Organizational conflicts of interest (OCIs) arise when a contractor performing work for the federal government may have an unfair competitive advantage or may appear to be unable to provide unbiased contract performance to the government due to the contractor’s organizational or contractual relationships with other persons, companies, or organizations. The OCI guidance in the Federal Acquisition Regulation (FAR) has not been meaningfully revised since it was first published in 1984. However, the federal procurement landscape has changed dramatically since then. Increased government outsourcing has led to ever-complicated business relationships that strain the application of these outdated guidelines and leave both the government and industry ill-prepared to address modern OCI challenges. The current situation leads to both overdeterrence that undermines the taxpayers’ best value and underdeterrence that threatens the competitive integrity of the acquisition system. The recent Preventing Organizational Conflicts of Interest in Federal Acquisition Act (Preventing OCIs Act) recognized this concern and directed the FAR Council to provide updated OCI guidance.
This Note urges the FAR Council to respond by adopting revised OCI guidance that reflects the realities of modern federal contracting. While reforms have been proposed both in 2011 and through the recent Preventing OCIs Act, these reforms are but a helpful starting point. This Note builds upon and distinguishes from these reforms by differentiating between OCIs that involve competitive integrity concerns and OCIs that involve government business risk concerns.
The U.S. House of Representatives Committee on Oversight and Reform reported that McKinsey & Company’s (McKinsey) “failure to disclose or meaningfully address” conflicts of interest “may have contributed to one of the worst public health epidemics in our nation’s history”—the opioid crisis. The report detailed the Committee’s findings that McKinsey, one of the world’s largest and most renowned consulting firms, had concerning conflicts of interest between its work for the U.S. Food and Drug Administration (FDA) and large pharmaceutical companies regarding the opioid crisis. The Committee found that McKinsey failed to disclose “serious, longstanding” conflicts of interest, used its federal contracts to solicit private sector business, and had at least twenty-two consultants working simultaneously for the FDA and opioid manufacturers. McKinsey ultimately entered into a settlement agreement with numerous state attorneys general because McKinsey’s possible conflict “appear[ed] potentially to have violated federal law and contract requirements.” While any effect of McKinsey’s potential conflict on the opioid crisis may never be quantifiable, it is possible that this conflict partially contributed to the large number of deaths caused by the opioid crisis. In the year 2021, for example, 80,411 people in the United States died of an overdose involving an opioid—a significant increase from the 21,089 opioid overdose deaths in the year 2010. Congress responded swiftly to the Committee on Oversight and Reform’s investigation, with the Preventing Organizational Conflicts of Interest in Federal Acquisition Act (Preventing OCIs Act) directing the Federal Acquisition Regulatory Council to amend the Federal Acquisition Regulation’s (FAR’s) organizational conflict of interest (OCI) guidance. However, it is unclear when, if ever, the statute’s purpose of establishing revised OCI guidance will be fulfilled as rulemaking in this area frequently takes years.
Although McKinsey’s potential conflict made news headlines, other recent examples of OCIs that were not discussed in the news reveal a much deeper problem in the current OCI guidance. For example, in NetStar-1 Government Consulting, Inc. v. United States, both the disappointed offeror who brought the bid protest and the contract awardee were determined to have conflicts of interest based upon their access to nonpublic competitively useful information gained under other contracts with the same agency. There, unlike in the case of McKinsey, the concern was the integrity of the competitive acquisition process at the time of contract award, rather than the risk of unsuccessful contract performance due to contractor bias throughout the performance of the resulting contract. The U.S. procurement system places a high value on competition in the structure and procedure of the acquisition process.
While these examples may make it easy to call for stricter conflict of interest rules, the answer is not that simple. Rather, policymakers must also consider that the very reasons these contractors have conflicts of interest is also the reason that the government seeks their services: experience and expertise. Unfortunately the FAR offers little guidance on how agencies are to balance these competing interests, leading to both underdeterrence—awarding of contracts to firms with significant potential conflicts of interest, and overdeterrence—failing to award contracts to firms where a potential conflict of interest could have been mitigated, waived, or otherwise resolved. This Note proposes revised guidance that provides agencies with the necessary framework to identify OCIs and adequately balance these competing interests in addressing potential conflicts. Specifically, this Note suggests a distinction between OCIs that implicate government business risk and those that implicate competitive concerns. This Note proposes that OCIs involving government business risk are more appropriately suited for the government to consider whether mitigation or waiver is proper because the primary concern is the government’s own interests. OCIs that involve a risk to the integrity of the competitive process, however, should not be waived and frequently cannot be mitigated because these conflicts involve contractors’ interests in the opportunity for competitive award of the contract, in addition to the government’s interest in achieving the best value.
