Government Contractors Face New Conflict of Interest Rules

If your company supports government contracts, or if you are considering entering that sector, then it is important that you consider the new rules being developed concerning organizational conflicts of interest.

In recent years, a number of trends in acquisition and industry have led to the increased potential for organizational conflicts of interest, including—

  • • Industry consolidation;
  • • Agencies’ growing reliance on contractors for services, especially where the contractor is tasked with providing advice to the Government; and
  • • The use of multiple-award task- and delivery-order contracts, which permit large amounts of work to be awarded among a limited pool of contractors.

In its 2007 report, the Acquisition Advisory Panel concluded that the Federal Acquisition Regulations do not adequately address “the range of possible conflicts that can arise in modern Government contracting.”  The Panel observed that the Federal Acquisition Regulations provides no detailed guidance to contracting officers regarding how they should detect and mitigate actual and potential organizational conflicts of interest and called for improved guidance, to possibly include a standard organizational conflicts of interest clause or set of clauses in government contracts.

The proposed rule establishes a clearer definition for the term “organizational conflict of interest.”  The proposed definition would be placed in 48 C.F.R. § 2.101 and it would state:

Organizational conflict of interest means a situation in which—

(1) A Government contract requires a contractor to exercise judgment to assist the Government in a matter (such as in drafting specifications or assessing another contractor’s proposal or performance) and the contractor or its affiliates have financial or other interests at stake in the matter, so that a reasonable person might have concern that when performing work under the contract, the contractor may be improperly influenced by its own interests rather than the best interests of the Government; or

(2) A contractor could have an unfair competitive advantage in an acquisition as a result of having performed work on a Government contract, under circumstances such as those described in paragraph (1) of this definition, that put the contractor in a position to influence the acquisition.

The proposed rule also includes substantial procedural standards and contract clauses designed to implement protections against organizational conflicts of interest, as well as standard procedures for obtaining waivers of organizational conflicts of interest.  The proposed rule can be found online at http://edocket.access.gpo.gov/2011/pdf/2011-9415.pdf.  Written comments are due to the government on or before June 27, 2011.

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About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. He represents several aviation trade associations, including the Aviation Suppliers Association, the Aircraft Electronics Association, the Aircraft Fleet Recycling Association and the Modification and Replacement Parts Association.

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