organizational conflicts of interest (oci) new developments in the u.s. and abroad a panel...

Organizational Conflicts of Interest (OCI)

New Developments in the U.S. and Abroad

A Panel Discussion including:

Richard C. Bean, Attorney at Law Peter J. Camp, Counsel, U.S. Air Force ESCJoseph J. Kelley, Senior Counsel, Raytheon

On The Regulatory Front- OCI:

• FAR Case 2011-001: where are we now? • Public comments from December 2010 still

under review by FAR Acquisition Ethics and International Law Team

• Team tasked September 1, 2011 with drafting final rule by October 26, 2011

• Second extension of due date has been issued: March 28, 2012

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On The Regulatory Front – PCI:

• Another related area in the regulatory arena has been personal conflicts of interest (PCI) for contractor employees performing acquisition functions

• FAR Case 2008-025, effective December 2, 2011, see 76 Fed. Reg. 68017-68026, November 2, 2011

• http://edocket.access.gpo.gov/2011/pdf/2011-27780.pdf

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On the Regulatory Front – PCI:

• Some companies are merging OCI and PCI policies (and awaiting new OCI final rules)

• May be appropriate for contractors providing support services, but maybe not for systems or supply contractors

• However, inclusion of both OCI and PCI compliance processes in an OCI mitigation plan may show an agency that the company has both areas addressed and resolved!


• Final rule makes contractors responsible for:– Having procedures to screen for potential PCI– Informing covered employees of their obligations

with regard to these policies– Maintaining effective oversight to verify

compliance– Reporting any PCI violations to the contracting

officer– Taking appropriate disciplinary action with

employees who fail to comply with these policies

On the Regulatory Front – PCI:• Affects contractor employees supporting an

“acquisition function closely associated with inherently governmental functions” means providing advice or recommendations with regard to:– Planning acquisitions, evaluating proposals– Developing SOWs, evaluation criteria

• See FAR 3.1101 for comprehensive listing of affected efforts and FAR 52.203-16 for new mandatory clause for acquisitions exceeding the simplified acquisition threshold for services


• PCI - a situation in which a covered employee has a financial interest, personal activity or relationship that could impair the ability to act impartially and in the best interest of the Government when performing under the contract

• Contractors must prohibit covered employees from using non-public information for personal gain


• Requires use of nondisclosure agreement• Violations will require not just reporting of the

incident but also the proposed actions to be taken (implying contracting officer input into those proposed actions) and follow-up reports of corrective actions

• If contracting officer determines matter not resolved, must consult with agency legal counsel and take “appropriate” action


• PCI policies are yet another compliance issue for contractors which will require:– Workforce training– Implementing clearly understood PCI policies– Tracking of executed NDAs of covered employees– Tracking of disciplinary actions to establish

proportionality and reasonableness of actions taken (to persuade contracting officer)

GAO Decisions

• AdvanceMed Corporation; TrustSolutions, LLC B-404910.4; B-404910.5; B-404910.6; B-404910.9; B-404910.10 January 17, 2012.Protest that the award was tainted by an impaired objectivity OCI is denied where the record showed that the agency reasonably concluded that the potential areas of concern either did not constitute significant conflicts that warranted disqualification of the awardee, or were significant conflicts that were adequately mitigated.

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AdvancedMed Decision

• HHS acquisition for Medicaid/Medicare fraud prevention support; best value award

• Corrective action taken on first protest which alleged OCI concerns – awardee was wholly owned subsidiary of BC/BS

• Plan for divestiture was sufficiently detailed to satisfy GAO that agency acceptance was not arbitrary (26 page GAO decision)

GAO Decisions

• TriCenturion, Inc.; SafeGuard Services, LLC B-406032; B-406032.2; B-406032.3; B-406032.4 January 25, 2012.Protest that the award was tainted by organizational conflicts of interest was denied where the record shows that the agency reasonably concluded that the potential areas of concern were adequately mitigated.

TriCenturion Decision

• Another HHS acquisition for similar services in a different geographical region

• The protest was sustained on other grounds involving the evaluation process (recommended reading!)

