New OCI rules mean big impact for industry

Long-awaited proposal will likely stretch beyond just DOD

At a Dec. 8 public meeting, the Defense Department was expected to outline its proposed approach to managing organizational conflicts of interest (OCI). This long-awaited proposal could have an enormous effect across the defense industry. It also will likely have a significant effect on the governmentwide policy expected in the coming months from the Office of Federal Procurement Policy.

Those important policy decisions represent the next steps in a debate that has lasted for several years. Although there have been few major cases of significant breaches of OCI prohibitions, concerns about OCI have been growing as industry has increasingly consolidated and the Government Accountability Office has sustained a series of bid protests on the basis of the government’s poor management and oversight of OCI. In fact, GAO has gone so far as to question whether mitigation strategies — the norm for managing OCIs in today’s environment — are adequate to overcome bias. As a result, Congress has directed DOD and OFPP to review OCI policies and practices and recommend changes as they see fit.

On one level, the direction will be welcome. In the absence of departmentwide or governmentwide policies, individual agencies have been imposing their own, often widely disparate, OCI policies. For example, the Missile Defense Agency and National Reconnaissance Office have taken hard lines on OCI and created bright-line tests for their services contractors. Sometimes components within the same agency have differing policies and attitudes. If nothing else, one can hope that the new policies bring some consistency and predictability to the process.

There are two other important tests that we should hope the new policies enact. First, it is important to dispel the notion that mitigation strategies, appropriately managed and implemented through a company’s compliance program, cannot work. Indeed, even GAO has an internal firewall process to keep its protest attorneys independent of other forces within GAO that work on program reviews. The key is to carefully and clearly define the circumstances that create untenable conflicts and more clearly define how a combination of firewalls, government oversight, multicontractor inputs, use of third-party subcontractors and strict confidentiality agreements — with harsh penalties for violations — can best ensure protection of the government’s interests.

Further, DOD and others must provide cogent information to Congress as concerns about OCI grow but in-depth understanding of the specifics of mitigation strategies is less prevalent. GAO’s principal findings on this issue have focused on the government’s description, oversight and management of OCIs. That problem can be addressed without throwing out the entire mitigation concept.

Second, the policies or practices that might be appropriate in a hardware and weapons systems environment, in which the intersection of production and support creates special concerns, might not be appropriate, effective or even desirable in the broader technology and solutions space, in which the industry and competitive dynamics — indeed, the industry structure itself — is substantially different. As such, any changes to OCI policy must reflect the variances of different industry segments.

Whatever DOD and OFPP decide, the impacts will be felt everywhere. Many see this issue as principally involving companies that support major weapons systems development and production — witness Northrop Grumman Corp.’s recent sale of TASC — but in truth, its tentacles will be broad and will affect companies of all sizes in many segments of the market.

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