This Article does not address personal conflicts of interest. Personal conflicts of interests arise when an individual’s own personal circumstances, particularly familial or financial relationships, conflict with that individual’s professional responsibilities and loyalties.6 Examples of a personal conflict of interest include a government official who administers government procurements in his / her own self-interest by awarding a contract to his / her spouse, or a purchasing officer who accepts free vacations from a firm and then selects the firm’s products for the government’s purchase. The U.S. laws and regulations governing personal conflicts of interest for government employees are scattered in a variety of sources.7
In an OCI situation, it is rarely the case that any one individual in an organization has divided loyalties. Rather, the organization itself has divided loyalties.8 For example, suppose a firm that designs and builds power plants is hired to evaluate power plants for construction defects in a small country. If that work involves evaluating power plants constructed by the firm’s affiliates, the firm could have conflicted loyalties. This OCI might exist even if no individual firm employee has any interest in the affiliates, since the firm itself has divided loyalties.
The integrity of the U.S. federal procurement system is protected, in part, by its current OCI regulations, which are intended to assist with identifying and addressing circumstances where contractors may be unable to provide impartial advice to the government, may have an unfair competitive advantage because of unequal access to information, or may have prior involvement in setting the rules for a future procurement.9 The federal OCI rules are far from perfect, but they offer a robust starting point with a welldeveloped body of case law for use when developing OCI rules for a given procurement system.
Since 2005, when the EU Court of Justice issued its Fabricom decision,10 EU courts have been rapidly creating an EU body of OCI law.11 Perhaps because of a head start, the U.S. body of OCI case law and regulations are, by comparison, currently more robust than those of other governmental bodies.
The author intends this Article to serve as a starting point and resource for procurement officials considering implementing or revising an OCI framework within a large public procurement system. Deciding on which OCI rules to adopt — regardless of the status of any current OCI rules already in place — involves determining the primary purpose and goals of the procurement system, and what types of risks to avoid. For example, policy makers may prefer policies that ensure the government receives value for its money (the U.S. system generally), or they may seek to promote trade (the WTO GPA generally), or they may seek to encourage economic integration (the EU Procurement Directives generally). Different types of OCI rules support each of these goals. Additionally, if a procurement system has more than one goal, procurement officials must consider trade-offs.12 Actions designed to advance any individual goal will necessarily have either a positive or negative effect on other goals.13
Part II of this Article provides additional discussion of why procurement officials should give deliberate thought to the OCI rules they choose to enact. Part III provides an overview of the U.S. OCI regime. Part IV offers a survey of the OCI rules of the major international procurement systems. Part V addresses the various decision points procurement officials should consider when developing or improving an OCI regime.
II. Reasons for Establishing OCI Rules
When used properly, OCI rules directly promote legitimacy. The integrity, fairness, and public confidence in a public procurement is highest when procurements are conducted “with complete impartiality and with preferential treatment for none.”14 Many of the major international procurement systems recognize integrity as a foundational component of public procurement.15
The failure of a procurement system to address OCIs appropriately can undermine both its legitimacy and anti-corruption goals and may have other undesirable effects. Unaddressed OCIs can undermine competition16 since businesses may be reluctant to participate in a procurement system if they believe they are not being treated impartially. In the U.S. system, for example, proposal preparation costs for complicated procurements can be substantial. Firms may be unwilling to compete in a specific procurement if they believe the ground rules are predisposed toward a competitor.17 OCIs can also reduce the quality and value of the services a government receives, because organizations with OCIs may have competing loyalties that could undermine the quality of their advice to the government.18 Divided loyalties may include conflicting interests such as maximizing profit versus rendering candid advice to the government. In circumstances where providing impartial advice may be against organizational self-interest, the procuring organization faces performance risk.
In addition to failing to address OCIs appropriately, another misstep procurement policy makers unintentionally may make is implementing overly restrictive OCI rules. Such OCI rules can cause adverse effects similar to having no rules at all. Overly restrictive OCI regulations, such as those requiring mandatory disqualifications, actually can reduce competition by limiting the government’s access to certain contractors. Inflexible exclusionary rules are especially problematic in the case of highly specialized industries, such as in the development of spacecraft and nuclear reactors. Strict and inflexible OCI rules limit a government’s access to sources of goods or services. Complicated OCI regulations may also increase compliance costs for organizations doing business with a government, thereby increasing the cost of all goods and services.
