Government Contracts MonitorThe Department of Defense (DoD) is proposing to amend its procurement regulations to “provide uniform guidance” and to “tighten existing requirements” for organizational conflicts of interest (OCI) in DOD contracts. Although the new rule implements § 207 of the Weapons Systems Acquisition Reform Act of 2009 (WSARA) (see our June 2009 post), it would apply to all non-COTS DOD contracts.
The new rule is an overhaul of the current OCI policy found in FAR 9.5. The existing rules have been criticized as unorganized, dated, and inconsistent with recent precedent. (An excellent article by OFPP Administrator Dan Gordon published in 2008 highlights some of the existing OCI regulations’ failures to address modern contracting). The proposed rule would create a new Defense Federal Acquisition Regulation Supplement (DFARS) subpart 203.12, which will also include new clauses concerning improper business practices and personal conflicts of interest.
The proposed DFARS rule may only be a temporary fix until a new FAR clause is drafted. Regardless, the proposed rule’s clarified OCI guidance shows that DoD is increasingly moving towards a more formalized OCI regime. As a result, contractors must be ever more vigilant in identifying OCIs during both business intake and contract performance. Additionally, OCI identification and mitigation strategies should be a part of contractors’ compliance systems and they are an increasingly important component of any long-term business development model.
Important provisions of the proposed rule are summarized below:
Categorization: For the first time, the proposed OCI rule distinguishes the three types of OCI first outlined in GAO’s Aetna Government Health Plans decision: (1) impaired objectivity; (2) unfair access to non-public information; and (3) biased ground rules. The proposed rule provides several examples of each type of OCI.
Identification: Importantly, the new rule would require the contracting officer (CO) to examine the nature of a solicitation to determine whether it could create an OCI and to place a statement in the procurement file documenting a finding of no conflicts. During the evaluation phase, COs would be required to “examine the financial interests of the offerors,” including third party information, to determine if award of the contract could create an OCI.
Resolution: In some contexts, the new rule also allows OCIs to be “cured” through the use of resolution methods, including (1) preventing contractors from receiving access to certain procurement information; (2) limiting contractors’ future contracting opportunities; and (3) mitigating conflicts through the use of “firewalls” and other techniques. The rule provides examples from case law for the mitigation of each type of OCI.
Waiver: The proposed rule – like FAR 9.5 – allows agency heads to waive OCIs if resolution is “either not feasible or is not in the best interest of the government.” However, the new rule advises COs not to use waivers in competitive acquisitions unless the solicitation “specifically informs offerors that the Government reserves the right to waive the requirement to resolve” OCIs.
Award: Under the rule, COs may only award a contract to the successful offeror if all OCIs are resolved. Before withholding award the CO must notify the contractor of the potential OCI and allow the contractor a reasonable opportunity to respond. The rule recognizes that it may be difficult to identify all OCI issues in the award of a task or delivery order contract. To the extent an OCI can be identified at the time a task or delivery order contract is awarded, a resolution plan must be included in the basic contract. However, COs must also consider OCI issues before issuing each order. If an OCI arises at that time, the CO must include a resolution plan in the basic contract or tailor the resolution when issuing the order.
Disclosure after Award: When the award of a contract raises potential OCI issues, the new rule advises COs to include a solicitation and contract provision that identifies the actions taken by the government to address or resolve OCI issue or the type of resolution that may be necessary to resolve the conflict. The contract may also include a clause limiting future contracting when the resolution of the OCI requires the contractor to withdraw from certain contracting activities for a period of time.
Major Weapons Systems Contracts: The proposed rule also contains special provisions implementing WSARA’s prohibition on “systems engineering” and “technical assistance” contractors from acting as a contractor or “major subcontractor” on a major weapon systems lead contract.
If approved, the new DRARS 203.12 will be used in place of FAR 9.5 until the FAR is revised to incorporate broader OCI rules. DoD is accepting comments until June 21, 2010.
Written by: Sam Jack
