Diane K. Whitmoyer, CPCM Vice President, Contracts BAE Systems Monday, December 5, 2005

2. Organizational Conflicts of Interest Diane K. Whitmoyer, CPCM Vice President, Contracts BAE Systems Monday, December 5, 2005 11:20 am - 12:30 pm NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

3. Agenda • Industry Consolidation • What is an OCI? • Unfair Competitive Advantage • Lack of Impartiality • OCI General Rules • Mitigation Plan/Actions • Exemptions From OCI • Questions NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

4. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

5. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

6. Where have all the contractors gone? CORBETT TECHNOLOGIES CONDOR PACIFIC IND. LOCKHEED MARTIN SANDERS, FAIRCHILD SYSTEMS, SPACE ELECTRONICS & COMMUNICATIONS LOCKHEED MARTIN CONTROL SYSTEMS SYSTEMS RESEARCH LAB LUNDY/TITAN/CONVAIR GENERAL DYNAMICS ELECTRONICS VITRO TRACOR FLIGHT SYSTEMS AEL / ADR / CORDANT MARCONI ELECTRONICS SYSTEMS LEAR SINGER KEARFOTT FERRANTI HAZELTINE VICKERS VICKERS ARMSTRONGS SUPERMARINE BRITISH AIRCRAFT CORPORATION BRISTOL AEROPLANE ENGLISH ELECTRIC HUNTING HAWKER SOPWITH BRITISH AEROSPACE FOLLAND HAWKER SIDDELEY AVIATION DEHAVILLAND PROPELLORS MEVATEC DEHAVILLAND AIRCO Advanced Power Technologies Inc AIRSPEED GLOSTER Alvis ARMSTRONGS WHITWORTH STI Gov’t Systems BLACKBURN GENERAL AIRCRAFT Boeing Comercial Electronics Unit HAWKER SIDDELEY DYNAMICS AVRO Practical Imagering SCOTTISH AVIATION SPERRY GYROSCOPE (UK) DigitalNet ROYAL ORDNANCE NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck AlphaTech 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

7. 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! NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

8. What Is an OrganizationalConflict of Interest?(OCI) NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

12. Third party responsibility • Competing interest in the conflict. • Sometimes not as readily identifiable. • Not always financial—obtaining unbiased information. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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) NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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 NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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 NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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 NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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 NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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 NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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 biased manner. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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 NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

25. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

26. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

27. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

28. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

29. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

30. Divestiture of the Company • Creation of a new company with a completely separate board of directors to perform the conflicted work. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

31. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

32. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

33. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

34. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

35. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

36. Other Recommendations • Training, training, training • Checklists for Agency use • Agency and Contractor OCI Review Boards NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

37. 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. NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck

38. Questions? NCMA 24th Annual Government Contract Management Conference Improving the Procurement Process: Getting the Bang for the Buck