III. Overview of U.S. Federal OCI Regime
This section provides an overview of how the U.S. federal procurement system handles OCIs.19 The law applicable to OCIs within the United States is derived from regulation and case law.20 The applicable regulation is the Federal Acquisition Regulation (FAR), primarily FAR Section 2.101 (Definitions) and FAR subpart 9.5 (Organizational and Consultant Conflicts of Interest).21 The applicable case law originates from the Government Accountability Office (GAO) and the Court of Federal Claims (COFC).
The FAR currently defines an OCI as follows: “[B]ecause of other activities or relationships with other organizations, [an organization] is unable or potentially unable to render impartial assistance or advice to the Government, or the [organization’s] objectivity in performing the contract work is or might be otherwise impaired, or [an organization] has an unfair competitive advantage.”22 The two stated principles of the U.S. OCI regime are: “(1) Preventing the existence of conflicting roles that might bias a contractor’s judgment; and (2) Preventing unfair competitive advantage.”23
An influential decision in this area is Aetna Government Health Plans, Inc. from the GAO, which created the OCI framework used in the United States by organizing OCI into the following three categories: (1) Unequal Access to Information; (2) Biased Ground Rules; and (3) Impaired Objectivity.24
Unequal Access to Information (or “unfair competitive advantage”)25 OCIs consist of situations in which an organization has access to nonpublic information as part of its performance of a government contract, and that information may provide the firm with an advantage in a competition for a subsequent government contract.26 The concern is not that the organization has done anything inappropriate, but simply that the information gained in the performance of one contract may provide an unfair competitive advantage and have the effect of chilling competition on a follow-on procurement.27 This type of OCI presents a slight risk to the integrity and reputation of the procurement system.28 It does not present a performance or business risk to the government.29 In fact, it could be argued that a firm with the most information, however obtained, is in the best position to successfully perform.
The Biased Ground Rules type of OCI consists of situations in which an organization has, as part of its performance of a government contract or while rendering advice to the government, shaped the ground rules for a future procurement.30 This can occur when a contractor writes the statement of work or the specifications for a future contract.31 With this type of OCI, the primary concern is that the firm could skew the competition, whether intentionally or not, in its own favor.32 This is the most fundamental type of OCI recognized internationally and presents a significant risk to the integrity and reputation of a procurement system.33 While it is sometimes necessary to have firms participate in developing specifications, such as for complex procurements, having multiple competing firms participating in the preparation of specifications can mitigate this type of OCI.34
The Impaired Objectivity type of OCI consists of situations where an organization’s work pursuant to one government contract could involve evaluating itself, either through an assessment of performance under another contract or an evaluation of proposals.35 Put simply, Impaired Objectivity OCIs generally occur when an organization has economic interests undermining its ability to provide impartial advice. The concern is that the organization’s ability to render impartial advice to the government could be, or could appear to be, undermined or partial.36 This type of OCI presents primarily performance risk to the government, and in most circumstances, is not an integrity risk to the procurement system as a whole.37 This Article adopts the Aetna framework and terminology, which has been consistently followed in the United States.38
It must be noted that, in 2011, the FAR Council proposed a substantial revision to the U.S. OCI rules with the intent to produce “an OCI framework that is clearer, easier to implement, and better suited to protecting the interests of the government.”39 The proposed OCI framework is a vast improvement for a variety of reasons, but most notably, because it acknowledges that not all types of OCI rules serve the same policy interests.
The proposed rules separate and treat differently OCI rules that are intended to protect “the integrity of the competitive acquisition process” (for example, Biased Ground Rules OCI) from OCI rules that are intended to protect “[g]overnment’s business interests” (for example, Impaired Objectivity OCI).40 The proposed rules would provide a framework that gives U.S. contracting officials broad discretion to accept risk related to government business interests, but little discretion to accept risks that compromise the integrity of the procurement process.41
This Article does not address the newly proposed OCI rules in great detail; ultimately, the current OCI regulations have remained substantially unchanged since publication, the proposed rules have been pending for over seven years, and many new regulations are disfavored by the current administration of the U.S. Executive Branch.42 However, procurement officials conducting an assessment of which OCI rules to adopt would be well- served by reviewing these proposed rules.
