Richard Rector | Prepare now to avoid conflicts

Infotech and the Law | Legal insights for today's market

Richard Rector

It's protest season again. It comes around at the end of the government fiscal year when a spike in the number of new contracts inevitably is followed by a wave of bid protests. The Government Accountability Office reportedly has experienced a 20 percent increase in protests in 2007 and continues on last year's pace of sustaining about 30 percent of decided protests. So the protest wave could be particularly intense this year.

One of the hottest protest issues over the past couple of years has been an allegation that the contract winner has an organizational conflict of interest (OCI). GAO sustained a number of high-profile protests filed on those grounds in 2006, and although subsequent cases suggest that agencies are now being more careful, it has remained prominent in GAO's reported decisions.

Federal Acquisition Regulation Subpart 9.5 provides the framework for OCIs in federal procurement. An OCI occurs when an organization is unable or potentially unable to render impartial assistance to the government because of the organization's activities or relationships with other individuals or organizations. Contracting officers are required to identify and evaluate potential OCIs, and "avoid, neutralize, or mitigate" potentially significant conflicts before awarding a contract.

The FAR addresses four situations in which an OCI may arise:
  • When a contractor provides systems engineering and technical direction to an agency.
  • When a contractor prepares specifications or work statements to be used in a competitive acquisition.
  • When a contractor assists an agency in evaluating offers for products or services and will evaluate either its own or its competitors' offers.
  • When a contractor obtains access to proprietary information through performance of a government contract.

Those rules are frequently applied and interpreted in the context of bid protests. In a lead case from 1995, GAO identified three groups of bid protest cases in which OCIs typically arise:
  • Unequal access to information cases, in which a firm has access to nonpublic, competitively sensitive information as part of its performance of a government contract.
  • Biased ground rules cases, in which a firm has essentially set the ground rules for another contract by, for example, writing the statement of work or the specifications.
  • Impaired objectivity cases, where a company's work under one contract could require it to evaluate itself, either through an assessment of performance under another contract or through an evaluation of proposals.

In the same case, GAO made clear that, in conducting an OCI analysis, "there is no basis to distinguish between a firm and its affiliates, at least where concerns about potentially biased ground rules and impaired objectivity are at issue." Thus a company can have an OCI ? and potentially be excluded from a competition ? based on the activities of its team members, subcontractors and marketing consultants.

Agencies and contractors have implemented various techniques to identify, avoid and mitigate OCIs. These techniques include:
  • Submitting a comprehensive OCI avoidance/mitigation plan creating organizational, physical and geographic firewalls.
  • Entering into nondisclosure agreements.
  • Disclosing sensitive information to all competitors.
  • Taking an active, ongoing role in managing OCIs during contract performance.
  • Allocating or shifting conflicted work to contractor team members that are not affected by the conflict.
  • Declining work.
  • In severe cases, reorganizing, restructuring or divesting corporate entities.

Each of those approaches has met with approval in GAO decisions, but none is a silver bullet. In most cases, to avoid a protest down the road, contractors and agencies should employ a mix of techniques, depending on the nature and severity of the potential conflict.

Richard Rector is chairman of the government contracts practice at DLA Piper US LLP in Washington. He can be reached at richard.rector@dlapiper.com.

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