Organizational Conflicts of Interest: Government* Perspective

1
Organizational Conflicts of
InterestGovernment Perspective

• Wayne DavisAir Force Electronic Systems Center
  Legal Office
• 781-377-4077wayne.davis_at_hanscom.af.milThe
  views expressed are the views of the presenter
  and not the official position of the Department
  of Defense

2
Definition of OCI

• FAR 2.101 OCI definition Because of other
  activities or relationships , a person is
  unable or potentially unable to render impartial
  assistance or advice to the Government, or the
  persons objectivity is or might be otherwise
  impaired, or a person has an unfair competitive
  advantage.

3
Types of OCI

• Unequal access to information Contractors
  access to nonpublic (i.e., source selection or
  proprietary) information in contract performance
  may give it an unfair advantage in future
  competitions
• Ktech Corp., B-285330, B-285330.2, 2002 CPD 77
• Biased ground rules Contractor involved in
  defining requirements, preparing work statements
  , developing business cases, etc. could skew a
  competition in its own favor and/or gain an
  unfair advantage in the competition for the
  underlying requirements
• Impaired Objectivity Contractors judgment/
  objectivity in performing under one contract may
  be impaired because its performance has the
  potential to affect other of its activities or
  interests

4
Governing FAR Provisions

• FAR Subpart 9.5, Organizational and Consultant
  Conflict of Interest
• Likely to occur in
• management support services
• engineering and technical direction work
• But not applicable to FFRDC work FAR
  35.017(a)(2)

5
Governing FAR Provisions

• FAR 9.504(a)(1)
• Contracting officers should identify and evaluate
  potential OCIs as early as possible
• FAR 9.504(a)(2) Contracting officers need to
  avoid, neutralize, or mitigate significant
  conflicts of interest before contract award
• Overlook Systems Technologies, Inc.,
  B-298099.4, B-298099.5, November 28, 2006

6
Governing FAR Provisions

• FAR 9.504(b)
• Contracting officers should obtain the advice of
  legal counsel and technical experts in evaluating
  potential OCIs, as well as drafting necessary
  solicitation provisions and contract clauses

7
Governing FAR Provisions

• FAR 9.504(d)
• Contracting officers should identify and
  mitigate significant potential OCIs without
  creating unnecessary delays, burdensome
  information requirements, or excessive
  documentation

8
Governing FAR Provisions

• FAR 9.505 Contracting officers shall examine
  each potential OCI individually on the basis of
  its particular facts and the nature of the
  proposed contract Will there be impaired
  objectivity?Access to non-public
  information?Biased ground rules?

9
Governing FAR Provisions

• FAR 9.505 Contracting officers are to exercise
  common sense, good judgment, and sound
  discretionJE Associates, Inc., B-278771, 98-1
  CPD 77

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Governing FAR Provisions

• FAR 9.505 This section lists four situations
  that should always be closely examined for an OCI
• Systems engineering and technical direction
• Preparing specifications or work statements
• Providing evaluation services
• Obtaining access to proprietary information

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Current GAO View

• Caution Dont delay OCI resolution
  post-discussions because it may affect proposal
  evaluation and rating (e.g., change sub)
• First Coast Service Options, Inc., B-401429,
  July 31, 2009 (released on 28 January 2010)
• Proposal rejected protest denied

12
Current GAO View

• The Analysis Group, LLC, B-401726, B-401726.2,
  2009 CPD 237
• GAO held that the agency failed to adequately
  consider the possibility of an impaired
  objectivity OCI, or whether it could be avoided,
  neutralized or mitigated
• Contract awarded protest sustained

13
Current GAO View

• L-3 Services, Inc., B-400134.11, B-400134.12,
  2009 CPD 171
• If a firm is in a position to affect the
  competition, intentionally or not, in favor of
  itself, look for a biased ground rules OCI.
• There is a presumption of prejudice to competing
  offerors where an OCI, if not de minimis, is
  unresolved.
• - Contract awarded protest sustained

14
Current GAO View

• Raydar Associates, Inc., B-401447, 2009 CPD 180
• Waiting to see if a competitor that you know has
  an OCI wins the competition before deciding to
  protest may be a recipe for disaster
• - Contract awarded protest denied