IV. Survey of International OCI Framework
In addition to reviewing the proposed U.S. OCI rules discussed above, policy officials can also benefit from surveying the OCI rules that currently exist in international agreements, model laws, and procurement systems prior to considering which rules would be best suited to their procurement system. While the U.S. federal procurement system contains the most developed body of OCI law, the GPA, EU Directives, and the UNCITRAL Model Law all address and contribute to the topic of OCI.43
A. Agreement on Government Procurement
The WTO GPA is a plurilateral agreement, currently with nineteen parties, with the aim of opening government procurement markets among its parties.44 The GPA’s only express mention of “conflicts of interest” is fairly broad.45 Specifically, Article IV, Paragraph 4 provides: “A procuring entity shall conduct covered procurement in a transparent and impartial manner that … (b) avoids conflicts of interest; and (c) prevents corrupt practices.”46
In addition to the general guidance above, the GPA has only one specific provision that contemplates OCIs.47 Specifically, Article X, Paragraph 5 (in the Technical Specifications section) provides: “A procuring entity shall not seek or accept, in a manner that would have the effect of precluding competition, advice that may be used in the preparation or adoption of any technical specification for a specific procurement from a person that may have a commercial interest in the procurement.”48
The inclusion of a provision addressing Biased Ground Rules OCIs appears to be an example of an OCI rule selected with consideration of the GPA’s goals. The WTO describes itself as an “international organization whose primary purpose is to open trade for the benefit of all.”49 In this context, it is not surprising that the GPA contains an OCI rule most likely to influence trade, as opposed to OCI rules intended to lower a government’s business or performance risk. It can reasonably be assumed the firms most likely to unfairly influence the ground rules of a future procurement would be the domestic firms of the country in which the procurement will be held. If this assumption holds true, a restriction against Biased Ground Rules OCIs would do most to protect non-domestic firms and thereby promote international trade.
B. European Union Directives on Public Procurement
The European Union OCI framework resides in EU Directive 2014 / 24 and associated case law of the Court of Justice for the European Union.50 As discussed below, EU Directive 2014 / 24 has articles addressing Biased Ground Rules and Impaired Objectivity OCIs.51 Additionally, like the U.S. OCI framework, both the EU’s Directive and case law disfavor the mandatory exclusion of firms found to have OCIs.52
The preamble of Directive 2014 / 24 provides “the award of public contracts &hellp; has to comply with the principles of … equal treatment [and] non-discrimination.”53 Building on this broad aspirational goal, Article 18 prohibits member countries from “artificially narrowing” competition, such as via a mandatory exclusion rule.54 It further provides that:
[In accordance with public policy] [t]he design of the procurement shall not be made with the intention of … artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators.55
Article 24 (Conflicts of Interest) indicates the primary goal of EU conflict of interest rules should be to “avoid any distortion of competition and to ensure equal treatment.”56
Article 41 (Prior Involvement of Candidates or Tenderers) directly addresses Biased Ground Rules OCIs and provides that:
Where a candidate or tenderer or an undertaking related to a candidate or tenderer has advised the contracting authority, whether in the context of Article 40 or not, or has otherwise been involved in the preparation of the procurement procedure, the contracting authority shall take appropriate measures to ensure that competition is not distorted by the participation of that candidate or tenderer …. Prior to any such exclusion, candidates or tenderers shall be given the opportunity to prove that their involvement in preparing the procurement procedure is not capable of distorting competition.57
Article 58 (Selection Criteria) addresses what appears to be an Impaired Objectivity OCI, providing that: “A contracting authority may assume an economic operator does not possess the required professional abilities where the contracting authority has established that the economic operator has conflicting interests which may negatively affect the performance of the contract.”58
The leading European Court of Justice OCI case is Fabricom SA v. Belgium.59 Fabricom, a Belgian contractor, successfully challenged its mandatory exclusion (mandatory as in lacking an opportunity to question its exclusion) from a Belgian procurement based on its preparatory work on a prior contract.60 The European Court of Justice ruled in Fabricom’s favor and found Belgian law, as it related to OCI, violated the EU procurement principle of equal treatment.61 This European Court of Justice case is representative of the Court’s position against mandatory exclusions for OCI, especially where such rules do not provide for adequate due process.62 Such rules, if allowed to stand, would likely undermine economic integration within the EU. Article 57 (Exclusion Grounds) of the 2014 EU Directive appears to indicate exclusion is to be a last-resort measure for addressing conflicts of interest.63
C. UNCITRAL Model Law on Public Procurement
The UNCITRAL, currently comprised of sixty member states, seeks to facilitate international trade through the harmonization and modernization of the law relating to international trade.64 One of UNCITRAL’s efforts to further this goal was the development of a Model Law on Public Procurement (UNCITRAL Model Law).65 The UNCITRAL Model Law was intended to provide a framework of the basic and foundational aspects for a procurement system to function properly, achieve value for money, and avoid corruption.66
Three of the six objectives of the UNCITRAL Model Law, set out in its preamble, align with the general purposes of most OCI rules.67 These three objectives are achieving wide participation by suppliers and contractors; maximizing competition; and assuring integrity, fairness, and public confidence in the procurement process.68 These objectives are well-served by rules that prevent, avoid, or mitigate OCIs.
