Presentation on theme: "Critical New Developments in Organizational Conflicts of Interest"— Presentation transcript:
1 Critical New Developments in Organizational Conflicts of Interest Dick BeanAssociate General CounselGeneral Dynamics C4 Systems
2 Point to Ponder Arnold Palmer once said: “Golf is amazingly simple, and endlessly complicated.”The same can be said aboutOrganizational Conflicts of Interest!
3 Today’s SessionOpen discussion on all charts – jump right in with a question or comment!Time at the end as well for any other questions not prompted by the chartsPlease provide feedback on the content and format of this course – thanks in advance!
4 Summary of Issues The Basics – What is an OCI? FAR Case (Now FAR Case )DFARS Case 2009-D015GAO Bid ProtestsU.S. Court of Federal Claims Bid ProtestsAgency Approaches to OCITrends/Conclusions/Questions?
5 The Basics – What is an OCI? FAR … unable or potentially unable to render impartial assistance or advice, or … objectivity is or might be impaired, or … has an unfair competitive advantageThree Types of OCI:Impaired Objectivity (evaluate own product)Biased Groundrules (write standards/specs)Access to Nonpublic Information (contractor staff working in agency with no isolation methods)
6 FAR Case 2007-018 Issued March 26, 2008 (73 Fed. Reg. 15962) Highlights include: greater emphasis on contractor disclosure of OCI, broader definition of “contractor,” OCI rules specifically applying to task/delivery orders, contracts including formal OCI resolution process, greater emphasis on avoidance, and limitations on future contracting rather than mitigation and firewalls
7 FAR CaseIssued 10/6/2010 as a restatement of FAR CaseReport originally due 10/27/2010Third extension granted until 12/15/201002/07/2011 Draft proposed FAR to CAAC Legal02/24/2011 CAAC Chair sent draft proposed FAR rule to OIRA - OIRA reviewing (as of 3/4/11)
8 DFARS Case 2009-D015 Issued April 22, 2010 (75 Fed. Reg. 20954) Proposed major changes to DoD’s approach to OCIProposed many new DFARS clauses for use in solicitations and contractsGenerated a significant number of comments by industry groups (21 respondents to the proposed rule)Final Rule issued December 29, Fed. Reg
9 Proposed DFARSDoD proposed new OCI provisions in DFARS Part 203 (rather than Part 209)Significance - Part 203 relates to various activities that violate major laws governing business practices and ethics such as the Procurement Integrity Act, Anti-Kickback Act, Covenant against Contingent FeesMight imply OCI relates to wrongdoing
10 Proposed DFARSFederal contract OCI issue should not carry the same stigma as other Part 203 matters which are criminal in natureSome OCIs are created purely by corporate mergers/purchases/consolidation so no criminal action is involved and it is not misconduct or an “improper business practice” to have an OCI ariseResult: DFARS revisions on OCI will remain in Part 209
11 Proposed DFARSProposed DFARS displaced traditional hierarchy of acquisition regulations established when the FAR was promulgated in 1984: “DoD proposes to use DFARS subpart in lieu of the present FAR Part 9.5” (75 Fed. Reg. pages )Normally, the FAR is primary guidance and FAR supplements include only agency-specific directionResult: DoD only implemented changes that relate to pre-MDAP and MDAP programs
12 Proposed DFARS“However, when the FAR is revised, pursuant to the Section 841(b)[Pub.L ] to incorporate broader OCI changes, DoD will follow the FAR and revise the DFARS to address only those aspects of OCIs that relate specifically to major defense acquisitions” (75 Fed. Reg. pages )Why should the DFARS be revised twice? Why not wait for action on FAR Case ?Result: DoD only implemented changes affecting MDAP programs as WSARA had directed.
