Attachment 5-NASA OCI Guide.pdf

Table of Contents

Purpose

Chapter 1: Types of Conflicts of Interest

I. Introduction

II. Types of OCI as Defined by Case Law

a. Unequal Access to Information

b. Impaired Objectivity

c. Biased Ground Rules

III. The FAR Examples

IV. Situations that Do Not Constitute Conflicts

a. Natural Competitive Advantage

b. Potential of Bad Faith

c. Conflict is “Insignificant”

Chapter 2: Resolution

I. Introduction

II. Types of Resolution

a. Avoid

b. Neutralize

c. Mitigate

d. Waive

III. Example of a Resolution

Chapter 3: OCI During Source Selections

I. Introduction

II. Preparing the Solicitation

a. Identifying the Scope of the Conflict

b. Obtaining Early Input from Industry

c. Procurement Strategy Decision: Evaluation Criteria versus Eligibility Criterion

d. Procurement Strategy Decision: Should the Ability to Waive a Conflict be Reserved?

III. Solicitation Provisions/Contract Clauses

a. Solicitation Provisions

b. Contract Clauses

IV. Communications after Release of a Solicitation . . . 29

a. Communications about Mitigation Plans . . . 29

b. Addressing Allegations Raised During Competition . . 29

c. Communications Prior to Withholding Award . . 30

V. Documentation

a. Documentation When There is a Significant OCI . . 30

b. Documentation When There is No Significant OCI . . 31

Chapter 4: OCI Considerations for Sole Source Contracts . . . 32

Chapter 5: OCI During Contract Administration

I. Introduction

II. Indefinite-Delivery/Indefinite-Quantity Contracts . . . 33

a. Single Award ID/IQ Contracts

b. Multiple Award ID/IQ Contracts

III. Changes

IV. Novations

Appendices

A – Solicitation Provisions and Contract Clauses . . . 38

B – Data Requirements Description

PURPOSE

This Guide provides guidance on implementing the requirements in subpart 9.5 of the

Federal Acquisition Regulation (FAR) on Organizational and Consultant Conflicts of

Interest and provides tools to contracting officers, attorneys, and requiring technical organizations on identifying conflicts and designing resolution strategies that best suit each circumstance.

OCIs are governed by regulations such as the FAR Subpart 9.5 and the NASA FAR Supplement (NFS) Subpart 1809.5. OCIs can result in unfair competitive advantages being conferred on a contractor or offeror, which compromises the integrity of the procurement process. Where agencies fail to take appropriate actions to address these unfair advantages, the Government Accountability Office (GAO) and

Court of Federal Claims (COFC) have sustained protests based on an agency's violation of the OCI provisions of the FAR.

Subpart 9.505 of the FAR sets forth two underlying principles intended to guide the

Government in avoiding OCIs. These are:

(a) Preventing the existence of conflicting roles that might bias a contractor‘s judgment, and

(b) Preventing unfair competitive advantage.

The GAO and the Court of Federal Claims used these principles in section 9.505 as the basis to define the three types of OCIs described in Chapter 1 of this Guide. Since the

1990‘s, complying with subpart 9.5 has become more difficult as the number of OCIs increase and as certain methods available to resolve OCIs become less effective. There are three major reasons for this phenomenon.

1. Consolidation within the industries serving the U.S. Government. Mergers and acquisitions have the dual effect of reducing the number of contractors in a particular market and, at the same time, increasing the scope of goods and services the consolidated contractors provide. Consolidation, therefore, results in fewer contractors providing a greater range of goods and services.

2. Greater reliance by Government agencies on contractor services requiring contractors to use subjective judgment. Mr. Daniel I. Gordon in his article entitled, Organizational Conflicts of Interest: A Growing Integrity Challenge, 35

PUB. CONT. L.J. 25 (2005) said ―rather than merely obtaining computer repair services from private firms, the Government is entering into contracts that include the firms giving the Government advice on which hardware or software to buy.‖

Having a contractor repair a computer usually does not involve the use of subjective judgment; having a contractor recommend requirements for a computer buy always involves the use of subjective judgment.

3. Greater use of ID/IQ contracts that have broader and less specific statements of work. Subpart 9.5 requires contracting officers to identity any significant potential conflict of interest that may occur during the life of the contract. The

This Guide does not cover issues associated with personal conflicts of interest.

likelihood for a ―significant potential conflict‖ increases with the breadth of the scope of work in a contract.

Regulations on OCI have existed since the mid-1970‘s as an appendix to the Armed

Services Procurement Regulation. Subpart 9.5 in the FAR is essentially the same coverage that existed in the mid-1970‘s. The chapter on resolution in this Guide explains why no one method of resolution exists to address many OCIs, unlike in the 1970‘s and

1980‘s when contractors accepted limitations on future competition. The challenge contracting officers now face is how to apply rules written in the 1970‘s to the new world of Government contracting. In facing this challenge, contracting officers should understand that no single method of resolution exists to address all OCIs and, instead, the particular facts of the conflict may require a ―hand crafted‖ resolution.

