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The Procurement Lawyer Winter 2023

Unfair Competitive Advantage Arising from Former Agency Employees

Sean Bahram Zehtab and Taylor Carroll

Summary

  • Discussing recent bid protests addressing unfair competitive advantages arising from personal conflicts of interest of former agency employees
  • Highlights that a conflict of interest may exist even if the former government employee's assistance is permitted based on post-government employment restrictions
  • Lists actions agencies and contractors can take to prevent or mitigate potential conflicts of interest with former government employees
Unfair Competitive Advantage Arising from Former Agency Employees
Oli Scarff via Getty Images

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A series of recent Government Accountability Office (GAO) bid protests address unfair competitive advantage arising from personal conflicts of interest of former agency employees. These include protests from Navy procurements, Serco Inc. and Dyncorp, as well as from NASA procurements, Science Applications International Corp. and ASRC Federal System Solutions, LLC. These decisions highlight risks, the need to respond appropriately to allegations, and the opportunities to mitigate these conflicts of interest through proactive vigilance of the acquisition workforce, including leadership personnel, procurement officials, technical and cost evaluators, and agency attorneys.

Federal Acquisition Regulation (FAR) 2.101 defines conflicts at the organizational level as follows:

Organizational conflict of interest means that because of other activities or relationships with other persons, 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.

The decisions discussed in this article concern unfair competitive advantage conflicts. These conflicts can occur when former government employees leave an agency to work for a contractor, use nonpublic information gained during federal employment to help develop proposals, and thus provide the contractor an unfair competitive advantage. Per 18 U.S.C. § 207, former government employees are subject to other post-government employment restrictions and may be subject to “bans” or “cooling-off periods,” which prohibit appearance or advocating back to the former agency. The application of these restrictions depends on several factors, such as the seniority of the official and whether the “employee participated personally and substantially during government service” on a “particular matter.” Section 2641.201(d)(3) of title 5 C.F.R. provides that these limitations in 18 U.S.C. § 207 do not limit behind-the-scenes assistance and gives examples to illustrate when the prohibitions apply.

The key point is that even if an employee’s behind-the-scenes assistance is permitted, a conflict of interest may nevertheless be found to exist, thus providing an offeror an unfair competitive advantage. Preventing these conflicts of interest requires an educated acquisition workforce and legal support from procurement and ethics attorneys in identifying employees with access to relevant information, as well as receiving advice from ethics counselors. Following a review of these decisions, this article includes a list of sensible actions agencies and contractors can take to prevent or mitigate these potential conflicts of interest with former government employees.

Unfair Competitive Advantage Arising from Former Agency Employees

Serco Inc.

The Serco Inc. protest involved a Navy procurement of four ship-related program services task orders. Two former Navy officers who served as program managers for two of the relevant programs for the tasks went on to consult for subcontractors of the awardee, Booz Allen Hamilton (BAH).

As program managers, the former officers had access to the protester’s performance information on the incumbent contract, including monthly reports with labor rate information, performance information such as Contractor Performance Assessment Reporting System (CPARS) evaluations, and the protester’s invoices. The contractor’s efforts to secure the task order began before the former employees left the agency. The officers worked on the proposal for the awardee without any apparent limitation from the awardee. GAO noted that in addition to obtaining information from the former agency officials, BAH also sought and obtained other competitively useful information, such as the independent government cost estimate (IGCE).

GAO detailed its legal precedents in Serco as follows:

FAR subparts 9.5 and 3.1 prohibit conflicts of interest in the government’s procurements, directing agencies to “avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships.” . . . In this context, where it can be demonstrated that a former government official had access to competitively useful information, the awardee will be found to have benefited from that information if the former government official participated in the proposal preparation effort. . . . That is, where an offeror chooses to hire a former government official who has had recent access to competitively useful information, and uses that official to help prepare the offeror’s proposal, the proposal may be properly disqualified based on the appearance of an unfair competitive advantage. . . . In this context, we will review the reasonableness of an agency’s determination with regard to an unfair competitive advantage. . . . Our assessment of reasonableness will consider the particular facts presented by each situation, including the credibility of the information on which the agency relied. . . .