• Complex and detailed divesture process contingent on contract award was identical to that set forth in AdvancedMed decision

GAO Decisions• Raytheon Technical Services Company LLC B-

404655.4; B-404655.5; B-404655.6, October 11, 2011.Protest that awardee had “unequal access to information” type of organizational conflict of interest is denied where allegations were based upon suspicion and not “hard facts,” agency’s investigation was meaningful, and agency reasonably concluded that awardee did not have access to nonpublic information that would provide firm a competitive advantage in procurement.

Raytheon Decision

• Protest was sustained on other grounds (and a prior protest resulted in corrective action)

• The Department of State contracting officer conducted a post-protest investigation which concluded that certain named individuals did not have access to any current nonpublic information

• Rare GAO support for post-protest agency investigation

GAO Decisions

• Enterprise Information Services, Inc. B-405152; B-405152.2; B-405152.3 September 2, 2011.Protest that the awardee’s subcontractor had an unmitigated “unequal access” OCI arising from its contract with the procuring agency is denied where the contracting officer investigated the matter and determined that the subcontractor’s work under its contract did not directly involve the subject matter implicated by the protested procurement and NDAs were used in any event.

Enterprise Decision

• Air Force contracting officer concluded that a subcontractor of the awardee was working in a separate support area and even if it may have had access to protester’s labor information, each employee executed an NDA

• GAO held that while the NDA was not “company-to-company,” this error was not sufficient to sustain this issue without more facts

GAO Decisions• PCCP Constructors, JV; Bechtel Infrastructure Corporation B-

405036; B-405036.2; B-405036.3; B-405036.4; B-405036.5; B-405036.6 August 4, 2011.An agency’s investigation of the awardee’s alleged unequal access to information organizational conflict of interest was unreasonable, where the agency concluded that the awardee’s hiring of a high-level government employee from the office responsible for the project being procured created a potential conflict, but limited its review to what responsibility and role the government employee had in the procurement prior to his retirement without any consideration of the employee’s access to non-public, source selection information, and where the record establishes the employee’s continued daily contact with members of the source selection team and access to inside information concerning the agency’s build-to-budget concept.

PCCP Decision

• Army Corps of Engineers acquisition; protest sustained on several grounds

• Agency investigation overlooked some aspects of Corps former employee’s access to source selection information

• Testimony of other Corps employees showed his access to SSI outside of the source selection in management meetings

GAO Decisions

• Unisys Corporation B-403054.2 February 8, 2011.Protest that awardee's use of a former government employee in the preparation of its proposal provided the firm with an unfair competitive advantage due to the employee's access to proprietary information of the protester is denied where the record reflected that the information at issue was not competitively useful

Unisys Decision

• Prior protest alleging OCI resulted in corrective action being taken – investigation

• DISA contracting officer investigation concluded that former employee had only limited (1/3 of total requirement) and outdated labor rate information and no access to evaluation plans

• GAO found OCI allegation too speculative

GAO Decisions• QinetiQ North America, Inc. B-405008; B-405008.2

July 27, 2011.Protest that awardee has “biased ground rules” type organizational conflict of interest (OCI) is denied where record does not establish that awardee’s prior contract performance put awardee in position to materially affect competition. Allegation that awardee has “unequal access to information” type OCI is denied where record reflects that any advantage arising from awardee’s prior contract performance was normally occurring incumbent advantage.

QinetiQ Decision

• DoT acquisition for IT services• Technical Evaluation Team chair testified that

neither awardee or any other contractor had involvement in requirements definition based upon prior contract effort

• Great reliance by the GAO on two-day hearing process with testimony by contracting officer and other Government personnel

GAO Decisions

• The Analysis Group, LLC B-401726.3 April 18, 2011.

Protest that agency failed to give adequate consideration to awardee’s potential impaired objectivity OCI is denied, where record shows that agency extensively investigated potential OCIs and, after completing its investigation and concluding that there was a remote possibility of an OCI, properly executed a waiver of the residual OCI

Analysis Group Decision

• Prior sustained protest on multiple grounds resulted in corrective action and OCI investigation by GSA and Air Force

• Awardee was involved in selling certain technology which would be evaluated to some degree under proposed new support contract

• Increased agency oversight was deemed sufficient as mitigation

Some Industry Perspectives• Management support of OCI avoidance/mitigation (and PCI as

appropriate) through educational awareness. Everyone in contracts, business development, sales, engineering, administration, etc. can benefit from OCI training (note - especially new hires!).