The responsibilities of the contracting officer with regard to OCI have been identified in

FAR 9.504. As specified in FAR 9.504(b), it is important that contracting officers seek advice from legal counsel and assistance from technical specialists as soon as possible in evaluating potential conflicts and in developing any necessary solicitation provisions and contract clauses. Thus, once potential OCI issues have been identified, the contracting officer for a particular acquisition shall consult with the legal advisor and the requiring technical organization to fully understand all aspects of potential OCI issues. The legal advisor will work with the contracting officer to develop options for resolving potential

OCI issues. The requiring technical organization must stay involved in the process to ensure that any resolution strategies developed and implemented will still allow them to meet their mission requirements. The information contained in the following chapters should be utilized by all parties in carrying out their responsibilities in handling OCIs.

Chapter 1 deals with the first responsibility of the contracting officer regarding conflicts of interest which is to identify the conflict. This chapter will provide guidance to assist the contracting officer with identifying an OCI.

Chapter 2 deals with the second responsibility of the contracting officer with regard to conflicts of interest, which is to resolve the conflict prior to award. This chapter will discuss various OCI resolution methods in detail.

Chapter 3 focuses on actions contracting officers should take regarding OCI issues during the source selection process.

Chapter 4 discusses specific OCI considerations for sole source contracts.

Chapter 5 addresses situations when OCI can arise during contract administration, such as indefinite-delivery/indefinite-quantity (ID/IQ) contracts, changes in requirements, and novations.

Appendix A contains a draft provision that can be used in solicitations and draft clauses that can be used in contracts to address OCI and mitigation plans.

Appendix B is a draft Data Requirements Document containing requirements for submission of an OCI mitigation plan.

CHAPTER 1

TYPES OF CONFLICTS OF INTEREST

I. Introduction

FAR Subpart 9.5 imposes two primary responsibilities upon the contracting officer. The first responsibility is to identify and evaluate the potential conflict and the second responsibility is to resolve the potential conflict prior to award. In addition, while FAR

9.5 encourages contracting officers to obtain the advice of counsel, seeking such legal advice early in the process is absolutely essential to the successful identification, evaluation, and resolution of all organizational conflicts of interest. FAR section 9.504 requires contracting officers identify and evaluate conflicts as early in the acquisition process as possible. FAR section 9.506 provides guidance contracting officers should use to identify conflicts.

The FAR also provides that ―each individual contracting situation should be examined on the basis of its particular facts and the nature of the proposed contract. The exercise of common sense, good judgment, and sound discretion is required in both the decision on whether a significant potential conflict exists and, if it does, the development of an appropriate means for resolving it.‖

It is important to recognize that the scope of this review is broad and involves any significant potential conflict that may arise under a contract.

Identifying ―potential‖ conflicts can be difficult with ID/IQ contracts since they have broad statements of work.

In this situation, ―potential‖ conflicts should include those that could arise under any possible order that the Government may issue under the ID/IQ contract.

GAO addresses the fact that FAR 9.5 pertains to ―organizational‖ rather than ―individual‖ or ―personal‖ conflicts of interest. GAO stated it did not have a per se proscription against awarding contracts to companies with a potential organizational conflict of interest if the contracting officer was able to develop a course of action to avoid or mitigate where possible.

However, GAO also indicated that the FAR recognizes that some organizational conflicts of interest cannot be mitigated.

This chapter explains what constitutes an OCI and examines the two primary sources of guidance to identify conflicts – the FAR and case law. The FAR provides the principles behind OCI that are discussed at the beginning of this Guide and examples of organizational conflicts of interest. Case law contains actual definitions of conflicts of interests based upon the underlying principles of avoiding bias and preventing an unfair competitive advantage. Contracting officers are advised to consult legal counsel

FAR 9.505.

See FAR 9.506(b).

Chapter 4 addresses ID/IQ contracts in more detail.

See Aetna Gov’t Health Plans, Inc.; Found. Health Fed. Services., Inc., B-254397.15, B-276634.16, B-

276634.17, B-276634.18, B-276634.19, July 27, 1995, 95-2 CPD 129 (Aetna).

See id. See also FAR 9.504(e).

regarding the identification of conflicts because case law provides a wider variety of examples of conflict situations than does the FAR, and counsel is equipped to apply the principles of those decisions to the situation presented by the particular procurement presented.

II. Types of OCI as Defined by Case Law

Generally, GAO decisions pertaining to organizational conflicts of interest can be broadly categorized into three groups: (1) ―unequal access to information‖ cases, (2) ―impaired objectivity‖ cases, and (3) ―biased ground rules‖ cases.

Each group is discussed separately below.

a. Unequal Access to Information

An OCI due to ―unequal access to information‖ is created when a contractor has access to nonpublic information which may provide the firm an unfair competitive advantage in a later competition for a government contract.

In these ―unequal access to information‖ cases, the concern is the risk of the firm gaining a competitive advantage. There is no issue of bias. The difference between an unfair competitive advantage and a natural competitive advantage is discussed later in this chapter.