Part I provides background on OCIs, federal outsourcing, and reforms to OCI guidance proposed both in 2011 and through recent legislative action. Part II then analyzes why the current FAR guidance is outdated, specifically identifying gaps between the outdated guidance and modern realities, and explaining why the 2011 proposed solutions are a helpful starting point. Finally, Part III proposes revised guidance that would allow agencies to recognize the trade-off between risk of bias and benefit of expertise in OCIs that pose a risk to successful contract performance while preserving the protection against threats to the integrity of the competitive process presented by other OCIs. Specifically, Part III expands upon how the FAR Council should give effect to Congress’s mandate to issue revised OCI guidance through a distinction between business risk and competitive integrity OCIs.
The modern realities of government contracting are significantly different from the context of the adoption of FAR’s OCI guidance in 1984. This Part describes the current guidance, trends that have challenged the vitality of the current guidance, and proposed reforms.
The FAR defines an OCI as a situation where “a person is unable or potentially unable to render impartial assistance or advice to the government, or the person’s objectivity in performing the contract work is or might be otherwise impaired, or a person has an unfair competitive advantage” because of “other activities or relationships with other persons.”
The Government Accountability Office (GAO), in Aetna Government Health Plans, Inc., divided OCIs into three categories (Aetna categories): (1) biased ground rules, (2) unequal access to information, and (3) impaired objectivity. While the FAR has not explicitly adopted this framework, the examples provided in the FAR largely follow these same broad contours. A biased ground rule OCI occurs when “a firm, 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.” In International Business Machines Corp., the GAO found a biased ground rule OCI and held that the agency was proper in its elimination of a contractor who had previous involvement in developing the statement of work, solicitation, and other “key acquisition documents” for a procurement for which the contractor was now seeking to compete. An unequal access to information OCI occurs when a contractor has access to nonpublic competitively useful information that may give the contractor an unfair competitive advantage. For example, the OCI in NetStar-1 Government Consulting, Inc. was based upon the contractor’s access to a budget plan under a previous contract that was nonpublic and contained competitively useful information for the contract that it was now competing for. There is often considerable overlap in these first two categories as most, though not all, examples of biased ground rule OCIs also inherently involve unequal access to information. Finally, an impaired objectivity OCI occurs when a contractor’s performance could be biased by its other contracts or business interests. Specifically, in Alion Science & Technology Corp., the GAO sustained a protest where the awardee would have analyzed and evaluated policies and regulations that directly affected the awardee and its competitors.
The first two categories—biased ground rules and unequal access to information—focus upon the fairness of the competitive acquisition process, whereas the final category—impaired objectivity—is concerned with the business risk of unsuccessful contract performance to the government posed by the potential for biased contractor judgment. Both academic commentators and the GAO have recently focused upon the third category, impaired objectivity, because impaired objectivity OCIs can be difficult to identify. This difficulty is due to the wide range of activities that may bias a contractor’s judgment, and contracting officers must rely upon information that only the contractor may have. The FAR describes two “underlying principles” supporting OCI policy: (1) preventing conflicts that may bias contractor judgment, and (2) preventing unfair competitive advantage. The Aetna categories give effect to the two principles underlying FAR OCI guidance.
The FAR requires that agencies “identify and evaluate” potential OCIs and “avoid, neutralize, or mitigate” significant potential OCIs prior to award. This requirement is based upon the federal acquisition system’s focus on competition, integrity, and transparency. Scholars argue that the specific focus of the OCI rules has shifted over time from an original fear of unequal access to information to a concern for the effect of impaired objectivity OCIs. Fears of unequal access to information OCIs arise from the procurement system’s focus on competition. The Competition in Contracting Act (CICA) requires full and open competition in most government procurements, and competition is a core policy goal of the U.S. acquisition system. This goal arises from the theory that maximizing competition allows the government to receive its best value in terms of price and quality. The system promotes competition by demonstrating that “competitors will be impartially considered for award” of government contracts. Impaired objectivity OCIs often arise out of a concern for the potential of unsuccessful contract performance due to biased contractor judgment, rather than competitive concerns.
Current FAR guidance requires a high burden to establish a significant potential OCI, and contracting officers have substantial discretion in addressing OCIs. The FAR only requires that “significant potential conflicts” of interest be resolved through avoidance, neutralization, or mitigation. Further, the standard required to prove an OCI is “hard facts,” rather than “mere inference or suspicion.” Agencies also have the option of unilaterally waiving a significant potential conflict of interest if in the government’s interest. Courts and the GAO give great deference to agency discretion in determining when waiver of an OCI is in the government’s interest. Notably, the GAO typically sustains bid protests when an agency failed to conduct a thorough evaluation of a potential OCI rather than when an agency conducted such an evaluation and determined that the potential OCI was not significant or could be resolved.
