Breakout Session # 802 Diane K. Whitmoyer, CPCM Monday, April 23 1:40 pm – 2:40 pm

2. Managing Organizational Conflicts of Interest Breakout Session #802 Diane K. Whitmoyer, CPCM Monday, April 23 1:40 pm – 2:40 pm

3. Agenda • Industry Consolidation • What is an OCI? • Unfair Competitive Advantage • Lack of Impartiality • OCI General Rules • Mitigation Plan/Actions • Exemptions From OCI • Questions

4. Industry Consolidation

5. Industry Consolidation • Given the number of mergers, acquisitions and consolidations that have taken place in the defense industry in recent years, contractors face being told they are ineligible to compete (or vie for their recompete) for a contract because they—or their predecessors have an unfair competitive advantage over other firms. • Not only are there fewer contractors who produce a particular product or service, but the ones who are left are producing a wider range of goods and services than they did before.

6. Industry Consolidation • Not only is the government obtaining more and more services from contractors, those services are more likely to involve the exercise of judgment. • With fewer competitors, there will be more situations where OCI becomes an issue. There could well be competitions in which none of the offerors is without some kind of an OCI.

8. What Is an OrganizationalConflict of Interest?(OCI)

9. Elements of the Conflict • The conflicted party • An interest that the conflicted party has in the situation • The responsibility that the conflicted party has to a third party.

10. The Conflicted Party • In matters of OCI, we are discussing an organization, rather than a single person. • Assumption is that all people associated with the organization—whether agents, officers, employees, will treat the organization’s interests as their own and want to further them.

11. Conflicted party’s interest • Usually a financial interest. • The party has either money at stake or something else at stake that relates to money. • It is the conflicted party’s own interest, not someone else’s.

12. Third party responsibility • Competing interest in the conflict. • Sometimes not as readily identifiable. • Not always financial—obtaining unbiased information.

13. FAR Provisions • Principles result in three broad categories of OCI (FAR 9.505 lists four, but they overlap) • Evaluation of own work impairs objectivity (FAR 9.505.1 & .3) • Contractor sets “ground rules” of procurement (writing SOW or performing systems engineering and technical direction effort) skewing competition in its own favor (FAR 9.505.1 & .2)   • Access to nonpublic information in performance of Government contract (FAR 9.505-4)

14. FAR 9.505-1 -- Providing Systems Engineering and Technical Direction • Contractor provides systems engineering and technical direction for a system but does not have overall contractual responsibility for development and integration • Prohibits contractor from • Being awarded a contract to supply the system or any of its major components; or • Being a subcontractor or consultant to a supplier of the system or any of its major components.

15. FAR 9.505-2 -- Preparing Specifications or Work Statements • Where contractor provided specifications for non-developmental items – may not compete to supply item • But normal to select firms most advanced in field for developmental work • These firms can be expected to design and develop around their own prior knowledge • Creates unavoidable competitive advantage that is not considered unfair; hence no prohibition

16. FAR 9.505-3 -- Providing Evaluation Services • Prohibits a contractor from evaluating its own offers for products or services, or those of a competitor, without proper safeguards to ensure objectivity to protect the Government's interests

17. FAR 9.505-4 -- Obtaining Access to Proprietary Information • Contractors who obtain access to proprietary data must protect data from unauthorized use • Usually requires company-to-company agreements to protect and properly use such data

18. Unfair Competitive Advantage Relating To Source Selection Or Competitor Information Examples: • Access To Or Improper Use Of Competitor Technical Approach • Access To Or Improper Use Of Competitor Pricing Information • Developing Technical Requirements Which Favor Parent Company • Conducting Or Reviewing Technical Data And/or Test Results Of Parent Company

19. Lack of Impartiality Relating to Privileged Information I wonder if we can write the spec around our product Examples: • Consulting services • Writing Specs • Writing SOWs

20. Lack of Impartiality (Cont.) Example: • Contractor develops and delivers a product. • Contractor tasked to test product under separate contract. • Contractor may be incentivised to perform in a biased manner.

21. Lack of Impartiality (Cont.) Example: • Contractor parent company builds automobiles • Contractor tasked to test another auto company’s experimental product that could compete with parent company’s products

22. Exemptions From OCI • Contractor is Sole Source • Contractor also participated in design and development work • More than one Contractor prepared SOW • Agency head may waive any general rule or procedure if its application would not be in the Government’s interest.

23. Duty to Mitigate • FAR 9.504 states that the Contracting Officer shall analyze planned acquisitions in order to • identify and evaluate potential conflicts of interest as early in the acquisition process as possible; and • Avoid, neutralize, or mitigate significant potential conflicts of interest before contract award. • The Contracting Officer shall award the contract to the apparent successful offeror unless a conflict of interest is determined to exist that cannot be avoided or mitigated. • Courts decisions emphasize the agency’s inherent discretion in this area and accords considerable esteem to the Contracting Officer’s determination.

