Late 2022, the president signed a law that would increase what contractors have to reveal about potential organizational conflicts of interest. The law is called the Preventing Organizational Conflicts of Interest in Federal Acquisition Act. Below, we highlight some of the main things contractors should look out for based on this new law.
The law was signed on December 27, 2022 to enhance the rules for organizational conflicts of interest (OCI). It was hailed by its bipartisan authors as providing “updates to existing rules to protect the integrity of services while allowing contractors to continue pursuing business opportunities to the greatest extent possible.” “Before Washington doles out billions of dollars to government contractors, we need to make sure these organizations don’t have outside business interests that conflict with their work for our taxpayers,” said Senator Ernst.
The goals of the law, as specified by its drafters, include:
- Disclosing business relationships with entities that could cause conflict with federal contract work.
- Disclosing new potential business that could conflict with ongoing services.
- Enhancing awareness of OCI disclosure requirements and impacts on other parts of a company’s operations.
- Requiring federal agencies to update procedures for determining whether OCIs exist.
Here are a few of the key provisions.
Timing.
The law requires a FAR update within 18 months of its passage, meaning the FAR update should arrive by June 27, 2024.
Updates to OCI Definitions
The law asks the FAR Council to update definitions and examples related to OCIs. It states that the FAR must update “definitions related to specific types of organizational conflicts of interest, including unequal access to information, impaired objectivity, and biased ground rules.” These examples must touch on issues involving “public, private, domestic, and foreign entities.”
OCI Examples
Congress would really like the FAR to focus on additional examples, asking for:
illustrative examples of situations related to the potential organizational conflicts of interest identified under this paragraph, including an example of the awarding by a Federal regulatory agency of a contract for consulting services to a contractor if 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[.]
Now, to be sure, there are already examples in the OCI rules in FAR subpart 9.5. For instance, FAR 9.508 lists a handful of examples, such as
An agency that regulates an industry wishes to develop a system for evaluating and processing license applications. Contractor X helps develop the system and process the applications. Contractor X should be prohibited from acting as a consultant to any of the applicants during its period of performance and for a reasonable period thereafter.
However, these examples don’t address the specific issue of work involving a “private sector client”–an example specifically called out in the new law.
Clearly, the FAR will be updated to address how private sector work, not just work for the federal government, could lead to an OCI.
OCI Disclosures
In addition, the law requires additional solicitation and contract clauses: “to provide executive agencies with solicitation provisions and contract clauses to avoid or mitigate organizational conflicts of interest, for agency use as needed, that require contractors to disclose information relevant to potential organizational conflicts of interest and limit future contracting with respect to potential conflicts of interest with the work to be performed under awarded contracts.” This seems to suggest additional disclosures on the part of contractors are on the horizon.
OCI Procedures
The law requires agencies to “to establish or update as needed agency conflict of interest procedures to implement the” law and “periodically assess and update such procedures as needed to address agency-specific conflict of interest issues.” This seems to encourage additional procedures specific to each agency, although what Congress is calling for will be left up to each agency.
One specific requirement is for agencies to “update the procedures set forth in section 9.506 of the Federal Acquisition Regulation to permit contracting officers to take into consideration professional standards and procedures to prevent organizational conflicts of interest to which an offeror or contractor is subject.” This would seem to allow contractors to point to professional standards to determine if a situation represents an OCI. As of now, FAR 9.506 commands contracting officers to review OCIs, but without a lot of guidance on how to do so, although it does mention reviewing “Non-Government sources [such as] publications and commercial services, such as credit rating services, trade and financial journals, and business directories and registers.”
The new OCI law will result in big changes to the FAR rules on OCIs. It’s tough to predict exactly how the rules will change, but the FAR Council will definitely add in more examples of OCIs, procedures to address them, and a special emphasis on private sector contracts. We’ll look for the proposed regulation and update you when it comes out.
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