As detailed further below, GAO rejected the agency’s determination that the former Navy Officer had no access to competitively useful information, and GAO found the information provided by the former agency program managers gave the awardee an unfair competitive advantage in preparing its proposal.

In this case, the employees’ access to competitively useful information occurred while contract capture was already in motion at the awardee’s company. Thus, the program managers had access to nonpublic and competitively useful information related to the offeror’s cost information (including Serco’s labor rates), past performance information, and the agency’s IGCE. Next, GAO determined that the Navy officials were hired shortly before or after they left the Navy to work on the awardee’s proposal preparation and engaged in comprehensive proposal preparation activities. GAO sustained the protest and recommended that the Navy disqualify the awardee’s proposal or take action to “avoid, neutralize, or mitigate the potential impact” of the disclosed nonpublic information the former officials had access to and “seek revised proposals from the offerors.”

One important lesson from Serco is that GAO presumes that in these circumstances the offeror benefited from recent access to nonpublic, competitively useful information. GAO explained that in the situation where the contractor chooses to hire former government officials with recent access to nonpublic, competitively useful information, and those officials assist in proposal preparation, that GAO may assume the offeror benefited from the information. GAO also provided that its standard recommendation under these circumstances is offeror disqualification “based on the appearance of an unfair competitive advantage alone.”

Further, agencies should consider GAO’s reliance on the additional FAR provisions for business integrity in FAR subpart 3.1. GAO’s decision cited FAR 3.101 as a distinct legal theory to sustain the protest, and agencies may not be able to use OCI waiver provisions at FAR 9.503 to simply waive unequal access to information OCIs in these personal conflict of interest situations.

SAIC

In the SAIC GAO bid protest, SAIC challenged NASA’s evaluation and award decision of an enterprise IT contract. SAIC filed subsequent supplemental protest grounds that alleged Leidos, the awardee, gained an unfair competitive advantage through access to nonpublic, competitively useful information arising from a former NASA official consultant’s work on Leidos’s proposal. NASA took corrective action and completed an inquiry into the allegations.

NASA’s inquiry determined that while the former official had access to nonpublic information related to the procurement, the information was not competitively useful because the information was outdated. NASA found further that the former official took prudent measures before departing NASA by recusing any participation in the IT procurement that was the subject of the protest.

Similar to Serco, GAO considered in SAIC whether the “offeror obtained an unfair competitive advantage by hiring a former government employee with knowledge of non-public information . . . including whether the non-public information was, in fact, available to the firm, whether the non-public information was proprietary information, and whether the non-public information was competitively useful.”

GAO found the contracting officer conducted a reasonable investigation into the conflict, in which the contracting officer:

(1) examined the emails and calendar entries from X’s final year of employment at NASA (April 2019 through April 30, 2020); (2) requested the AEGIS SEB review Leidos’s proposal to determine whether non-public, competitively useful agency information was included in the proposal; (3) requested additional information from SAIC regarding its allegations; (4) requested responses to SAIC’s allegations, issued questions, and requested declarations from X, Leidos’s staff and subcontractors, and NASA employees; and (5) requested all post-employment ethics opinions issued to X from the agency.

The contracting officer used a three-step analysis to review the evidence gathered in the investigation to determine whether Leidos gained an unfair competitive advantage through the former NASA employee. GAO quoted the contracting officer’s analysis from the investigation’s findings:

  • Question 1: Did [X] have access to non-public proprietary or competition-sensitive information? If “no,” then no unfair competitive advantage can be found and the inquiry stops. If “yes,” then go to Question 2;
  • Question 2: Was the non-public information competitively useful? If “no,” then no unfair competitive advantage can be found and the inquiry stops. If “yes,” then we proceed to Question 3;
  • Question 3: Do the facts and circumstances establish that it is likely that this information was disclosed to the offeror? If not, then there is no competitive advantage. If yes, then there is an unfair competitive advantage.

Initially, the contracting officer concluded the NASA official had access to “non-public proprietary information and source selection information due to their high-ranking position.” However, NASA found the information was “not competitively useful because the information had either become public or was outdated by the time initial proposals were due on November 20, 2020.” The investigation also determined that Leidos’s proposal contained no competitively useful information derived from the former employee’s time at Id.

