Conflicts of interest at impasse

Industry and government take different stands on who is responsible for pointing out conflicts of interest

Two senators have accused the Federal Emergency Management Agency of overlooking a possible conflict of interest and are pushing for an investigation.

The disaster response agency apparently allowed a contractor to write part of a request for proposals for the upcoming TopOff 5 national exercise drill, while the same contractor was preparing to bid on the job, according to the senators.

“These mistakes raise serious questions as to the effective controls FEMA had in place to manage this RFP,” Sens. Joseph Lieberman (I-Conn.) and Susan Collins (R-Maine), chairman and ranking member of the Homeland Security and Governmental Affairs Committee, wrote to Homeland Security Secretary Michael Chertoff July 16. The case is still under review.

Conflicts of interest are in the news, though they are not new. The Federal Acquisition Regulation has addressed possible ways to decrease – and even avoid – organizational conflicts of interest. However, a perceived uptick in such conflicts has led federal regulators to reconsider rules governing them.
Regulators took comments from March to July on how the FAR should approach the conflicts in light of today’s blended workforce. The comments highlighted the disparity of opinions in industry and government.

“There are no easy answers,” federal contracting officers Susan McClain and Sylvia Small wrote in response to proposals regarding conflicts of interest. “Organizational conflicts of interest (OCI) are very gray and can shift and change as our requirements change.”

Conflicts in the last several years have ushered in new and broader concerns. Recent reports by the Government Accountability Office on conflicts in defense procurements, in addition to Court of Federal Claims and GAO decisions on bid protests, have focused attention on an upward trend in personal and organizational conflicts of interest. The concerns have also led lawmakers to craft language in at least three pending bills (S. 680, S. 3001 and H.R. 5368) on conflicts of interest.

The increase in conflicts is happening alongside dramatic growth in the scope and size of federal contracts and consolidation in the industry. With ongoing shrinkage in the government acquisition workforce, more contractors are working close to job functions deemed inherently governmental, and that may lead to conflicts, according to observers.

For now, though, the drive for change is hitting familiar roadblocks on appropriately defining such conflicts and deciding who is in charge of identifying and minimizing them, with contractors and government executives lined up on different sides. The goal is to put some discernible shape into a concept that many view as cloudy.

Overall, there appears to be no agreement yet whether revised regulations for OCIs should target primarily contracting officers or contractors, or both. The Defense Department’s Office of the Inspector General is looking at rules for the private sector. DOD’s Acting Assistant Inspector General Carolyn Davis suggests that contractors ought to be required to disclose actual and potential conflicts.

But the Professional Services Council and the Information Technology Association of America, both trade associations that represent federal contractors, suggest a firm hand for guiding contracting officers rather than focusing on contractors volunteering information.

“It puts the cart before the horse to have the contractor raise the issue,” said Alan Chvotkin, executive vice president of PSC. “The way that OCIs are defined currently, the government has to identity the issues in conflict based on current work and future work. If the government cannot identify it, the contractor should not have to guess where the conflicts may arise.”

Procurement executives also disagree on whether standard clauses can be appropriate, as recommended by the Transportation Department and other entities. However, contractors generally oppose that language.

“We don’t think a one-size-fits-all approach is worthwhile,” said Peter Tuttle, a former government contracting officer who now is certified professional contracts manager at Distributed Solutions.

Patricia Meagher, chairwoman of the public contracts section for the American Bar Association, recommended tailoring any regulatory updates to recent events.

“The organizational conflict-of-interest regulations have not changed materially in decades and may not be fully adequate to apprise contracting officers of the risks and appropriate management of OCIs today,” Meagher wrote.

As officials consider reshaping conflict-of-interest rules, contractor employees are in a difficult position, said Karen Manos, co-partner in charge of Gibson Dunn and Crutcher’s Washington law office.

“The concern is that government will do something draconian that will limit contracting,” she said.
Furthermore, the debate is raising new questions about whether special rules are needed for on-site contractors, whether more contractor disclosures are needed, and whether government personal and organizational conflicts should be treated separately or as the same.

Some experts argue that contractors ought to bear most of the responsibility for OCIs. Contracting officers also are being nudged to search the Internet for information regarding potential conflicts among bidders when preparing for an award, said Eve Lyon, who served on the FAR council from 1992 to 1995.

On the other side of the desk, contractors have horror stories about contracting officers who are uncomfortable with OCIs and avoid the topic until late in the bidding process or officers who have been known to reconsider an entire award strategy rather than to attempt mitigation.

A company can also be left hanging when the government offers it little information on a proposed mitigation plan.

“Leaving a contractor in limbo as to whether or not its mitigation plan is acceptable only leads to confusion, finger-pointing and ultimately unnecessary subsequent disputes between industry and the government,” said David Churchill, partner at law firm Jenner and Block.

For personal conflicts, contracting officers, watchdog groups and lawmakers complain of contractor executives taking advantage of murky rules, lax enforcement, and a revolving door mentality that creates an atmosphere of complicity between government employees and the private sector.

For tens of thousands of government workers who leave for the private sector, and might return and leave again, “personal conflicts are the rule, not the exception,” said Scott Amey, chief counsel for the Project on Government Oversight watchdog group. “The practice is accepted and entrenched.”

However, personal conflicts can get even trickier. For example, the Justice Department recently investigated a contractor working with a defense agency who accepted a part-time job with another contractor. The second contractor paid the employee for information to which he had access only through work with the first contractor.

“Under the current regime, there is no requirement for either contractor to disclose this financial conflict of interest on the part of the employee, even though his actions may compromise the government’s interest,” Matthew Friedrich, acting assistant attorney general, said about the case.

Officials say they don’t know exactly what regulatory changes will come regarding conflicts of interest, but changes are necessary because the blended workforce doesn’t seem to be disappearing. 

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