Organizational Conflicts of Interest (Post-Award Protest Primer #13)

Protests and LitigationToday we’ll consider Organizational Conflicts of Interest (OCIs) as a ground of protest.  The Federal Acquisition Regulation (FAR) defines an OCI as a situation where “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.”  FAR 2.101.  An entire subpart of the FAR (9.5) currently addresses OCIs.  The FAR Councils issued proposed amendments to the OCI regulations nearly seven years ago, 76 Fed. Reg. 23,236 (Apr. 26, 2011), but those changes appear to be stuck in limbo and unlikely to be finalized any time soon.

Put simply, an OCI may occur when a firm’s performance of one government contract may compromise its ability to perform another government contract or to compete for it in a fair way.  The GAO’s case law identifies three basic kinds of OCIs:

  1. Impaired Objectivity: Certain government contracts require the contractor to give objective advice or recommendations to the Government.  A contract may, for example, require the contractor to inspect goods or services provided to the Government by other contractors, or evaluate competitive proposals.  Or a contract may require the contractor to analyze prospective or existing programs and make recommendations to the Government concerning them.  An impaired objectivity OCI may arise if the contractor could be called upon to evaluate goods or services provided by itself or an affiliate, or to make recommendations concerning programs where its own financial interest is at stake – thus potentially compromising the objectivity of the advice the Government has paid for.
  2. Biased Ground Rules: Certain government contracts require the contractor to develop requirements, including statements of work, that may find their way into future competitive procurements.  A biased ground rules OCI may arise if, after developing requirements for a new acquisition, the contractor or its affiliate then competes for the resulting contract.  The concern here is that a firm may (even subconsciously) skew a competition by writing requirements that favor itself.
  3. Unequal Access to Information: As a result of performing a government contract, a firm sometimes acquires nonpublic, source selection sensitive information, or the proprietary information of other companies.  This often occurs in technical assistance contracts, where a contractor assists in acquisition-related functions or systems engineering work related to other companies’ systems.  An unequal access OCI may arise if the contractor’s competitive proposal personnel are not prevented from accessing competitively useful information that other firm personnel possess as a result of performing other contracts.  Importantly, unequal access OCIs are not triggered by the superior knowledge that incumbents typically possess, short of Government-provided access to proprietary or nonpublic source selection sensitive information.

Agencies are required to consider actual or potential OCIs that may affect a procurement and, as early as possible in the acquisition process, take steps to neutralize, mitigate, or avoid all significant conflicts before contract award.  FAR 9.504(a).  GAO case law recognizes that an OCI may arise not only within the offeror itself, but also in relation to its affiliates or even teammates, as well as from former Government employees who may provide unequal access to information of the sort contemplated by the OCI regulations.

Of the three basic kinds of OCIs, unequal access OCIs are the easiest to mitigate.  It is generally enough to set up and enforce a robust firewall to prevent any nonpublic information in the files or minds of the potentially conflicted personnel from crossing over to other parts of the company or its affiliates or teammates.  Enterprise Info. Servs., B405152, Sept. 2, 2011, 2011 CPD ¶ 174; LEADS Corp., B292465, Sept. 26, 2003, 2003 CPD ¶ 197.  Impaired objectivity OCIs also can be mitigated, and the GAO has found that the use of firewalled subcontractors may, under the right circumstances, be an effective mitigation method.  See, e.g., Bus. Consulting Assocs., LLC, B-299758.2, Aug. 1, 2007, 2007 CPD ¶ 134 at 9‑10; Alion Sci. & Tech. Corp., B-297022.4, B-297022.5, Sept. 26, 2006, 2006 CPD ¶ 146 at 10-11.  Biased ground rules OCIs are the most difficult to mitigate, and some have suggested that biased ground rules OCIs are simply unmitigable.

As a protest ground at the GAO, OCIs generally are raised post-award, after an allegedly conflicted firm is selected for award.  REEP, Inc., B-290688, Sept. 20, 2002, 2002 CPD ¶ 158 at 1-2.  The exception to this rule is when a solicitation is issued on an unrestricted basis and the protester is on notice that (1) a competitor has an OCI and (2) the agency has determined that, notwithstanding the potential OCI, the competitor is eligible for award.  Honeywell Tech. Solutions, Inc., B-400771; B-400771.2, Jan. 27, 2009, 2009 CPD ¶ 49 at 6-7.  Under these exceptional circumstances, a protest is governed by the “solicitation impropriety” timeliness rules and must be filed by the date set for receipt of proposals.  Id. at 7.  (Note that, in at least one case, the Court of Federal Claims has apparently adopted an even stricter rule and held that, as long as a protester is aware that a conflicted competitor has shown an interest in a procurement, the protester must file a pre-award protest or waive the protest ground before the court.)

The flipside of the coin are protests challenging a protester’s exclusion from award because of OCI concerns, which are governed by the ordinary 10-day timeliness rule.  Much of the information in this post applies to both kinds of protests, but we will focus our discussion on protests alleging that an awardee is conflicted.  (Where the terms of a solicitation exclude participation by certain firms, any protest must be brought before the date set for receipt of proposals.)

The first hurdle in making an OCI allegation is grounding the protest in “hard facts” rather than “mere innuendo.”  See TeleCommunication Sys. Inc., B-404496.3, Oct. 26, 2011, 2011 CPD ¶ 229 at 3-4.  Concretely, that means explaining in some degree of detail how the competitor received unequal access to information, or will be put in a position of impaired objectivity, or had the opportunity to bias the ground rules of the competition in its own favor.  This in itself is a steep hill to climb, but once an OCI is demonstrated, the protester is afforded a rebuttable presumption of prejudice, without a need to demonstrate that the OCI actually advantaged the awardee.  See McCarthy/Hunt JV, B-402229.2, Feb. 16, 2010, 2010 CPD ¶ 68 at 10; Health Net Fed. Servs., LLC, B-401652.3, B-401652.5, Nov. 4, 2009, 2009 CPD ¶ 220 at 28.

The greater challenge in OCI protests (whether one is arguing for or against an OCI) is overcoming the deference due to an agency’s determinations.  The success of an OCI protest depends largely on the reasonableness of the agency’s documented OCI investigation.  As long as the contracting officer has meaningfully considered a potential OCI and made a reasonable determination regarding whether a significant OCI exists, or has been adequately avoided, neutralized, or mitigated (or waived in accordance with regulations), the GAO will not second-guess the agency.  This includes agency determinations that were made even during the pendency of a protestSee, e.g., PCCP Constructors, JV; Bechtel Infrastructure Corp., B-405036 et al., Aug. 4, 2011, 2011 CPD ¶ 156 at 16.  That, too, is a fact-intensive inquiry, subject to the rule of reason:  As long as the contracting officer’s documented rationale underlying the OCI determination is not wholly irrational, the agency wins.

Although the deck is stacked heavily in an agency’s favor in OCI protests, the GAO continues to find OCI protests to sustain, and agencies continue to take corrective action based upon OCI allegations.  With the continued growth of service contracting – particularly where contractors perform advisory services, services closely associated with inherently governmental functions, and services requiring them to receive proprietary or source selection sensitive information – OCIs are a minefield for the unwary, contractor and Government alike.