Once an agency determines a significant potential OCI exists, the agency must—if it does not waive the OCI—take action to resolve the OCI by mitigating, avoiding, or neutralizing the conflict. The contractor can mitigate OCIs through information firewalls or work allocation firewalls. The government can avoid an OCI, for example, by reducing the statement of work to remove the conflicted work from the scope of the contract and then either perform the work in-house or under a different contract. Agencies, similarly, may neutralize the conflict by disqualifying the contractor from current or future work. Contracting officers can use OCI clauses in the solicitation and require submission of OCI mitigation plans with, or in advance of, proposal submission, to accomplish their dual mandate of identifying potential conflicts and resolving significant potential conflicts. However, current FAR guidance does not require that an agency include a solicitation provision requiring disclosure of potential OCIs in most instances. Rather the FAR only requires the inclusion of such a clause when the contracting officer determines that the particular acquisition involves a significant potential conflict of interest. Moreover, even when such a provision or clause is included, it typically does not require ongoing disclosure of potential OCIs throughout the performance of the contract.
The current guidance provides contracting officers with several different mechanisms for resolving OCIs but little guidance on how to apply these mechanisms based upon the different concerns raised by different types of OCIs. Rather, the FAR notes that “[t]he exercise of common sense, good judgment, and sound discretion is required in both the decision on whether a significant potential conflict exists and, if it does, the development of an appropriate means for resolving it.” As leading government procurement scholar Ralph C. Nash Jr. points out, this overview tells readers nothing more than “[y]ou figure it out.”
The problems resulting from the lack of guidance on OCIs have been exacerbated by government outsourcing. Political pressure to downsize the federal government has led to increased outsourcing in the form of higher federal spending on service contracts and therefore greater potential for conflicts of interest, particularly impaired objectivity OCIs. In addition to these political pressures, efforts to address the skills gaps in the federal workforce identified by the GAO have led to increased government outsourcing. A February 2023 GAO report found that the federal government generally, and the Office of Personnel Management (OPM) specifically, suffered from a skills gap, particularly in areas of human resources, cybersecurity, and acquisition. The report notes that, since 2001, GAO has “designated strategic human capital management as a government-wide high-risk area.” One solution to this gap may be increased use of federal service contracts. This increase in federal service contracts leads to a heightened potential for conflicts of interest, particularly impaired objectivity OCIs. The phenomenon has been described as a “blended workforce” in which “contractors work alongside, and often are indistinguishable from, their Government counterparts.” Estimates suggest that more than 300,000 service contractor jobs were created between 1990 and 2002. This trend has only increased with the government spending nearly sixty percent of contract dollars on service contracts in fiscal year 2020. Further, recent increases in the government’s use of temporary service contracts have led to additional instances of contractor personnel working alongside federal government employees, often on a short-term basis to fulfill skills or other personnel gaps within the government workforce, rather than on a long-term basis. As the government continues to rely upon additional service contractors, there will continue to be increased risk of potential organizational conflicts of interest, particularly impaired objectivity OCIs.
Many commentators and practitioners recognized the increased risk of conflicts of interest due to government outsourcing in the early 2010s, which led to an opportunity for reform. In 2010, the GAO issued a report identifying the need for OCI reform and urging the FAR Council to take up the issue. Specifically, the GAO recognized that the procurement community needed additional guidance on addressing contractors’ access to sensitive information. In response to the concerns regarding conflicts of interest resulting from contractors’ access to sensitive information raised in the GAO report, the FAR Council issued a proposed rule for notice and comment. Importantly, the proposed rule would similarly have abandoned the Aetna categories and focused on differentiating between OCIs that pose a risk to the competitive acquisition process and those that pose a business risk to the government as FAR 9.505 provides. Further, the proposed rule would have moved the OCI provisions to FAR Part 3, which addresses improper business practices.
Under the proposed rule, contracting officers would have greater discretion to accept the risks posed by impaired objectivity OCIs, out of recognition that such a decision is based upon business judgment, rather than a threat to the integrity of the procurement process. The proposed rule was ultimately withdrawn in 2021. The GAO report listed its recommendations as closed when the proposed rule was announced. However, given that the rule was never implemented, these concerns surrounding increased instances of OCI challenges, particularly those involving contractor access to sensitive information, still exist and have been exacerbated by increased outsourcing in the years since. Thus, this is an area where proposed solutions have laid dormant for years and ultimately remain unenacted.
The Defense Federal Acquisition Regulation Supplement (DFARS), which governs acquisitions within the Department of Defense (DOD), was amended in 2011 to address OCI concerns but did not include the robust amendments initially proposed in 2010. Some argued the difference between the proposed and implemented DFARS rule was in anticipation of the 2011 proposed changes to the FAR, which would apply to both DOD and civilian agencies.