Conflicts based on ―unequal access to information‖ best correlate to the OCI example in

FAR section 9.505-4 regarding obtaining access to proprietary information. Conflicts due to ―unequal access to information‖ involve another contractor‘s proprietary data and/or nonpublic Government data such as source selection information as defined in

FAR 2.101 or other nonpublic Government data that would be helpful in a future competition. The test for determining whether data confers an unfair competitive advantage requiring resolution is:

- Whether the information was unavailable to potential offerors;

- Whether the nonpublic information would have been useful in responding to a solicitation; and

- Whether the contractor would be afforded an unfair competitive advantage by having access to the nonpublic information.

Situations involving this conflict are commonplace now given the number of support service contracts the agency uses to conduct its business. Implicit in having a large number of support service contracts is the need to have contractors use proprietary data belonging to another contractor. NASA‘s contract to assist in the closing out of all completed contracts in the agency illustrates the scope of this issue because the ―close-out‖ contractor must have access to proprietary information from each contractor whose contract is being closed.

See e.g., Aetna, supra; L-3 Services, Inc., B-400134.11; B-400134.12, Sept. 3, 2009.

See Aetna, supra.

See ARINC Engineering Services, LLC. V. United States and BAE Systems Analytical Solutions, 77 Fed.

196, 2007 U.S. Claims LEXIS 205 (2007)

b. Impaired Objectivity

An OCI due to ―impaired objectivity‖ is created when ―a contractor‘s judgment and objectivity in performing the contract requirements may be impaired due to the fact that the substance of the contractor‘s performance has the potential to affect other interests of the contractor.‖

This conflict contains two elements – the use of subjective judgment by the contractor and whether a contractor has a financial interest in the outcome of its performance. The OCI principle involved here is bias due to the existence of conflicting roles that might influence the contractor‘s judgment.

Conflicts based upon ―impaired objectivity‖ most closely correlate to the example in

FAR section 9.505-3 with regards to providing evaluation services; however, the case law definition of ―impaired objectivity‖ is much broader than the example in the FAR. In fact, conflicts based upon ―impaired objectivity,‖ as defined by case law, have become widespread given the type of support service contracts awarded by agencies and all of the consolidations within industry.

The first issue contracting officers must determine is whether the statement of work requires the use of the contractor‘s subjective judgment. Two indicia GAO stated that it looks to, in determining whether a statement of work requires the use of subjective judgment are the presence of contract clauses for key personnel and educational requirements.

A review of the statement of work is the most important indicator of whether subjective judgment is involved. Words and phrases such as ―analyze,‖ ―study,‖

―develop recommendations,‖ ―develop programs,‖ ―develop strategies,‖ and ―provide advice‖ are examples of requirements that may require the contractor to use its subjective judgment and are words and phrases commonly found in support service contracts.

Contracting officers should investigate whether a conflict of interest based on ―impaired objectivity‖ exists when words/phrases similar to those listed above are present in a statement of work.

However, not all support service contracts involve the use of subjective judgment. For example, the development of a program to provide surveillance with regards to required scheduled maintenance may or may not involve the use of subjective judgment. If the contractor is responsible for determining what maintenance is required or how well the maintenance is to be performed, then subjective judgment is involved. If not, then subjective judgment may not be involved. Similarly, answering telephone inquiries about

Alion Science & Technology Corp., B-297342, Jan. 9, 2006, 2006 CPD ¶ 1 at 6. (Alion). Alion broadened the definition of ―impaired objectivity,‖ which previously had been defined as a conflict ―where a firm‘s work under one government contract could entail its evaluating itself, either through an assessment of performance under another contract or an evaluation of proposals.‖ Aetna, supra, citing FAR 9.505-3.

See Alion, supra.

These off the record comments were made at a brown bag lunch GAO conducted shortly after Alion to discuss the effects of the decision. GAO orally stated that having key personnel and education requirements in a solicitation were indicia that the agency is more interested in ―buying people‖ and their judgments rather than ―buying outcomes.‖

See Computers Universal, Inc., B-292794, Nov. 18. 2003, 2003 CPD ¶ 201 at 2-3.

the operation of a piece of equipment should not raise any significant concern about a conflict of interest if this task ―usually involve[s] objective answers to straightforward inquiries that are quickly resolved during the course of a telephone call.‖

The second element of ―impaired objectivity‖ is whether the contractor has a financial interest in the matter under its review. The potential for bias arises when the contractor has some type of financial interest that may influence how the contractor exercises its judgment.

A contracting officer should determine whether a contractor may have multiple interests in the outcome of its advice using the procedures in FAR 9.506 (a). If information concerning prospective contractors is necessary to either (1) identify and evaluate potential organizational conflicts of interest or (2) develop recommended actions, contracting officers first should seek the information from within the

Government or from other readily available sources. Government sources include the files and the knowledge of personnel within the contracting office, other contracting offices, the cognizant contract administration and audit activities, and offices concerned with contract financing. Non-Government sources include publications and commercial services, such as credit rating services, trade and financial journals, and business directories and registers. Contracting officers are encouraged to consult their local legal office with any questions about whether a contractor has a financial interest in a particular matter.

c. Biased Ground Rules

An OCI due to ―biased ground rules‖ is created when ―a firm, as part of its performance of a government contract, has in some sense set the ground rules for another government contract by, for example, writing the statement of work or the specifications. In these

‗biased ground rules‘ cases, the primary concern is that the firm could skew the future competition, whether intentionally or not, in favor of itself.‖

These situations also involve concerns that a firm, by virtue of its special knowledge of the agency's future requirements, would have an unfair advantage in the competition for those requirements.

