Infotech and the Law: New review of conflict-of-interest rules long overdue

Jonathan Cain

Questions frequently arise, particularly among subcontractors asked to provide proprietary technology to government prime contractors, about conflicts of interest between the prime contractor's role as contractor and its role in helping define the agency's requirements.

The Federal Acquisition Regulations Act contains policy statements and rules concerning these conflicts of interest, but their application by federal agencies is uneven. The Office of Government Ethics has recognized the problem and this summer launched a review of how agencies handle the conflicts.

The review is concerned primarily with situations in which government employees and contractors work side by side, offering the contractor the opportunity to obtain proprietary information supplied by other contractors or source selection information, or to affect the specifications of agency procurements.

Twenty-one agencies have been asked for information concerning how apparent conflicts are raised, investigated and resolved, and whether amended regulations or revised contract terms are needed to address conflicts of interest.

The FAR Act prohibits a contractor that provides systems engineering and technical direction for a system, but that does not have overall responsibility for its development, from being awarded the contract to supply the system or any major components. Similarly, if a contractor is engaged to prepare specifications for non-developmental items that will be competitively acquired by the agency, that contractor is prohibited from the procurement for the specified items.

This is to avoid the obvious problem of the contractor designing the specifications in a manner that unfairly biases the selection toward its own products.

Different rules apply to development work. These contractors are expected to design around their own previous work, and the government merely assumes, without requiring any objective verification, that the development contractor's production of items it designed will be faster and of higher quality than that provided by an independent producer. Despite the dubious assumption upon which the rule is based, development contractors are not prohibited from supplying the items they have designed.

The second major issue the rules address is an incumbent contractor's use of proprietary information of third parties obtained during contract performance to gain an unfair advantage in later procurements.

The rules provide that a contractor furnishing consulting services to a government agency who gains access to proprietary information of any other company as a result "must agree with the other company" to protect that information from unauthorized use or disclosure and refrain from using it for any other purpose.

The rule requires the government's consultant to enter into a nondisclosure agreement with the owner of proprietary information, but fails to specify minimum terms for such an agreement. It does not prohibit the consultant from using its knowledge of this information in its own proposals to enhance its competitive position in follow-on procurements.

The review by the Office of Government Ethics should evaluate several problem areas not covered by the rules. For example, should there be special rules to cover situations in which contractor employees work along side government employees and are able to obtain advance or more detailed information about government requirements than is available to other competitors? Is there an objective justification for treating development and non-development items differently? Should contractors and their employees serving in design or consulting roles be required to disclose financial interests in potential bidders?

The continuing consolidation of government IT purchases under an ever-shrinking number of large contracts makes a review of conflict-of-interest rules long overdue. *

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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