Government Contracts Advisory - DoD Proposed Rule Expands Organizational Conflicts Of Interest Coverage

DoD Proposed Rule Expands Organizational Conflicts Of Interest Coverage

The Department of Defense (DoD) recently released a proposed rule (75 Fed. Reg. 20954 [April 22, 2010]) regarding organizational conflicts of interest (OCIs) as required by § 207 of the Weapon Systems Acquisition Reform Act of 2009 (WSARA). The FAR Council is also reviewing OCI rules applicable to all agencies pursuant to § 841(b) of the FY 2009 DoD Authorization Act and is expected to issue proposed revisions to those regulations later this year; thus, the DoD proposed rule may be a precursor to those revisions. 

The proposed OCI rules are included in a new DFARS Subpart 203.12, with implementing solicitation provisions at DFARS 252.203-70WW-ZZ. The proposed rule generally adopts existing case law defining OCIs and requires contracting officers to assess potential OCIs early in the acquisition process and resolve them prior to award, preferably through “mitigation.” This alert highlights five significant aspects of the proposed rule’s coverage:  Applicability; Types of OCIs; Coverage; Disclosure; and Resolution. It also discusses some provisions specifically relating to major defense acquisition programs.

Applicability to All Contracts

Although WSARA only required DoD to address major defense acquisition programs, (specifically, lead systems integrator contracts and systems engineering and technical assistance [SETA] contracts), the proposed rule takes a broader approach and applies to all DoD procurements other than COTS acquisitions.[i] The proposed rule would also apply to task and delivery orders issued under existing contracts and to “modifications to contracts.”[ii] 

Types of OCIs

In defining OCIs, the proposed rule relies on the three types of conflicts recognized in GAO and Court of Federal Claims case law: impaired objectivity, unfair access to non-public information, and biased ground rules.[iii] Although the proposed rule includes examples of each type of conflict, many borrowed from the current OCI rule at FAR 9.505, it makes clear that the examples in FAR 9.505 do not represent the entire spectrum of potential OCIs.      

Coverage: “Total Contractor Organization”

The proposed rule defines “contractor” for purposes of identifying potential and actual OCIs as the “total contractor organization,” which appears to include the business unit or segment that signs the contract, as well as “all subsidiaries and affiliates.”[iv] The background to the rule explains that this definition is intended to clarify that the “entire contractor organization” is covered by the rule.[v] Thus, compliance with the proposed disclosure obligations might require expanded inquiries prior to submitting proposals or in other instances where conflicts need to be addressed, including, potentially consideration of work performed by affiliated entities under separate management.  

Disclosure Obligations

The proposed rule would place an obligation on offerors to “disclose facts bearing on the possible existence of organizational conflicts of interest both prior to contract award and on a continuing basis during contract performance.”[vi] The rule also requires offerors to propose a mitigation plan for any OCI the offeror identifies that has not been identified by the government in the solicitation.[vii] The background to the proposed rule also cites favorably to GAO case law addressing pre-award communications on OCIs and suggests that if the government has included the proposed DFARS clause making an OCI mitigation plan an eligibility factor for award, then communications with an offeror “to arrive at an acceptable [OCI] solution” should not constitute discussions.[viii]

As an apparent prophylactic measure, the proposed rule also requires all offerors to “[d]escribe any other work performed on contracts, subcontracts, grants, cooperative agreements, or other transactions within the past five years that is associated with the offer it plans to submit.”[ix] The rule also gives the government the right to terminate a contract for default where the successful offeror “was aware, or should have been aware, of an organizational conflict of interest before award of th[e] contract and did not fully disclose that conflict to the Contracting Officer.”[x]

Resolution

The proposed rule gives a preference for resolving OCIs through “mitigation,” which can include the use of “firewalls” and public dissemination of previously non-public information to resolve “unfair access to non-public information” OCIs, but only those OCIs. Requiring the prime contractor to retain a subcontractor or team member that does not have an OCI may be used to resolve any type of OCI. Other resolution techniques include (i) “avoidance,” which can mean excluding certain contractors or classes of contractors from submitting a proposal on an instant contract to avoid creating an OCI on a future contract, but only if the Contracting Officer determines that no less restrictive alternative exists to adequately protect the government’s interest; and (ii) “neutralization,” which allows performance of the instant contract, but precludes the contractor from submitting an offer for future contracts where the contractor could have an unfair competitive advantage.[xi] The proposed rule also authorizes waivers of OCIs where resolution of the OCI is either not feasible or not in the best interest of the government.[xii] Finally, it provides for written notification and an opportunity to respond where award will be withheld from the apparent successful offeror due to an OCI, and for identifying and resolving OCIs in connection with awards of individual task or delivery orders under task order contracts.[xiii]

Implementation of WSARA’s Major Defense Acquisition Reform

While the proposed rule deals with OCIs in all DoD acquisitions, it also contains a separate section (DFARS 203.1270 et al.) specifically relating to OCIs in major defense acquisition programs. That section implements WSARA’s prohibition on SETA contractors, or their affiliates, from participating, as a contractor or major subcontractor under a significant defense acquisition program, in the development or construction of a weapons system in the same program without a contracting officer determination and a government approved OCI plan, or unless certain other exceptions apply.[xiv] It also enumerates activities that constitute “technical assistance” and “systems engineering.”[xv] For lead system integrators, the proposed rule refers to the existing OCI rules in DFARS Subpart 209.5.   

The proposed rule does not require that agencies obtain advice on systems architecture and systems engineering matters for major defense acquisitions only from federally funded research and development centers (FFRDCs), as some had feared after the passage of WSARA. Rather, the new rule repeats the WSARA language permitting such advice from FFRDCs or “other sources independent of the major defense acquisition program contractor.”[xvi] The proposed rule, however, does not provide additional guidance regarding the definition of other independent sources. 

Interested parties are encouraged to submit comments on the proposed rule by May 22, 2010, but no later than June 22, 2010. If you have any questions regarding DoD’s proposed rule please contact Tom Barletta at 202.429.8058, Paul Hurst at 202.429. 8089, or Mike Navarre at 202.429.8081.

[i] See Weapons Systems Acquisition Reform Act (WSARA), Pub. L. 111-23, §207(b), 123 Stat. 1704, 1728-29 (2009).

[ii] See Proposed Rule at § 203.1202(a)(1).

[iii] See Proposed Rule at § 203.1204; see also 75 Fed. Reg. at 20955 (citing Aetna Gov’t Health Plans, Inc., et al., B-254397, 95-2 C.P.D. ¶ 129 at 8-10 (Jul. 27, 1995)).

[iv] See Proposed Rule at § 203.1201.

[v] See 75 Fed. Reg. at 20955.

[vi] See Proposed Rule at § 203.1203.

[vii] See Proposed Rule at § 252.203–70XX(e)(2).

[viii] See 75 Fed. Reg. at 20955 (citing Overlook Sys. Techns., Inc., B–298099.4 et al., 2006 C.P.D. ¶ 185 (Nov. 28, 2006)).

[ix] See Proposed Rule at § 252.203–70XX(e)(1)(ii).

[x] See Proposed Rule at § 252.203–70XX(g) (emphasis added).

[xi] See Proposed Rule at § 203-1205-3.

[xii] See Proposed Rule at § 203-1205-4.

[xiii] See Proposed Rule at § 203-1205-5.

[xiv] See Proposed Rule at § 203-1270-6; 252.203-70VV & WW.

[xv] See Proposed Rule at § 203-1270-1.

[xvi] See Proposed Rule at § 203.1270-3(b).