13 Proposed DFARSProposed DFARS (c) and (c) states that the preferred method of resolution is OCI mitigationWill this have an unintended consequence of encouraging challenges?Result: DoD removed the preference for mitigation, stating that how to resolve an OCI will “remain a matter within the common sense, good judgment and sound discretion” of contracting officers
14 Proposed DFARSDoD policy to promote competition and, to the extent possible, preserve DoD access to the expertise and experience of highly-qualified contractorsDoD: OCI resolution strategies should not “unnecessarily restrict the pool of potential offerors and do not impose per se restrictions on the use of particular resolution methods”
15 Proposed DFARSProposed requires identification of OCIs, but it doesn’t go far enoughIt should also require disclosure of the identities of any companies that participated in requirements definition – will alert offerors which companies would be ineligible to be subcontractorsResult: No implementation; defer to FAR Case
16 Proposed DFARSProposed allows a PCO to exclude an offeror if its participation creates an OCI on a future contract (a private business decision)It should be revised to state solicitations should include language indicating if a contractor wins a support contract, it may be precluded from competing for the subsequent implementation contractResult: Implemented only for MDAP programs, though an OCI mitigation plan may be submitted
17 Proposed DFARSProposed states OCI waivers shall not be used in competitive acquisitions unless stated in the solicitationUnrealistic to assume the PCO will know all the participants that early in the processWhy not leave it to the PCO’s common sense, good judgment based upon facts presented and legal advice rendered?Result: Not implemented – “common sense, good judgment” standard prevailed!
18 Proposed DFARSProposed requires inclusion of a solicitation provision ( XX) when contractor performance of the work may give rise to OCIThe proposed clause does not provide adequate guidance on its use and may lead to overuse, but with revision it could include specific reference to use in support services and other advisory services requirementsResult: New DFARS and
19 Final Rule DFARSDFARS – HCA approval needed for approval of OCI mitigation plan on MDAP SETA support; otherwise no follow-on effort on MDAP by company or affiliateDFARS – Affects major subcontractors as well their affiliates unless an OCI mitigation plan is approved and incorporated into the contract as a material requirement
20 Proposed DFARSProposed XX(e)(3) requires the PCO to act on an OCI mitigation plan if it is unacceptableNeeds additional clarification/revisionResult: Indirectly addressed by the new requirement to incorporate an OCI mitigation plan in the contract; PCO would have to act upon an OCI mitigation plan to incorporate it
21 Proposed DFARS Proposed 252.203-90YZ, Limitation on Future Contracting Imposed when the performance “could” create an unfair competitive advantageRequirements of future procurement could change, and thus potentially cause unnecessary exclusionResult: Not implemented
22 Proposed DFARSProposed ZZ, Disclosure of Organizational Conflict of Interest after Contract AwardHighlights default termination as a remedy for OCI disclosure during contract performanceResult: Not implemented - in deference to the pending FAR Case taking action
23 Proposed DFARSProposed DFARS rules may have gone too far in attempting to apply language from Aetna Government Health Plans, Inc., B , et al., 95-2 CPD 129 that there is no need to distinguish between a firm and its affiliates and that the “appearance of impropriety” is the standard to be applied.Companies have an interest in their reputation for quality work and ethical conduct in order to assure their long-term viability in the Federal marketplace
24 FAR CaseWill we see rejected DFARS changes resurface in this FAR case?January 7, 2011: DAR staff notified FAR staff that Defense Acquisition Regulatory Council agreed with draft proposed rule, as edited by DAR Council legal staffCAAC referred the case to OIRA February 24
25 GAO Decisions MCR Federal, LLC, B-401954.2, August 17, 2010 CIA was seeking cost evaluation services.Initial acquisition was protested and CIA took corrective action, specifically on OCI allegationCIA granted OCI waivers for both companies in the competition due to limited “cleared” contractorsGAO upheld the FAR OCI waiver – CIA had met all of the FAR requirements
26 GAO Decisions MCR Federal continued- Teaching point from the decision would be that an agency should always consider whether an OCI waiver would be in the best interests of the agency - to enhance competition or based upon other compelling reasonsCompanies should consider requesting OCI waiver in their OCI mitigation plan templates as a last resort if other techniques are deemed ineffective
