Bones of contention

Contractors face more scrutiny as concerns about conflicts of interest increase

Concern over organizational conflicts of interest
in federal contracting is not new, but it is
receiving sharply renewed attention.

"There is an increasing level of recognition
that this problem is growing," said Mark Colley,
government contracts attorney and a partner at
the law firm Arnold and Porter.

Several trends could be increasing the potential
for such conflicts, experts say. They include
continued shortages in the federal
acquisition workforce, resulting in
greater use of contractors as procurement
consultants; increased reliance on
contractors to deal with complex, networked
technologies; and mergers and acquisitions
among federal contractors, leading to more
interrelationships among companies.

Daniel Gordon, deputy general counsel at
the Government Accountability Office, said he
has noted a growing potential for organizational
conflicts of interest in federal contracting
in recent years and added that the problem
is continuing.

"It is certainly true that the topic has gotten
significant attention, which is a good thing, and
there is active consideration of possible regulatory
changes to address it, which is also a good
thing," Gordon said.

However, fixing the problem will be a challenge.

"I'm not aware of any silver bullet to
make the issue go away," he said.

It is too early to say whether there will be a
crackdown on contractors or a more nuanced
solution. But the subject is generating heated
discussion.

Consider these recent developments:
  • In February, the U.S. Court of Federal
    Claims ordered the Defense Department
    not to extend a support services contract
    with Lockheed Martin Corp. for the military's
    Tricare medical program because the
    contract violates organizational conflict-ofinterest
    rules.
  • GAO released a report March 26 warning of
    potential conflicts of interest related to the
    fact that 42 percent of the contract specialists
    at the Army's Contracting Center
    for Excellence are contractors
    themselves.
  • The Federal Acquisition Regulatory Council
    and the Defense Acquisition Regulation
    Council issued notices March 27 seeking
    comments on whether personal and organizational
    conflict-of-interest regulations
    should be strengthened.

Responding to the recent events, Sen. Joseph
Lieberman (I-Conn.), chairman of the
Homeland Security and Governmental Affairs
Committee, called for action to curb unmitigated
organizational conflicts.

"We need an immediate overhaul of federal
ethics policies to ensure that conflicts of interest
don't impair the impartiality of contractors or
their employees," Lieberman said in a March 26
statement.

VIGILANT EYE

Organizational conflicts of interest, also known
as OCIs, occur when a government contractor
has other activities or relationships that could
lead to an unfair competitive advantage. As
defined in the Federal Acquisition Regulation,
they tend to arise when a contractor plans for
future work or evaluates past or current work
performed by other contractors. That can occur
in contracts for management support, consulting,
evaluation of contractor performance and
systems engineering.

The number of such conflicts is not known.
Gordon said companies have filed more bid
protests with GAO alleging OCIs than they
did 10 years ago, but the overall count is no
more than about 5 percent of all bid protests.
There probably have been fewer than twodozen
OCI protest decisions in the past
decade, he estimated.

Agency contracting officials are expected to
be aware of the potential for such conflicts and
mitigate those risks.

"The government has to be vigilant and cannot
shift to the private sector the responsibility
for handling OCIs," Gordon said. "There is
sometimes a temptation to say, 'Let's let the
company run the mitigation plan.' That is
problematic."

What is new is the perception that the potential
for such conflicts is on the rise and that the
claims court is taking them seriously.

For example, the court ordered no exercise of
extensions on the Tricare contract because of
such conflicts. That is not a common occurrence,
and it will get attention, said Jonathan
Cain, an attorney at law firm Mintz Levin and a
Washington Technology columnist. "It shows
that the court considers OCI a serious threat to
competition for government contracts that
needs to be closely monitored," he said.

Difficulties in hiring enough skilled government
acquisition employees have led to increasing reliance on contractors to plan, design,
supervise, support and evaluate procurement
contracts, which raises the potential for conflicts
of interest, according to the recent GAO
report on the Army Contracting Center of
Excellence. The Army addressed and mitigated
those risks to some
extent, but the government
often relies on the
contractors to identify
conflicts, GAO said.

Rapid consolidation in
the defense, information
technology and government services contracting
industries has led to more interrelationships
among the contractors and more potential
for conflict among affiliates of the same
company, experts say.

Consolidation alone is not the issue, Gordon
said. "The problem is when the company that
sells the tanks has a corporate affiliate that sells
advice on buying tanks."

STRIVING FOR BALANCE

Those concerns are likely to be compounded
when the government embarks on buying
sophisticated advanced technologies requiring
multiple systems networked together, Colley
and others said. In such cases, the government
might hire contractors to design and integrate
those systems and advise on procurement of
parts.

If the government takes a blunt approach to
OCIs, it risks losing the ability to implement
sophisticated designs and buy important capabilities,
Colley said.

"Trying to preserve fair competition without
losing the benefits of great capabilities, you are
between a rock and hard place," Colley said.
But some experts emphasize that the concerns
are manageable. "OCIs ought to be identified
and managed," said Alan Chvotkin, senior
vice president at the Professional Services
Council, which represents service contractors.

As long as agencies and contractors are aware
of the potential, they can always mitigate it, he
said.

Scott Amey, general counsel at the Project
on Government Oversight, said federal
acquisition rules must be updated and
strengthened to address the rise in conflicts
of interest. There should also be better
enforcement, more tools to ensure competitiveness
and more active deterrence, he said.

The government ought to focus on identifying
potential OCIs in earlier stages, especially
when a vendor is assisting in planning and
designing the procurement, said Charles
Tiefer, professor and government contracts
specialist at the
University of Baltimore
School of Law.

When a contractor
serves as a consultant in
the planning of a procurement,
he or she
becomes a partner in the process, and the
potential for partiality becomes greater yet
more subtle, Tiefer said. "It creates a doubt
that the contract officers will be tough enough
on their partner in contracting."

He suggested stronger language in the
acquisition rules, including a requirement to
inform superiors of potential conflicts at an
early stage.

In any case, OCIs are not going away, and
they are getting heightened attention.

"Organizational conflicts of interest are a
huge problem that have come up fast on the
radar screen," Tiefer said.

Alice Lipowicz (alipowicz@1105govinfo.com) is a
staff writer at Washington Technology.

Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close
SEARCH
 Top 100 Slideshow
contracts DB

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Read More

  • Is SBA MIA on contractor fraud? Nick Wakeman

    Editor Nick Wakeman explores the puzzle of why SBA has been so silent on the latest contractor fraud scandal when it has been so quick to act in other cases. Read More

Webcasts