Court stands tough on conflict of interest

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

During the last week of February, the U.S. Court of Federal
Claims ordered the Defense Department not to exercise
any future options that extend a support services contract
with Lockheed Martin Corp. for DOD's Tricare medical
services program. The order follows a decision last year that the
contract award violated organizational conflict of interest (OCI) rules.

The court held that the government had
been unable to provide it with an enforceable
plan to mitigate the OCI. The court had
given the government four months to develop
a suitable plan, an invitation the government
declined. Termination of contracts for
OCI is not a common occurrence, and this
action on such a visible contract will get
attention. It also shows that the court considers
OCI a serious threat to competition
for government contracts that needs to be
closely monitored.

Last year, the court held that the award of
the Tricare support contract to Lockheed
Martin violated the Federal Acquisition
Regulation by not identifying a potential
impaired-objectivity conflict and the contracting
officer had neglected to develop an
OCI mitigation plan to correct an unequalaccess-
to-information conflict. The court
found that, as a result, Lockheed Martin
had unfair competitive advantages for
future Tricare-related procurements.

The government and Lockheed Martin
proposed a mitigation plan that would have
been incorporated into a contract modification.
Not good enough, the court said. The
"offer to incorporate the proposed mitigation
plan as a modification to the contract,
without affording the court the ability to
[ensure] compliance by an independent
auditor, likely will prove illusory. Given the
fact that the [contracting officer] repeatedly
failed properly to identify or mitigate the
OCIs at issue in this case, the court has little
confidence that the [contracting officer] will
identify and properly mitigate potential or
actual OCIs in the future."

The court acknowledged that the government
could rescind the contract if it was not
satisfied with Lockheed Martin's mitigation
efforts but expressed
concern that aspects
of the plan were not
legally enforceable
or were anticompetitive.
The court
wanted a mitigation
plan that included
oversight by an outside auditor.

The government balked at any oversight.
It told the court it would rather have the
contract terminated and resolicit offers for
the Tricare support services than have an
independent auditor oversee compliance
with a mitigation plan. Perhaps to the goverment's
surprise, the court called its bluff
and entered the injunction.

The court's injunction barring extension
of the contract is significant also because it
illustrates a policy rift between the
Government Accountability Office and the
courts on a significant policy issue. Before
being litigated, the contract award had been
protested unsuccessfully three times to
GAO, which repeatedly found that there
was either no OCI or that the OCI could
be mitigated by the contracting officer.
The court not only disagreed but made it
clear that contractors and the government
should expect to see more attention
being paid to OCI:
    "The federal government's increased use
    of and dependence on outside contractors
    to perform essential government functions
    often entails providing these contractors
    with governmental, business proprietary
    and otherwise private information to perform
    their duties. Establishing parameters for
    access to and use of this information will be
    among the most important decisions that the
    [courts] will make in the next few years ?
    not only for government contract jurisprudence
    but to maintain competition in this
    growing segment of
    the economy."

The continued
expansion of outsourcing
to contractors
of functions
traditionally performed
by government
employees has led to heightened congressional
attention to OCI. Now, at least
one bid protest forum also has given notice
that it will be paying close attention.

Jonathan Cain (jtcain@mintz.com) is a member of
law firm Mintz Levin.

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