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Current GAO View

• Honeywell Technology Solutions, Inc., B-400771,
  B-400771.2, 2009 CPD 49
• Waiting to see if a competitor that you know has
  an OCI wins the competition before deciding to
  protest may be a recipe for disaster
• - Contract awarded protest denied

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Current GAO View

• Nortel Government Solutions, Inc., B-299522.5,
  B-299522.6, 2009 CPD 10
• However, while a firewall arrangement may
  resolve an unfair access to information OCI, it
  is virtually irrelevant to an OCI involving
  potentially impaired objectivity.
• - Contract awarded protest sustained

17
Current GAO View

• Detica, B-400523, B-400523.2, 2008 CPD 217
• If you allege an OCI in a GAO protest, you must
  be prepared to prove it
• - Contract awarded protest denied

18
Current GAO View

• C2C Solutions, Inc., B-401106.5, January 25, 2010
• Cahaba Safeguard Administrators, LLC, B-401842.2,
  January 25, 2010
• An OCI Mitigation Plan must be sufficiently
  detailed to enable the Contracting Officer to
  reasonably assess the viability of the mitigation
  approach
• - Contract awarded protest sustained

19
Earlier GAO Precedent

• Nelson Erection Company, Inc., B-217556, April
  29, 1985
• A contracting agency may impose a variety of
  restrictions, whether or not explicitly addressed
  in applicable procurement regulations, where the
  needs of the agency or the nature of the
  procurement dictates such restrictions.

20
ESC Process

• ESC/CC Policy Memos 04-005, 19 Mar 04 and
  08-005, 16 Jun 08
• The policy memos establish and refine the ESC OCI
  Review Panel process to ensure ESC OCI policy is
  consistently applied throughout the Center
• Chaired by senior representative from ESC/PK,
  with membership of ESC/JA, ESC/AQ, and if AAS
  support is involved, ESC/PKE

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ESC Process

• JA briefs OCI at Industry Days
• OCI is a mandatory topic at ASP
• HERBB serves as resource for Industry
• ESC OCI Review Panel focus on consistency and
  compliance with FAR
• ESC OCI Review Panel will consist of senior
  representatives

22
ESC Process

• Industry submits OCI Mitigation Plan to
  Contracting Officer (PCO)
• PCO makes determination whether OCI exists, and
  if so, is mitigation adequate
• Program attorney performs legal review of plan
  and PCO determination

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ESC Process

• If the mitigation plan is not adequate, PCO
  requests plan revisions and we repeat prior steps
  until it is adequate, or PCO decides the OCI
  cannot be mitigated
• If all OCIs are adequately mitigated, PCO
  requests ESC/AQ convene the ESC OCI Review Panel

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ESC Process

• Copies of proposed mitigation plan, PCO review
  and legal review provided to all members of the
  Panel as read aheads
• ESC OCI Review Panel meets at least once, and may
  meet multiple times
• Program team participates (PCO, PM, Atty)
• May ask Industry member (Offeror) to participate
  to explain mitigation approach

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ESC Process

• The Panel makes recommendation for approval of
  the plan, or suggests changes
• The PCO considers any recommendations from the
  Panel
• The PCO ultimately determines whether the
  mitigation plan is acceptable Panel only
  advises

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ESC Process

• The PCO may request additional legal review
  before deciding acceptability of mitigation plan
• If mitigation plan is unacceptable, may request
  further revisions from Offeror
• If mitigation plan is acceptable, PCO will
  approve the plan and finalize the process

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Final Government Thoughts

• Companies may have existing, binding contractual
  commitments to provide AAS support which cannot
  be abandoned to pursue new conflicting work
• An agency should review all prime contractor OCI
  mitigation plans to determine if a workable
  mitigation structure can be accepted
• Agency is not the integrator of a primes OCI
  plans
• Communication on any proposed OCI mitigation plan
  should be expected
• Remember FAR Part 9.5 is the only part of the
  FAR where the phrases common sense and good
  judgment are used!