Article 21 is the specific provision of the UNCITRALModel Law intended to address OCIs, although the term OCI is never used specifically.69 Article 21 provides: “1. A procuring entity shall exclude a supplier or contractor from the procurement proceedings if: … (b) The supplier or contractor has an unfair competitive advantage or a conflict of interest, in violation of provisions of law of this State.”70
The placement of this provision within the Model Law is important. The OCI-related provision at Article 21, subsection 1b, is co-located with the anticorruption provision at Article 21, subsection 1a (prohibiting bribery).71 Additionally, the Guide to Enactment states Article 21 is “an important anticorruption measure.”72 Taken together, it appears the policy makers responsible for the Model Law believed OCI-related rules are primarily an anticorruption tool.
The OCI provision in Article 21, Paragraph 1(b) is sparse.73 It includes a provision requiring mandatory exclusion of firms found to have an OCI.74 This exclusion is stringent and severe. The Guide to Enactment indicates the UNCITRAL Model Law OCI provision is intended to provide flexibility to cover a wide range of situations and should be tailored to individual procurement systems.75 The Guide provides several examples of what might constitute an unfair competitive advantage or conflict of interest under the Model Law.76 These examples include:
(a) Issues of fairness and anti-monopoly legislation; (b) Situations where a supplier employs a former procurement official with specialized non-public knowledge; (c) Situations where a supplier is provided information to which other suppliers have not been given access; and (d) Situations where a supplier works with a procuring entity to formulate technical requirements to suit that supplier and when that supplier plans to participate in the subsequent procurement process.77
The Guide to Enactment provides flexibility by explaining “[w]hat would constitute an unfair competitive advantage or a conflict of interest for the purpose of applying paragraph (1)(b) is left to determination by the enacting State.”78 In particular, “‘[a]n unfair competitive advantage’ is an open-ended concept, reflecting the fact that the scope of existing definitions varies from system to system.”79
V. Decision Points for Developing an OCI Regime
After conducting a survey of how international systems address OCIs, procurement policy officials will be prepared to consider which OCI rules will best serve their system.
A. How Best to Define OCIs
The current U.S. definition of OCIs is less than clear.80 The UNCITRAL Model Law is limited in that its OCI language is very broad and is intended to be flexible for tailoring to specific procurement systems.While the UNCITRAL Model Law approach makes sense in this regard since its OCI rules are designed to be tailored to the objectives of a given procurement system, its broad language does not provide much assistance in defining OCI.
The GPA definition of OCIs is clear and well written but suffers from two drawbacks.81 First, it only addresses one potential type of OCI: Biased Ground Rules.82 Second, the GPA’s limited OCI guidance is likely overbroad and may result in unnecessary exclusions, because the rule covers any advice that may be used in the preparation or adoption of any technical specification.83 The EU’s OCI framework is moving in the same direction as that of the United States, but the EU’s framework may be difficult to use because the applicable provisions of the procurement directive are spread across several articles, including Articles 18, 24, 41, and 58.84
Procurement officials may wish to start their survey of OCI rules with the U.S. OCI framework. U.S. OCI rules have been developed and tested over approximately fifty-five years.85 The U.S. OCI definition in the proposed U.S. OCI rules, listed below, addresses the shortcomings of the current definition and should prove to be an adequate starting point for any procurement system developing its own OCI definition.86 The proposed rule would define an OCI as follows:
[An OCI is] a situation in which:
(1) A Government contract requires a contractor to exercise judgment to assist the Government in a matter (such as in drafting specifications or assessing another contractor’s proposal or performance) and the contractor or its affiliates have financial or other interests at stake in the matter, so that a reasonable person might have concern that when performing work under the contract, the contractor may be improperly influenced by its own interests rather than the best interests of the Government; or
(2) A contractor could have an unfair competitive advantage in an acquisition as a result of having performed work on a Government contract … that put the contractor in a position to influence the acquisition.87
B. Which OCI Categories Are Essential?
Of the three different categories of OCI recognized in the U.S. procurement system — Unequal Access to Information, Biased Ground Rules, and Impaired Objectivity — Biased Ground Rules is the type of OCI that most directly affects the legitimacy and the competitive integrity of a procurement system.88 Before selecting any OCI rules, procurement officials must determine the goals of the OCI rules they intend to enact. However, as a general matter, the Biased Ground Rules OCIs are the most important category for policy makers, attempting to formulate a new rule, to highlight.
