Organizational Conflicts of Interest andPersonal Conflicts of Interest

2. Michael W. Mutek Vice President and General Counsel Raytheon Intelligence and Information Systems Organizational Conflicts of Interest andPersonal Conflicts of Interest Thursday, November 20 2:10 – 3:10 pm

3. OCIs and PCIs: Why the interest? Can impact the integrity of the procurement process Issues are arising with greater frequency Can pose mitigation challenges for contractors and for the government in source selections A factor in team arrangement decisions A basis for protests Can prevent or diminish the value of an acquisition Issues relate to other important current topics including inherently governmental work and blended workforce OCI and PCI

4. What is different today: Increased reliance on contractors for work formerly done by the government Industry consolidation (including acquisition of SETA contractors) Contract consolidations Blended workforce Frequent protest ground GAO protest decisions provide a framework for analysis OCI and PCI

5. OCI definition FAR: OCI occurs when because of activities or relationships with other persons, a person is unable or potentially unable to render impartial assistance or advice to the government, or the person’s objectivity in performing the contract work is or might otherwise be impaired, or a person has an unfair competitive advantage [FAR 2.101] Term “person” includes organizations Addressed in FAR Subpart 9.5 FAR indicates concern with actual and potential conflicts Directs measures be taken to detect and mitigate actual and potential OCIs OCI and PCI

6. As noted by the Acquisition Advisory Panel (also known as the “Section 1423 Panel”): “Over the last two decades, a number of factors have led to an increasing probability of – and an increasing need to protect against – OCIs.” Reasons: Government buying more services requiring judgment Industry consolidation Multiple award IDIQ contracts limits pool of contractors for tasks Types: Unequal Access to Information Biased Ground Rules Impaired Objectivity OCI and PCI

7. Case law and GAO protest opinions address the current issues But the FAR does not (a finding of the Acquisition Advisory Panel) Consequences: Congress mandated review Advance Notices of Rulemaking (OCI and PCI) New FAR coverage and guidance Contractor responses Even before new regulations, reviewing procedures and policies Considering impact on M&A activities, teaming, pursuits Watching prohibitions relating to OCI False Claims Act case based on OCI is a warning OCI and PCI

8. FAR Subpart 9.5 prescribes responsibilities, general rules and procedures: Identify and evaluate potential OCI as early as possible in the acquisition process. [FAR 9.504(a)(1)] Avoid, neutralize or mitigate significant potential OCIs before contract award. [FAR 9.504(a)(2)] Award contract to the apparent successful offeror, unless OCI cannot be avoided or mitigated. [FAR 9.504(e)] Request waiver of OCI if CO finds such waiver is in the best interest of the government. [FAR 9.504(e)] OCI and PCI

9. Types of OCI The Government Accountability Office (GAO) through its protest decisions, has addressed the types of OCI Unequal Access to Information Impaired Objectivity Biased Ground Rules (For a good discussion of the types of OCIs, see Aetna Gov’t Health Plans, Inc.; Foundation Health Fed. Servs., Inc., B-254397 et al., July 27, 1995, 95-2 CPD ¶ 129 at 8-10.) OCI and PCI

10. Unequal Access to Information OCI An Unequal Access to Information OCI may exist if in performing a contract, a contractor obtains access to non-public information that provides a competitive advantage in a later competition. A contractor may have an unfair competitive advantage if the contractor has possession of: Proprietary information of other firms. Information obtained in performance of other government contracts not available to other competitors. But: Information obtained through performance as an incumbency is not deemed to be an unfair advantage in a recompetition of the same contract. A particular offeror may possess unique advantages and capabilities due to its prior experience under a contract and the government is not required to attempt to equalize competition, unless there is evidence of preferential treatment or other improper action. Crux Computer Corp., B-234143, May 3, 1989, 89-1 CPD ¶ 422 at 5. OCI and PCI

11. Masai Technologies Corp, B-2988880.3 et al., Sept. 10, 2007, 2007 CPD ¶ 179 Unequal access to information OCI alleged because awardee’s subcontractors performed prior work for agency. The responsibility for determining the existence of an OCI warranting exclusion from the competition rests with the contracting agency, which must give thorough consideration to the interests and activities that might create an OCI. The contracting agency’s analysis to assess whether an OCI existed reasonably supported its conclusion that awardee did not have an unfair competitive advantage through an unequal access to information OCI. Masai Technologies Corp. v. U.S. 79. Fed.Cr. 433 (2007) Agency properly evaluated whether procurement gave rise to an actual or potential OCI. Agency did a detailed analysis, and that was the critical factor. OCI and PCI