Following the withdrawal of the 2011 proposed rule in 2021, and the House Oversight Committee’s report on McKinsey, there has been renewed congressional attention on the issue of conflicts of interest in federal procurement. Specifically, the Preventing OCIs Act—which directs the FAR Council to take further action to prevent OCIs—was signed into law on December 27, 2022. The Act provides little specificity, but directs the FAR Council to provide updated definitions, guidance, and examples of OCIs. The Act requires that the FAR Council provide examples of OCIs involving private-sector clients. Many argue that McKinsey’s consulting for the FDA and pharmaceutical companies was not explicitly addressed by current OCI guidance because the guidance is unclear as to whether an OCI could arise from a government contractor’s work for a private company—in McKinsey’s case Purdue and other pharmaceutical companies—rather than the government contractor’s work on another government contract. Potential conflicts such as these were not specifically addressed in the original FAR OCI guidance because the federal government had very few consulting and personal service contracts at the time. The Act also directs the FAR Council to provide executive agencies with solicitation provisions and contract clauses requiring contractor disclosure of information relevant to potential OCIs prior to award and throughout performance. The Act provides that “executive agencies [will be able] to tailor solicitation provisions and contract clauses as necessary to address risks associated with conflicts of interest and other considerations that may be unique to the executive agency.”
The passage of this Act is not enough to address the issue of outdated guidance. Rather, the FAR Council must follow the notice-and-comment rulemaking process to effectuate revisions to the FAR. The ultimate withdrawal of the 2011 proposed solutions after a decade of inaction makes this follow-through all the more important. This Note seeks to provide some potential solutions for the FAR Council, including a renewed focus on the distinction between competitive integrity and business risk OCIs, both in response to and beyond what is required by the Act. While congressional momentum in response to the McKinsey investigation has created an opportunity for reform, more specific solutions are needed.
The foregoing discussion explains how the modern federal workforce differs from what the drafters of the FAR anticipated in 1984. This Part explains why those differences create gaps that the current guidance fails to adequately address. Revised guidance that distinguishes between business risk and competitive integrity OCIs is needed to address these gaps.
Currently, the outdated OCI guidance in the FAR is inadequate to address the modern realities of federal contracting. Further, the guidance is unclear, leaving contracting officers and contractors struggling with how such guidance should apply in each situation. This Section explains specifically how changes in the government contracting landscape have made the current guidance outdated, inadequate, and unclear.
The gaps in the current OCI guidance have led to both underdeterrence and overdeterrence. Specifically, the FAR’s current guidance fails to address the role of subcontractors’ conflicts of interest, does not recognize the complex business relationships created by outsourcing, and ignores the different types of risk that different OCIs impose. In Safal Partners, Inc., the protester, Safal Partners, Inc. (Safal), challenged award of a contract for technical assistance services to Manhattan Strategy Group, LLC (MSG), whose subcontractor also held a contract with the same agency. Safal alleged the subcontractor stood to benefit financially by recommending grantees under the subcontractor’s existing contract for technical assistance provided by the subcontractor and MSG under the new technical assistance contract. The contracting officer determined that this possible benefit did not constitute an OCI because the agency retained authority to make determinations on technical assistance and the subcontractor merely provided recommendations. However, GAO disagreed, emphasizing the subcontractor’s inability to render impartial advice and sustained the bid protest. The FAR currently provides no specific guidance on how an agency and prime contractor should address subcontractor conflicts of interest. Yet, Safal Partners, Inc. makes clear that such complex contracting relationships in management support and consulting contracts are a reality of modern contracting and that updated FAR guidance on OCIs must build upon the GAO’s focus on the contractor’s ability to render impartial advice.
While many aspects of the FAR lend significant deference to agency personnel, the FAR typically provides guidance on how this discretion should be exercised. The FAR guidance regarding OCIs lacks this key feature, leaving contracting officers to resolve the issues themselves. Adequate guidance should equip agency personnel with a framework to exercise this discretion in instances where OCIs pose a business risk to the government through the potential for impaired contractor performance while also protecting against OCIs that threaten the integrity of the competitive process.
In addition to the substantive gaps, the FAR’s OCI guidance is unclear. Courts and the GAO have addressed OCIs through a myriad of case law but, without updated FAR guidance, agencies and industry are left struggling to find centralized answers to complex OCI questions. Between the definitions in FAR 2.101, the Aetna categories, the two underlying principles described in FAR 9.505, and the examples provided in FAR 9.508, the current guidance surrounding OCIs, is inaccessible and often unclear. Each of these sources in the FAR and GAO case law provides a somewhat different answer to the questions of how an OCI is defined, what concerns OCIs are meant to address, and how agencies should analyze them. This ambiguity leaves both contractors and the government without clear direction on how to handle the multitude of fact-specific contexts in which OCIs arise.