As explained above, a “Biased Ground Rule [OCI is created when an organization], as part of its performance of a government contract, has in some sense set the ground rules for another government contract by, for example, writing the statement of work or the specifications.”89 In this type of OCI, the primary concern is that the firm could skew the future competition, whether intentionally or not, in its own favor. Unlike an Impaired Objectivity OCI, which may result in increased business risk to a government, Biased Ground Rules OCIs result in a flawed competitive process and, therefore, could impede its legitimacy.
In contrast to a Biased Ground Rules OCI, an Unequal Access to Information OCI is less likely to affect a procurement system’s legitimacy. OCIs deriving from unequal access to information, however, often are misunderstood. Arguably, a company that may have access to information not available to its competitors is not necessarily a conflict. Many competitive advantages are desirable, and organizations may have unequal access to non-public information that does not arise from any conflict of interest. For example, the organization may simply be the one with the most advanced technology in a complex field and for that reason is serving as an incumbent contractor. This is the type of firm a government wants to use, not exclude, from a complex procurement.
The primary method of resolving an Unequal Access to Information OCI is an information firewall.90 A firewall generally involves establishing boundaries around and between individual persons or business units to prevent the transfer of confidential or non- public information.91 These boundaries may be any combination of physical, electronic, and policy-related control measures designed to prevent the flow of information.92
A firewall, however, cannot necessarily be used to resolve the other two types of OCIs. For these reasons, and because Unequal Access to Information OCIs can sometimes increase the value that a government receives for its money in a given procurement, procurement systems developing OCI rules would be served best by focusing primarily on the other two types of OCIs — Biased Ground Rules and Impaired Objectivity OCIs.
Even though Impaired Objectivity OCIs likely will not be the place policy makers start when first developing an OCI regime, this type of OCI nonetheless is worth consideration. This is because the business risk associated with Impaired Objectivity OCIs can directly undermine the value-for-money goal of many procurement systems.93 However, policy makers may find Impaired Objectivity OCIs are the most difficult to identify because they may relate to a broad range of activities outside of government contracts that still may affect contractor judgment. There may be substantial information reporting and collection burdens associated with this type of OCI, as discussed further below.94
C. Which Remedies Should Be Available to Address OCIs?
In the U.S. OCI regime, it appears that mandatory exclusion, such as that contained in the UNCITRAL Model Law, should be discouraged appropriately. This is because a primary goal of the U.S. procurement system is to promote competition.95 In lieu of mandatory exclusion, the U.S. system provides four basic options, also listed below in Chart 1, for procurement officials to handle OCIs: Avoid, Neutralize, Mitigate, and Waive.96
To Avoid is to prevent the existence of an OCI, such as by excluding sources or modification of requirements. Avoidance precludes the OCI.
To Neutralize is to counteract the effects of an OCI. The OCI remains, but its impact has been negated.
To Mitigate is to reduce the effects of an OCI to an acceptable level of risk so that the government’s interests with regard to fair competition and/ or contract performance are not impaired. The conflict remains, but action was taken that minimizes the impact of the conflict to an acceptable level of risk.
To Waive an OCI is to accept the OCI and assume any associated risk.97
Graphic 1: Which Options Should Be Available to Address OCI
While the options of Avoid, Neutralize, and Mitigate are likely appropriate for consideration by all procurement systems, OCI waivers are unique and require special consideration.98 Generally, procurement systems should consider resolving OCIs by the techniques in the following order: avoidance, neutralization, mitigation, and (only if necessary) waiver.99 This order is recommended because with avoidance the OCI never comes into existence; with neutralization the conflict exists but has no effect/risk; with mitigation the conflict exists, but with an acceptable level of risk; and with a waiver the OCI remains, and with it, the potential for lasting harm to procurement system integrity.
