DEFENSE DEPARTMENT

New Rule Proposed For Organizational Conflicts of Interest

8/1/2011
By James D'agostino and William M. Jack
On April 26, the government proposed major changes to rules concerning organizational conflicts of interest under the Federal Acquisition Regulation. Key among those changes is that the contractor access to nonpublic information would be covered under a separate FAR section.

The proposed rule has few, if any, exceptions to applicability. It will apply to both for-profit and non-profit organizations, to task and delivery orders and contracts for commercial items. The rule does note that it rarely will apply to commercial items, especially commercial-off-the-shelf procurements. Conflicts relating to major defense acquisition programs are covered under separate rules in the Defense Federal Acquisition Regulation Supplement (DFARS).

The proposed FAR rule defines conflicts as situations where contractors with financial or other vested interests exercise judgment in assisting the government, or have an unfair competitive advantage stemming from previous work that allows the contractor to influence the acquisition. This new definition thus focuses on the so-called “impaired objectivity” and “biased ground rules” type conflicts.

“Unequal access to information” situations, previously deemed a conflict, will now be treated under a separate FAR section.

If the contracting officer determines that a contractor’s performance may give rise to a conflict, the proposed rule requires a solicitation clause giving notice of the potential conflict, and the agency must identify those contractors who helped prepare the statement of work or other requirements documents. Those making offers responding to such a solicitation must identify and disclose all information relevant to any potential conflict, and submitting an offer constitutes that contractor’s representation of compliance.

The proposed rule recognizes that later enforceable contractor-submitted mitigation plans may effectively address conflicts. Conflicts to be addressed with restrictions on future contracting require the officer to insert a clause specifically describing the restriction. Conflicts that first surface post-award will require a prompt and full written disclosure to the contracting officer. The contracting officer is empowered to terminate the contract if any post-award conflict cannot be adequately remedied.

The proposed rule separately covers unfair competitive advantage based on unequal access to nonpublic information. Such information includes information belonging either to the government or a third party that is not  generally made publicly available, such as information withheld under the Freedom of Information Act.

Contracting officers made aware of unequal access may be able to resolve the conflict by information sharing, use of a firewall or disqualification. Under the new framework, a contractor receiving access to nonpublic information must limit its use to the contract at hand, and implement safeguards such as employee requirements to protect the same.

As with any new framework, contractors will face new compliance issues and challenges with this rule. First, unequal access to information will no longer be cast as a conflict, and will trigger different requirements and mitigation measures. Contractor policies and procedures on organizational conflicts must now enhance focus on scenarios involving contractors exercising judgment in assisting the government with financial or other interests at stake (e.g., impaired objectivity conflicts) or contractor work that allows the contractor to influence an acquisition (e.g., biased ground rules conflicts).

Contractors must also now consider how to disclose and resolve conflicts where the contracting officer decides not to include a conflicts clause in a solicitation. And those making offers knowing of a competitor’s power to influence the acquisition must now consider whether to notify the contracting officer of this, file a pre-award protest challenging a “no application” decision, or do nothing.

Those making offers will also grapple with how much information to disclose when a conflict surfaces. The proposed rule requires contractors to disclose “all relevant information” as to any conflicts. Cautious contractors wishing to avoid incomplete disclosure may have to devote more attention and resources to this issue, as incomplete or inaccurate disclosures may be regarded as false statements or potential violations of the False Claims Act.

This rule is not yet final, and it will evolve as the government considers comments. Contractors would be wise, however, to fully understand now how their current policies do or do not comport with these proposed changes, because the likelihood is high that new terminology, procedures and responsibilities for identifying, disclosing and mitigating conflicts will soon be very different.

L. James D’Agostino (dagostinoj@gtlaw.com) is a shareholder and William M. Jack  (jackw@gtlaw.com) is a senior associate with Greenberg Traurig LLP’s government contracts practice group. Views expressed are solely those of the authors.

Topics: Defense Contracting, Defense Contracting

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