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OCI Industry Perspective

• Dick BeanAssociate General CounselGeneral
  Dynamics C4 Systemsrichard.bean_at_gdc4s.com
  781-455-3051
• Views expressed are those of the
  presenter and not those of General Dynamics

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Preliminary Considerations

• New business analysis must include examination of
  potential effect of OCIs
• May preclude more lucrative future work
• Lack of an OCI provision in a solicitation is
  not dispositive. Lucent Technology World
  Services, B-295462, March 2, 2005
• Requires multi-disciplinary analysis

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Preliminary Considerations

• Every OCI can be mitigated (except my
  competitors). False! Aetna Government
  Health Plans, Inc., B-254397.19, July 27, 1995
• Agencies can impose a wide variety of OCI
  restrictions. Nelson Erection Company, B-217556,
  April 29, 1985

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Important GAO Decisions

• Incumbency is not an OCI! Agency is not required
  to neutralize competitive advantage. DRS C3
  Systems, B-310825, February 26, 2008
• Exclusion of proposal without evaluation of OCI
  mitigation plan or opportunity to respond was
  improper. ATT Government Solutions, B-400216,
  August 28, 2008

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Important GAO Decisions

• Resolution of OCI issue can take place during
  agency corrective action. It is analogous to a
  responsibility determination according to the
  GAO. Overlook Systems Technologies, Inc.,
  B-298099.5, November 28, 2006 Cahaba Safeguard
  Administrators, B-401842.2, January 25, 2010 (but
  different result if it had altered proposal?)

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Case-by-Case Analysis

• Consistency in the process is the goal, using
  standard mitigation tools where possible
• Requires considerable contract administration
  resources, both pre- and post-award
• Assures objectivity and informed decision making
  

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Firewalls

• Consists of a combination of procedures and
  physical security to establish organizational
  restrictions to avoid potential, real, or
  perceived OCIs from impacting the business
  activities of either party.
• Should be at a level low enough in the
  contractors organization so as not to deprive
  the Government of necessary products and services
  
• The lower the level, the easier to facilitate
  adequate administration of the mitigation plan.
• Not a panacea, however! GAO decisions indicate
  impaired objectivity may not be adequately
  addressed

35
No Sharing of Resources

• By eliminating communication between personnel
  from the conflicted entity and the organization,
  the potential for bias is effectively eliminated
  
• Separate IT networks/storage of data
• Separate badging and access restrictions for
  different business units
• Separate personnel hiring systems
• Any indicia of separate business entities will
  be helpful

36
Accountability - Separation

• Organizational accountability for OCI mitigation
  should be at a high level for consistent assured
  enforcement authority.
• Organizational separation should be at a low
  level.
• Reduces administrative burden (affect only the
  employees working the specific program)
• Allows business to use all its other expertise to
  support many programs a win-win!

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Common Issue

• The Government often asks for organizational
  separation of the entire organization
• May result in staffing difficulties
• Best employees may not want to participate due to
  potential future career limitations
• May limit employee professional development
• May make the employee less competitive for
  promotion opportunities

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Potential Solution

• Matrix structure for employees
• For payroll and other administrative purposes
  Employee would remain an employee of Division A
• But for work assignment purposes she would report
  to Division B Program Manager
• He/she would remain subject to NDAs and other
  terms of the Plan.
• Management would include him/her in its OCI Plan
  compliance efforts.
• Does not disrupt employees career path.

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How Low Can You Go?

• If all of these criteria have been met
• nondisclosure agreements
• Information protection/segregation,
• No financial incentives to encourage Plan
  violation,
• Management accountability
• Then the level of the firewall should have no
  significant impact on accomplishing the goals of
  the OCI Mitigation Plan.
• Placing the firewall at a lower level would allow
  the many benefits highlighted earlier.

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Method of Last Resort?

• Divestiture - creation of a new company with a
  completely separate board of directors to perform
  the conflicted work is an effective strategy, but
  it is a complex and time-consuming process
• Cahaba decision discussed earlier
• May also require novation of existing contracts

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Upcoming Changes!

