Pentagon seeks to force contract bidders to disclose conflicts of interest

By Robert Brodsky

April 22, 2010

Defense Department contractors would be required to disclose any possible organizational conflicts of interest before bidding on projects, under a proposed rule published on Thursday in the Federal Register.

The suggested amendment to the Defense Federal Acquisition Regulation details how contracting officers can determine if a prospective bidder has an unfair advantage over competitors and outlines the steps officials should take to deal with such conflicts.

"The government must avoid the appearance of impropriety, which taints the public view of the acquisition system," the notice stated. "Organizational conflicts of interest, by their mere appearance, call into question the integrity and fairness of the competitive procurement process. This concern exists regardless of whether any individual contractor employee or contractor organization ever actually renders biased advice or benefits from an unfair competitive advantage."

The 2009 Weapons System Acquisition Reform Act required Defense to provide uniform guidance and tighten existing requirements for organizational conflicts of interest by contractors in major defense acquisition programs. The proposed rule, however, would apply to all Defense contracts, including task or delivery orders, with the exception of those for commercially available off-the-shelf items.

Defense said the proposal incorporated recommendations by the department's Panel on Contracting Integrity and by attendees of a December 2009 public meeting on the topic.

Organizational conflicts of interest occur when a firm has access to nonpublic information that would give it a leg up in competing for work, the rule said. Conflicts also could crop up when a contractor is performing tasks that are subjective and that could have an impact on its bottom line. These situations would include a company helping to prepare a statement of work and then bidding on that project.

The rule would mandate that bidders voluntarily disclose facts that could relate to an organizational conflict of interest both prior to the award and on a continuing basis during performance of the contract. Contracting officers would be required to conduct their own assessments, including examining the financial interests of the offerors, to identify potential red flags.

Mitigation is the department's preferred method to resolve problems, the draft rule stated. Contracting officials could attempt to establish institutional firewalls, delegate certain tasks to a subcontractor or share previously private information with all offerors. If mitigation is not an option, then the official could select another offeror or request a waiver, according to the rule.

The Professional Services Council, a contractor trade association, said on Thursday while the proposal is a step forward in addressing a complicated issue, it covers far more ground than Congress directed and could lead to unnecessary confusion. For example, PSC questioned whether the rule would give contracting officers adequate tools to develop an effective and acceptable mitigation strategy.

"In practice, it's much easier to say no and much harder to say yes," PSC Vice President Alan Chvotkin said.

The proposal also treats the contractor as a single entity, even if a small segment of the company is doing business with Defense. PSC suggested a one-size-fits-all approach could make it difficult to identify and resolve potential conflicts and could wreak havoc for commercial industry segments -- including information technology-- where the market structure and dynamics are noticeably different than in the weapons system arena.

"While these deficiencies can be remedied during the rule-making process, unchanged the proposed rule has the potential to negatively affect the national security industrial base at a time when Congress and Defense Department leadership are properly focused on expanding that base and enhancing the government's ability to access critical skills and capabilities," PSC President Stan Soloway said.

Larry Allen, president of the Coalition for Government Procurement, another industry group, said he supported the proposal in general, but would like to see more examples to help contracting officers pinpoint conflicts of interest.

"Additional guidance is something that both the government and contractor community had wanted," he said. "While some contractors may feel that the guidance is overly restrictive, others will likely welcome simply knowing better where the lines are drawn."

Allen also said he wants the defense and the civilian acquisition councils to come together and issue governmentwide rules. The Federal Acquisition Regulation Council is expected to issue its own organizational conflict of interest modification for civilian agencies.

Comments on Defense's proposed rule must be presented in writing by June 21. They can be submitted by e-mail at, or through the federal e-rule-making portal Comments also can be mailed to:

Defense Acquisition Regulations System
Attn: Ms. Amy Williams, OUSD (AT&L) DPAP (DARS)
3060 Defense Pentagon, Room 3B855
Washington, D.C. 20301-3060

By Robert Brodsky

April 22, 2010