FAR Council Issues Proposed OCI FAR Rule

Organizational Conflict of Interest (OCI) rules exist in order to ensure fair competition, maintain the integrity of the procurement process, avoid unfair competitive advantages, protect Government interests, and maintain the public trust. These rules are currently contained in the Federal Acquisition Regulation (FAR) Subpart 9.5. Since those regulations have been basically unchanged since the 1960's, much OCI guidance comes from the many Government Accountability Office (GAO) and Court of Federal Claims (COFC) bid protests that address OCI allegations.

On January 15, 2025, the FAR Council published a Proposed Rule to amend the OCI coverage in the FAR. The Proposed Rule would implement the Preventing Organizational Conflicts of Interest in Federal Acquisition Act (the Act). This is not the first effort to amend OCI coverage in the FAR. In 2011, the FAR Council published a proposed OCI rule that was never finalized, but many of its provisions are reflected in this Proposed Rule.

The new Proposed Rule is not just a tweak – it is a full rewrite. Much of it keeps intact the coverage in Subpart 9.5, with a different organization and the addition of greater detail. The Proposed Rule does, however, add to that coverage in three meaningful respects. First, it would codify significant aspects of “common law” guidance developed in GAO and COFC OCI bid protest decisions. Second, it would satisfy the statutory requirements of the Act by updating definitions, expanding the scope of OCI coverage, and adding solicitation provisions and contract clauses. Third, the Proposed Rule would revive some provisions that were first proposed in the earlier, 2011 proposed rule.

The provisions most likely to change how agencies approach OCI issues are:

• The proposed extension of OCI coverage to include contractors that provide consulting services to both agencies and the companies that are regulated by those agencies.
• The proposed granting of discretion to contracting officers to accept Impaired Objectivity OCI's where the only potential "victim" is the government.
• The proposed addition of "tailorable" OCI-related provisions and clauses for inclusion in solicitations and contracts.

Many of the provisions in the Proposed Rule would codify guidance that has been developed in GAO and COFC bid protest decisions. Accordingly, contractors should already be familiar with these well-established principles. This guidance is set forth below:

1. OCI’s raise two concerns: that the Government needs objective (i.e., unbiased) advice and input and that a level competitive playing field is fundamental to ensuring procurement integrity.
2. Three types of organizational conflicts of interest fall under these two concerns: Unequal Access to Information, Impaired Objectivity, and Biased Ground Rules. These categories were first identified in the GAO decision in Aetna Gov't Health Plans, Inc., B-254397.15, July 27, 1995, 95-2 CPD ¶ 129; they are implied but not stated in Part 9.5.
3. The Government's need for objective advice is addressed by the Impaired Objectivity OCI: "a situation in which an entity or its affiliate has or may have financial or other interests or an incentive to provide other than impartial advice to the Government, or the entity or its affiliate’s objectivity in performing the contract work is or might be otherwise impaired."
4. The concern for a level competitive playing field is addressed by the other two types of OCI:
   
   (a) Unequal Access to Information OCI: "a situation in which an entity or its affiliate has or may have an unfair competitive advantage because (i) Access to the information was provided to the entity or its affiliate by the Government. Such information may include proprietary and source selection information, e.g., proposals, financial information; (ii) The information is not available to all potential offerors; and (iii) Having access to the information would assist the entity in obtaining the contract."
   
   (b) Biased Ground Rules: "A situation in which an entity or its affiliate, as part of its performance of a Government contract, has or may have materially influenced the development of the requirement, evaluation criteria, or other source selection procedures for another Government contract.” Placing this OCI under the competitive harm category appears to ignore the concern that a Biased Ground Rules OCI may also affect the objectivity of the services provided to the government.
5. An unequal access to information OCI occurs only when information was provided, directly or indirectly, by the government. Information obtained from market research or private-sector business contacts, or even improperly obtained from a competitor, does not create an OCI (although it may be otherwise actionable).
6. An unequal access to information OCI may also exist if a former Government employee can provide information, such as contractor proprietary information or source selection information, obtained as a Government employee.
7. Unequal Access to Information OCI’s can be mitigated through firewalls or sharing information with all potential offerors (in a timely manner).
8. An Impaired Objectivity OCI can be mitigated by firewalling team members (including the contractor) away from performance of the conflicted part of the contract, but a firewall, by itself, will not adequately address Impaired Objectivity OCI’s that involve affiliates.
9. Incumbency advantage does not create an OCI. The competitive advantage that a contractor may have on the basis of insight, experience, and expertise gained by having previously performed work for the Government (often termed the “natural advantage of incumbency”) does not create an OCI, unless they also have access to information that provides an unfair competitive advantage.
10. Exchanges with offerors about OCI mitigation plans are not considered discussions if the OCI plan is not an evaluation factor, unless other parts of the technical proposal or cost proposal are changed due to the exchanges.
11. Contractors should not be disqualified based on "innuendo and supposition" unsupported by the record (e., no hard facts), or on the basis that a contractor could theoretically act in bad faith while performing a contract.

Beyond codifying prior OCI "common law," the Proposed Rule restructures OCI practice along the lines required by Congress:

1. The Proposed Rule moves the OCI rules found in FAR subpart 9.5 to a new FAR subpart 3.12 because OCI issues are more directly associated with the business topics discussed in Part 3 (procurement integrity, business ethics and conduct, personal conflicts of interest, etc.), rather than contractor qualifications discussed in Part 9.
2. The Proposed Rule excludes acquisitions below the simplified acquisition threshold. The FAR Council, however, retains the right to determine that acquisitions below the Simplified Acquisition Threshold (SAT) should not be exempted, for example where the contract is expected to lead to a larger (above SAT) contract where OCIs are anticipated. The Proposed Rule also excludes acquisitions for commercial products, but, based on a FAR Council determination, not for commercial services.
3. The Proposed Rule permits contracting officers to accept an OCI risk when the conflict involves only the harm that stems from an impaired objectivity OCI – i.e., when the Government is the only stakeholder that may be directly affected. In effect, this permits the contracting officer to “waive” impaired objectivity OCI's, a dramatic expansion in contracting officer discretion.
4. As mandated by Congress, the Proposed Rule includes "tailorable" solicitation provisions and contract clauses, most of which must be flowed down to subcontractors where applicable. These clauses expand contractor disclosure obligations, in some cases within short time frames. In the past, agencies have addressed these obligation (if at all) using their own solicitation provisions.

