On April 26, 2011, the Department of Defense ("DoD"), General Services Administration and National Aeronautics and Space Administration published a proposed rule to amend the Federal Acquisition Regulation ("FAR") Organizational Conflicts of Interest ("OCI") provisions.  The proposed rule is of interest to contractors because it changes the longstanding framework of OCI analysis and would impose additional obligations on contracting officers and contractors.  The Civilian Agency Acquisition Council and Defense Acquisition Regulations Council ("FAR Councils") developed the proposed rule because of the increased potential for OCIs in government contracting arising from industry consolidation, growing agency reliance on contractors for services and the use of multiple-award task and delivery order contracts.

The proposed rule marks a significant shift in trend and tone by moving the FAR OCI provisions from Part 9, which covers contractor qualifications, to Part 3, which relates to improper business practices.  Substantively, the rule focuses on two core OCI situations—impaired objectivity and biased ground rules.  The former is a situation where a contractor is required to exercise judgment when assisting the government, and the contractor or its affiliates have interests at stake that might cause a reasonable person to have concern that the contractor may be improperly influenced by its own interests.  The latter is where a contractor could have an unfair competitive advantage as a result of having performed work on a government contract that put the contractor in a position to influence the acquisition.  In another switch from past practice, the proposed rule no longer includes "unequal access to information" as an OCI and instead treats it separately under FAR Subpart 4.4, retitled "Safeguarding Information Within Industry." 

The proposed rule describes two distinct types of harm that may arise from OCIs that it seeks to address:  (1) harm to the integrity of the competitive acquisition system, and (2) harm to the government's business interests.  Because the harm to integrity of the competitive acquisition system affects not only the government but also other vendors and the public trust, the risk of such harm is to be reduced or eliminated to the maximum extent possible, although a waiver provision is provided.  By contrast, the risk of harm to the government's business interests may, pursuant to guidelines identified in the proposed rule, sometimes be assessed as an acceptable performance risk.  The contracting officer has broad discretion to select the appropriate method to address the conflict, including the discretion to accept some risk.

The proposed rule identifies several courses of action available to the contracting officer addressing OCIs: (1) avoidance, (2) limitation on future contracting, (3) mitigation, (4) assessment that the risk is acceptable, and (5) waiver.  Mitigation of an OCI risk that would undermine the public's trust in the federal acquisition system can potentially be accomplished through contractor use of conflict-free subcontractors or team members or contractor internal controls.  Firewalls will often be necessary to implement such controls, but a firewall is generally not, by itself, effective in addressing an OCI. 

The proposed rule describes in detail the contracting officer's responsibilities to assess and address OCIs through all phases of the contracting process and identifies several new clauses dealing with OCIs and potential OCIs.  Some of these new clauses require the disclosure, in writing, of potential or actual conflicts of interests or noncompliance with a mitigation plan to the contracting officer.

While the proposed rule does not classify unequal access to information as an OCI, it does include policies and procedures designed to identify and resolve situations where an offeror's access to nonpublic information provides the offeror with a competitive advantage.  The proposed rule includes several new clauses intended to protect both the government and third-party owners of nonpublic information from unauthorized use or disclosure of such information.  These provisions may increase risks to contractors obtaining or dealing with nonpublic information in the performance of government contracts.

The proposed FAR rule is one of two options for OCI regulatory reform developed by the FAR Councils.  The other option is a proposed DFARS rule published on April 22, 2010 designed to implement section 207 of the Weapon Systems Acquisition Reform Act of 2009.  Like the new proposed FAR rule, the proposed DFARS rule would have moved OCI coverage to Part 3, clarified key terms and provided additional guidance and standard clauses.  Unlike the proposed FAR rule, however, it did not present the same framework for risk analysis and did not relocate unequal access to nonpublic information to Part 4.  On December 29, 2010, DoD published a narrower final OCI rule applicable solely to major defense acquisition programs.

The FAR Councils have invited feedback on (1) the differing approaches to OCI contained in the proposed DFARS and proposed FAR rules, and (2) which course of action, or combination of the two, would be preferable.  Contractors prone to OCI issues should be aware of the requirements included in the proposed rule and consider providing comments by the June 27, 2011 deadline.

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