The U.S. National Aeronautics and Space Administration (NASA) describes handling an OCI as analogous to handling a bomb:
To avoid an OCI would be like preventing someone from obtaining a bomb. Neutralizing an OCI would be like pulling the fuse out of the bomb or disarming it prior to explosion, but the bomb still exists. Mitigating an OCI would be like placing the ticking bomb in a blast proof box and allowing it to explode while protecting the people and property around it.100
In the U.S. OCI regime, the use of OCI waivers is permissive, possibly to a fault. OCI waivers in the U.S. OCI regime may, if used correctly, increase efficiency by reducing time and cost surrounding a contract award. As long as a U.S. OCI waiver meets the minimal procedural requirements (i.e., the waiver is in writing, it sets forth the extent of the waived conflict, and it is signed by the proper official), the waiver will be difficult for a firm to challenge.101
There are two aspects of the U.S. OCI waiver rules that other procurement systems may wish to avoid when the goal of integrity is more important than the goal of efficiency. First, in the U.S. OCI system, waivers are permissible even after an OCI-based challenge has been filed against the procuring activity.102 Such waivers, especially when prepared during a challenge to a procurement, may be perceived as a government purchasing activity asserting: “yes, there is a conflict of interest; yes, an interested firm has brought a challenge, and yet, we [the government] have unilaterally decided to proceed anyway.” The government’s ability to use waivers to defeat legal challenges may be perceived as undermining the legitimacy of the challenge system. Second, in the current U.S. OCI system, waivers generally are permissible for all types of OCI risks, including those OCIs that create business risks for the government and those that create risk to the competitive integrity of the procurement system.103 Permitting waivers for OCIs that affect competitive integrity of a procurement system should not be taken lightly.
That said, procurement systems developing OCI rules should still provide a process, similar to a waiver, to allow purchasing activities to proceed despite known OCIs, when absolutely necessary.When waivers are permitted, key aspects to consider are: (1) what types of OCIs may be waived; (2) what is the appropriate approval level; and (3) whether the waivers themselves should be subject to challenge.
The first consideration, the appropriate approval level, is an important question. The higher the level of government official authorized to grant OCI waivers, the more difficult it may be to obtain a waiver, and the more likely the official will be able to assess accurately the reputational and legitimacy risks posed to the procurement system. Finally, waivers to OCI rules provide governments important flexibility that will at times be necessary, such as when doing business with highly specialized firms.
D. Prima Facie Case for OCI Challenges
The choices related to which forum, processes, and remedies should be available within a procurement system to review OCI issues are very similar to issues surrounding the establishment of a procurement challenge mechanism. For example, these choices often include: in which forum may OCI decisions be challenged (generally the contracting office, a separate administrative agency, or a judicial forum); what evidence will the selected forum be able to consider in its review (generally a paper or administrative record versus discovery and live testimony); who has standing to challenge OCI decisions; what is the burden of proof (e.g., how difficult is it to win); and what remedies are available in the selected forum.104 Since many of these issues have been written about extensively in the context of establishing a procurement challenge system,105 this Article addresses the requirements of establishing a prima facie case.
A prima facie case can be thought of as the initial screening barrier to entry and access of a legal forum.106 A challenger would have to meet at least a prima facie burden at the outset of the case to be able seek relief. Determining what constitutes a prima facie case will be a challenging but important undertaking for policy officials.
In deciding between possible prima facie requirements for firms pursuing an OCI- related challenge (OCI Challengers), policy officials may wish to look primarily to the level of information available to potential OCI Challengers. In markets where firms may lack detailed information regarding the actual and potential OCIs of competitors, it likely makes sense for procurement officials to consider a low prima facie evidentiary burden for OCI. If, on the other hand, an OCI Challenger has multiple information sources available (for example, if the OCI Challenger has readily available documents about the procurement, the contracts, and the business relationships of its competitors), then that well-informed OCI Challenger can fairly be required to meet a higher burden. Examples of possible prima facie burdens of proof for OCI challenges are listed below from easiest to most difficult to overcome:
1. Well-Pled Allegations
As the lowest potential barrier to entry, a procurement system could require only well- pled allegations of an OCI, but no actual verifiable facts from OCI Challengers. The OCI Challenger simply would have to assert the type of OCI it believes exists, but little more. This burden of proof is similar to OCI allegations based solely on inferences, suspicion, and innuendo. In the United States, both the GAO and COFC have rejected this low standard. 107 With this low prima facie burden, once an OCI Challenger files a challenge merely asserting that an OCI exists, the burden of proof would then shift to the defending firm. This low burden, combined with a low-cost low-risk challenge system, would likely result in high compliance costs and possibly an excessive number of spurious protests. However, if combined with a challenge system where unsuccessful OCI Challengers must reimburse the costs of defending a challenge, this low burden of proof could prove to be self-policing. A reasonable argument could be made that this approach, consisting of a very low pleading requirement, is fair because the challenged firm is in possession of the most accurate information about its own OCI.