24. Solicitation Provisions and Contract Clause • Provision invites offerors’ attention to the subpart. • States the nature of the potential conflict as seen by the Contracting Officer. • States the nature of the proposed restraint upon future contractor activities. • Depending on the nature of the acquisition, states whether or not the terms of any proposed clause are subject to negotiation.

25. What kinds of situations can be mitigated? • As any good support contractor will tell you… • All conflicts of interest can be mitigated in one way or another. • Except those of my competitor!

26. Keep your options open. • Each area of possible conflict can have different mitigation techniques. • Most OCI mitigation plans tend to be made up of similar elements. The Contracting Officer should not rigidly adhere to any particular technique, but should maintain the flexibility to choose among and apply such techniques only to the extent required to mitigate a potential OCI.

27. Disclosure of Relevant Information • Several agencies are requiring offerors to disclose all information relevant to an OCI determination. • Although DOE has limited the period to 12 months, other agencies provide no such limitation on the “look back” period. • DOE also limits disclosure to the apparent successful offeror and does not require information from subcontractors, except under certain circumstances. • Companies not only need to have systems in place to be able to screen new work against contracts already in place containing OCI provisions, but also new solicitations with OCI provisions which might conflict with future plans of the business.

28. Firewalls • The written agreement between the conflicted entities usually relies on a combination of procedures and physical security to establish organizational “walls” to avoid potential, real, or perceived OCIs from impacting the business activities of either party. • Organizational separation in an OCI plan should be at a level low enough in the contractor’s organization so as not to deprive the Government of valuable products and services merely because of their inclusion in a business unit and to facilitate adequate administration of the mitigation plan.

29. Confidentiality Agreements • Employees are required to execute special confidentiality agreements with penalties for noncompliance, including disciplinary action up to and including termination. • Requires the employee to notify a high ranking corporate official should any person not working on the contract attempt to solicit information or influence the work being performed under the contract. • This requirement goes hand in hand with training for the affected employees regarding their responsibilities under the contract.

30. No Sharing of Personnel • Based on the assumption that by eliminating communication between personnel from the conflicted entity and the organization, the potential for bias is effectively eliminated. • One weakness to this strategy is that the potential for bias remains because the organizational relationship still exists. Separation of employees does not eliminate the organizational relationship between the related entities. • Plan can also require that the affected employees not receive any incentive compensation that would reward them for the performance of their affiliated business unit. • However, the employee stands to lose more than he might gain by disclosing protected data to a sister unit.

31. Divestiture of the Company • Creation of a new company with a completely separate board of directors to perform the conflicted work.

32. Removal of Conflicted Persons • Conflicted personnel usually have been providing Program support for many years under a variety of prime contractors. • Loss of the individuals could create dire consequences for the Program should their efforts be interrupted. • In these cases, the affected individual (s) can be hired by another non-conflicted entity to perform the same work. • Government needs to be careful to keep the employees “whole” from a salary and benefit perspective. • This can have a negative affect on the morale of the employees.

33. Removal of Conflicted Work • Offerors can be allowed to propose the exclusion of SOW task areas that create a conflict, if appropriate, or revise the statement of work so that the conflict is mitigated. • For example, if the purpose of the contract is to perform testing of products produced by a sister unit, then a possible mitigation would be to have the conflicted entity perform the actual tests and another contractor (or the Government itself) perform the analysis of the tests and make further recommendations as to the product’s acceptability.

34. Switching Work from the Prime to the Sub • Depending on who has the conflict, work can be switched from the Prime to the subcontractor, or vice versa. • In cases where the Prime is merely passing through work to a subcontractor, and is providing little or no value-added to the work to be performed, it is possible for the oversight of the subcontractor’s efforts to be performed by the government, rather than the prime contractor. • The Prime contractor’s role would be reduced to financial tracking of the subcontractor only for the particular task.

35. Developing Multiple Alternatives • The Agency can have several contractors develop alternatives to resolve technical and or policy issues so that the Agency ends up choosing the desired approach instead of the Contractor. • A shortcoming of this approach is that it is not as cost-effective to provide several options for every assignment. • Since the conflict would still remain, the contractor could still bias the selection of the options and/or the studies and data the contractor provides to support the options. • However, knowing that a bias may exist, the government can take such bias into consideration when making a selection.

36. Compliance Provisions • Companies do well on identifying a potential conflict and proposing mitigation. However, compliance with the approved plan can be hit or miss. • A neutral third party can tasked to review the conflicted company’s adherence to their OCI mitigation plan on a regular basis to ensure compliance. • Senior official within the company designated as the “watcher.” • Periodic self-auditing requirements.

37. Other Recommendations • Training, training, training • Checklists for Agency use • Agency and Contractor OCI Review Boards

38. In Summary • The FAR encourages mitigation of a conflict, if at all possible. • The Contracting Officer has great discretion as to the acceptability of the mitigation plan offered. • Court decisions generally support the Contracting Officer’s decision, provided they conducted a thorough analysis.

