Today, DoD, NASA, and GSA proposed to amend the FAR’s Personal Conflicts of Interest rule in a way that will dramatically expand the number of covered contractor employees . The current rule is limited to contractor employees who perform an acquisition function closely associated with inherently governmental functions. The proposed revised rule would expand the definition to apply (i) to personnel who perform a function closely associated with inherently government functions and (ii) to employees who perform under personal services contracts. This expansion of the number of contractor employees subject to the rule increases a contractor’s compliance obligations and risk.

The proposed rule was issued in response to the FY 2013 National Defense Authorization Act, which required DoD to determine if extending the existing rule would be in the best interest of DoD and the taxpayers. Notably, the proposed rule applies government-wide–not just to DoD contracts. The original FAR 3.11 was implemented in 2011, and neither it nor the proposed rule apply below the simplified acquisition threshold or to acquisitions of commercial items.

FAR 3.11 imposes a long list of obligations on Government contractors with covered employees. Among other things, they must have procedures in place to screen covered employees for potential personal conflicts of interest, prevent personal conflicts of interest, prohibit the use of non-public information for personal gain, obtain signed NDAs to prevent the disclosure of non-public information, inform employees of their obligations under the rule, maintain effective oversight to verify compliance with personal conflict of interest safeguards, take disciplinary action in the case of covered employees who fail to comply with personal conflict of interest policies, and report violations to the CO as soon as a violation is identified.

FAR 3.11 identifies three types of conflicts of interest: (1) financial interests of the covered employee and of close family members/members of the covered employee’s household, (2) other employment or financial relationships, and (3) gifts (including travel).

If a violation of FAR 3.11 occurs, the CO is directed to review the actions taken by the contractor and determine whether the actions taken by the contractor in response resolved the violation. If the CO determines that the contractor did not adequately resolve the violation, the CO will consult with the agency’s counsel and take appropriate action. If a conflict of interest cannot be prevented, the contractor can request that the agency agree to mitigate the conflict or waive the conflict. Both options require a written determination from the head of the contracting activity that the action is in the best interest of the government.

A significant number of contracts will be subject to FAR 3.11 under the expanded definition of “covered employee.” Between March 1, 2012 and March 1, 2013, there were 22,716 contracts above the simplified acquisition threshold that were deemed to cover functions closely associated with inherently governmental functions. An additional 5,369 contracts in the same period were coded as personal services contracts. If the agencies’ rule is adopted, contractors performing under these types of contracts (or bidding on such contracts in the future) will need to assess whether they are in compliance with FAR 3.11 and implement measures to maintain compliance.

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