Back in 2023, we wrote about Congress’s late-2022 mandate to update and clarify various rules surrounding organizational conflicts of interest (or OCIs). At that time, Congress, in a short piece of legislation, asked that OCI rules be updated to address a number of areas. In this post, I’ll provide some predictions about how the OCI rules will be updated, as we wait for the new proposed rule to come out. In addition, I’m discussing this topic at the Judicial Conference for the U.S. Court of Federal Claims. Once the proposed rule is released, SmallGovCon will also do a run-through of those changes.
The OCI statute
The Preventing Organizational Conflicts of Interest in Federal Acquisition Act was made effective on December 27, 2022. The entire law, however, was less than two pages. It focused on a few key aspects:
- Examples. Congress would really like the FAR to focus on additional examples
- Definitions. 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.”
- OCI Disclosures and Procedures. New rules were requested to “update such procedures as needed to address agency-specific conflict of interest issues.” As well as add more procedures to require contractors “to disclose information relevant to potential organizational conflicts of interest.”
- Private Sector. The law specifically required “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.”
- Professional Standards. One other specific update was for the new rules to “take into consideration professional standards and procedures to prevent organizational conflicts of interest to which an offeror or contractor is subject.”
Existing OCI Rules
There are three main categories of OCIs:
- Unequal access to information. An “offeror has access to non-public information (including proprietary information and non-public source selection sensitive information) that may provide the offeror with a competitive advantage in a competition for a different government contract.” Trace Sys. Inc. v. United States, 165 Fed. Cl. 44, 58 (2023).
- Biased ground rules. A company, “by participating in the process of setting procurement ground rules, ha[s] special knowledge of the agency’s future requirements that may skew the competition in its favor.” Turner Const. Co., 645 F.3d 1377 (Fed. Cir. 2011).
- Impaired objectivity. A contractor is tasked with “evaluat[ing] its own offers for products or services, or those of a competitor.” And it does so “without proper safeguards to ensure objectivity to protect the Government’s interests.” FAR 9.505-3.
The terms are not not all expressly used in the FAR, but have developed under case law as categories of examples related to the FAR language. Congress has encouraged the FAR to be updated with more examples related to each category. So we should see more examples related to each of these categories.
The current examples are skewed toward biased ground rules, but based on recent decisions, the unequal access to information category is much more common. The cases often involve a former government official who leaves to work for a federal contractor bidding with that agency.
Predictions for New Rules
The FAR Council has drafted rules and they are currently in the internal review process. The Open FAR Cases report indicates the following status: 09/19/2024 Draft proposed FAR rule from FAR analyst to CAAC Legal. CAAC Legal reviewing.” While Congress gave the FAR council until June 27, 2024, by my calculations, the actual proposed rules are not out yet.
The FAR Council could undertake Congress’s mandate in different ways. After all, the entire law is less than two pages. So, it definitely leaves some gaps to fill. However, the Act also had some very specific mandates regarding the private sector, and some more general requirements to update both definitions and examples.
Here are some ways in which the FAR Council might implement these updates.
Definitions. This one could be as simple as incorporating definitions of the various categories of OCIs from existing case law. Those definitions are not currently spelled out in the OCI regulations.
More Procedures. The FAR council has indicated that each agency should address OCI procedures for its own agency. The Act agencies to “update such procedures as needed to address agency-specific conflict
of interest issues.” Therefore, we are less likely to see agency rules as part of the FAR proposed rules.
Private Sector. The current examples in FAR 9.508 don’t address the specific issue of work involving a “private sector client.” However, FAR 9.508 does have an example about a situation where a contractor is developing a licensing system for an agency and then advises private sector clients on that same system. That example refers to a contractor helping to “develop a system for evaluating and processing license applications.”
One likely update is that agency OCI solicitation clauses will now specifically require disclosure and mitigation of potential conflicts involving private sector clients. And there should be additional examples dealing with this type of scenario, as the current examples only refer to a specific licensing situation.
This update would likely have a larger impact on those federal contractors that also work commonly with private sector clients, or that have affiliated companies that work with private sector clients. Mitigation plans and approaches will have to expand to cover wider areas of conflicts involving private clients. Solicitation clauses should be updated to require contractors to address private sector potential conflicts.
Professional Standards. Current FAR 9.506 simply commands contracting officers to review OCIs, but with little guidance for agencies. The FAR 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.” But this is different than professionals standards and procedures.
While it’s hard to know exactly what Congress is referring to, it could mean professional standards such as those established by industry groups including public accounting rules. Those standards are already applicable to review of certain financial statements for publicly traded companies under 17 C.F.R. § 210.10-01. Other sources of standards could include business standards, legal, IT, and other professional groups. Will the proposed rule specifically list examples, or will it leave it up to federal contractors to address how professional standards fit into their OCI mitigations plans?
Stay tuned to SmallGovCon as we will provide a run through of the new proposed OCI rules once those are released.
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