Tuesday, December 8, 2009

Personal Conflicts of Interest (PCIs) of Contractors' Employees - Part 3

The Government has proposed regulations to ensure that its acquisition process is not compromised with personal conflicts of interest by contractors and contractor employees engaged in buying goods and services for the Government. Existing regulations that help prevent personal conflicts of interest by Government employees engaged in the acquisition process, do not extend to contractor employees performing the same or similar contracting function. As the Government increases its reliance on contractors to assist in procurement-related matters, the risks associated with personal conflicts of intersts (PCIs) by contractor employees increase as well. To close this loophole, the OFPP in concert with the FAR councils have proposed new regulations requiring certain contractors to implement policies to identify and prevent PCIs. These new regulations will add a new Part 3.11 to the FAR.

In parts 1 and 2 of this series, we discussed the the reasons the Government is proposing these regulations, the fundamental requirements imposed by the regulations, and some definitions that are necessary for understanding the requirements. Today, in Part 3, we discuss contractor responsibilities under this proposed regulation and Government responsibilities. 

Responsibilities for Contractor and "Covered Employees"

1. Employee Financial Disclosure Statement. In order to comply with the proposed regulations, contractors will be required to develop and implement procedures to screen covered employees for potential personal conflicts of interest. These procedures must include:
  • obtaining and maintaining a financial disclosure statement from each "covered employee" when the employee is initialy assigned to the task under the contract,
  • ensuring that the disclosure statements are updated by the covered employees at least on an annual basis, and
  • requiring each covered employee to update the disclosure statement whenever a new personal conflict of interest occurs
2. Prevention. Next, for each "covered employee", the contractor must
  • prevent personal conflicts of interest, including not assigning or allowing a covered employee to perform any task under the contract if the contractor has identified a personal conflict of interest for the employee that the contractor or employee cannot satisfactorily prevent or mitigate in consultation with the contracting agency
  • prohibit use of non-public Government information for personal gain; and
  • obtain a signed non-disclosure agreement to prohibit disclosure of non-public Government information
3. Inform Employees. Contractors must inform "covered employees" of their oblications to
  • disclosue changes in personal or financial circumstances and prevent personal conflicts of interest
  • not to use non-public Government information for personal gain
  • to avoid even the appearance of personal conflicts of interest
4. Internal Audits. Maintain effective oversight to verify compliance with personal conflict-of-interest safeguards.

5. Discipline. Take appropriate disciplinary action in the case of "covered employees" who fail to comply with policies established pursuant to this section; and

6. Report Violations to the Contracting Officer. Report to the contracting officer any personal conflict-of-interest violation by a "covered employee" as soon as identified. This report shall include a description of the violation and the actions taken by the contractor in response to the violation.

7. Flow Down the Provisions to your Subcontractors. Contractors must "flow-down" these requirements to subcontracts greater than $100 thousand where subcontractor employees may perform acquisition functions closely associated with inherently governmental functions.

Responsibilities of the Contracting Officer

Contracting Officer responsibilities kick in only when a contractor reports a PCI violation. When a contractor makes such a report, the contracting officer will review the actions taken by the contractor, decide whether the contractor has resolved the violation satisfactorily and take any other appropriate action in consultation with agency legal counsel.

The proposed regulation makes no provision where, for example, a violation arises from say, a whistle-blower, or an audit finding. Look for something addressing these omissions in the final regulation.

Mitigations and Waivers

In exceptional circumstances, contractors may be unable to satisfactorily prevent a personal conflict of interest. In those cases, contractors can submit a mitigation plan for the head of contracting activity approval or request a waiver from the requirements. The head of contracting activity authority cannot be redelegated.


If a contracting officer "suspects" violation of the PCI clause, he is to contact legal counsel for advise and recommendations on a course of action. If there is sufficient evidence of a violation, the contracting officer shall pursue remedies that incluce suspension of payments, loss of fee, termination for default or cause, disqualification for future contracts or suspension/debarment.

Tomorrow we will conclude this series with some thoughts on some of the difficulties that contractors might encounter in implementing these proposed requirements.

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