Personal Conflicts of Interest (PCIs) of Contractors' Employees - Part 1

The Government's increasing reliance on contractors to assist in procurement-related matters has heightened concerns over potential connflicts of interest. For a number of years, the concerns focused on organizational conflicts of interest, e.g. preventing the existence of conflicting roles that might bias a contractor’s judgment or preventing unfair competitive advantage because a contractor has proprietary information or source selection information (see FAR 9.5). Recently, the focus has shifted to include concerns about personal conflicts of interest (PCIs) by contractor employees performing acquisition functions.

The 2009 National Defense Authorization Act (Section 841) directed the OFPP (Office of Federal Procurement Policy) to issue policies to prevent PCIs by contractor employees performing acquisition functions closely associated with inherently governmental functions. To implement the statute, OFPP collaborated with the FAR Councils to develop regulatory guidance to prevent personal conflicts of interest for contractor employees performing acquisition functions for or on behalf of a Federal agency or department. The results of this collaboration was published in the Federal Register on November 13, 2009, as proposed regulations.  The 60 day public comment period ends on January 12, 2010.

Pending finalization of new regulations, the Department of Defense issued guidance on November 24, 2009 instructing its "acqusition community" to follow the policies and procedures of FAR 9.5 (organizational conflicts of interest). Of course, this guidance does not require contracting officers to do anything they haven't already been doing but does serve to highlight the potential risk factors and increase employee awareness. The guidance instructs contracting officers to consider "risk" factors when performing acquisition functions closely associated with inherently governmental functions on behalf of DoD. According to DoD, "risk" increases when contractor employees are involved with substantially subjective judgmental work. Consider a case where a contractor employee is assisting a Governmental agency in source selection and his wife works for one of the offerors. That would constitute a personal conflict of interest.

Many contractors already have policies and procedures covering personal conflicts of interest as it relates to subcontractors and suppliers. It would seem a simple task then to extend those policies and procedures to cover situations where they perform acquisition functions on behalf of the Government. However, the proposed regulations have features and reporting requirements that are certainly not part of their existing practices and will probably be considered onerous by affected contractors.

Over the next few postings, we will be unpacking the proposed regulations to help readers understand the fundamental regulation requirements and to provide our assessment on ease (or unease) of implementation and the continuing cost of compliance. Keep in mind that these are proposed regulations at this point and the final regulations may look a lot different. We wouldn't be surprised to see a significant number of public comments - especially concerns over additional burdens placed upon contractors.

Basic Requirements (proposed FAR 3.1102)

The new policy will require contractors that have employees performing acquisition functions closely associated with inherently governmental functions to identify and prevent personal conflicts of interest for such employees. In addition, these contractors will be required to prohibit covered employees with access to non-public Government information from using it for personal gain. The proposed rule also makes contractors responsible for

1. having procedures to screen for potential conflicts of interest,
2. informing covered employees of their oblications with regard to these policies,
3. maintaining effective oversight to verify compliance,
4. reporting any personal conflict-of-interest violations to the contracting officer, and
5. taking appropriate disciplinary action with employees who fail to comply with these policies.

In Part 2 of this series, we will cover "definitions". There are a number of terms used in the regulations that have very precise definitions. In order to understand the full scope and magnitude of the requirements, it is necessary to fully understand what the terms mean.