Conflict-of-Interest Plight Can Be Avoided
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By Joe Reeder and Sean Connolly
Recently, one of the nation’s largest government contractors faced a federal jury verdict that it violated the False Claims Act and breached two contracts with an independent federal agency based on failure to disclose conflicts of interest.
While some actual or potential organizational conflicts of interest are unavoidable, this contractor could have taken steps to neutralize or mitigate the conflicts and “perceived” conflicts by disclosing a plan to the concerned federal agencies. Alternatively, the contractor could have identified and avoided the conflicts altogether along with the allegations and embarrassing publicity.
The contract required technical assistance to the agency on rulemaking options for radioactive material under two prime contracts. Each contract highlighted the importance of the contractor’s neutrality and the agency’s concern that any conflict of interest with even an appearance of bias would taint the contractor’s advice. The contractor assured the agency that it had no conflicts of interest and promised to disclose any if they were discovered throughout the contracts’ terms. The agency learned that the contractor had actually engaged in conduct that potentially biased its advisory role in the agency’s rulemaking process, and the jury agreed.
First, the contractor teamed with another company to win a contract with a second federal agency for handling radioactive material. The government argued that the success of this contract with the second agency was dependent upon standards to be adopted by the first agency, for which the contractor was already providing advice. The contractor also won a subcontract for research and review work related to radioactive metals for the same second agency — work that was very similar to the work it was providing the first agency.
Finally, the agency argued that the contractor violated its agreement in connection with an industry trade association that advocated for the reuse of radioactive and contaminated materials.
While the contractor was responsible for assisting the agency with setting standards to recycle and reuse radioactive materials, it collaborated with an association formed to advocate in favor of recycling and reusing radioactive materials. A contractor vice president, who also apparently played a role in the contractor’s work with the agency, served on the trade association board and reportedly drafted papers designed to persuade government officials to support recycling of radioactive materials.
This case underscores how important it is that contractors not only identify, but also neutralize and mitigate even potential conflicts of interest that could be perceived to bias their work on any given contract. In addition to heavy fines and penalties resulting from false claims, contractors also may be subject to suspension or debarment proceedings.
Some conflicts of interest are simply unavoidable and cannot be mitigated. One example is a contract to prepare a scientific and technical training plan for agency personnel and the agency endorses the company’s suggested curriculum. The same company may not be awarded the contract to conduct the training. However, there are also conflicts of interest that may be adequately neutralized. There are also situations that may be susceptible to a waiver of the conflict-of-interest regulations.
Here, the contractor might well have avoided litigation by following some basic steps. First, contractors must have in place a due diligence check for each new potential contract, including subcontracts. Before responding to a solicitation, contractors should check existing contracts and ask simple questions such as, “Do we have unequal access to information that would give us an unfair advantage in responding to the solicitation?” Or, “Would taking on this work bar us from related future work?”
Identifying organizational conflicts of interest may involve complex facts, but the ultimate decision lies with the informed judgment of the procuring agency. But an identification process will not only keep contractors out of legal trouble; it may also help contractors make better business decisions. For instance, companies must realize that certain contracts may disqualify them from more profitable work in the future. Here, the contractor may have forgone the opportunity to advise the first agency on rulemaking in order to pursue future opportunities handling radioactive materials without constraint of an actual or potential conflict of interest.
Once conflicts are identified, contractors may develop mitigation plans. For example, the contractor noted above could have considered establishing a company firewall between personnel advising on the first agency’s rulemaking process and personnel working the radioactive material for the second agency. Similarly, either firewalling the company vice president working with the trade association, or having the executive recuse from those trade association activities altogether would have made good sense. Certainly, such efforts disclosed to the agency could well have resulted in a win-win waiver.
Bottom line: Some of the best-known companies in any particular field offer unique skills that are highly sought by relevant agencies. For these companies, to avoid losing work and even criminal exposure and corporate embarrassment, it is imperative that corporate business plans mandate meaningful conflicts-of-interest analysis.
Joe R. Reeder (reederj@gtlaw.com), a shareholder and Sean M. Connolly (connollys@gtlaw.com), a senior associate, are with the international law firm of Greenberg Traurig LLP. Reeder, a former undersecretary of the Army, currently chairs NDIA’s Ethics Committee. The views expressed are solely those of the authors.