GAO explained that no actual impropriety needs to be demonstrated so long as the determination of unfair competitive advantage is based on “hard facts and not mere innuendo or suspicion.” Further, familiarity with the type of work resulting from experience gained by the employee in the prior government position alone is not evidence proving an unfair competitive advantage.

From the agency’s perspective, employees leaving an agency usually receive ethics advice from agency attorneys covering permissible and impermissible activities, including cooling-off periods that apply to representing their new employers to their former agencies. In SAIC, the former NASA official received such advice and took the extra step of recusing him- or herself from the procurement before leaving NASA.

For contractors, the SAIC bid protest highlights that one purpose of hiring former government employees is that they can apply their expertise to assist in securing contract awards. However, a more prudent approach for contractors may be utilizing former employees in a more limited fashion, even restricting “behind-the-scenes” support to contract capture with their former agencies. The risk of protest and potentially jeopardizing the award may not justify putting the former employee on contract capture in situations where the employee previously had access to nonpublic, competitively useful information.

ASRC Federal System Solutions, LLC

In another case involving NASA, ASRC Federal System Solutions, LLC (AFSS) protested the award by NASA for multidisciplinary engineering technician and trade support services at the George C. Marshall Space Flight Center (MSFC). AFSS filed a supplemental protest, which alleged unfair competitive advantage due to access to nonpublic, competitively useful information of a former high-ranking NASA employee.

The contracting officer thoroughly investigated and concluded the former government employee’s actions did not create an unfair competitive advantage. GAO reviewed and found NASA’s internal investigation sufficiently addressed the allegation of unfair competitive advantage. NASA’s investigation reviewed the following evidence: “(1) cost reports submitted under the incumbent METTS II contract; (2) records documenting the evaluation of performance under the METTS II contract; (3) records of participation in METTS III acquisition planning; (4) records of involvement in METTS III proposal activities; and (5) the declaration of Y regarding his access to competitively useful, non-public information.”40

The contracting officer’s findings and recommendations based on this thorough investigation used a three-step analysis: (1) whether the government employee had “access to non-public information”; (2) was the nonpublic information “competitively useful”; and (3) if competitively useful, whether the “non-public information was disclosed to the offeror.”

The contracting officer’s investigation delved into cost reports and emails, projects that were within the former government employee’s oversight, the length of the former government employee’s membership in the performance evaluation board (PEB), and the former government employee’s involvement in the METTS III procurement. During the proposal evaluation, the source evaluation board (SEB) chairman inquired specifically about the former government employee’s “involvement as a proposed key person for the requirement.” The NASA ethics counsel responded that the government employee had retired in March 2019, meaning his “1 year cooling off period expired in March 2020.” As is common in OCI protests, the former government employee provided a declaration that stated he “did not have access to non-public METTS II cost information, PEB information regarding incumbent contractor performance, or any proprietary information regarding the pending METTS III acquisition.”

This decision describes an effective scope for an agency investigation into personal conflicts of interest allegations. It is also noteworthy that the investigation occurred during the protest after the protester filed a supplemental protest. AFSS shows that an agency can complete a defensible and thorough investigation in a compressed timeline during protest litigation.

DynCorp International, LLC

DynCorp International, LLC (DynCorp), protested the award of a task order to Vertex Aerospace, LLC (Vertex). The Navy Test Wing Atlantic (NTWL), Department of the Navy, issued a Task Order Fair Opportunity Submission Request (FOSR) for aircraft maintenance services. DynCorp alleged Vertex had an unfair competitive advantage because it used a retired NTWL official to prepare its proposal. DynCorp was concerned that the former government employee had access to DynCorp’s confidential cost and performance information. The contracting officer concluded the investigation by finding that the former government employee did not have access to competitively useful information. DynCorp countered that the contracting officer’s investigation of the former NTWL employee was “unreasonable.” However, GAO found DynCorp failed to show the investigation was unreasonable and that its allegations lacked the “hard facts” necessary to prove impropriety.

Significantly, the agency conducted its investigation into this allegation prior to making an award and the subsequent protest. The GAO decision cites the effort that Vertex made by devoting significant resources to preventing violations of these particular federal regulations (i.e., FAR subparts 3.1 and 9.5). For example, prior to hiring the former government employee as a consultant, Vertex had considered the employee’s potential conflict of interest and conducted an inquiry. The former NTWL employee assured the agency in a declaration that he did not “possess any competitively useful nonpublic information.” GAO stated, as in prior protests, that “a person’s familiarity with the type of work” from experience in government “is not, by itself, evidence of an unfair competitive advantage.”