(a)   A new solicitation provision, FAR 52.203-XX, Potential Organizational Conflict of Interest—Disclosure and Representation, will provide notice to offerors where an OCI may result from contract performance, and describe any limitations on future contracting. It also allows contracting officers to identify contractors that are disqualified from participation by virtue of preexisting limitations or participation in the development of the solicitation, as well as types of client or industry relationships that may present OCIs for the work to be performed under a resulting contract. This provision also requires offerors to disclose any relevant information regarding potential OCI’s, relevant professional standards to which the contractor is subject, and proposed mitigation plans or limitations relating to future contracting. The Proposed Rule notes that professional standards can be considered, but are not, by themselves, a mitigation strategy. (The inclusion of professional standards likely reflects the concern over consulting companies that appear to play both sides.)

(b) A new clause, FAR 52.203-DD, Postaward Disclosure of Organizational Conflict of Interest, contains more detailed definitions of the types of OCI’s and will require the contractor to make a prompt and full disclosure of any new or newly discovered OCI that arises during contract performance.

(c)   A new clause at FAR 52.203-MM, Mitigation of Organizational Conflicts of Interest, will incorporate accepted mitigation plans into the contract. It requires contractors to propose updates to their mitigation plan within 30 days of any changes in the legal structure of the contractor, subcontractor changes, or management changes that impact the mitigation plan, and to report any noncompliance with the plan.

(d)   A new clause at FAR 52.203-LL, Limitation on Future Contracting, is to be used to address a potential conflict of interest through a limitation on future contracting, spelling out the specific limitation and duration.

(e)   A new solicitation provision at FAR 52.203-AA, Unequal Access to Information—Representation, will require the offeror to determine and disclose whether it or an affiliate had unequal access to any information that could provide an unfair competitive advantage, and advise of any proposed actions, such as firewalls, to resolve the OCI.

5. The Proposed Rule provides updated "illustrative examples," currently found in FAR 9.505 and 9.508. The examples are divided among the three types of OCI.

(a) An important new set of examples involve contracts for consulting services awarded to a contractor in which "employees of the contractor performing work under such contract are permitted by the contractor to simultaneously perform work under a contract for a private sector client under the regulatory purview of such agency." The Proposed Rule provides several examples of situations where a contractor assists an agency in developing regulatory guidance or procedures, enforcement activities, or research activities, and is also providing consulting services to an entity governed or affected by or having an interest such procedures or activities, especially (but not exclusively) when the work is being performed simultaneously. This expansion of OCI coverage was triggered by Congressional concern over a consultant company that provided advice to the Food and Drug Administration (FDA) concerning the regulation of opioids, while simultaneously representing a major opioid manufacturer.

(b) Another new example involves a contractor providing services relating to national security or foreign policy matters while providing similar services to a foreign government or other foreign entity with opposing interests.

(c) The examples all involve likely OCI's. Missing, however, are several examples contained in 9.508 that help agencies and reviewers engage in appropriate line-drawing by describing situations that do not create an OCI, not just examples of what does.

As proposed, the Rule would maintain the agency's authority to waive an OCI. Formal waivers will be needed only for OCI's that affect the competitive process, however, since contracting officers will have the discretion to accept Impaired Objectivity OCI's when they determine that it is in the government’s interest to do so.

The Proposed Rule also contains provisions that were included in the 2011 proposed rule, but never implemented:

1. The Proposed Rule advises contracting officers to work with the program office or requiring activity early in the acquisition process to successfully implement an avoidance strategy and to identify contractors that participated in preparing the specifications. (It also advises contracting officers to give "proper consideration" to decisions of a prior contracting officer.)
2. The Proposed Rule requires that approved mitigations plan be incorporated into the contract (which is already required by the Defense Federal Acquisition Regulation Supplement (DFARS) OCI rule).
3. The Proposed Rule provides that in task order contract awards, possible OCI’s should be considered both in the award of the umbrella contract and in the award of each task order, and assigns responsibility when there is an interagency acquisition.
4. Where an unfair competitive advantage results from an affiliate’s interests or prior involvement in a contract, the contracting officer is directed to consider the relationship between the contractor and its affiliate, including their financial relationship, information sharing practices, and corporate control, and may impose structural barriers or internal controls (à la National Industrial Security Program Operating Manual (NISPOM)) where there is a benefit to the government in doing so.

The Proposed Rule, if finalized in its current form, will impose some pre-award and post-award reporting and record-keeping requirements on contractors that may prove burdensome. These include requirements to disclose information about other interests, affiliates, applicable professional standards, mitigation plans, unequal access to competitive information, the existence of firewalls and any failures thereof, and post-award changes that could result in OCI’s, including organizational, management, or ownership changes. The FAR Council considers these burdens "de minimus" since most of them replace or modify similar burdens under the current FAR requirements, and many are explicitly required by some agencies or implicitly required as a consequence of GAO protest decisions.

Public comments on the Proposed Rule must be filed by March 17, 2025. The FAR Council is particularly interested in comments concerning the need for and the burden of producing the information required by the Proposed Rule.