• Make training attendance 'MANDATORY‘

• For those who are on travel or at remote locations, provide an alternate date or also consider a web-based training process.

• Establish realistic deadlines for the OCI sweep process so organizational POCs have time for an appropriate review and allow time for comprehensive OCI mitigation plan preparation

Some Industry Perspectives

• OCI sweep process and internal OCI training should be addressed in the OCI mitigation plan to give the government agency assurance of thoughtful, ingrained OCI compliance

• Success or failure of OCI training (and new PCI training?) may mean the difference between being able to sustain a defense to a protest allegation or jeopardize a contract award!

Litigation History

• Turner v. United States

• GAO• B.L. Harbert-Brasfield & Gorrie, JV, B-

402229, February 16, 2010, 2010 CPD 69.• McCarthy/Hunt, JV, B-402229.2, February

16, 2010, 2010 CPD ¶ 68.

• Court of Federal Claims• Turner Const. Co. v. U.S., 94 Fed. Cl.

561 (Fed. Cl. 2010)

• Court of Appeals for the Federal Circuit

• Turner Const. Co. v. U.S., 645 F.3d 1377 (Fed. Cir. 2011)

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Business Relationships in TurnerBusiness Relationships in Turner

AECOM

HSMM

Turner Construction

Joint VenturePartner Ellerbe Becket Joint Venture

Partner

PRELIMINARY DESIGNCONTRACT

FINAL DESIGN & CONSTRUCTION CONTRACT

Business Relationship Negotiations

Sub K

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Ellerbe-Becket & AECOM interests aligned in August 08 Sustained “unequal access” OCI.

• No mitigation plan. Sustained “biased ground rules” OCI.

• Prejudice presumed. Denied “impaired objectivity.”

• Record established lack of prejudice. Footnote noted Agency’s authority to waive OCIs.

GAO DecisionsGAO Decisions

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Standard of Review:• Agency decision irrational if GAO decision irrational.

Findings:• Actual or potential OCI must be established by “hard facts.”• Contracting Officer’s duty is to evaluate OCIs “as early as possible” …

but the earliest time might be post award.• GAO should have considered post-protest representations when

looking for “hard facts.”• GAO finding of alignment of interests was cursory and not based on

“hard facts.”• GAO finding of “unequal access” and “biased ground rules” not based

on “hard facts.” Remedy:

• Agency ordered to “restore the Hospital contract to Turner””

COFC DecisionCOFC Decision

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CAFC held:• Standard of review used by COFC was correct.• COFC did not conduct de novo review but gave proper

deference to the Contracting Officer’s judgment.• Post award investigation can remove “any OCI taint” if no

significant OCI found.• GAO should have assessed the reasonableness of the

investigation.• Affirmed application of “hard facts” requirement.• Challenge to COFC remedy could only be raised by the

Government.

Federal Circuit DecisionFederal Circuit Decision

Netstar-1 Gov’t Consulting, Inc.• __ Fed. Cl. __, NO. 11-294C (Oct. 17, 2011)• Allegation: awardee used its previous access to

agency data – including Protester’s labor categories, job categories, and labor rates – to improperly craft a winning proposal

• Deficient mitigation/corrective action– CO failed to enforce FAR mitigation procedures– Mitigation plan grossly inadequate– Plain error in CO investigation– Awardee’s “willful blindness” + CO’s “blithe

assumptions”

OCI is a Way to Become Unpopular at Work

OCI PIA

PGE


• ALLEGATIONS (case is not yet proved/decided)• Lt Col M, USAF Dep. Chief, IT Division, AF Medical Support Agency• Retires, hired by BAH 4 Apr 11 (Sr. Associate); orientation 4-8 Apr

11• 11 Apr 11: First day of work, meets his 2 bosses & 2 coworkers

• BAH interested in IT Modernization Services (ITMS) Contract• 12 Apr 12: Emails boss incumbent’s contract (CLIN pricing, labor

mix, labor rates by labor category)• Boss’ Reaction: forwards email, promotes Mr. M to ITMS Capture Lead

• BAH Pricing Department Reports Incident, BAH Self Reports• SAF Suspends BAH’s San Antonio Office, Proposes for Debarment


OCI PIA

PGE

San Antonio, TX Office


Take Away:

OCI & Ethics Plans, Superficial Compliance with Revolving Door Restrictions are Insufficient

Ensure New Employee is not an SSI Typhoid Mary!!!