As a result, contractors and the government are unable to make predictions about how courts or the GAO might analyze a specific potential conflict. Courts and the GAO have emphasized the fact-specific nature of the potential conflicts and the need to handle OCI evaluations on a case-by-case basis which leaves interested parties unable to make informed decisions regarding potential conflicts. Some argue that a risk-averse culture has led to the government unnecessarily excluding offerors who do not actually pose a significant potential conflict of interest, thereby negatively impacting not only that disappointed offeror but also the taxpayer who may have benefited from that offeror’s superior service or expertise as the best value for the government. Further, OCIs are a common protest ground because the effect of a sustained protest is often disqualification, rather than simply corrective action to re-evaluate all proposals. Agencies can use waiver as a last-minute measure to avoid a sustained bid protest or otherwise adequately addressing OCIs. This option allows agencies to circumvent the FAR’s intent to protect the integrity of fair competition. Thus, the current system provides for both instances of underdeterrence and overdeterrence. This Note proposes a solution that stabilizes these extremes around the optimal level of deterrence.
There is a need for additional clarity and a unified source of regulatory guidance on OCIs. As Ralph C. Nash Jr. has stated, “Since the FAR Council has apparently made no effort to clarify the regulation, the primary guidance is in the decided cases . . . . That is not a happy state of affairs.” A prime example of this unhappy state of affairs is the case of NetStar-1 Government Consulting, Inc. v. United States. There, the protester, NetStar-1 Government Consulting (NetStar) and the awardee, ALON, Inc. (ALON), both had potential conflicts of interest because their work under other contracts with the same agency, Immigration and Customs Enforcement (ICE), gave them access to competitively useful documents. ICE, pursuant to the Homeland Security Acquisition Regulation (HSAR), included a standard OCI clause specific to the Department of Homeland Security that required contractors to either
(i) certify that, to the best of their knowledge, they were not aware of any facts which create an actual or potential organizational conflict of interest (OCI) related to award of the contract; or (ii) include in its proposal all information regarding the OCI and provide a mitigation plan if the vendor believed that the OCI could be avoided or neutralized.
Both NetStar and ALON certified that they were not “aware of any facts which [might] create an actual or potential conflict of interest.” The Court of Federal Claims would later disagree in a decision affirmed by the Federal Circuit.
The NetStar case shows how the lack of clarity in the current OCI guidance can lead to undesirable results and unnecessary costs and delay for both the government and contractors. The agency initially awarded the contract to ALON on September 15, 2010. The Federal Circuit did not affirm the Court of Federal Claims injunction until August 9, 2012. Thus, the NetStar case is an example of how inadequate OCI guidance can lead to a period of multiple years where contracts are unperformed or enjoined. Further, this case shows just how confused contracting officers, contractors, GAO, and the courts are by the current OCI guidance. First, neither contractor identified the potential OCI at the time of submitting its offer, and instead certified that it did not know of any fact giving rise to a potential OCI. The contracting officer, with access to the offers and the existing ICE contracts, did not identify the potential conflict. Then, once the conflict was identified by the GAO, the contracting officer simply approved the mitigation plans, without giving the conflict any meaningful consideration. Finally, GAO found no OCI, despite the Court of Federal Claims and the Federal Circuit finding the opposite. The inconsistency in interpreting the ambiguities of the existing guidance is indeed an “[un]happy state of affairs.”
While the 2011 solutions would have helped to address some of these gaps, the current realities of federal contracting are different than they were in 2011, and blanket adoption of the 2011 regulations would therefore be a mistake. The FAR Council should consider how the 2011 proposed reforms can serve as a basis for updated guidance, but must also bear in mind the important changes in the field of federal procurement in the last decade. The legislative debate preceding the passage of the recent Preventing OCIs Act indicates that Congress intended for the FAR Council to pick up where the 2011 proposed rules left off. Specifically, Representative DeSaulnier, referred to the 2011 proposed rules and explained that the Preventing OCIs Act “requires the revisions that were then started to be completed.”
Although the distinction that the 2011 proposed rule makes between OCIs that impact government business risks and those that impact the fairness of the competitive process is well-founded, one important aspect of the 2011 proposed reforms that has received much debate is the proposal to move OCI guidance from FAR Part 9 Contractor Qualifications to FAR Part 3 Improper Business Practices and Personal Conflicts of Interest. Commentators argued that the 2011 proposed reforms were contradictory in this aspect, as this move from FAR Part 9 to Part 3 implies that OCIs should be analyzed under an anti-corruption framework but the other aspects of the proposed rule focus on the implication that OCIs are not necessarily corrupt. A revised solution needs to adequately reconcile these two competing assumptions.
To address the current confusion and undesirable outcomes of the FAR’s guidance on OCIs, the FAR Council should revise the FAR to include adequate guidance that equips contracting officers with the necessary tools to navigate the complex OCI landscape that is the reality of modern contracting. While the Preventing OCIs Act requires that the FAR Council revise the FAR’s OCI guidance, the statute offers little specific guidance. This Part proposes specific solutions that the FAR Council should adopt to respond to the concerns with the current OCI guidance identified both in this Note and in the legislative history leading up to the Act.