2. Hard Facts of OCI Only
The hard facts standard, which is the prima facie standard to bring an OCI challenge in the United States, requires an OCI Challenger to demonstrate verifiable facts with record evidence, but only to establish the existence of the actual or potential OCI and not its actual harm or prejudice.108 Hard facts are less than absolute proof, but more than mere innuendo or suspicion.109 This is a middle-ground approach that limits illegitimate challenges by requiring OCI Challengers to produce evidence of an actual verifiable OCI, but does not require OCI Challengers to produce facts of actual harm from that conflict. This approach is pragmatic. It does not allow an OCI Challenger to bog down the procurement system with mere suspicion, but also does not require the OCI Challenger to have an unrealistically clairvoyant ability to demonstrate the harm resulting from an OCI.
3. Hard Facts of OCI and Impact on Competition
A procurement system could require an OCI Challenger to demonstrate hard facts of the OCI, as discussed above, as well as prove an impact on the competition or prejudice to the challenger. This standard presents a higher prima facie burden of proof than is used in the current U.S. OCI regime.110 A standard as strenuous as this one would deter even meritorious OCI challenges and could, therefore, have a negative impact on integrity and legitimacy.
E. Should Self-Reporting of OCIs Be Mandatory?
One crucial decision for any developing OCI framework is to determine whether firms will be required to notify the government of OCIs (e.g., mandatory reporting). If determined that mandatory self-reporting will not be part of the OCI regime, it should be considered whether contracting officials will be required to solicit such information. These decisions require balancing procurement system goals of integrity and transparency with the somewhat conflicting goals of efficiency and uniformity.
Oddly enough, in the current U.S. OCI regime, contracting officials are not required to solicit information from offerors regarding OCIs, and offerors are not required to provide any such information as a matter of course.111 In fact, U.S. contracting officers are directed to first “seek the information from within the [g]overnment or from other readily available sources” to identify and evaluate potential OCIs, rather than go to the seemingly obvious source, the offerors themselves.112 Additionally, the FAR expressly provides “[i]n fulfilling their responsibilities for identifying and resolving potential conflicts, contracting officers should avoid creating unnecessary delays, burdensome information requirements, and excessive documentation. The contracting officer’s judgment need be formally documented only when a substantive issue concerning potential organizational conflict of interest exists.”113
In practice, many U.S. agencies actually do solicit OCI information, as a matter of course, on large procurements.114 Additionally, the U.S. OCI system relies heavily on interested organizations to bring challenges against competitors known to have OCIs.115 The process to bring such challenges at the GAO is relatively expedient.116 The GAO must render a bid protest decision within 100 days,117 and seventy percent of GAO cases are closed within sixty days.118
The FAR’s guidance that speed and efficiency are paramount, combined with the U.S. government agencies’ broad discretion to waive OCIs, indicates the U.S. OCI system values efficiency. For the U.S. procurement system, which has an abundance of non-OCI mechanisms intended to promote integrity, this tradeoff is understandable.
Procurement policy officials developing OCI frameworks should consider the current and desired levels of integrity and efficiency before imposing mandatory OCI reporting requirements. Other important questions related to mandatory reporting include concerns such as (1) what information about corporate structures is available to procurement officials; and (2) whether affiliate/ related organizations will be covered by OCI rules and, if so, what relationships between firms will trigger OCI restrictions. The U.S. OCI rules, particularly as they apply to affiliate entities, are based on an underlying assumption that U.S. contracting officials have access to accurate information regarding the corporate structures of the firms with which they do business. If the contracting officials in a procurement system do not have this information readily available, additional disclosure and self-certification requirements may be necessary to fulfill the intent of the OCI rules.
F. When in Procurement Process Should OCI Decisions Be Made?
Below is a general flow chart that lists the major steps common to most procurement systems. Efforts can be made to address OCIs during all phases of procurement. Given the resource constraints inherent in all procurement systems, procurement policy officials will have to determine when to focus OCI efforts.