39. Questions?

40. Mitigation Plan Checklist • General Considerations • Does the Mitigation Plan (the Plan) clearly state a corporate commitment and sensitivity of OCI for this acquisition? • Does the Plan provide for annual corporate certification for Plan compliance? • Definitions • Does the Plan clearly define all terms and acronyms used? • Descriptions of the Requirement and the OCI Situation • Is the potential OCI situation(s) described? • Are the details of the situation(s) that place the contractor in an OCI situation explained? • Does the Plan include a copy of the Organization Chart? (Notional or example organization charts are unacceptable) • Does the Plan include a copy of the Parent Organization Chart? • Does the Plan include a copy of all Subcontractor Plans? • Does the Subcontractor Plan include Organization Charts? • Does the Subcontractor Plan include the Organization Chart for the Parent? • Is the Plan signed by a senior corporate official no lower than Vice President (applicable for Prime and Subcontractor Plans)?

41. Mitigation Plan Checklist • Management of the Mitigation Plan • Is a primary point of contact or responsible individual identified for oversight and administration of the Plan? • Is the primary point of contact or responsible individual identified to maintain all documentation related to the Mitigation Plan? • Is the documentation maintained in one location easily accessible by the Government PC0 and/or Auditor? • Are written corporate operating procedures in place for management of information and document control? • Are written corporate operating procedures in place for management of subcontractors and other vendors requiring access to OCI-related materials? • Are company processes in place to effectively execute the Plan? • Are the processes fully documented in the Plan? • Are copies of referenced corporate policies/plans attached? • Does the Plan describe how organizational separation will be used as an OCI mitigation tool? • Are separate Cost Accounting Standards disclosure statements in place? • Are separate cost estimating systems and cost collection systems in place? • Does each division have provisional billing rates and separate labor rate structures in place? • Does the Plan describe how physical performance separation and protection will be used as an OCI mitigation tool?

42. Mitigation Plan Checklist • Management of the Mitigation Plan • Is physical workspace separation with continually controlled access areas used in Yes addition to separation provided within the program areas where sensitive information is involved? • Are badge accesses controlled? • Are data separation and protection processes in place? • Does the contractor require all mitigation responsibilities? • Does the Plan require the NDA I signature process to be repeated with each I Plan update? • If any categories of personnel are not required to execute NDAs yet will support the contract, is their involvement adequately described to preclude even the appearance of an OCI? • Are separate computers and networks maintained with adequate firewalls to preclude data from being accessed outside program/project channels? • Is Government-approved electronic isolation (e.g., restricted file access on shared disk drive) used? • Is data sufficiently password protected among all personnel to preclude inadvertent release of sensitive OCI material? • Are access lists used to document those with restricted access to potential OCI material information? • Are release and approval procedures in place to preclude release of either hard or soft copy information (including emails) without prior approval of a designated individual (normally the Program Manager and Contracting Officer)? • Are document marking procedures established for control of program/project reports and products? • Are storage containers and procedures in place for safeguarding program/project material?

43. Mitigation Plan Checklist • Management of Personnel • Are personnel policies in place to mitigate rotation of personnel on new tasks to avoid biased judgment? • Does the plan meet the minimum requirement of a 2 year restriction on personnel transfers to/from development efforts? • Is the NDA certification in effect from the date of signature until two (2) years after completion of participation on the Odyssey contract? • Are OCI training and awareness briefings given and records thereof? • Is the frequency specified? • Does the Plan describe how personnel are disciplined for non-compliance with the Plan and OCI issues? • Is the description sufficient to clarify the stratification in discipline commensurate with the severity of the offense? • Does the plan specify where disciplinary actions are documented? • Does the Plan specify where OCI briefing and debriefing statements are maintained? • Are employee transfers limited to exclude the inadvertent flow of sensitive information to competing parts of the company where inside information could be used inappropriately? • Does the Plan provide for access lists to be maintained for personnel acquiring access to sensitive information? • Does the plan prohibit involvement of its personnel participating in Government source selection activities when other corporate entities are potential or actual competitors? • Does the Plan require personnel to sign NDAs when they obtain access to other contractors' proprietary material? • Is the protection of proprietary into perpetuity? If not, why or why not? • Does the Plan require obtaining consent from other contractors prior to releasing their proprietary information for legitimate program purposes?

44. Mitigation Plan Checklist • OCI Mitigation Plan Reviews • Does the Plan provide for corporate oversight and audit of the OCI procedures? • Does the Plan specify the frequency of the corporate audits? • Does the Plan require annual certification of compliance with the terms of the Plan, signed by a senior corporate official no lower than Vice President? • Does the Plan specify where the certification documentation is maintained? • Are OCI training and awareness briefings given and records thereof maintained? • Is the frequency specified? • Does the Plan specify where the records are maintained?