The contracting officer investigated the former government employee’s prior access to proprietary information (business management and strategic planning) and any other information specific to DynCorp. The timeline of the former government employee leaving the agency and entering employment with the awardee was also relevant to the investigation. The standard one year had elapsed between the employee’s retirement from NTWL in November 2019 and the initial contact with Vertex in January 2021.

An important feature in these protests is that it appears the longer the duration between leaving the agency and employment with the awardee, the less probability of an OCI, or even the appearance of one. In other words, if a former government employee once had access to proprietary or source selection-sensitive information, it is more than likely that the information will become public or outdated due to the attenuated timeline. Therefore, the staler the information, the less likely it is to lead to an unfair competitive advantage.

The contracting officer addressed the following conflict-related issues in the inquiry: “Procurement Integrity Act violation, biased ground rules conflict, unequal access to information conflict due to access to proprietary non-public information, and unequal access to information conflict due to access to source selection information and an impaired objectivity conflict.” Evidence gathered during the investigation included the former employee’s emails and any access to DynCorp’s and other source-selection-sensitive data. A major issue was whether the former government employee had prior access to a NTWL “shared drive” that allegedly contained proprietary information. Ultimately, it was determined that the former government employee did not, at any time, access information about DynCorp on the shared drive, and even if the former government employee had accessed the information, it was not competitively useful.

Actionable Lessons to Prevent and Mitigate Potential Conflicts of Interest Arising from Former Government Agency Employees

These recent bid protests provide lessons that agencies and contractors should compare to their current practices to mitigate potential conflicts of interest.

  1. Agencies should be aware of employees leaving for work in private industry, particularly in markets that include companies competing for procurements in pending or ongoing source selections.
  2. When an employee leaves the agency, recusal and limiting access to information may be appropriate.
  3. Employees need to receive post-government employment agency ethics counselor advice; written legal advice should address the departing employees’ job opportunities.
  4. It is crucial to vet current employees for personal and financial conflicts of interest to defend the integrity of the procurement system before holding procurement meetings and allowing access to competitively useful information. The OGE 450 and 278 financial disclosure processes can assist agencies to understand an employee’s potential financial conflicts of interest.
  5. Contractors also have obligations and an equal interest to prevent such conflicts of interest. Defense contractors should take note of an updated clause in DFARS 252.203-7005, “Representation Relating to Compensation of Former DoD Officials,” which requires that offerors represent to the best of their knowledge and belief that certain former DoD officials working for the company are in compliance with post-government employment restrictions.
  6. Most importantly, when protestors allege conflicts or potential conflicts are voluntarily disclosed by the offerors, the contracting officer should conduct an inquiry. The earlier the inquiry, the better, as investigating in response to allegations raised during a bid protest may cause considerable disruption. If the agency is caught off guard by the allegations, it may take corrective action and the necessary time and effort to investigate the allegations thoroughly. In some cases, a proactive contracting officer may conduct an inquiry before a protest and accordingly, is better positioned to respond to protest allegations.

An investigation must be meaningful and based on available relevant evidence. A meaningful investigation will gather available evidence, including but not limited to documents, emails of former employees, shared drive access logs, and other documentation related to the following: (1) cost reports submitted under incumbent contracts, if relevant; (2) records documenting the evaluation of performance under the incumbent contract; (3) records of participation in the procurement’s acquisition planning; (4) records of involvement in the procurement’s proposal activities; and (5) declarations of former employees regarding their access to competitively useful, non-public information.

Contracting officers must document their analysis of the evidence in the investigative findings and recommendations. Contracting officers can use NASA’s analysis in the cases above as a model. NASA’s three-step analysis included (1) whether the government employee had “access to non-public information”; (2) whether the nonpublic information was “competitively useful”; and (3) if competitively useful, whether the “non-public information was disclosed to the offeror.”

By considering the lessons in this list and conducting meaningful inquiries when potential conflicts arise, agencies and contractors can prevent or mitigate unfair competitive advantage.

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