Graphic 2: General Phases of Standard Procurement Process
Generally, OCIs should be addressed as early in a procurement life cycle as practicable. The earlier the government can address OCIs, the more flexibility procurement officials have in resolving the OCI. Early in the procurement, efforts to avoid and neutralize an OCI are more likely to be possible, as opposed to later in a procurement when only mitigation or waiver may be possible.119 As an example of flexible guidance, the current U.S. OCI rules require U.S. contracting officials to “[i]dentify and evaluate potential [OCI] as early in the acquisition process as possible; and … [a]void, neutralize, or mitigate significant potential conflicts before contract award.”120
OCIs can be addressed as early as the requirements-development phase.121 For example, in the requirements-development phase, officials can ensure contract requirements do not involve a contractor evaluating itself or require contractors to use non-public information. Additionally, should government officials require contractor assistance to develop requirements, officials can ensure that as many companies as practicable participate in the requirements development process to neutralize OCIs. The difficulty with addressing OCIs in the requirements phase is that government legal counsel and procurement officials formally trained in OCIs may not be participating yet, and it may be unrealistic to train all government officials participating in this phase on OCIs. For this reason, procurement officials may consider addressing OCIs in the requirements phase to be an aspirational, rather than mandatory, goal.
OCIs typically are addressed when procurement officials develop the rules for and conduct the competition.122 This approach is rational. Biased Ground Rules OCIs, which present the greatest danger to the legitimacy of a procurement system, are addressed most easily when developing the rules for a competition. As a practical matter, firms generally may be most willing to submit OCI mitigation plans as part of the competition when they are eager to obtain a contract award. Also, companies have the most incentive to raise competitor OCIs to the government during the competition phase. For these reasons, procurement officials should focus their OCI rules framework on these phases: developing and conducting the competition.
The contract performance phase often is overlooked when considering an OCI framework. This oversight could be because many international procurement systems treat public contracts after award as regular commercial contracts for purposes of contract administration.123 That said, policy makers should expect OCI issues may continue throughout the performance of public contracts.
In considering which OCI rules to impose during the performance phase, procuring officials who require firms to provide OCI mitigation plans should consider how to monitor and enforce the mitigation plans and should establish requirements for companies to update OCI mitigation plans when circumstances warrant. Procurement officials who analyze OCIs for a particular firm may wish to consider how they will be informed of changes to the firm’s organizational structure. One way to do this is by imposing mandatory reporting of organizational restructuring. Also, procurement systems that allow for assignments or novations related to government contracts during performance may wish to consider whether an additional OCI review is necessary for such changes. Significant contract modifications may also require OCI analysis when they expand or change the nature of the work being performed. For these reasons, procurement officials should not limit their ability to take the OCI- related actions only before contract award.
G. How Should OCI Rules Be Implemented?
After procurement officials decide what type of OCI framework is best suited for their procurement system, a final question may be how to best implement the desired OCI framework. An OCI framework can be implemented by rule of law, such as through legislation, or by contract documents or a similar administrative process. There are tradeoffs to each approach. The U.S. OCI regime uses a hybrid approach.124 The basic OCI rules that apply to all procurements are part of the U.S. procurement system by law and regulation, and contractual requirements impose additional rules that may be tailored and applicable to any given procurement.125
Implementing OCI rules via contractual requirements has the likely advantage of speed and flexibility. On the other hand, implementing OCI rules by legislation provides opportunity for additional legitimacy. Also, if a country’s procurement system is subject to review to determine compliance with international norms, such as the UN Convention Against Corruption, EU Directives, or the GPA, OCI rules that exist only in contractual documents may provide insufficient evidence of compliance.
Finally, as corporations increasingly conduct business internationally, procurement officials should consider the advantages of harmonizing their OCI rules with international norms where possible, allowing international corporations to operate more efficiently with lower compliance costs, thereby increasing the value for money goal.126
OCI rules are an often-overlooked aspect of a procurement system and can be used to promote legitimacy, reduce corruption, and minimize performance/ business risk to the procuring organization. No single OCI framework will fit every procurement system. For this reason, procurement officials should consider using a deliberate approach, with due consideration of the primary goals of their procurement system, before implementing an OCI framework. As with any organizational change, seeking input and buy-in from stakeholders is likely a key step in determining how to best implement OCI rules.