12. Impaired Objectivity OCI An Impaired Objectivity OCI may exist if, in performing a contract, a contractor is called upon to evaluate an offer from or performance by itself or an affiliated entity. Addresses the situation when the contractor has conflicting obligations under different government contracts that may compromise its ability to render impartial judgment. For example, a contractor may be called upon to evaluate an offer from an affiliate such as a different business or a subsidiary of its parent company, or may be called upon to evaluate the performance of an affiliate. The very fact that the contractor is aware that its advice might have an impact on its company could impact the objectivity of that advice. OCI and PCI

13. Greenleaf Construction Co., B-293105.21 et al., Feb. 16, 2007, 2007 CPD ¶ 84. Impaired objectivity OCI allegation where awardee recently sold an operation, which would oversee awardee. The potential impaired objectivity OCI could be removed by the complete elimination of all financial ties. The impermissible OCI must be eliminated by complete cessation of any continuing financial ties and renunciation of all current and future interest. OCI and PCI

14. Biased Ground Rules OCI A Biased Ground Rules OCI may exist if the contractor has a role in setting rules for a source selection in which contractor will compete. For example, a biased ground rules OCI could arise when a contractor drafts the SOW for a competition or in some way sets “ground rules” for another contract. The contractor is usually disqualified from later source selection. GAO presumes that setting the ground rules gives the contractor an actual benefit and competitive advantage. OCI and PCI

15. Lucent Technologies World Services, Inc., B-205462, March 2, 2005, 2005 CPD ¶ 55. Lucent protested its exclusion from a competition because the contracting officer had determined that Lucent had an OCI (biased ground rules). Lucent was involved in the preparation of specifications used by the agency in solicitation. The GAO supported the contracting officer and found that the CO reasonably determined that the OCI was impermissible. Found that “even the appearance of an unfair competitive advantage may compromise the integrity of the procurement process, thus justifying a contracting officer’s decision to err, if at all, on the side of avoiding the appearance of a tainted competition.” OCI and PCI

16. GAO and Court Decisions are Informative: Biased ground rules and impaired objectivity OCIs generally cannot be mitigated through a firewall. Unequal access to information OCIs may be mitigated through a firewall. Biased ground rules and impaired objectivity OCIs may be mitigated through other mitigation measures. Training and audits are frequent elements of OCI mitigation plans Complete cessation of any continuing financial interest mitigates a conflict of interest. Incumbency is not an OCI. The agency can undertake affirmative actions to eliminate/mitigate conflicts, such as reassigning certain work scope. Policing of OCIs occurs through the protest process. The GAO expects rigorous agency review of mitigation plans. OCI and PCI

17. Recent GAO decision on the importance of the agency evaluation of a mitigation plan. AT&T Government Solutions, Inc., B-400216, August 28, 2008. GAO sustained a protest based on a company’s elimination from competition based on a perceived OCI. Key points provided on what an agency must do. Here, the agency: Failed to evaluate the protester’s proposed mitigation plan; Did not consider whether the protester would actually be in a position to evaluate its own products; and Did not provide the protester notice of and an opportunity to respond to the agency’s OCI findings prior to the company’s disqualification. OCI and PCI

18. 2008 case states that failure to disclose an OCI may be a false claim. U.S. v. Scientific Applications International Corp. No. 04-1543 (D.D.C. May 15, 2008) Failure to disclose an OCI under a Nuclear Regulatory Commission contract was an implied false certification. Government can maintain a False Claims Act claim. Case indicates attention to OCI issues and attention to false claims. Case is a warning to heed OCI certification clauses. OCI and PCI

19. What is it? During performance on one contract, a contractor evaluates the technical strength of a number of products. A product under evaluation is manufactured by one of the contractor’s affiliates. The contractor knows a great deal about that product – the good and the bad – which it plans to fully and accurately disclose to the agency. Unequal access to information? Impaired objectivity? Biased ground rules? None of the above? What if the contractor also will be drafting the SOW for a later procurement of one of the products? Does the type of OCI change? OCI and PCI

20. What is it? A contractor holds a contract for IT support. The customer will “recompete” the contract next year and will add some additional scope to the contract. The contractor's own performance data and proprietary information are the best information on how to bid the contract. Only the current contractor possesses this information. Unequal access to information? Impaired objectivity? Biased ground rules? None of the above? OCI and PCI

