover OCI policies from several states and localities.
Given that OCI requirements can differ among various government entities, contractors should familiarize themselves with the particular policies that apply to their activities. When operating across several jurisdictions, it can be best to adopt a broad compliance posture.
OCIs Under the Federal Acquisition Regulation
Under the FAR, an OCI arises when, "because of other activities or relationships with other persons, a person is unable or potentially unable to render impartial assistance or advice to the Government, or the person's objectivity in performing the contract work is or might be otherwise impaired, or the person has an unfair competitive advantage" in a specific procurement.1
Bid protest decisions from the Government Accountability Office (GAO) and US Court of Federal Claims have described OCIs as generally falling into three categories:
- The first is where a contractor has conflicting roles or interests that might bias its judgment or recommendations for a government customer.2 This is called "impaired objectivity" and can arise in situations where a government contract would place a contractor in a position to evaluate (a) its own work or the work of its affiliates,3 (b) a team member's work,4 or (c) a competitor's work.5
- The second, called "unequal access to information," arises where a contractor possesses nonpublic, competitively useful information obtained from others, absent proper restrictions.6 This can arise where, for example, work under one contract gives a contractor access to the government's internal projections and other nonpublic information, and the contractor later competes for work to which the nonpublic information is relevant.7 Or where a former subcontractor switches teams and provides the new prime access to its competitor's prior proposal, that too can result in an unequal access to information OCI.8
- The third category of OCI arises where a contractor prepares the specifications or statement of work or circumstances otherwise place the contractor in a position to skew a competitive acquisition for which it will be competing.9 This is called "biased ground rules." Biased ground rules can arise from a contractor's or subcontractor's prior work preparing specifications for a procurement,10 or from the hiring of an employee who was previously engaged in developing the specifications for a specific procurement.11
According to the FAR, the risk for OCIs is highest under contracts involving management support or professional consulting services, work involving technical evaluations, or systems engineering and technical direction work.12
Some agencies' supplemental procurement regulations expand on the definition of what constitutes an OCI or contain unique criteria for determining whether an OCI exists.13 Some are more stringent than the FAR.14 It is therefore critical for contractors to familiarize themselves with the unique policies of their particular agency customers.
When it comes to addressing conflicts, government contracting officers must identify and evaluate potential OCIs "as early in the acquisition process as possible" and "avoid, neutralize, or mitigate significant potential conflicts before contract award."15 Contractors play an important role, too. In response to solicitations, they may need to make representations or disclosures concerning OCIs or submit mitigation plans for the contracting officer's consideration.16 Post-award, contractors may be required by a contract clause to disclose and mitigate OCIs arising during performance.17 Failure to comply may amount to a breach of contract or lead to enforcement under the False Claims Act.18 To ensure that competitors' potential conflicts are reviewed and addressed appropriately, contractors can file bid protests, provided they have "hard facts" to indicate the existence or potential existence of a conflict.19
The type of mitigation depends on the type of conflict. To address the potential for impaired objectivity, government agencies drafting solicitations can remove elements from the Performance Work Statement (PWS) or Statement of Work (SOW) that involve the contractor exercising subjective judgment. For example, rather than seeking a contractor to evaluate a team member's activities, an agency might seek a contractor to "monitor" the work, while having government personnel perform subjective evaluation of the work.20 Contractors, for their part, can propose using firewalled subcontractors to perform work affected by impaired objectivity.21 Or contractors can monitor and recuse themselves from that work (i.e., plan to remove evaluation of their own products or services from work to be performed).22 A contractor might even consider divesting business operations that present a conflict,23 a severe step that may be warranted given that GAO decisions have previously found intra-organizational firewalls inadequate to mitigate impaired objectivity concerns.24