Thus, both the principles of bias and unfair competitive advantage are present here.

It is important to emphasize that conflicts due to ―biased ground rules‖ can be unintentional because a contractor is naturally biased to view things in a certain manner.

GM, for example, can only provide advice to the Government on the GM way of doing something. Another example of this is seen in a decision where GAO sustained a protest regarding the use of outside evaluators to review responses to a broad agency announcement where the potential research involved two different, competing technologies. The protester alleged bias on the part of the review panel because all of the panel members were associated with just one technology; no one on the panel was

Overlook Systems Technologies, Inc., B-298099.4, B-298099.5, Nov. 28, 2006, 2006 CPD ¶ 185 at 12-13

(Overlook)

See Greenleaf Construction Co., B-293105.18, B-293105.19, Jan. 17, 2006, 2006 CPD ¶ 79.

Aetna, supra. See also FAR 9.505-1 and 9.505-2

See The Pragma Corp., B-255236 et al., Feb. 18, 1994, 94-1 CPD ¶ 124.

involved with the competing technology the protester used. Although this is not a classic

―biased ground rules‖ case, it does demonstrate how the bias can exist for other than purely financial reasons.

Conflicts based on ―biased ground rules‖ best correlate to the example in FAR section

9.505-2 regarding the preparation of specifications or work statements. In this example, a contractor prepares and furnishes complete specifications covering nondevelopmental items, to be used in a competitive acquisition. The case law definition of ―biased ground rules‖ greatly expands this example to include any effort that in some sense establishes the basis for a future competition such as studies that will either become the basis of a statement of work or be used in evaluation of proposals. In fact, conflicts based upon

―biased ground rules‖ could be viewed as the ―Granddaddy‖ of conflicts since these conflicts involve both the principles of bias and unfair competitive advantage.

Contracting officers should take great care regarding the effect this conflict may have on future competition.

In practice, a particular situation may involve more than just one type of OCI or all three types of OCI discussed above. In addition, an affiliate can add another layer of complexity to the identification, analysis, and resolution of an OCI. Generally, there is no basis to distinguish between a firm and its affiliate(s) in cases involving impaired objectivity or biased ground rules.

Furthermore, other business relationships (e.g., joint ventures, partnerships, memorandums of understanding, etc.) must be scrutinized for potential OCIs. However, some interests (financial, business, or otherwise) may simply be too speculative or too remote to establish a significant OCI in need of resolution.

Insignificant OCIs are discussed later in this chapter.

III. The FAR Examples

FAR section 9.505 contains the general rules regarding OCIs and articulates the principles relative to the conflicts due to bias and unfair competitive advantage. FAR sections 9.505-1 through 9.505-4 illustrate examples of the most classic situations where conflicts may be created. Further examples of conflicts are provided in FAR section

9.508, which states these examples ―are not all inclusive, but are intended to help the

See Celadon Laboratories, Inc., B-298533, November, 1 2006. Although GAO did not accept the agency‘s contention that the conflict alleged by the protester was too remote, GAO focused upon the contracting officer‘s failure to identify the conflict. According to GAO, the presumption is that a conflict exists unless the record establishes the absence of a conflict.

―Affiliates‖ is defined in FAR 2.101 as ―associated business concerns or individuals if, directly or indirectly –

(1) Either one controls or can control the other; or

(2) A third party controls or can control both.

See, e.g., Aetna; ICF Inc., B-241372, Feb. 6, 1991; Filtration Development Co. v. U.S., 60 Fed. Cl. 371

(2004). But see, RMG Systems, Ltd, B-281006, Dec. 18, 1998. In RMG, GAO rejected the protestor‘s allegation that the conflict between the affiliates was inherent and unremediable on the grounds that the ratings made by the awardee‘s affiliate were calculated objectively from publicly available information, the percentage of the overlap in the businesses was very small, the awardee has no financial interest in failing to provide honest inspections, and the awardee will not be reviewing the affiliate‘s work.

See American Management Systems, Inc., B-285645, September 8, 2000, 2000 CPD 163.

contracting officer apply the general rules in FAR 9.505 to individual contract situations.‖

While the FAR examples contain valuable guidance contracting officers should use, the three types of conflicts defined in the case law (i.e., ―unequal access to information,‖

―impaired objectivity,‖ and ―biased ground rules‖) are more complete and encompassing and should be used to supplement and expand upon the FAR descriptions.

Three of the four FAR examples clearly fall into one of the three types of OCIs defined by case law. However, the first FAR example (i.e., FAR section 9.505-1), related to the provision of systems engineering and technical direction, does not correlate to just one of the conflicts defined in case law. Systems engineering can involve all three types of conflicts. Case law indicates that a systems engineering contractor and the affiliates of the systems engineering contractor are ―categorically precluded‖ from providing their own products in later stages of the program unless the agency obtains a waiver.