OCI Mitigation at ESC

Electronic Systems CenterOffice of the Staff Judge Advocate

Hanscom AFB, MA

ESC OCI Review Panel

• ESC/CC Policy Memo #08-005, 16 Jun 08

- Established ESC OCI Review Panel to ensure ESC OCI policy is consistently applied throughout the Center

- Chaired by Senior members of Contracting (ESC/PK), the Legal Office (ESC/JA), the Acquisition Center of Excellence (ESC/AE), and the Chief of Contracting for Plans and Programs (ESC/XPK)

OCI Mitigation

• OCI Firewalls (5 Factor Mitigation) - Isolate Work in Separate Business Unit

- Geographic & Physical Separation

- Independent Management & Reporting Chains

- Prohibition Against Transfer of Personnel

- Prohibition Against Transfer of Information

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Common Elements of OCI Plan

• Non-Disclosure agreements• Controlled access to sensitive information• Establishment of an employee OCI

awareness/compliance program• Physical separation of contract employees from

sensitive data• Organizational separation• Management separation• Limitation on personnel transfers

OCI Mitigation at ESC

ESC OCI Review Process

• OCI Plan from prime contractor to Contracting Officer (prime contractor incorporates all subcontractor OCI plans)

• Contracting Officer to program team

• Those inputs go to Program Attorney

• Consolidated comments go to ESC OCI Review Panel

OCI Mitigation

• Organization Charts (Prime & Subcontractors)

- One chart showing current organization and reporting chain up through parent company

- Second chart showing new corporate structure and reporting chain if restructure of Organization is proposed as mitigation

- Organization chart needed for each member of your team (Prime & Subcontractors)

OCI Mitigation Plans

• Administrative Section - Definitions - OCI Training for new and existing employees - Employee Transfer Rules

- Information Transfer Rules

- OCI Enforcement• Employee OCI reporting requirements• Consequences for OCI violations• Disclosure of violations to Government

- OCI Certification - Nondisclosure Agreement

OCI Mitigation Plans

• OCI Mitigation Section

- Separate Section for Prime and each Subcontractor

- Organization Chart

- Agree to Adopt Administrative Section (or explain any deviations)

- Identify and Mitigate Potential OCIs

Identify & Mitigate Potential OCIs

• Identify All Divisions or Business Units (Combine within by Systems / A&AS Contracts) - Location

- Explain the Management and Reporting Chain

- Identify & Explain Contracts in the Division or Business Unit with Potential OCIs


• Identify the Potential OCIs

- Analyze work under specific contracts for actual or potential conflicts of interest and conclude whether a conflict of interest exists


• Propose Mitigation Strategies

- Propose concrete solutions for mitigating any conflicts of interest that have been identified

• Firewalls (5 Factor Mitigation Analysis)• Restructure of organization and reporting chains• Other steps the contractor will take to preclude

the perception that it will favor its own products

or services

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OCI Summary

• OCI = Show Stopper• Important to avoid, neutralize, and/or

mitigate OCIs before contract award• Start early with discussion of OCI at industry

day• See new ESC Policy 14 June 2008

OCI in the International ArenaOCI in the International Arena

– Common Misconceptions• “Our” rules apply everywhere – in exactly the same

way as they do here• No other country is sophisticated enough to have

similar rules to ours

– A Better Approach• “Our” rules were developed to solve a problem.

Other nations have likely developed similar, but not necessarily the same rules.

Conceptual Basis of Understanding International Law

• Understanding international law requires knowledge of the sources of the law, rules

• The “tier” concept• Primary law - Generally treaties and overarching

laws– WTO GPA, Free Trade Agreements, UN Conventions etc.

