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Ethics Corner 

New Personal Conflicts of Interest Rules 

2,010 

By Sean M. Connolly 

Proposed Federal Acquisition Regulations call for contractors to police their employees’ personal conflicts of interest or face serious disciplinary action.

The proposed rule was issued on Nov. 13 by the office of federal procurement policy, along with the civilian agency acquisition council and the defense acquisition regulations council.

It responds to Congress’ fiscal year 2009 mandate to address contractor employee personal conflicts of interest. It can be found under FAR Case 2008-025, Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions, at 74 Fed. Reg. 58584.

Comments on the proposed rule were due by Jan. 12.

This directive followed a March 2008 Government Accountability Office report on the same subject that recommended new personal conflicts of interest safeguards. Specifically, Congress required the office of federal procurement policy administrator to develop a standard policy to prevent such conflicts.

The proposed rule would require a new standard contract clause, “Preventing Personal Conflicts of Interest,” for any contract post-dating the final rule’s effective date, and apply to procurements that exceed the simplified acquisition threshold, and require services for “acquisition functions closely associated with inherently governmental functions for or on behalf of a federal agency or department.”

After the effective date, the final rule’s application would extend to all task and delivery orders even if the underlying contract does not contain the new contract clause.

The new clause also applies to subcontractors. By its own terms, the clause will flow down to those subcontracts above $100,000 where subcontractor employees perform acquisition functions associated with inherently governmental functions.

As Congress required in the 2009 National Defense Authorization Act, the proposed rule and contract clause define “personal conflict of interest,” which includes situations where “covered employees” have a competing “financial interest, personal activity, or relationship” that affects their ability to act impartially and in the government’s best interest.

The rule defines “covered employees” as employees of contractor or subcontractor employees, as well as consultants, partners, or sole proprietors who perform an “acquisition function closely associated with inherently government functions.”

Finally, while the office of management and budget is now reviewing the definition of “inherently governmental functions,” the proposed rule defines “acquisition function closely associated with inherently governmental functions” as those “supporting or providing advice or recommendations” as to federal procurement activities, including planning acquisitions, awarding and administering contracts, and terminating contracts.

Examples of conflicts of interest that could impair an employee’s objectivity 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.

The bar only applies in the context of performing acquisition functions closely associated with inherently governmental functions, with companies bearing responsibility for screening all such conflicts, and implementing safeguards, and disciplining infractions.  

Required procedures include: Obtaining employee financial disclosure statements before assignments to covered procurements; annually updating of financial disclosure statements; and timely financial disclosure statement updates by covered employees when financial circumstances so dictate.

The proposed rule also bars contractors from assigning covered employees to perform inappropriate tasks if a conflict of interest has been identified, and prohibits misuse of non-public government information for personal gain.

It also requires employee non-disclosure agreements for non-public government information. Companies under the rule must also explain to employees what the possible conflicts are and give them a mandate to disclose infractions, guard non-public government information, and avoid “even the appearance of personal conflicts of interest.”  

Finally, contractors will implement an effective compliance program, appropriately disciplining covered employees and reporting to a contracting officer when necessary.

Contracting officers will review the contractor’s actions and take action if a conflict is discovered, with severe consequences for noncompliance, including: suspension of contract payments; loss of award fee; termination for default; disqualification from later related contractual efforts and suspension or debarment.

The personal conflicts of interest rule should be finalized in 2010.

As comments on the proposed rule are accepted and considered by the councils, contractors would do well in updating their ethics programs and codes of business ethics and conduct to cover personal conflicts of interest policies and procedures as well, and monitor the now overdue office of management and budget clarification of functions that fall within the definition of “inherently governmental.”   

Sean M. Connolly (connollys@gtlaw.com) specializes in the government contracts and homeland security practice groups in the international law firm of Greenberg Traurig, LLP.  The views expressed are solely those of the author.
Reader Comments

Re: New Personal Conflicts of Interest Rules

Mr Connelly,

I just read your article about The Personal Conflict of Interest Rules. I was interested on how this also applies to government employees who may assume more than one set of duties or responsibilities between government agencies. Please bear with me as I set the scenario.

DoD provides funds for Operations and Maintenance of facilities. Within DoD are several branches of service and within one of those branches of service is an end government agency utilizing these funds we’ll call Customer A. The Customer A takes these funds and through a contracting agency in another separate branch of service we’ll call B, contracts out the O&M services for his, Customer A’s, facilities.

The Contracting Agency from B, even though another government agency itself, as part of its services, charges the government Customer A, a percentage of the total contract. The contracting agency from B then solicits and awards an O&M contract and a Contracting Officer is assigned. Since Customer A is paying the contracting agency from B for contracting services, Customer A requests through the CO that one(or more) of the Customer A’s employees is made the on-site Contracting Officer Representative(COR). The reason for a COR is that the CO will not be on site nor close enough to visit on a regular basis. The COR, who is still an employee of the Customer A, reports to and receives his paycheck, bonuses and awards through the Customer A Chain of Command, not from branch of service B or the contracting agency within B.

If the COR is duty bound to his Customer A Chain of Command and their interests through his appraisals, his paycheck and possible bonuses, can the same person(s) be duty bound and responsible to provide unbiased performance and objectivity in the best interests of the government, the contract and the CO for the O&M contract for services? This seems a conflict of interest per any one of the following definitions or perhaps another you may think more appropriate:

- a situation in which a public official's decisions are influenced by the official's personal interests
wordnetweb.princeton.edu/perl/webwn

- A conflict of interest (COI) occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other.
en.wikipedia.org/wiki/Conflict_of_interest

- Any relationship that is, or appears to be, not in the best interest of the organization. A conflict of interest would prejudice an individual's ability to perform his or her duties and responsibilities objectively. www.theiia.org/guidance/standards-and-guidance/ippf/standards/full-standards/

I tried to presnt this as objectively as possible so as not to bias your or anyone elses response.

Tony on 03/25/2010 at 16:18

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