Long awaited update of conflict-of-interest rules is in the works

Tom Temin: Give us the context on organizational conflict of interest and why it’s such a foggy area.

Zach Prince: Sure. So OCIs, organizational conflicts of interest, come up a lot in bid protests and in acquisition space in general. Contractors, especially the big ones, they do a lot. They’re involved in the acquisition offices or program offices. They have access to information that may be competitively sensitive and beneficial. Sometimes they’re setting the rules to an extent on procurement that they might be involved in. And so the FAR is set up to try to avoid even potentially, the appearance of impropriety in an acquisition to try to maintain the integrity of the procurement system. The problem is the FAR is really not very detailed when it tells you what an organizational conflict of interest entails, how to avoid it, what examples there are of an OCI that you need to mitigate or and how to mitigate. And so what we’ve been left with is this body of case law, mostly from GAO that tells you this is an OCI, this isn’t an OCI, and it leaves you scratching your head pretty frequently.

Tom Temin: It’s kind of like we’ll know one when we see one, but it’s kind of not spelled out anywhere in detail.

Zach Prince: Exactly right. And it it leaves protesters with an avenue to raise complaints and slow down the acquisition process pretty significantly and pretty frequently.

Tom Temin: All right. And this new rule was proposed on January 15th. Any indication, any word on the street that the Trump administration will try to get rid of it? Because it was five days before inauguration.

Zach Prince: You know, it was five days before inauguration. And being kind of cynical, which I think is warranted, this administration does not seem to care very much about conflicts of interest at all. So who knows? But this thing has been in the works for a long time, and DoD put out a proposed rule in 2011 that was then in the works for nearly a decade before they scuttled it because it was too old. So we need some clarity in the regulations. It’s just going to be a question of whether this is it. This is a pretty good rule and it’s going to need some refinements. But if there still is rulemaking that gets done, this rule ought to be part of that.

Tom Temin: And what exactly does the rule say? What would it do? Give us some of the particulars that you’ve ferreted out of it.

Zach Prince: So there there are three categories of OCI. And those three categories really are a product of the GAO decisions, not the regulations as imperatives activity where a contractor essentially you’re reviewing for the government something that you have an interest in. It’s a system you’ve designed or it’s a competitors products bias ground rules where you’ve set the rules for the competition to some extent, and unequal access. That is, you have access to information that is competitively sensitive and can give you an advantage in a procurement. This gives definitions, those three terms in a way that the GAO cases didn’t really. And it also goes further by giving contracting officers specific examples for each of these so they know where there is or is not an OCI tells you how to mitigate or examples at least of of mitigation strategies, which are really important because some GAO cases suggest you can mitigate certain types. Some say you can’t, and it costs a lot of money for contractors and agencies to figure out where that line lies, and then telling agencies prospectively how to set up procurements in a way that these issues won’t pop up. And the industry needs that. If you slow down the process tremendously, when you’ve got arguments about OCI, is that go through a series of protests, maybe sometimes they’re clear. Some of these are obvious sources, but often they’re not. And if you could get a little bit more clarity in the regulations, I think it’ll speed up acquisition tremendously.

Tom Temin: And do you feel that this would affect large businesses or small businesses more because often. Well, agencies sometimes use the big, well known contractors to kind of set up management systems and to determine what it is that the agency should be doing with contractors. And then that leaves them out of being able to bid on that work itself. But sometimes there’s a lot of small contractors that do that. So is it a big, small question here, do you think?

Zach Prince: I think there’s going to be equal impact. You know, you think about some of the big OCI cases and you think about the cases involving Northrop or Raytheon or years ago, SAIC when they spun out Leidos. A lot of that, at least the scuttlebutt was that that was because there are just too many complex for you to continue with the scope and scale of the business that they had, because they’re doing so much systems engineering work. But I see a lot of protests that involve small businesses that are teaming together. And the OCIs are coming because of a teaming partner or because of whoever’s priming and leading in the effort. They were involved somewhere in establishing a program that they’re now going to be evaluating. So I think it’s going to be across the board, especially in services contracts, but not just services. This is products.

Tom Temin: So and it’s easy to see where you could have an organizational conflict of interest in technical types of contracts. Because I mean it’s gets close to requirements for specific products that a particular vendor might offer. But as products get more commoditized, it seems to equally affect the services area.

Zach Prince: Yeah. And and I think it’s more in services really. This rule would actually carve out from products commercial products from the scope of the rule, which I think makes a lot of sense if you’ve got a real commercial product. OCI should not be a significant part of the analysis because you shouldn’t be having particularly bespoke requirements there, right? It’s a commercial product. Commercial services, which the government buys a lot of. Really still could be an issue because you’re exerting some element of subjective analysis.

Tom Temin: And it looks like those acquisitions below the simplified acquisition threshold, which is at the moment 250,000, that could rise, but not for commercial services at that level. Only products at the simplified acquisition threshold.

Zach Prince: So it exempts everything below the simplified acquisition threshold under the new rule and overall exempts commercial products. I think having a threshold makes sense whether it’s $250,000 or something else, those acquisitions should be able to proceed faster. It shouldn’t take you the same time to go out and buy a fairly simple piece of equipment, as it does to buy an F-35. Right.

Tom Temin: And who is the determinant in whether there is an OCI in a contract? Who can head it off? Is it primarily the contracting officer or the contracting officer’s representative?

Zach Prince: It’s the contracting officer. I mean, generally speaking, the agency has a lot of discretion in this area. As long as their decisions are rational, then they’re going to prevail in any challenge. But the contractors have to be doing thinking about this when they’re setting up their teams, when they’re planning their business pipeline. Considering their current scope of work, they need to be thinking about this in advance, because you just can’t deal with an OCI effectively once you’re already in the thick of it. It’s got to be, we’re now doing the systems engineering work. How do we ensure this team doesn’t taint everybody else in the company? When we think we might want to bid on some related work down the road?

Tom Temin: Right. So it’s possible for a company to work both sides of the street in a legal manner, even with this rule?

Zach Prince: Yeah, to an extent. I mean, there are certainly instances where there’s just no way. I mean, when you’ve got, in a period objectivity, OCI, for example, where you’re basically evaluating the work product of your own company or a competitor.

Tom Temin: Yeah, that’s no good.

Zach Prince: Yeah. The benefit of your company is obvious to anybody, right? Of giving you a good review to yourself in a negative to the others. Even if the people who worked on it have no ability to interact with the rest of the team, it doesn’t matter. But for example, you had access to competitively sensitive information, another procurement. If that group is firewalled off, they can’t influence the rest of the team. That’s now putting together a bid that could conceptually have benefited from that information.

Tom Temin: And the timeline for commenting on this rule, what are they giving it here? The FAR Council.

Zach Prince: Until March 17th. But again, you know, with the new administration, who knows.

Tom Temin: Well, maybe they haven’t noticed it yet.

Zach Prince: That might be the case.

Tom Temin: It’s a big government and not even DOGE can see everything.

Zach Prince: Yeah, not everything’s available on USASpending.gov. Although there’s a lot of mysterious things they’ve discovered and put in the news from there.