CURRENT STATE OF PLAY: ORGANIZATIONAL CONFLICTS OF INTEREST Alison L. Doyle McKenna Long & Aldridge LLP NCMA Cape Canaveral Chapter Workshop May 14, 2008

2 Policy Objectives Under FAR 9.5 Prevent conflicting roles that might bias a contractor’s judgment Prevent unfair competitive advantage (UCA) Contracting officers are responsible for identifying and mitigating potential OCIs

3 Three Types of OCI GAO identifies three types of OCIs: –Impaired objectivity (bias) –Biased ground rules (bias and UCA) –Unequal access to information (UCA) Wait – where is the FAR on this?

4 Role in the Procurement Process Solicitation/contract provisions May be an evaluation criterion Restrictions on future activities Identification and resolution of contractor- specific OCIs before award No award if conflict not avoided or mitigated Perhaps even False Claims Act issues

5 Unequal Access to Information Contractor is given access to non-public information (proprietary or source selection) that may provide a competitive advantage in a future procurement Potential for unfair competitive advantage must be avoided or mitigated

6 Biased Ground Rules Contractor prepares specifications or a work statement for non-developmental items/system –Contractor can’t supply the item/system –Developmental work treated differently –Multiple inputs to final product/intervening substantive decisionmaking by govt = no conflict

7 Impaired Objectivity Contractor providing advisory or assistance services is asked to provide subjective analysis or advice that may affect: –Its own products or services –Its competitors’ products or services –Other business interests of the contractor –Its customer’s business interests Conflict must be avoided or mitigated This is the primary source of issues in the current procurement environment – call it ‘outsourcing’

8 Mitigation Principles Unequal access to information issues can be mitigated with standard information control techniques (e.g., NDAs) and internal firewalls Conflicts based on bias cannot be mitigated through internal firewalls, i.e., the conflict is imputed to all parts of a corporate enterprise (GAO position) Conflicts based on preparing specs or work statements cannot be mitigated (but may be different in an M&A context)

9 External Firewalls to Mitigate a Conflict Based on Bias Work must be assigned to a wholly unrelated entity such as the agency (pre-award solution) or a firewalled subcontractor –Subsidiaries and affiliates of contractors are generally viewed as related if they have an interest in the overall financial success of the enterprise The subcontractor must be firewalled so that the prime cannot influence the work But may raise quality of service issues

10 Waiver FAR 9.503: Agency head may waive any conflict based on the overall best interests of the government Must be in writing, recognize the conflict being waived, and provide justification for the waiver Little used

11 Why Such A Hot Area? GAO interest (“OCIs are a growing integrity challenge”) Principles not well understood Consolidation of industry More highly integrated, diversified companies Increasing gov’t use of contractor advisory and technical assistance services

12 GAO Status Several GAO sustains where agency fails to identify or correctly analyze conflicts that could have been mitigated –Contractor and agency misunderstanding of the legal principles –GAO “hard line” on impaired objectivity conflicts –“Acquired conflicts” and lack of understanding by offerors of their own business interests However, recent GAO developments suggest rebirth of GAO “deference” in this area

13 Key Authorities Organizational Conflicts of Interest: A Growing Integrity Challenge, 35 Pub. Cont. L.J. 25 (2005) Axiom Resource Mgmt., Inc. v. United States, No C (Fed. Cl. Sept. 28, 2007, Feb. 26, 2008) United States v. SAIC, No (D.D.C. Aug. 22, 2007) Business Consulting Assocs., LLC, B , Aug. 1, 2007, 2007 WL Greenleaf Const. Co., Inc., B et al., Apr. 4, 2007, 2007 WL

14 Key Authorities (cont’d) Operational Resource Consultants, Inc., B et al., Feb. 16, 2007, 2007 CPD P 38 Overlook Systems Techs., Inc., B et al., Nov. 28, 2006 Maden Techs., B , Oct. 30, 2006 Alion Science & Technology Corp., B and , Jan. 9, 2006, 2006 CPD P 2 and P 1 (impaired objectivity); Alion Science & Tech. Corp., B et al., Sept. 26, 2006

15 Key Authorities (cont’d) SAIC, B et al., May 3, 2004, 2004 CPD P 96 and B , Sept. 21, 2004, 2004 CPD P 201 (impaired objectivity) PURVIS Systems, Inc., B ; B August 16, 2004 Deutsche Bank, B , Dec. 12, 2001, 2001 CPD P 210 (mitigation with external firewall) Johnson Controls World Services, Inc., B , Feb. 13, 2001, 201 CPD P 20

16 Synthesis OCI tolerance goes through trends – be sensitive to agency, GAO and court concerns – we are no longer in the ‘Berlin Wall’ OCI environment where contractors never changed sides, but every bad case pushes back As always, OCIs must be identified as early as possible to ensure agency recognition and time to take steps to address CO discretion: rational CO determinations based upon reasonably complete record will be sustained Corollary: COs may reasonably differ on similar facts Protests of unrecognized OCIs will be sustained even if ultimately can be avoided or mitigated Unequal access to information can be mitigated Impaired objectivity generally cannot be firewalled but other measures available Education education education – can’t solve the problem unless you find it early

17 Other Triggers Subcontractors – many of the cases trace the actual OCI to a subcontractor – often more readily mitigated as long as it is recognized before the sub’s potentially biased input is used – how good is your screening? Is a clause enough? Individuals – can they have personal OCIs?

18 Mitigation Plans Program-specific Objective and complete Ongoing compliance work; not a snapshot Include subcontractors – beyond flowdowns Do the other programs have corresponding OCI plan protections? Do you have a robust screening mechanism?

19 Recent Experience Large advisory and assistance services program; mandatory OCI clause required disclosure and plan Robust screening system circulated the program description to all responsible personnel – system even required a yes/no response Agency identified three programs from its own resources What happened? –Failure to provide clear enough description –Other personnel assumed existing OCI plans in those other programs meant there was nothing to report –The new program CO however had no such assurances, and the existing program COs were not aware new OCI risks had been added to their lists EXCEPT – a subcontractor project had to be handed off to a third party

20 Congress and the FAR Council Lead System Integrator programs at DOD under fire from Congress Advance Notice of Proposed Rulemaking: FAR Council request for input on whether to revise FAR 9.5