Infotech and the law: Appearance is everything regarding conflicts of interest

Eliza Nagle

Organizational conflicts of interest are a constant source of concern for both industry and government. Despite guidance offered in the FAR and a long line of Government Accountability Office cases, contractors and agencies struggle with identifying and resolving these conflicts.

Moreover, it appears that organizational conflicts of interest likely will grow as agencies rely on contractors to draft technical specifications and assist proposal evaluation.

Contractors that provide such assistance must be aware of the constraints on future contracts that such work imposes. The pitfalls of accepting these types of contracts are illustrated in a recent GAO case involving Lucent Technologies World Services Inc.

Lucent was involved in a contract with the Army that required it to prepare a cost and benefit analysis of potential technologies for the Advanced First Responder's Network in Iraq. Lucent's cost and benefit analysis included a recommendation for using certain technology.

The agency accepted the recommendation and modified Lucent's task order to require it to develop a new solicitation for the technology. Lucent prepared the technical specifications, which the agency then modified and incorporated into a request for proposal.

Lucent learned that the new RFP was to be competed, and informed the agency that it intended to submit a proposal. However, Lucent was excluded from the competition, because the contracting officer decided Lucent had an organizational conflict of interest based on its involvement in drafting the RFP's specifications.

Neither Lucent nor the agency disputed that the new RFP's specifications were based on the technical specifications that Lucent drafted. Nevertheless, Lucent filed a protest with GAO contesting the agency's decision to exclude it from the competition. GAO upheld the agency's decision.

The Lucent decision is notable for its short discussion on the impact an "appearance of an unfair competitive advantage" can have on an agency's treatment of a potential organizational conflict of interest in a competition.

GAO concluded that even the appearance of an unfair competitive advantage could compromise the integrity of the procurement process. GAO found that this concern justified the agency's decision to err on the side of avoiding the appearance of a tainted competition by excluding Lucent from the competition.

GAO's statement that even the appearance of unfair competitive advantage justifies an agency's decision to exclude a contractor arguably may broaden the scope and impact of organizational conflicts of interest.

The appearance of an unfair competitive advantage language in GAO's Lucent decision may, regrettably, encourage agencies to err on the side of exclusion whenever there is the slightest concern about potential organizational conflicts of interest, essentially transforming an exclusion into a safe harbor for agencies.

The "appearance of unfair competitive advantage" is a vague standard. The Lucent case offers little guidance to contractors or agencies in helping them determine when an exclusion based on an appearance of an unfair competitive advantage is necessary.

More importantly, the Lucent case provides no guidance on how contractors and agencies can effectively mitigate an organizational conflict of interest based on an appearance of an unfair competitive advantage. Unfortunately, the "unfair competitive advantage" language in the Lucent decision actually may increase the complexity of identifying, avoiding and resolving organizational conflicts of interest without resorting to excluding the contractor.

The Lucent case illustrates the vigilance with which contractors must monitor their contracts for potential organizational conflicts of interest that may preclude future lucrative opportunities. Contractors must balance the benefits against the business risks of accepting particular contracts or modifications that could give rise to even the appearance of an organizational conflict of interest.

Eliza Nagle is an associate in the Government Contracts practice of DLA Piper Rudnick Gray Cary LLP in Washington. Her e-mail address is eliza.nagle

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