27 GAO DecisionsCIGNA Government Services, LLC, B , September 9, 2010Corrective action after initial protest alleging OCIPCO examined OCI allegations and developed a 20-page report containing contractors’ answers to PCO questions (resolving OCI concerns)PCO took extra step of pursuing OCI waiver post-FPR to neutralize any latent issuesGAO denied the protest; OCI exchange is not discussions
28 GAO DecisionsEllwood National Forge Company, B , October 22, 2010former employee of protester was a consultant to its competitor; Protester alleged OCIPCO had obtained affidavits from both parties and obtained independent technical analysis showing Protester’s steel manufacturing processes were not used by its competitorGAO found no OCI violation
29 GAO Decisions Additional points from the Ellwood protest: GAO will to abstain from involvement in enforcement of private nondisclosure disputesIf an individual obtains non-public information and an allegation of misuse later arises, this does not give rise to an OCI allegation before the GAOGAO will uphold agency discretion in making OCI determinations that are supported by reasonable investigative inquiry by the procuring agency
30 GAO Decisions Serco, Inc., B-404033.4, December 27, 2010 Good example of proactive OCI measures by the GovernmentArmy put offerors on notice to disclose potential OCI issues and to submit an OCI mitigation planOfferors could not provide advice and then propose on the fulfillment of such new requirements; and could not use any nonpublic or proprietary information obtained during performance of the instant contract
31 GAO Decisions CACI, Inc. – Federal, B-403064.2, January 28, 2011 A good example of thorough OCI investigation measuresCorrective action after initial protest (notice a theme here?)Contracting Officer took several steps to analyze the OCI issues raised
32 GAO Decisions CACI continued Contracting Officer: reviewed prior agency analysis of OCIContacted both companies and requested statements from each employee who had knowledge of meetings, asked whether any information addressed at meetings was proprietary and why, asked for any written information provided at meetings (in part, to show markings), and whether the employees were aware of any relevant statements of any Government employee regarding one company’s intention to not propose
33 COFC DecisionsTurner Construction v. United States, July 8, 2010 (36-page decision)Turner was awardee on an Army “design-build” construction projectThe award was initially protested to the GAO by the two unsuccessful offerors, McCarthy/Hunt JV and Harbert/Gorrie JVThe GAO sustained the protest due to OCI concerns relating to Turner’s subcontractor
34 COFC DecisionsTurner’s subcontractor had merged with another firm that was supporting the agency’s source selection evaluationPCO met with the above companies during the source selection and concluded no OCI due to the isolation of information about the mergerGAO concluded an OCI was present and recommended termination of the Turner contract
35 COFC DecisionsCOFC found that the Army was arbitrary and capricious in implementing the GAO decision because the GAO decision was “irrational”GAO conducted an improper “de novo” review rather than just review the agency’s decision to see if it had a rational basisCOFC reinstated the Turner contractThe Army had considered use of an OCI waiver, but its decision authority rejected it
36 COFC DecisionsTurner is now on appeal to the U.S. Court of Appeals for the Federal CircuitDocket NoWatch for further developments!
37 Other Important Court Decisions United States v. Science Applications International Corporation (SAIC)District Court: False Claims Act violation, treble damages $5.8MU.S. Court of Appeals for the District of Columbia: Reversed in part and remanded for new trial
38 Other Important Court Decisions (SAIC Continued) SAIC will be able to present evidence on whether the Government received the benefit of its bargain despite the OCILiability under the False Claims Act could attach if OCI compliance was a material condition of the Government’s decision to payMany other issues not related to the OCI aspects of the case
39 Agencies’ OCI Approaches: A Sampling NASA:Missile Defense Agency: Statement of Policy dated 24 November 2008NRO Corporate OCI Agreement Program, 26 June 2009 [Notice ]Air Force Electronic Systems Center:
40 Trends/Conclusions/Questions OCI impact has caused divestiture in 2010Northrop Grumman, Boeing, Lockheed Martin, CSC all reported restructuring due to OCI concernsContinued scrutiny at the GAO/COFCCOFC Turner Construction decision may be cause for the GAO to reassess its examination of OCI“Target-rich environment” for lawyers, lecturers, and pundits of all types!