21. What is it? Through its performance on a subcontract, a company gains access to non-public source selection information for another contract. One of the company’s affiliates will be bidding on that contract, but that affiliate is a separate legal entity (a subsidiary of the parent company). Unequal access to information? Impaired objectivity? Biased ground rules? None of the above? OCI and PCI

22. The FY 2009 DoD Authorization Bill was signed by the President on October 14, and it instructs OFPP to: Identify “contracting methods, types, and services that raise heightened concerns for [OCI].” Determine if the FAR needs to be revised to “prevent and mitigate organizational conflicts of interest in federal contracting.” Develop a “repository of best practices relating to the prevention and mitigation of organizational and personal conflicts of interest.” OCI and PCI

23. Personal Conflicts of Interest PCI defined: “[A] situation where an individual is employed by an FFRDC or a defense contractor company and is in a position to materially influence DOD’s recommendations and/or decisions and, because of his/her personal activities, relationships, or financial interests, may lack or appear to lack objectivity or appear to be unduly influenced by personal financial interest.” (Defense Contracting: Additional Personal Conflict of Interest Safeguards Needed for Certain DOD Employees, GAO-08-169, March 2008, page 2.) OCI and PCI

24. Personal Conflicts of Interest “DOD has increasingly turned to contractors to fill roles previously held by government employees and to perform many functions that closely support inherently governmental functions, such as contracting support, intelligence analysis, program management, and engineering and technical support for program offices. This trend has raised concerns ….” (Statement of David M. Walker, Comptroller General, Before the Subcommittee on Defense, Committee on Appropriations, House of Representatives, January 23, 2008.) Statutory and regulatory provisions apply to government employees to address personal conflicts of interest. Title 18 of the US Code addresses representational activities, post-government employment, financial interests, and payment for official actions. Other statutes limit outside employment, limit permissible gifts, and impose other restrictions. The Procurement Integrity Act also imposes restrictions on employees involved in the award or administration of contracts. OCI and PCI

25. When contractors serve in roles closely supporting inherently governmental functions, GAO has noted that risks are present. Defense contractor employees are not subject to the same laws and regulations designed to prevent personal conflicts of interest among federal employees DFARS imposes certain ethics requirements on contractors. The Acquisition Advisory Panel noted contractors are signatories to the Defense Industry Initiatives (DII) and have agreed to abide by its principles. The Panel also noted that contractors are subject to the requirements of the Sarbanes-Oxley Act of 2002. OCI and PCI

26. PCI issues will be addressed through rulemaking. The FY 2009 Defense Authorization Bill: Requires the development of rules on personal services contracts. Requires OFPP to develop a personal conflicts of interest clause to include in solicitations. Requires OFPP to develop a government wide policy on personal conflicts of interest by contractor employees performing work closely associated with inherently governmental activities. Requires OFPP to determine whether FAR revisions are necessary to address personal conflicts of interest by contractor employees performing functions not closely associated with inherently governmental functions. OCI and PCI

27. DZS/Baker LLC; Morrison Knudsen Corp., B-281224.1 et al., Jan. 12, 1999, 99-1 CPD ¶ 19. This personal conflict of interest protest arose within the A-76 process and relates to government employees. GAO sustained this protest because 14 of 16 evaluators and technical advisors held positions that were subject to the A-76 process. Those positions could have been contracted out to the private sector. The GAO found this created a conflict of interest that could not be mitigated. OCI and PCI

28. LEADS Corp., B-292465, Sept. 26, 2003, 2003 CPD ¶ 197. Contractors augmented the agency’s procurement staff. Different units of contractor performed other work for agency. Potential for unequal access to information and impaired objectivity OCIs can be mitigated by careful assignment of contract work and implementation of a mitigation plan, including firewalls, complete separation and agency involvement in the process. “The mitigation approach addresses the unfair access to information and impaired objectivity OCIs....” OCI and PCI

29. Conclusion OCI and PCI are highly visible and important issues Acquisition Advisory Panel focused attention on the issues Rulemaking FY 2009 Defense Authorization Act mandates OCI Frequent protest issue and concern for contractors Source selection and integrity implications Will undergo changes through the rulemaking process PCI Emerged in recent years as a result of contracting out and the “blended” workforce Also impacts integrity Will see new rules OCI and PCI