Organizational Conflicts of Interest in Federal Government Contracts

In federal government contracting, organizational conflicts of interest (OCI) arise when a company’s ability to perform a contract objectively is compromised due to other relationships or responsibilities. These conflicts are governed by the Federal Acquisition Regulation (FAR) Subpart 9.5, which provides broad guidelines on identifying, evaluating, and resolving OCIs. While this segment of the FAR has not been updated for several years, a proposed rule to address its outdated provisions is currently in progress.

At its core, the rule on OCIs is about protecting the government’s interests by ensuring that contractors remain impartial and do not benefit unfairly from any prior knowledge or relationships. The primary responsibility of identifying and mitigating OCIs rests with the contracting officer (CO). The CO must evaluate all potential conflicts as early as possible in the acquisition process and take appropriate steps to avoid, neutralize, or mitigate them. These responsibilities require careful judgment and collaboration with legal counsel and technical specialists to craft necessary provisions and clauses.

When an OCI is detected, the contracting officer must recommend a resolution strategy before the contract is awarded. There are several ways to resolve an OCI, and the approach taken should be the least disruptive to both the government and the contractor while ensuring that the government’s interests are protected. If an OCI cannot be resolved, the CO has the authority to withhold the award, but the contractor must be given a chance to respond before such a decision is made.

There are three main categories of OCIs: unequal access to information, biased ground rules, and impaired objectivity.

Unequal access to information occurs when a contractor has access to nonpublic information, such as proprietary data or source selection details, that could give them an unfair advantage in subsequent competitions.

Biased ground rules arise when a contractor is involved in drafting specifications or work statements for a government contract and may have the opportunity to skew those documents to favor themselves in a later competition.

Impaired objectivity happens when a contractor’s judgment in performing work could be influenced by other financial interests or responsibilities, such as providing recommendations that could impact their own business.

Resolving OCIs involves either avoiding the conflict altogether, mitigating its effects, or seeking a waiver. Avoidance is often the preferred approach, as it eliminates the conflict entirely. This can be achieved by ensuring that no contractor involved in preparing specifications or work statements is allowed to bid on the contract, or by assigning tasks requiring subjective judgment to the government or a third party without conflicts. In some cases, contractors can be eliminated from competition if their involvement presents too significant a risk of conflict, but this must be based on hard facts rather than mere suspicion.

Mitigation, on the other hand, involves allowing the contractor to perform the work but taking steps to minimize the potential impact of the conflict. Firewalls are a common mitigation strategy, where different parts of a company are isolated from each other to prevent the flow of protected information. For example, a company working on an advisory contract that has access to proprietary information from a competitor can implement a firewall to ensure that the individuals handling the proprietary information are separated from those working on competitive proposals. Other mitigation strategies include using subcontractors without conflicts to perform portions of the work, releasing previously restricted information to the public to eliminate competitive advantages, and close monitoring of the contractor’s performance by the government to ensure compliance with OCI mitigation plans.

In some cases, the government may issue a waiver to allow a contractor to perform despite an identified OCI. This is usually reserved for situations where the government deems the contractor’s participation essential and believes that the conflict can be managed without harming the government’s interests. Waivers must be approved by the head of the contracting activity and require careful documentation.

Contracting officers are encouraged to favor mitigation over avoidance whenever possible, as rejecting a contractor’s OCI mitigation plan can be subject to scrutiny during a protest. Recent case law has emphasized the importance of thorough investigation and documentation when resolving OCIs. Failure to properly address OCIs can lead to sustained protests, as seen in cases where contractors were disqualified for conflicts that were not adequately mitigated.

In conclusion, resolving OCIs in federal government contracts is a complex and nuanced process that requires careful analysis and judgment. Contracting officers must balance the need to protect the government’s interests with the goal of minimizing disruption to the procurement process. While the FAR provides a framework for identifying and resolving OCIs, each situation is unique and must be addressed on a case-by-case basis. As new regulations and case law continue to evolve, contractors and contracting officers alike must stay informed to ensure that potential conflicts are handled appropriately.

The information contained in this article is for general informational purposes only and should not be construed as legal advice. Every OCI situation is unique, and the resolution process depends on a variety of factors. Readers are encouraged to consult with legal counsel to obtain advice tailored to their specific circumstances.