• Secondary law – Constitutions, Statutes• Tertiary – Regulations, Directives• Qaternary – Contract provisions, Advisory letters

Sources of International Law

• OCI rules have developed out of a desire to keep procurement fair, transparent and impartial.

• 3 basic types of OCI – Biased Ground Rules Cases, where the primary concern is

that a government contractor could have an opportunity to skew a competition in favor of itself. ie; “You prepared the specs so you cant build the system” In Europe these are sometimes called “Distortion” cases.• This is the type most focused on outside of the USA.

– Unequal Access to Information Cases, where the primary concern is that a government contractor has access to nonpublic information that would give it an unfair competitive advantage in a competition for another contract.• This is an emerging concept in international law.

– Impaired Objectivity Cases, where the primary concern is that a government contractor would be in a position of evaluating itself or a related entity (either through an assessment of performance under a contract or an evaluation of proposals in a competition), which would cast doubt on the contractor’s ability to render impartial advice to the government.

Origins of OCI Rules

• The GPA is based on the principles of openness, transparency and non-discrimination, which apply to Parties' procurement covered by the Agreement

• OCI RULE - (GPA) - Article VI “4. Entities shall not seek or accept, in a manner which would have the effect of precluding competition, advice which may be used in the preparation of specifications for a specific procurement from a firm that may have a commercial interest in the procurement.”

– Adopted by 15 Parties, 22 Observers, 4 international org observers– http://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm

WTO Agreement on Government Procurement (GPA)

• Directive 2009/81/EC (Defense works)• (49) Before launching a procedure for the award of

a contract, contracting authorities/entities may, using a technical dialogue, seek or accept advice which may be used in the preparation of specifications, provided, however, that such advice does not have the effect of precluding competition.

• Directive 2004/18/EC (Public Works - general procurement) – Same provision

The European Union OCI Laws

• “Fabricom” is the leading European case on OCI.– Belgian law provided that firm involved in preparatory

work on a contract, such as by assisting in preparing specifications (called the “technical dialogue”) may not compete for awarded contract to provide the work (“inflexible approach”).

– ECJ ruled that Belgian rule was too restrictive. Said agency must give bidder chance to explain why there is no bias “flexible approach”.

– The burden of proof of no distortion of competition is generally on the bidder. Possibility of using firewalls as part of argument.

Fabricom

• 3. 7. ORGANIZATIONAL CONFLICTS OF INTEREST – An organizational conflict of interest may exist, in the realm of the private

sector providing services to NATO, where the same corporation may provide two types of services to the Organization that have conflicting interest or appear objectionable (i.e.: manufacturing parts and then participating on a evaluation team comparing parts manufacturers).

– Organizational conflicts of interest implications are not limited to any particular kind of procurement action. However, organizational conflicts of interest are more likely to occur in contracts involving: • Management support services; • Consultant or other professional services; • Contractor performance or assistance in technical evaluations; or • Systems engineering and technical direction work performed by a contractor that

does not have overall contractual responsibility for development or production.

– An organizational conflict of interest may result when factors create an actual or potential conflict of interest on an instant contract, or when the nature of the work to be performed on the instant contract creates an actual or potential conflict of interest on a future procurement. In the latter case, some restrictions on future activities of the contractor may be required.

NATO

– Sources of Law: Treasury Board Manual, Financial Administration Act and Government Contracts Regulations; Department of Public Works and Government Services Act, Defence Production Act, Court Precedence.• Common theme of ensuring open fair and honest

procurement.

– Department of Public Works and Government Services Canada http://www.tpsgc-pwgsc.gc.ca/app-acq/dpa-ppd-eng.html• Canadian national procurement agency

Canada

17 Conflict of Interest - Unfair Advantage– 1. In order to protect the integrity of the procurement process, bidders are advised that

Canada may reject a bid in the following circumstances:– (a) if the Bidder, any of its subcontractors, any of their respective employees or former

employees was involved in any manner in the preparation of the bid solicitation;– (b) if the Bidder, any of its subcontractors, any of their respective employees or former

employees had access to information related to the bid solicitation that was not available to other bidders and that would, in Canada's opinion, give the Bidder an unfair advantage.