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Footnotes
1. FAR 2.101 (defining "Organizational conflict of interest").
2. FAR 9.505-1, 9.505-3.
3. MANDEX, Inc., B-421664 et al., 2023 WL 5393491 (Comp. Gen. Aug. 16, 2023).
4. Nortel Gov't Sols., Inc., B-299522.5, B-299522.6, 2009 CPD ¶ 10 (Comp. Gen. Dec. 30, 2008).
5. Alion Sci. & Tech. Corp., B-297022.3, 2006 CPD ¶ 2 (Comp. Gen. Jan. 9, 2006).
6. FAR 9.505-4.
7. MANDEX, Inc., 2023 WL 5393491.
8. Dell Servs. Fed. Gov't, Inc., B-414461, 2017 CPD ¶ 192 (Comp. Gen. June 21, 2017).
9. FAR 9.505-2.
10. L-3 Servs., Inc., B-400134.11, B-400134.12, 2009 CPD ¶ 171 (Comp. Gen. Sept. 3, 2009).
11. Northrop Grumman Sys. Corp.—Mission Sys., B-419560.3 et al., 2021 CPD ¶ 305 (Comp. Gen. Aug. 18, 2021).
12. FAR 9.502(b).
13. See, e.g., 48 C.F.R. §§ 3052.209-75 (DHS), 209.570-2 (DoD lead system integrator), 3452.209-71 (DOE), 2009.570-3 (NRC).
14. The Atomic Energy Act of 1954 requires the Nuclear Regulatory Commission (NRC) to engage in "a more comprehensive organizational conflict of interest review ... than what is contemplated by FAR 9.5." Id. § 2001.104-2(b)(2); see also id. § 2009.570-3 (outlining NRC's OCI review criteria). For the Centers for Medicare & Medicaid Services (CMS), based on a conflict of interest contract clause updated in October 2020, even attenuated "financial relationships" in a provider of services, payor organization, or health plan were potentially disqualifying. Such financial relationships included "[a] direct or indirect ownership or investment interest (including a stock option or non-vested interest) in any entity that exists through equity, debt, or other means and includes any indirect ownership or investment interest no matter how many levels removed from a direct interest," and no minimum threshold was stated. See CMS, Conflict of Interest, clause H.1 (Oct. 2020), available at https://www.cms.gov/ files/document/section-h1-coi-terms-and-conditions.docx.
15. FAR 9.504(a).
16. While there is no general FAR provision mandating disclosure, it is not uncommon for solicitations to contain OCI disclosure and mitigation requirements, and a number of agencyspecific clauses impose such requirements. See, e.g., 48 C.F.R. §§ 3052.209-72 (DHS); 1352.209-74 & 1352.209-70 (Dep't of Com.); 1552.209-70, 1552.209-71 & 1552.209-72 (EPA); 252.209-7009 & 252.209-7008 (DoD); 852.209-70 (VA); 2452.209-70 (HUD); 2009.570-72 (NRC).
17. E.g., 48 C.F.R. §§ 1852.209-71 (NASA), 3052.209-72 (DHS).
18. See Press Release, US DOJ, Government Contractor Agrees to Pay $425,000 for Alleged False Claims Related to Conflicts of Interest (May 20, 2022), https://www.justice.gov/opa/pr/government-contractor-agrees-pay-425000-alleged-false-claims-relatedconflicts-interest.
19. Turner Constr. Co., Inc. v. United States, 645 F.3d 1377, 1387 (Fed. Cir. 2011).
20. TDS, Inc., B-292674, 2003 CPD ¶ 204 (Comp. Gen. Nov. 12, 2003).
21. Soc. Impact, Inc., B-412941, B-412941.2, 2016 CPD ¶ 203 (Comp. Gen. July 8, 2016).
22. Paradyme Mgmt., Inc. v. United States, 167 Fed. Cl. 180 (2023).
23. E.g., TriCenturion, Inc., B-406032 et al., 2012 CPD ¶ 52 (Comp. Gen. Jan. 25, 2012).
24. E.g., Nortel Gov't Sols., Inc., B-299522.5, B-299522.6, 2009 CPD ¶ 10 (Comp. Gen. Dec. 30, 2008). In fact, in 2013, SAIC and Leidos formally separated in order to address OCI concerns raised by their government customers, allowing Leidos to continue performing national security work, while SAIC focused on helping government customers manage IT systems and providing technical services. See Amrita Jayakumar, One Year Later: The Tale of SAIC and Leidos, Wash. Post (Sept. 28, 2014), https://www.washingtonpost.com/business/capitalbusiness/one-year-later-saicand-leidos/2014/09/26/d1fefd68-4273-11e4-b437-1a7368204804_ story.html.
Originally Published by The Procurement Lawyer
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