Contractors and personal Conflicts of Interests

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Contractors and personal Conflicts of Interests

• Mr. Seth Cowell
• Ethics Counselor
• ESC/JA
• [phone]

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Overview

• Why?
• Laws Applicable to Government Employees
• Current Contractor Obligations FAR
  3.10/52.203.13
• Current ESC AAS Contractor Obligations H112
• Future AAS Contractor Obligations FAR
  3.11/52.203-16

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Why?
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Scenario 1

• John is a government engineer supporting a 1B
  source selection, ultimately won by General
  Electric. After the award, it becomes known that
  at the time of the source selection, John owned
  100,000 of General Electric stock.
• Consequences
• Basis for bid protest
• Black eye for the procurement system
• Personal liability for John

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Scenario 2

• John is a government contracted engineer
  supporting a 1B source selection, ultimately won
  by General Electric. After the award, it becomes
  known that at the time of the source selection,
  John owned 100,000 of General Electric stock.
• Consequences
• Basis for bid protest
• Black eye for the procurement system
• Liability for John or his employer?

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• Very few defense contractors ethics programs
  require employees to disclose personal conflicts
  of interest
• DoD and OGE officials believe current
  requirements are inadequate to prevent certain
  conflicts from arising, especially financial
  conflicts of interest and impaired
  impartiality
• Given the magnitude of DODs contractor employee
  use, our analyses of the range of key roles that
  contractor employees have across DOD, and the
  need to ensure the integrity of federal spending,
  we believe that DOD needs department-wide
  personal conflict of interest safeguards for
  certain contractor employees who are providing
  the type of services affecting governmental
  decisions, similar to those required of DODs
  federal employees.

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• Increased reliance on contracted technical,
  business and procurement expertise
• No current disclosure requirements
• NDAA FY 2009 Section 841 prevent personal
  conflicts of interest of contractors performing
  acquisition functions closely associated with
  inherently government functions

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Bottom line expectations

• Government decision-making must be free from the
  appearance of improprietythe taxpayer demands it
• Therefore, the Government expects that the advice
  it gets from its employees and contracted
  advisors is fair, impartial and objective

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Laws Applicable to Government Employees
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Current Contractor Obligations FAR
3.10/52.203.13
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Current Contractor Obligations FAR
3.10/52.203.13

• Contractors must have a written code of business
  ethics and conduct if they hold a contract in
  excess of 5M
• Contractor shall timely disclosea violation of
  Federal criminal law involving fraud, conflict of
  interest

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Current Contractor Obligations FAR
3.10/52.203.13

• From the GAO report the current FAR clauses
  lack specific provisions to prohibit conflicts
  of interest or employ other safeguards to assure
  that the advice and assistance received from
  contractor employees is not tainted by personal
  conflicts of interest.
• Examples
• No mandated financial disclosure
• Only requires company to disclose violations of
  criminal conflict of interest statutes
  contractors are not subject to these

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Current ESC AAS Contractor Obligations H112
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Current ESC AAS Contractor Obligations ESC H112

• a)The contractor shall not assign, nor allow any
  employee for whom it receives payment under this
  contract to perform any task under this contract
  concerning any program, prime contractor,
  contract, or other matter in which that employee,
  or that employee's spouse, minor child or
  household member has a financial interest.
• b)A financial interest consists of any interest
  in, or affiliation with, a prime contractor, a
  subcontractor to a prime contractor, any
  offerors, or any prospective subcontractor to
  any offeror for the program, contract, or other
  matter for which the employee is performing the
  support task under this contract.
• c) The prime contractor shall obtain and
  maintain, as part of its personnel records, a
  financial disclosure statement from each employee
  assigned to perform support tasks for the
  Government
• d) PCO has authority to waive conflicts

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Future AAS Contractor Obligations FAR
3.11/52.203-16
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Future AAS Contractor Obligations FAR
3.11/52.203-16

• NDAA 2009, Section 841 reacts to the GAO report
• New Subpart 3.11 Preventing Personal Conflicts
  of Interest for Contractor Employees Performing
  Acquisition Functions and corresponding clause
  52.203-16 (will replace H112)
• Applies to acquisition AAS (including FFRDC)
  contracts above the simplified acquisition
  threshold
• Public comment period closed January 2010

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Future AAS Contractor Obligations FAR
3.11/52.203-16

• Conflicts Definition
• a situation where the employee has a financial
  interests, personal activity or relationship that
  could compete with the employees ability to act
  impartially and in the best interests of the
  Government
• Financial interests may arise from
• Outside compensation
• Consulting relationships
• Research funding
• Stock/bond/partnership ownership (diversified
  mutual funds excluded)
• Real estate
• Intellectual property interests
• Business ownership

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Future AAS Contractor Obligations FAR
3.11/52.203-16

• Non exhaustive list of sources of conflicts
• Financial interests of the employee, close family
  members or other members of the household
• Other employment
• Seeking employment
• Gifts

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Future AAS Contractor Obligations FAR
3.11/52.203-16

• Contractor shall have
• Screening procedures
• A financial disclosure statement program with
  annual and event-based updates
• Train their employees
• Report any conflict violation as soon as it is
  known
• Flow the substance of the clause down to 100K
  subcontracts
• Contractor shall not
• assign an employee with a personal conflict to
  perform a task

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Future AAS Contractor Obligations FAR
3.11/52.203-16

• Mitigation/Waiver
• If an employee has a conflict, the company may
  propose a mitigation plan or ask for a waiver
• The approval authority is the Head of the
  Contracting Activity
• Government Remedies
• Suspension of contract payments
• Impact on award fee
• Termination
• Suspension/Debarment

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Future AAS Contractor Obligations FAR
3.11/52.203-16

• The Governments Expectations/Standards
• Increased obligation to monitor employee
  (including subK employee) activities both under
  the contract and outside
• Information collected on disclosure forms
• How to identify the conflicts
• Dollar thresholds?
• Degrees for covered relationships?
• When to notify the Government?
• Actual conflict
• Apparent conflict
• Standard applied by the Government to mitigation
  plans or waiver requests

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Questions?

• Mr. Seth Cowell
• Ethics Counselor
• ESC/JA
• (781) 6055
• ethics_at_hanscom.af.mil

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Backup Slides
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