– 2. The experience acquired by a bidder who is providing or has provided the goods and services described in the bid solicitation (or similar goods or services) will not, in itself, be considered by Canada as conferring an unfair advantage or creating a conflict of interest. This bidder remains however subject to the criteria established above.

– 3. Where Canada intends to reject a bid under this section, the Contracting Authority will inform the Bidder and provide the Bidder an opportunity to make representations before making a final decision. Bidders who are in doubt about a particular situation should contact the Contracting Authority before bid closing. By submitting a bid, the Bidder represents that it does not consider itself to be in conflict of interest nor to have an unfair advantage. The Bidder acknowledges that it is within Canada's sole discretion to determine whether a conflict of interest or unfair advantage exists.

DPWG - Standard Acquisition Clause

• Article 50, Section VIII of Mexican Procurement Law

• Government Agencies and entities may not receive bids from, or award contracts to a person or entity if:– (a) That person or entity directly or indirectly

participated, pursuant to another contract, in preparing the following documents for the current contracting procedure• (i) analytical and quality control works; • (ii) specification drafting; or • (iii) budgets preparation; AND

– (b) the bidder in question obtained privileged information from the Prior Engagement; AND

– (c) the Government Agency or entity does not share such privileged information with other bidders with respect to the preparation of their proposals/bids.

Mexico

• Government Procurement Regulations (under the Govt Procurement Act) -

– Regulation 5(4) - A contracting authority shall not seek or accept, in a manner which will have the effect of precluding competition, advice which may be used in preparing technical specifications, from a person who has or who is likely to have a commercial interest in the procurement in question.

– Regulation 5(5) - In this regulation — "technical specifications" means technical requirements of a procurement and includes —• (a) the quality, performance, safety requirements, dimensions, symbols, terminology,

packaging, marking and labeling of the goods or service to be procured;• (b) the production processes or methods of the goods or service; and• (c) any requirement relating to any conformity assessment procedures for the goods or

service;

– Regulation 9 - Prohibition against preclusion of competition• A contracting authority shall not provide a supplier any information regarding a

particular procurement where such provision will or is likely to have the effect of precluding competition.

Singapore

• WTO– Agreement on Government Procurement

http://www.wto.org/english/docs_e/legal_e/gpr-94_e.pdf• EU

– Directive 2009/81/EC (Defense works) – http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:216:0076:0136:en:PDF

• NATO– Staff Procurement Manual http://www.nato.int/structur/procurement/doc/NATO%20IS

%20Procurement%20Manual_2_187.pdf– http://www.nato.int/structur/procurement/gac.html

• Canada– http://www.canlii.org/en/index.php

• Mexico– https://compranet.funcionpublica.gob.mx/web/login.html En Espanol

Citations

Citations (continued)• Singapore

– Government Procurement Act– http://statutes.agc.gov.sg/aol/search/display/view.w3p;page=0;query=CompId%3A2244a5cc-

2a39-48da-a0d7-b127685744ce;rec=0;resUrl=http%3A%2F%2Fstatutes.agc.gov.sg%2Faol%2Fbrowse%2FtitleResults.w3p%3Bletter%3DG%3Btype%3DactsAll

– http://www.singaporelaw.sg/– http://statutes.agc.gov.sg/aol/home.w3p

• Germany– http://www.linguee.com/english-german/translation/commencement+of+procedure.html

• Articles– Arrowhead – EC Procurement law

http://www.nottingham.ac.uk/pprg/documentsarchive/fulltextarticles/pclj_evolution_arrowsmith.pdf

– The Draft OCI Rule - New Directions and the History of Fear http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1832743

– CONFLICT AND INTRIGUE IN GOVERNMENT CONTRACTS: A GUIDE TO IDENTIFYING AND MITIGATING ORGANIZATIONAL CONFLICTS OF INTEREST http://www.sheppardmullin.com/assets/attachments/103.pdf

– Guide to Procurement Law http://www.legalink.ch/xms/files/Publications/Legalink-Public-Procurement-Law-3rd-edition-final.pdf

Conclusion

• Thank you for your participation today!

• Time for any questions for the panel members (time permitting)?

• Also, talk with us later in the day as well!

organizational conflicts of interest (oci) new developments in the u.s. and abroad a panel...

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