How can potential organizational conflicts of interest be avoided?
- By Carl Peckinpaugh
- Aug 17, 1997
A company official raised the following topic: When may an agency waive an organizational conflict of interest (OCI)? How can potential conflicts be avoided?
As discussed in previous columns OCIs arise when a person is unable or perceived as unable to render impartial advice to the government or when a person has "an unfair competitive advantage." Agencies have the authority to waive OCIs but such waivers are rare. According to Federal Acquisition Regulation 9.503 "The agency head or a designee may waive any general rule or procedure of this subpart by determining that its application in a particular situation would not be in the government's interest." Agency decisions in this area are nearly unreviewable - see for example Hayes International Corp. v. McLucas 509 F.2d 247 258-59 (5th Cir. 1975).
By contrast cases involving the establishment or rejection of procedures to avoid or mitigate potential conflicts are quite common. Agencies have broad discretion in negotiating and approving plans for avoiding neutralizing or mitigating potential OCIs but the agency's decisions must be reasonable.
In the case Meridian Corp. [B-246330.4 Sept. 4 1993 93-2 CPD Paragraph 129] Meridian protested an Energy Department contract award to Science Applications International Corp. on the grounds that SAIC's OCI-avoidance plan required such large-scale challenges by the staff at SAIC and its subcontractors that Energy was required to downgrade SAIC's proposal under the technical proposal evaluation factors. In its decision the General Accounting Office found that SAIC's OCI-avoidance plan went beyond the recusal of firms with OCI problems to include "such avoidance mechanisms as the issuance of task-order subcontracts so subcontractors can proceed the restructuring of a given work effort to avoid a conflict the semi-autonomous operation of groups to avoid conflicts the use of a database to identify potential conflicts and to direct that work to a subcontractor who would report directly to DOE and the review of each task assignment for possible OCI issues." Id. at 9-10 (citations and footnote omitted). Accordingly GAO rejected Meridian's protest.
Similarly in Research Analysis & Maintenance Inc. [B-272261 Sept. 18 1996 96-2 CPD Paragraph 131] GAO denied a protest against the award of a contract for system and software engineering support services to a prime contractor that planned to use as one of its subcontractors a company with an OCI. Although one of the awardee's subcontractors was also a subcontractor under another contract to provide software development and maintenance support on some of the systems at issue any potential OCI would be avoided or mitigated through the negotiation of delivery orders under the two contracts or the tasking of potential OCI work to another contractor.
Because OCIs are so fact-specific it is difficult to develop an appropriate conflict-avoidance and mitigation plan in the abstract. However several considerations are likely to be important in almost any such plan.
* First where applicable the contractor or prospective contractor must acknowledge the potential for an OCI when it is obvious from the outset that a potential conflict might exist. In addition any avoidance plan should include an effective mechanism for identifying potential conflicts as they arise during contract performance.
* The plan should assign the responsibility for monitoring conflict avoidance and mitigation to a particular person who is sufficiently high up in the organization so as to be relatively independent. The plan should provide for full disclosure of all relevant facts to the cognizant government officials and provide them with an opportunity to disapprove any particular action.
* If the potential for a conflict occurs at the subcontractor level the prime contractor must require the subcontractor to provide an adequate plan. In addition the prime contractor should propose a mechanism by which it will monitor the subcontractor's compliance with that plan. If the conflict could arise as the result of a particular subcontractor's participation the prime contractor may be able to include an alternative subcontractor that can be used instead where necessary.
At a minimum a conflict-avoidance or mitigation plan must provide for the recusal of anyone whose participation would create a conflict of interest. However providing for recusal is unlikely to be seen as an adequate remedy by itself. Instead the plan should describe the process by which the contractor will locate appropriate replacements to assure that the government will receive a similar level of service at no additional cost. If the company will be handling proprietary or source-selection-sensitive information the plan should include procedures for restricting access to individuals who have a need for access to the information.
The problems generally are easier when dealing with task-order contracts because the contractor can address the point when negotiating individual task orders. Furthermore especially since the enactment of the Federal Acquisition Streamlining Act of 1994 the government frequently awards multiple overlapping contracts under a single solicitation. In such cases there is little reason to disqualify an offeror due to a potential OCI because even the most severe problems can be handled by giving the particular task to another contractor.
In rare cases the government will insist on rigorous structural protections. These may include the establishment of a separate corporate entity or division to perform the subject work to be located physically separate from the rest of the corporation. The management of this separate organization may be insulated from normal chains of command. Often for example the head of the organization will answer directly to the company president instead of an intermediate manager.
Other approaches may be used as well depending on the facts of the particular case in which the potential conflict might arise.
-- Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn in Washington D.C. This column addresses legal topics that arise in government acquisition and management of ADP resources. Readers can submit topics by e-mail to firstname.lastname@example.org. Should you have a specific question or legal problem consult an attorney.