• Weapon Systems Acquisition Reform Act Section 207
  on OCI
• FAR Case 2007-018 (prior to WSARA)
• May 2008 Defense Science Board Task Force Report
  on Developmental Test and Evaluation

42
Potential Regulatory Changes

• FAR Case 2007-018
• Greater emphasis on contractor disclosure
• Broad definition of contractor
• OCI rules application to task/delivery orders
• Contracts include process for resolving OCIs
  during performance
• Greater emphasis on avoidance and limitations on
  future contracting rather than mitigation/firewall
  s

43
Potential Regulatory Changes

• DFARS revisions upcoming on MDAP programs?
• Business units performing systems engineering and
  technical assistance (SETA) functions,
  professional services, or management support
  services may be prohibited from competing as a
  prime or supplier of a major subsystem or program
  component
• May preclude prime from awarding major subsystem
  to a business unit or other affiliate of the same
  company

44
Potential Regulatory Changes

• Contractors other business units/affiliates may
  be prohibited from any involvement with MDAP
  programs technical evaluation
• FFRDCs and other independent sources may be
  called upon to provide more advice on systems
  architecture and systems engineering on MDAP
  programs

45
Potential Regulatory Changes

• Dec. 8, 2009 hearing on Section 207 regulatory
  implementation
• Awaiting Federal Register notice of proposed
  rulemaking
• More OCI restrictions likely! Stand by for more
  updates

46
DSB Task Force Report

• DoD supplier base has consolidated over the past
  decade
• Industry needs to focus on competition at all
  levels of the product lifecycle to enhance
  innovation and cost savings
• Control anti-competitive behavior (out-sourcing
  versus in-sourcing)

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DSB Task Force Report

• Utilize disruptive innovation by engaging
  small-to-medium firms and universities
• Does not invalidate the competition requirements
  of CICA or best value evaluation principles

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OCI Issues for Debate

• What about OCI waivers under FAR 9.503?
• Why do you not see them mentioned or used?
• Has FAR 9.5 outlived its usefulness?
• Is the OCI problem too pervasive to fix?
• Vertical integration so great that neutralization
  at one level inadvertently overlooks it at
  another? (e.g., fixed at Service level, but not
  OSD many support contractors everywhere)

49
OCI Issues for Debate

• FAR 9.5 sets forth some bright lines but still
  has the qualifying language about use of good
  judgment and common sense
• Where does that leave us no black letter
  rules?
• Will WSARA Section 207 implementation or FAR Case
  2007-018 impose a better bright line?

50
OCI Issues for Debate

• Contractor-developed specifications How much is
  too much to raise OCI exclusion? (Lucent
  decision)
• FAR 9.505-2(b)91)(iii) sets forth OCI exclusion
  if more than one contractor has been involved in
  preparing work statement
• Is this still viable guidance?

51
OCI Issues for Debate

• The Aetna Health GAO decision How far is the
  reach of FAR 9.5 does it restrict only other
  business units in the same profit center or other
  business units of subcontractors or joint venture
  partners as well (term affiliates is used in
  the decision, but not in FAR 9.5)?

52
OCI Issues for Debate

• ATT Government Solutions GAO decision
  Exclusion w/o OCI analysis and exchange improper
  
• What if the proposal is otherwise materially
  defective?
• What if the contracting officer wants to make a
  competitive range determination before opening
  discussions?

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OCI Issues for Debate

• FAR 9.505-3 Contracts for the evaluation of
  offers for products or services shall not be
  awarded to a contractor that will evaluate its
  own offers for products or services, or those of
  a competitor, without proper safeguards to ensure
  objectivity to protect the Governments
  interests.
• How can this be addressed?

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OCI Issues for Debate

• Can impaired objectivity ever be mitigated?

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OCI Issues for Debate

• U.S. v. SAIC, 653 F.Supp.2d 87 (D.D.C. 2009) At
  what point is failure to disclose a potential OCI
  a crime? If a contract is awarded to an Offeror
  that falsely certified that it had no potential
  OCIs, and the Government testifies that it would
  not have awarded the contract but for the false
  certification, how much could the damages be?

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Any questions?

• Thank you for participating in our
• OCI discussion today!