DoD Proposes Conflicts-of-Interest Rule for Procurements

The U.S. Defense Department on April 22 released a long-anticipated proposed rule outlining how it will police conflicts of interest in procurement.
The proposed rule on organizational conflicts of interest is part of the Weapons Systems Acquisition Reform Act, made law in May 2009. The act directed DoD to create consistent guidance on conflicts resulting from contractors working as both advisers and product providers on the same weapons program.
Among other things, the rule will prohibit companies from performing systems engineering and technical assistance (SETA) work – such as advising DoD on a procurement – while working as a prime contractor or major subcontractor for products on the same program.
The issue already has led to one divestiture: Last year, Northrop Grumman sold its SETA arm, TASC, for $1.65 billion. Industry observers think more divestitures at other companies may be coming.
The proposed rule outlines three basic types of conflicts:

  • “Impaired objectivity”: For example, when a contractor’s job is to give technical advice to DoD about a procurement, and the contractor also has a financial interest in the decision.
  • “Unfair access to nonpublic information”: When a contractor can get nonpublic information that could give it an unfair advantage in a later competition.
  • “Biased ground rules”: This conflict can happen when a contractor is working on one contract, but is in a position to set the ground rules for a future acquisition it could compete for.

The proposed rule says contracting officers have to resolve any conflicts before awarding contracts, but it also says there can be ways to mitigate conflicts. For example, one step could be blocking a contractor from creating the specifications for a contract if the contractor can bid for that contract later.
At a December meeting, several industry representatives told the Pentagon they prefer a proposed rule to an interim rule. Unlike an interim rule, a proposed rule allows for public comment and is not binding.
Officials with the Professional Services Council (PSC), an Arlington, Va.-based trade group for U.S. government contractors, said April 22 that the proposed rule “leaves much work to be done and many questions unanswered.”
“While the proposal establishes a set of core principles that move in the right general direction, it nonetheless covers far more than Congress directed,” said PSC President and Chief Executive Stan Soloway in a press release.
The proposed rule also “adopts many new procedures and protocols that could confuse rather than aid contracting officers and contractors, presumes all market segments can and should be treated the same way, and fails to ensure that the government makes the necessary decisions in a timely manner,” Soloway said.
Among the group’s concerns are that “the rule is not limited to coverage for major defense acquisition programs as Congress prescribed in the 2009 Act, but instead covers all DoD procurements, including most commercial item procurements.”


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