The second FAR example (i.e., FAR section 9.505-2), related to the preparation of specifications or work statements, involves ―biased ground rules.‖ However, the FAR contains numerous exceptions regarding situations that do not constitute conflicts. The basic statement of the conflict provides that the rule does not apply to

(i) Contractors that furnish at Government request specifications or data regarding a product they provide, even though the specifications or data may have been paid for separately or in the price of the product; or

(ii) Situations in which contractors, acting as industry representatives, help

Government agencies prepare, refine, or coordinate specifications, regardless of source, provided this assistance is supervised and controlled by Government representatives.

The first exclusion to the rule involves situations where the Government purchases a data package from the original manufacturer, which the Government will use as part of future competitions. No conflict is created when an original manufacturer sells the data package to the Government and the data package is used as the requirement for the future competitive acquisition. Moreover, the original manufacturer may participate in the subsequent competition. The second exclusion involves the use of contractors acting as industry representatives to help the Government prepare a statement of work or specifications. In this situation, typically the Government is obtaining the input through an open information call, like an RFI, rather than a task under an existing contract. The

―twin evils‖ associated with ―biased ground rules‖ are attenuated by the fact that the

Government is receiving input from multiple contractors.

Additionally, FAR section 9.505-2 contains further exceptions to the conflict regarding the preparation of specifications or work statements for competitive acquisitions. FAR section 9.505-2(b)(1) explains that the contractor that prepared or assisted in the

See Filtration Development Co, supra at 380.

preparation of the work statement for a competitive competition may not supply that system, unless

(i) It is the sole source;

(ii) It has participated in the development and design work; or

(iii) More than one contractor has been involved in preparing the work statement.

The exceptions in section 9.505-2(b)(1) should be applied in conjunction with the tenets set forth in case law.

The most useful of these exceptions involves having more than one contractor prepare the statement of work in order to avoid the elimination of any one contractor from the competition. This exception appears to be very similar to the one regarding receiving input from industry representatives. Contracting officers must remember that the particular facts of the situation will determine whether the use of more than one contractor being involved in the preparation of a work statement sufficiently mitigates the ―twin evils‖ of bias and unfair competitive advantage.

The other two exceptions in FAR section 9.505-2(b)(1) appear more problematic. It seems logical that a sole source contractor may help prepare the statement of work or specification of a contract when that contractor also will perform the future contract on a sole source basis. In this case, the concern with bias or unfair competitive advantage is offset by the basis for the sole source. The conflict described in FAR section 9.505-2, however, pertains to statement of work for competitive acquisitions where both the ―twin evils‖ of bias and unfair competitive advantage may exist. Contracting officers, therefore, are cautioned to examine the particular facts of an acquisition to determine whether a conflict would exist, as defined by case law, when a contractor provides or prepares a work statement for a future competition on a sole source basis (see Chapter 4).

Likewise, the exception with regard to a contractor having participated in development and design work is equally suspect. Again, the tenets of case law may ―trump‖ the automatic application of this ―exclusion‖ to OCIs. Contracting officers must examine the particular facts of acquisition to determine whether such assistance could result in bias and/or unfair competitive advantage in the future competition.

The third FAR example (i.e., FAR 9.505-3) related to the provision of evaluation services involves ―impaired objectivity.‖ The goal here is to avoid potential bias that exists when a company will be evaluating its own offers, products, or services (or those of a competitor) without proper safeguards. This example is a subset of the ―impaired objectivity‖ OCI defined by case law.

Not much case law exists regarding the exceptions contained in section 9.505 of the FAR. Consequently, it would be prudent to first apply the principles in Aetna, supra, and its progeny that (1) financial interest includes the interest of affiliates and (2) the firewalls alone sufficient mitigation for conflicts involving bias before relying upon the exception in section 9.505. Additionally, case law provides that ―with respect to the biased ground rules organizational conflict of interest, the ordinary remedy where the conflict has not been mitigated is the elimination of that competitor from the competition.‖ See The Jones/Hill Joint

Venture, B-286194.4, Dec. 5, 2001, 2001 CPD 194 at 22 n. 26.

The fourth example (i.e., FAR 9.505-4) related to obtaining access to proprietary information involves ―unequal access to information.‖ The goal here is to avoid giving an unfair competitive advantage to a company having access to proprietary information that is not available to everyone. This example appears to be identical to the ―unequal access to information‖ OCI defined by case law.

IV. Situations that Do Not Constitute Conflicts

a. Natural Competitive Advantage

FAR section 9.505-2(a)(3) explains what is a natural competitive advantage using the example of development work. According to the FAR, [I]t is normal to select firms that have done the most advanced work in the field. These firms can be expected to design and develop around their own prior knowledge. Development contractors can frequently start production earlier and more knowledgeably than firms that did not participate in the development, and this can affect the time and quality of production, both of which are important to the Government. In many instances the Government may have financed the development. Thus, while the development contractor has a competitive advantage, it is an unavoidable one that is not considered unfair; hence no prohibition should be imposed.

