New Law Requires US FAR Council to Update and Expand FAR’s OCI Provisions

Late last year, President Biden signed into law the Preventing Organizational Conflicts of Interest in Federal Acquisition Act (“Act”). This provision directs, within 18 months of enactment, the Federal Acquisition Regulatory (“FAR”) Council to update and expand the provisions within Federal Acquisition Regulation subpart 9.5 covering Organizational Conflicts of Interest (“OCI”).

OCIs, in part, are those activities or relationships contractors may have with public, private, domestic, and foreign entities that may bias their performance of government contracts and thus undermine the integrity of the federal procurement process.

Although it is unclear how much the Act will actually improve on FAR subpart 9.5 or how much of an extra burden it will impose on the contracting community, federal contractors should avail themselves of the opportunity to provide comments during the eventual rulemaking’s notice and comment period and help shape the directed changes.

Background

Under FAR 2.101, an OCI exists when:

because of other activities or relationships with other persons, a person is unable or potentially unable to render impartial assistance or advice to the Government, or the person’s objectivity in performing the contract work is or might be otherwise impaired, or a person has an unfair competitive advantage.

In its current form, FAR 9.505 allows contracting officers to exercise judgment and discretion in determining whether an OCI exists and in developing appropriate means to resolve OCIs.

To this end, FAR 9.505 provides general principles regarding OCIs and instructs contracting officers to “prevent[] the existence of conflicting roles that might bias a contractor’s judgment” or to “prevent[] [an] unfair competitive advantage” where a contractor possesses either “proprietary information from a government official without proper authorization” or source selection information not available to all competitors and that would “assist the contractor in obtaining the contract.” In order to assist contracting officers in applying these principles, FAR 9.508 provides examples of certain OCI issues that could arise.

FAR subpart 9.5 currently provides no standardized solicitation provisions or contract clauses agencies can rely on (or tailor) to specifically address potential OCI issues. But some agencies do provide such clauses in their respective FAR supplements. (See, e.g., Defense Federal Acquisition Regulation Supplement (DFARS) 252.209-7008, Notice of Prohibition Relating to Organizational Conflict of Interest—Major Defense Acquisition Program.) Other agencies are left to craft OCI-related solicitation or contract terms on an ad hoc basis.

The issue of what may constitute an OCI has been the subject of substantial disputes in protest decisions issued by the Government Accountability Office (“GAO”), the Court of Federal Claims, and the Court of Appeals for the Federal Circuit over several years. Decisions issued in those cases have provided aid and guidance to both government and industry in addressing OCIs. (See, e.g., Turner Constr. Co. v. United States, 645 F.3d 1377 (Fed. Cir. 2011); Axiom Res. Mgmt. v. United States, 564 F.3d 1374 (Fed. Cir. 2009); Oak Grove Techs. v. United States, 155 Fed.Cl. 84 (2021); Michael Stapleton Assoc., No. 22-573, --- Fed.Cl. ---, 2022 WL 17347730 (2022); Aetna Gov’t. Health Plans, Inc.; Foundation Health Fed. Servs., Inc., B-254397.15 et al., July 27, 1995, 95-2 CPD ¶ 129; VSE Corp., B-404833.4, Nov. 21, 2011, 2011 CPD ¶ 268; L–3 Servs., Inc., B–400134.11, B–400134.12, Sept. 3, 2009, 2009 CPD ¶ 171; Serco, Inc., B-419617.2, B-419617.3, Dec. 6, 2021, CPD ¶ 382; Cybermedia Techs., Inc., B-420881, B-420881.2, Oct. 14, 2022, 2022 CPD ¶ 259.)

According to a May 2022 press report from Senator Chuck Grassley (R-Iowa), a co-author of the bipartisan legislation, the impetus behind this law was a recent report highlighting the conduct of a management consulting company. According to the report, the federal government paid the consulting company more than $140 million since 2008 to support a federal regulatory agency’s oversight work. During this time, the consulting company also was consulting with companies regulated by the federal agency, thus allegedly implicating the consulting company’s ability to provide the federal agency with unbiased advice.

The Act Directs Updates and Other Revisions to FAR Subpart 9.5

Under the Act, the FAR Council must establish standard solicitation provisions and contract clauses addressing OCIs, which agencies may tailor based on their own unique considerations related to OCI risks. Additionally, the FAR Council must provide and update FAR subpart 9.5 to include:

• Definitions of the various types of OCIs:
  • Unequal access to information
  • Impaired Objectivity
  • Biased ground rules
• “[D]efinitions, guidance, and illustrative examples related to relationships of contractors with public, private, domestic, and foreign entities that may cause contract support to be subject to potential organizational conflicts of interest, including undue influence”
• [O]ther illustrative examples. (The Act specifically notes the consulting company example mentioned above, describing it as the “awarding by a Federal regulatory agency of a contract for consulting services to a contractor [when] employees of the contractor performing work under such contract are permitted by the contractor to simultaneously perform work under a contract for a private sector client under the regulatory purview of such agency.”)
• Amending FAR 9.506 to permit agencies to consider professional standards and procedures to prevent OCIs of contractors

The Act also directs agencies to update their conflicts of interest procedures, which must implement the FAR changes described above.

In updating FAR subpart 9.5’s definitions of OCI types and illustrative examples, the FAR Council may rely on, as described above, the existing body of case law at the GAO, Court of Federal Claims, and the Court of Appeals for the Federal Circuit, which categorize OCIs into the three groups recognized in the Act and provide definitions. (See e.g., Cyberdata Techs., Inc., B-411070 et al., May 1, 2015, 2015 CPD ¶ 150 at 6 (finding OCIs “can be broadly categorized into three groups: biased ground rules, unequal access to information, and impaired objectivity”); Steel Point Solutions, LLC, B-419709 et al., July 7, 2021 (“[A]n ‘impaired objectivity’ OCI is created when a contractor’s judgment and objectivity may be impaired because the contractor’s performance has the potential to affect other interests of the contractor”); Axiom Res. Mgmt., Inc. v. United States, 564 F.3d 1374, 1377 n.1 (“An ‘unequal access to information’ conflict occurs when a government contractor has access to non-public information in connection with performance of a government contract that may afford a competitive advantage in subsequent competition for a government contract”).)

Takeaways

Understanding and managing OCIs has been an ongoing risk for contractors. While guidance from the GAO and the courts has helped, efforts to update the regulations have not been successful. In April 2011, the FAR Council published a proposed rule to revise its approach to OCI and contractors’ unequal access to nonpublic information under FAR subpart 9.5 (remaining substantially the same since 1984) but withdrew it 10 years later because of the passage of time and potential changed circumstances. While that OCI reform effort failed, Congress—influenced by the consulting company example—took up the mantle with its passage of the Act.

These directed changes, required by law and eventually published by the FAR Council, are likely to require additional diligence and compliance program adjustments by contractors in terms of internal business practices, risk assessment, and contract compliance. Contractors providing services such as management support, consultant, or other professional services in any context should particularly pay attention to the FAR Council’s implementation of the directed changes as FAR 9.502(b) recognizes that OCIs “are more likely to occur” in these types of contracts; however, OCIs can arise in other types of contracts as well if professional judgement is involved.

As a result, it will be important for contractors to comment during the rulemaking’s notice and comment period to ensure that accurate information is used in formulating any new rule.