Ethics Corner

November 2006

Blended Workforce Poses Conflict of Interest Risks

By James A. (Ty) Hughes

Federal agency spending on contractor-provided services has grown dramatically. Services account for more than 60 percent of the dollars obligated through inter-agency contracts such as the General Services Administration schedules.

In 2005, the Defense Department spent 33 percent of its procurement dollars on services, excluding research and development, and construction services. These services ranged from grass cutting and food preparation, to maintaining major defense systems. Service contractors provide core logistics support for operations in Iraq and Afghanistan.

Federal agencies rely on service contractors for many reasons, including ceilings on the number of federal employees, lack of capabilities and expertise within the federal workforce, the desire to retain operational flexibility, the need for surge capacity, and unstable funding resulting from the annual appropriations process.

The Acquisition Advisory Panel noted the emergence of a “blended” workforce, where contractors work side-by-side with federal officials. The panel made several key findings about this blended workforce, observing that the lines between governmental and commercial functions have blurred.

Agencies are inconsistent in defining inherently governmental activities. An inherently governmental activity is one that is so intimately related to the public interest as to mandate performance by federal employees.

Agencies increasingly rely on contractors for functions previously performed by civil servants. The extent to which agencies rely on contractors to perform core missions varies widely both within and among agencies. Most importantly, the panel cautioned that agencies must maintain the integrity of the government’s decision-making processes.

In this blended workforce, contractors shape and influence many decisions made by the federal government. In some cases, contractors make decisions once characterized as inherently governmental. While there is nothing inherently wrong with a blended workforce — except arguably higher costs and loss of core expertise within the federal workforce — a blended workforce must be vigilant about potential conflicts of interest.

Industry consolidation and soaring levels of contractor participation in the blended workforce have increased the occurrence of organizational conflicts of interest. These conflicts arise in many contexts: corporate financial interests, teaming arrangements, legitimate access to non-public information while working on other government contracts, participation in developing contract requirements and biases that impair objectivity.

Generally, avoiding such conflicts altogether is preferred, but some of them can be mitigated effectively. The Federal Acquisition Regulation requires contracting officers “to avoid, neutralize, or mitigate significant conflicts before contract award.” Ignoring organizational conflicts of interest can result in disqualification from future work.

The Government Accountability Office recently sustained two protests based upon “impaired objectivity.” In both cases, the GAO concluded that an organizational conflict of interest existed when contract performance could have a direct economic effect on the contractor.

GAO held that the agencies had failed to reasonably identify and evaluate potential conflicts associated with contract performance. These cases suggest that contracting officers and contractors must demonstrate awareness of conflicts and seek specifically to remedy “impaired objectivity.”

The panel recommended standard organizational conflict of interest clauses for use in solicitations and contracts that would delineate the contractor’s responsibilities in addressing conflicts, and was particularly concerned about those arising in the context of the acquisition process, such as developing contract requirements, preparing statements of work, supporting the source selection processes, and administering contracts.

How should contractors avoid such conflicts? First, they should carefully identify potential problems before responding to a solicitation or accepting a work order. This analysis must extend to subcontractors. Buying activities often post information on their Web sites to help contractors identify potential conflicts of interest. Second, if a potential conflict exists, a contractor should disclose it to the government and negotiate a mitigation plan. Most government buying activities have established processes to address organizational conflicts of interest. Finally, after award of a contract or work order, a contractor periodically should assess potential conflicts and monitor compliance with any agreed mitigation plans.

Statutes and regulations bar federal employees from taking official action whenever they or members of their immediate families have financial interests at stake. Senior agency officials and acquisition workforce personnel file annual financial disclosures. Disclosure and, when necessary, recusal have proven to be the best methods to address personal conflicts of interest. The rules are relatively easy to understand and apply. When a complex issue arises, agency ethics officials stand ready to provide guidance.

No corresponding personal conflict of interest rules exist for contractor employees, even employees providing direct support to government decision-makers in the context of the blended workforce. Since services provided by contractors account for only a small amount of the overall services provided to the federal government, arguably personal conflicts of interest are better addressed on a contract-by-contract basis. The panel noted this in its findings and recommended consideration of a standard contract clause defining the contractor’s role in identify and resolving conflicts of interest.

Even if not legally required, contractors should monitor closely those services their employees perform for the government. When such service might create a personal conflict of interest, the contractor, at a minimum, should disclose the conflict to the government.

Similarly, when the government requires contractor support for decision-making or to discharge an inherently governmental function, it can impose reasonable contractual requirements to address potential personal conflicts of interest.

The blended workforce is here to stay. Government officials and contractors must continue to work cohesively to identify and resolve conflicts of interest. The common goal must be maintaining the integrity of the government’s decision-making processes and preserving public trust and confidence.

James A. Hughes is deputy general counsel for acquisition for the Department of the Air Force. David Hickey, of Greenberg Traurig LLP, contributed to this article.

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