GAO has dismissed allegations of OCI when it finds that there is a natural competitive advantage rather than an unfair competitive advantage, stating:

The mere existence of a prior or current contractual relationship between a contracting agency and a firm does not create an unfair competitive advantage, and an agency is not required to compensate for every competitive advantage gleaned by a potential offeror‘s prior performance of a particular requirement. For example, an incumbent contractor‘s acquired technical expertise and firsthand knowledge of the costs related to a requirement‘s complexity are not generally considered to constitute unfair advantages the procuring agency must eliminate.

b. Potential of Bad Faith

GAO has stated that the possibility of bad faith alone does not create an OCI. This issue arose in a decision that examined an award to a contractor where a subsidiary company to the awardee performed a related surplus contract. This subsidiary company had a contract to sell useable surplus commercial property and the disputed award involved a contract for scrap property. Although the selected contractor would receive 20% of the distribution of sales from both contracts, the contractor had the ability to earn an

Snell Enterprises, Inc., B-290113, B-290113.2, June 10, 2002, 2002 CPD ¶ 115. See also Optimum

Tech., Inc., B-266339.2, Apr.16, 1996, 96-1 CPD ¶ 188 at 7 incentive fee up to an additional 10% of distributions under the scrap contract. The protester stated this arrangement constituted an impermissible OCI since the awardee could manipulate the disposition of property to its economic advantage (i.e., the awardee could opt to scrap rather than sell as surplus). GAO rejected this argument because the allegation involved the potential that the awardee would engage in bad faith in performance of the two contracts. GAO stated ―there simply is no basis to deny a firm an award due to bad faith that has not occurred but, rather, is a mere theoretical possibility.‖

c. Conflict is ―Insignificant‖

FAR section 9.504 requires the contracting officer to ―avoid, neutralize, or mitigate significant potential conflicts before contract award.‖ (Emphasis added) GAO has dismissed allegations of OCI because the conflict was too remote or insignificant.

However, contracting officers should not rely solely on a determination that the OCI is remote since there can be disagreements as to what constitutes ―insignificant‖ or

―remote.‖ Moreover, contracting officers should be mindful about the seeming inconsistencies in the law case. In one case, GAO has sustained a protest even where the conflict appeared to be insignificant and, yet in another decision, it allowed the use of a firewall to mitigate a conflict based upon ―impaired objectivity‖ when GAO was unable to identify an actual conflict.

Contracting officers, therefore, are advised to identify, evaluate, and document all possible conflicts before determining that the conflict is insignificant and does not need to be resolved.

Government Scrap Sales, B-295585, Mar. 11, 2005, 2005 CPD 60 at 3.

See American Management Systems, Inc., supra. In this case, KPMG and Oracle had a standing agreement that (1) detailed a structure for submitting proposals under a prime/subcontractor relationship in response to public sector solicitations when the parties agreed to do so and (2) provided a formula for splitting revenues under contracts resulting from these proposals. The VA determined there was no financial relationship between KPMG and Oracle as it related to the procurements that were the subject of the protest and that the standing relationship between the two companies did not create a significant OCI because no such prime/sub relationship was proposed by these companies and the agreement expressly stated that the parties remained independent contractors.

See Science Applications International Corporation, B-293601, B-293601.2, B-293601.3, May 3, 2004, 2004 CPD 96, concerning a disputed award for computer support and system engineering services to the

EPA with the alleged conflict involving the enforcement of pollution standards. GAO found an OCI due to

Lockheed Martin‘s significant involvement in activities that are subject to environmental regulations, including the ownership and operation of various facilities dealing with hazardous materials. It is unclear how Lockheed Martin could influence the implementation of environmental regulation by providing EPA with computer support. GAO seemingly rejected the concept that the conflict may have been remote and, instead, focused upon the fact that the EPA failed to identify and evaluate the OCI situation as required by section 9.504 of the FAR.

In a subsequent decision on the same procurement, GAO held that a mitigation plan permitting the project manager to determine whether an actual conflict existed prior to issuing a task order was an adequate measure to correct the conflict in the earlier GAO decision. See Science Applications

International Corporation, B-293601.5, Sept. 21, 2004, 2004 CPD 196. But see J&E Associates, Inc., B-

278771, Mar. 12, 1998, 98-1 CPD 77. In decisions such as Johnson Controls World Services, B-286714.2, February 13, 2001, and J&E Associates, Inc., B-278771, March 12, 1998, GAO stated that monitoring or participation by Government, in and of itself, generally is not adequate to address conflicts.

See Overlook, supra.

CHAPTER 2

RESOLUTION

I. Introduction

FAR 9.5 essentially requires contracting officers do two things - the first is to identify

OCIs and the second is to resolve any potential significant OCIs prior to award. This chapter addresses resolution. The FAR outlines four basic types of resolution, which are defined as follows:

Avoid – To prevent the occurrence of an OCI through actions such as exclusion of sources or modification of requirements. Avoidance precludes the conflict.

Neutralize – To counteract, through a specific action, the effects of a potential or actual OCI. The conflict remains, but the impact of the conflict has been negated.

Mitigate – To reduce the effects of an OCI to an acceptable level of risk so that the Government‘s interests with regard to fair competition and/or contract performance are not impaired. The conflict remains, but action was taken that minimizes the impact of the conflict to an acceptable level of risk.