These solutions, however, are provided under the assumption the FAR Council will, at a minimum, also provide the necessary standard provisions and clauses mandating contractor disclosure of potential OCIs and updated definitions and examples required by the Preventing OCIs Act. These standard provisions and clauses are essential to ensuring contractor disclosure of potential conflicts, and the following proposed solutions rely upon such disclosure to effectively address OCIs. Without mandatory disclosure by contractors, both early in the competitive process and throughout the performance of the contract, agencies will be unable to effectively identify and address significant potential conflicts of interest. Provisions and clauses requiring mandatory disclosure by contractors are therefore essential to the vitality of revised OCI guidance. Importantly, as the Act recognizes, these provisions and clauses should be tailored by the contracting officer in each case to account for the nuances of the particular procurement. As a practical matter, ongoing mandatory disclosure may impose burdens upon the contractor, but the contractor, rather than the government, is in the best position to identify and disclose potential conflicts of interest for two reasons. First, the information necessary to identify the conflict may be solely within the possession of the contractor. For example, the government would be less likely than McKinsey to have the necessary information to identify the potentially conflicting work resulting from McKinsey’s consulting with large pharmaceutical companies. Second, many large consulting firms and similar businesses already have large and complex monitoring systems for conflicts of interest, similar to large law firms. These baseline provisions required by the Act establish the foundation for this Note’s proposed guidelines.
The updated guidance should first identify the distinction between conflicts of interest that pose a business risk to the government (business risk OCIs) and those that threaten the fairness of the competitive process (competitive integrity OCIs). Second, the updated guidance should separate the two types of OCIs by moving guidance for competitive integrity OCIs to FAR Part 6, Competition Requirements, and keeping business risk OCIs in FAR Part 9, Contractor Qualifications. Finally, the updated guidance should presumptively prohibit waiver of competitive integrity OCIs while providing agencies with guidance in performing the trade-off between business risk and expertise in business risk OCIs. This Part discusses these proposed solutions in more detail.
Revised FAR guidance should distinguish between OCIs that involve concerns of government business risk and OCIs that involve concerns of risk to the integrity of the competitive process because these concerns implicate different risks and therefore can be mitigated, or waived, differently. This is similar to the distinction proposed by the 2011 solutions, and reflected in FAR 9.505’s statement of guiding principles for OCI regulation. The Preventing OCIs Act directs the FAR Council to provide definitions of the Aetna categories, which are not currently mentioned in the FAR. Revised FAR guidance should define these categories in a manner that gives effect to the FAR’s core distinction between OCIs that only pose a business risk to the government, traditionally impaired objectivity OCIs, and OCIs that threaten the integrity of the competitive process, traditionally biased ground rules and unequal access to information OCIs. These two different concerns should lead to different treatment by agencies because business risk OCIs impact primarily the government’s interests whereas OCIs that involve risks of unfair competition impact the interests of other offerors, in addition to the government’s interests. While most OCIs involve a conflict between two or more government contracts like NetStar, in OCIs that involve a conflict with a contractor’s private sector contract, such as McKinsey’s conflict, there may be impacts of a business risk OCI upon the interests of the other party to the contractor’s private-sector contract as well. These third-party interests, such as those of the large pharmaceutical companies in McKinsey’s potential conflict, could be considered as part of the government’s interests for the purposes of OCI analysis. For example, in McKinsey’s potential conflict, the FDA could have considered its interest in successful contract performance as well as the potential broader effects through any influence McKinsey’s simultaneous contracting may have through performance of the contracts with pharmaceutical companies. These third-party concerns, however, would be best addressed between the contractor and the third party rather than in the government’s OCI analysis.
Specifically, business risk OCIs involve the government’s competing interests between the business risk of biased advice and the benefit of the contractor’s expertise through additional experience, as recognized in FAR 9.505(a)’s underlying principle of “[p]reventing the existence of conflicting roles that might bias a contractor’s judgment.” Competitive integrity OCIs do not, however, involve such competing interests. Rather, the conflict that arises when a contractor has unequal access to competitive information or is involved in the creation of the acquisition strategy for a contract that same contractor is competing for, does not directly implicate the government’s business risk in receiving biased advice. Competitive integrity OCIs address the FAR’s second underlying principle of “[p]reventing unfair competitive advantage.” The negative impact is directly on the fairness of the competitive process because the competitor with the unequal information or involvement in requirements development has an undue advantage in competing for the contract. Further, there is typically no benefit of added expertise that arises directly from the conflict when the conflict is one of competitive integrity. While it may still be the case, in some instances, that the offeror with a competitive integrity OCI is otherwise the best value for the government, this will not systematically be true more often than not, as with business risk OCIs where the conflict arises out of the specific experience that the government is seeking in this sector.
For example, under this Note’s proposed solution, McKinsey’s alleged conflict of interest in performing work for the FDA and large pharmaceutical companies would be categorized as a business risk OCI. McKinsey’s potential conflict gave McKinsey no undue advantage that threatened the integrity of the competitive process. Rather, the threat was to the government in receiving biased consulting services that undermined successful contract performance. There are competing concerns between this potential business risk and the benefit to the government of McKinsey’s experience in this sector. This Note proposes that this concern should be treated differently from a concern regarding the integrity of the competitive process because the government is in a better position to address the competing concerns raised in a business risk OCI.