Waive – Conflict cannot be successfully avoided, neutralized, or mitigated and retention of offeror and/or contractor is deemed to be in the best interest of the

Government. The conflict remains without sufficient resolution.

The differences in the varying types of resolution can be analogized to the handling of a bomb. To avoid an OCI would be like preventing someone from obtaining a bomb.

Neutralizing an OCI would be like pulling the fuse out of the bomb or disarming it prior to explosion, but the bomb still exists. Mitigating an OCI would be like placing the ticking bomb in a blast proof box and allowing it to explode while protecting the people and property around it.

BEST PRACTICE: A best practice consists of resolving OCIs by using the following techniques in the order listed: avoidance, neutralization, mitigation, and (only if necessary) waiver. Early involvement in an acquisition gives the contracting officer the most flexibility to resolve OCI since the Government is better able to avoid conflicts.

Early involvement by the program/requiring technical office is also necessary since they are in a position to identify the conflict during requirement development and, therefore, are in the position to redefine requirements to avoid a conflict. It is ideal to try to identify conflicts as early as during acquisition strategy development in order to have a proposed resolution developed by the procurement strategy meeting (PSM).

Contracting officers will need to educate program/requirements offices to identify conflicts using the material in Chapter 1 of this Guide. Program/requirements offices should contact their contracting officer and the appropriate Center or HQ legal office as soon as a possible conflict is identified to permit the contracting officer and legal advisor time to resolve conflicts as early as possible. The involvement of the program/requirements office also better meets the intent of FAR section 9.504(a)(1) ―to identify and evaluate potential organizational conflicts of interest as early in the acquisition process as possible.‖ When a conflict is identified in a competitive procurement, contracting officers should include the suggested resolution as part of the

PSM.

The resolution of a conflict may require actions by the contractor, actions by the

Government, or actions by both the contractor and the Government. If the resolution requires actions by the contractor, it typically means that mitigation is the technique that is being used to address a conflict. All actions required of the contractor to address a conflict must be reflected in a mitigation plan and the mitigation plan should be incorporated in the contract. Incorporation is necessary to ensure the mitigation plan is a requirement of the contract. Additionally, the resolution of the conflict may involve a combination of the available types of resolution or ―tools‖ in order to adequately address the conflict.

II. Types of Resolution

a. Avoid

Avoiding an organizational conflict of interest is the ―cleanest‖ way to handle organizational conflicts of interest. Avoidance requires actions on the part of the

Government and normally is best accomplished early in the process. This is particularly true when avoidance involves modifying requirements, which is one of the most typical ways this type of resolution is used. The Government‘s ability to use ―avoidance‖ as a method to resolve OCIs has been limited by the increased use of support service contractors and by consolidations within certain industries. Below are some of the more common methods by which conflicts may be avoided.

1. Ensure the statement of work (SOW) does not require contractors to use subjective judgment: Subjective judgment may be required in tasks that involve analysis, evaluation, or recommendations in areas where divergent views could exist. A conflict is created when the judgment could have a positive or negative effect on other financial interests of the company. It is important, though, to be able to determine when a statement of work in fact does require the use of subjective judgment. GAO has said a contract to develop a quality assurance program to provide surveillance of maintenance, for example, did not constitute use of a subjective judgment since surveillance involved

―monitoring‖ the required schedule and not making decisions as to what maintenance is required.

However, contracting officers and legal advisors should look at this issue on a case by case basis.

Support contract involving objective judgment as opposed to subjective judgment involve verbs such as

―reporting,‖ ―monitoring,‖ ―maintaining,‖ ―testing,‖ ―training,‖ ―integrating,‖ ―operating,‖ and

―administrating.‖ This is not a place to engage in creative writing. GAO and the CoFC will examine the actual requirement rather than the words in the contract to determine whether the contract requires the use of subjective judgment.

See Alion Science & Technology Corp,. B-297342, Jan. 9, 2006, 2006 CPD 1 (Alion). See also Overlook

Systems Technologies, Inc., B-298099.4, B-298099.5, Nov. 28, 2006, 2006 CPD 185; Computers

Universal, Inc., B-292794, Nov. 18, 2003, 2003 CPD 201.

2. Ensure that work involving subjective judgment is performed by the Government or by a contractor that is free from conflict: Conflicts from impaired objectivity contain two elements – the use of subjective judgment by the contractor and a financial interest in the outcome of contract performance. When the Government does not have the ability or personnel to perform tasks involving subjective judgment, a contractor without a financial interest in the outcome of the work should be used. Contractors without financial interests may include (1) a Federally Funded Research and Development

Corporation (FFRDC)

, which by regulation cannot compete against the private sector or

(2) a consulting firm, which does not compete directly with NASA‘s contractors. A determination of impaired objectivity would need to be made on a case by case basis.

3. Ensure that more than one contractor prepares the specifications or the SOW for a competitive solicitation: FAR section 9.505-2 pertains to conflicts of interest created when a contractor prepares a specification or an SOW that is to be used in a competitive solicitation. This type of work involves the use of the contractor‘s subjective judgment.

Assuming the contractor wishes to propose on the follow-on competitive solicitation, the contractor has a financial interest in how the specification or SOW is written. FAR section 9.505-2(b)(1)(iii) states that when more than one contractor has been involved in preparing the work statement, an OCI is avoided. It is unclear exactly what criteria are needed to successfully use the exception at FAR 9.505-2(b)(1)(iii) regarding the use of more than two contractors due to the lack of case law on this specific exception to OCIs regarding this method of avoidance.

It should be noted that more than one contractor must be involved in the preparation of the same part of the specification or SOW for this method of avoidance to work. Having a contractor review another contractor‘s proposed specification or SOW does not meet the exception in FAR section 9.505-2(b)(1)(iii) since preparation may have given a contractor much more latitude to influence the requirements document than does approval of a requirements document.

BEST PRACTICE: When using this OCI avoidance method, strive to include as many companies as practicable that are involved in a particular industry to ensure maximum diversity of input into the specification or SOW. The Government should exercise oversight in independently reviewing the SOW to ensure that the requirements document is not biased in favor of a particular approach or product.

Federally Funded Research and Development Centers (FFRDC) are defined in FAR 2.101 as activities that are sponsored under a broad charter by a Government agency (or agencies) for the purpose of performing, analyzing, integrating, supporting, and/or managing basic or applied research and/or development, and that receive 70 percent or more of their financial support from the Government; and—

(1) A long-term relationship is contemplated;

(2) Most or all of the facilities are owned or funded by the Government; and

(3) The FFRDC has access to Government and supplier data, employees, and facilities beyond that common in a normal contractual relationship.

In addition, FAR 35.017(a)(2) requires FFRDCs to be free from organizational conflicts of interest. Note:

Using an FFRDC operated by an industry firm cannot be a method of avoiding an OCI when the parent organization of the independent operating unit has a financial interest in the outcome of the contract.

SRI International, B-224424, October 7, 1987 cites section 9.505-2(b)(1)(iii) for the proposition that ―a contractor need not be excluded where more than one contractor is involved in preparing the work statement.‖ One of the few decisions that relies upon the exception in section 9.505(b)(1)(iii); however, SRI is a very old decision and involves the use of an advisory panel.

4. Eliminate a contractor or a group of contractors: GAO allows a contracting officer to exclude an offeror or a class of offerors from a competition in order to remedy a conflict of interest. Agencies may exclude an offeror from a competition even when no actual impropriety can be found, so long as the agency‘s decision is based upon fact rather than mere innuendo or suspicion. Although contracting officers are granted wide latitude in their business judgment, GAO requires the contracting officer to ensure impartial, fair, and equitable treatment of all contractors.

A recent solicitation for the operation and maintenance of the Michoud Assembly Facility (MAF) provides an example of excluding a class of contractors. The terms of the RFP prevented the prospective operator from being or becoming a user/tenant (e.g., a hardware production contractor) of MAF. The reason for excluding users/tenants of MAF was that the operator of MAF would be in a position to make a number of decisions regarding resource allocations at MAF, decisions that potentially could favor one user/tenant over another when both were performing contracts at the facility. It should be noted the exclusion of a class of contractors did not prevent NASA from obtaining adequate competition for the MAF solicitation.

b. Neutralize

Having a limitation on future competition, or future contracting, is the best example of

―neutralizing‖ a conflict of interest. The elements comprising a conflict due to ―impaired objectivity‖ and/or ―biased ground rules‖ still exist when a contract contains a limitation on future competition. The limitation on future competition contractually prevents the contractor from exploiting its financial interest thereby resolving the conflict. The limitation on future competition resolution method is suggested in FAR 9.5 and was much easier to implement before consolidation in industry.

When there were five or more companies capable of performing the effort, one of those companies was more likely to be willing to perform the smaller, up-front effort with the understanding it would forego the opportunity to propose on the larger follow-on effort, a restriction required by a limitation on future contracting. Although agreements on limitations on future contracting are more difficult for the Government to obtain when only two or three companies are able to perform the requirement, obtaining a limitation on future contracting still is a highly effective way to resolve conflicts when there are a number of contractors that are capable of performing the requirement.

Contracting officers may use the clause at NFS 1852.209-71, Limitation of Future

Contracting, when an OCI is being neutralized. Contracting officers must modify this clause to make it apply to the specific situation and the particular concern to be addressed, whether it is biased ground rules or impaired objectivity. This may be done without requesting a deviation since the prescriptive language uses the phrase

See Lucent Technologies World Services, Inc., B-295462, Mar. 2, 2005, 2005 CPD 55. See also VRC, Inc., B-310100, Nov. 2, 2007, 2007 CPD ¶ 208; KAR Contracting, LLC, B-310454, B-310537, Dec. 19, 2007, 2007 CPD 232.

Section 9.507-1 of the FAR provides the following:

As indicated in the general rules in 9.505, significant potential organizational conflicts of interest are normally resolved by imposing some restraint, appropriate to the nature of the conflict, upon the contractor‘s eligibility for future contracts or subcontracts.

―substantially as follows.‖ It should be noted that the clause as drafted…