Conversely, ALON’s conflict of interest in the NetStar case would be categorized as a competitive integrity OCI under this Note’s proposed solution because that OCI arose from ALON’s unequal access to competitive information that gave ALON an undue advantage in competing for the contract. This threat to competitive integrity does not pose any concurrent business risk to the government but is a violation of the procurement system’s core requirement of full and open competition. OCIs that only provide an undue competitive advantage are particularly sensitive because it is not merely the government’s own interests as a consumer that are at stake, but also the interests of other offerors in having a fair opportunity to compete for the resulting contract.
Importantly, not all conflicts of interest will fit neatly into these categories. In fact, as with the current Aetna categories, many conflicts of interest will pose a risk both to the government’s business interests and to the competitive process. This solution does not ignore this overlap. Under this proposal, any conflict of interest that poses any risk of competitive integrity is a competitive integrity OCI, regardless of a concurrent business risk to the government. A business risk OCI must be a conflict that only poses business risk to the government without any concurrent risk of undue advantage in the competitive process. In other words, a business risk OCI may not also pose a risk to competitive integrity, but a competitive integrity OCI may or may not also involve concurrent business risk. For example, under this proposed framework, the OCI in the Jones/Hill Joint Venture, where the awardee consulted on the drafting of the performance work statement and then prepared the management plan for in-house performance, would be considered a competitive integrity OCI because both unequal access to information and biased ground rules OCIs pose a risk to the fairness of the competitive process, rather than a risk of unsuccessful contract performance due to contractor bias.
A business risk OCI, such as McKinsey’s potential conflict, may initially seem to be most concerning given that business risk OCIs may lead to a risk of biased contract performance. The government, however, is in a better position to accept the risks of a business risk OCI. Unlike competitive integrity OCIs, which primarily affect the procurement system’s core focus of full and open competition, business risk OCIs involve a risk of unsuccessful contract performance, similar to other risks that the government expressly accepts and rejects through selection of a best-value trade-off. The interest in competitive integrity is distinct in that it involves the interests of both the government and the contractor. Further, the procurement system places a high value on competitive integrity because of the theory that doing so will yield the best value for the government through the forces of the competitive market. If this core policy goal of competitive integrity is undermined, it will hinder the government’s ability to obtain the best value.
Importantly, for the government to be able to fully evaluate the potential risk of unsuccessful contract performance, the mandatory disclosure provisions and clauses required by the Preventing OCIs Act are essential. These provisions and clauses ensure that the government has the necessary information regarding a potential OCI, especially when that information is entirely within the control of the contractor.
Once the government has access to such information, the government can evaluate the potential risk of unsuccessful contract performance to determine whether mitigation or waiver is in the government’s interest. If the risk is to competitive integrity, and not to successful contract performance, such as in a competitive integrity OCI, the agency is not in a position to undermine the procurement system’s core requirement of full and open competition in the same way that it can accept a risk of unsuccessful contract performance that is in the government’s best interest. Moreover, situations involving a competitive integrity OCI may undermine the government’s ability to obtain the best value because the improper competitive advantage may mask the best value presented by another offeror without the unfair competitive advantage. This proposal could also result in improved outcomes for agencies. Therefore, revised guidance should distinguish between OCIs that pose a risk to successful contract performance and those that threaten the integrity of the competitive process.
In addition to distinguishing between business risk OCIs and competitive integrity OCIs, revised FAR guidance should address the issue of where such guidance is placed within the FAR, as was raised in the 2011 proposed solutions. Specifically, the FAR Council should move competitive integrity OCIs to FAR Part 6, which addresses Competition Requirements, and keep business risk OCI guidance in FAR Part 9, which addresses Contractor Qualifications. This difference in FAR placement reflects the different concerns between competitive integrity and business risk OCIs. Competitive integrity OCIs are a matter of competition because the contractor’s undue competitive advantage threatens CICA’s core requirement of full and open competition and undermines the government’s goal of obtaining the best value. Business risk OCIs—which primarily involve a risk of unsuccessful contract performance through the provision of biased advice—are best understood as a matter of contractor qualification. Notably, the government is in the best position to determine, based upon information disclosed by the contractor, as required by the updated clauses that the Preventing OCIs Act direct the FAR to include, whether—despite the conflict—the contractor is still qualified to perform the contract successfully. Moving FAR guidance that directly implicates competitive concerns to Part 6, and maintaining FAR guidance that involves business-type determinations by the government in Part 9, will ensure that agencies are approaching different types of OCIs based upon the different issues that are being considered.
In addition to these changes, revised FAR guidance should allow agency personnel to exercise their business judgment in determining whether to waive a business risk OCI but should presumptively prohibit waiver of competitive integrity OCIs. The government, as the purchaser, and recipient of the product or service, should be able to accept a certain level of business risk in exchange for superior expertise or experience when evaluating a business risk OCI. However, the government should not waive OCIs that pose a risk to competitive integrity because CICA’s requirement of full and open competition is too central to the U.S. procurement system to waive in individual conflicts absent unusual and compelling circumstances. The procurement system places an extraordinarily high value on full and open competition because of the central capitalist theory that individuals zealously pursuing their own self-interests in a competitive market will result in better outcomes for all market participants. Further, greater and fairer competition can lead to better outcomes for the procuring agency as competitive forces tend to produce the best value for the government.
To assist agencies in addressing business risk OCIs, revised FAR provisions should include the following guidance in determining whether waiver of a business risk OCI is in the government’s best interest. The FAR should direct agency personnel to balance the impact of the potential conflict on the risk of unsuccessful contract performance with the benefit provided by the potentially conflicted contractor’s business expertise, experience, or technical solution. If the benefit of the contractor’s expertise, experience, or technical solution exceeds the risk of unsuccessful contract performance created by the potential conflict, then the agency should waive the OCI. If the risk exceeds the benefit of the expertise, then the agency should not waive the OCI and the contracting officer should use other tools to avoid, neutralize, or mitigate, the conflict.
The guidance should also provide the agency with factors to consider in analyzing whether waiver of a business risk OCI is in the government’s best interest. Such factors should include the context and impact of the potential conflict, whether other contractors who may not have similar conflicts possess the requisite experience and expertise, and the type of contract and the impact impaired objectivity may have on successful contract performance. These factors should be illustrative, rather than exclusive, and should provide the agency with tools for exercising discretion rather than overriding such discretion. The guidance should require that agencies document their waiver decision.
Thus, where there appears to be a conflict but the potential for unsuccessful performance is low, agency personnel may exercise discretion to waive the conflict. Similarly, if there is a substantial risk but an opportunity for mitigation, the agency could mitigate the conflict. Notably, in many instances, such as McKinsey’s headline-grabbing potential conflict, the conflict may still be too serious and the impact too great for the agency to waive or mitigate, but the government is in the best position to make such a determination. However, this makes mandatory disclosure even more important in making contracting officers aware of potential conflicts and allowing them to adequately evaluate and address them.
In a case like Safal Partners, Inc., where the initial awardee’s subcontractor had a potential conflict in that it could financially benefit by recommending grant recipients to the program that the subcontractor administered under another contract with the agency, the government may be able to accept such a risk of unsuccessful performance. While this analysis necessarily depends on the facts and circumstances of each case, in applying the above factors the contracting officer could determine that the contractor’s expertise and experience on this subject outweighs the minimal risk of unsuccessful contract performance, especially considering the attenuated subcontracting relationship as well as the fact that the agency retains final decisional authority. The agency could also determine that the opportunity for firewalls and other mitigation techniques could present an opportunity for mitigating any potential conflict. OCI guidance that allows for a discretionary approach to the different risks posed by different types of OCIs, and provides guidance to contracting officers on how to exercise such discretion, is needed to address the complexities of modern federal acquisitions.
Conversely, the FAR guidance should establish a rebuttable presumption that competitive-integrity conflicts are non-waivable. Given that waiver of competitive integrity conflicts would essentially waive CICA’s core requirement of full and open competition, such conflicts should not be waived lightly. Given that a bright-line rule may not account for the facts and circumstances of each individual case, the presumption of non-waiver should still be rebutted if there is an unusual and compelling reason, approved by a senior agency official, and documented through a determination and findings. Therefore, the NetStar conflict likely could not be waived because the awardee’s access to nonpublic competitively useful information gave it an undue competitive advantage that undermines the procurement system’s core focus on full and open competition. This framework will equip agencies to exercise discretion in cases where only the government’s business interests are implicated while preserving contractors’ interest in a fair competitive process.
Current OCI guidance is outdated and inadequate. Without updates that reflect the modern realities of a “blended workforce,” contractors and the government are left figuring it out themselves. This situation has led to overdeterrence of potential conflicts that could have been waived or mitigated and underdeterrence of potential conflicts that are either not identified or are waived without appropriate consideration. Congress, reacting to headlines of McKinsey’s potential conflicts, has directed the FAR Council to issue revised guidance. A deeper review of the potential conflicts that arise daily but draw little attention reveals that the issues resulting from outdated and inadequate guidance are much more nuanced. It is first essential that the FAR Council avoid the inaction of the 2011 solutions and enact revised guidance that provides a clear framework for contracting officers and mandatory disclosure requirements. In adopting such a framework, the FAR Council should effectuate the core distinction between competitive integrity and business risk OCIs. This proposed solution would ensure contracting officers are equipped to obtain the best value for the government and avoid the issues of both over and underdeterrence in current OCI guidance.
