Thomas P' Humphrey, Crowell

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(No Transcript)
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ORGANIZATIONAL CONFLICTS OF INTEREST AND THE
BLENDED WORK FORCE
Thomas P. Humphrey, Crowell Moring LLP July
26, 2007
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ORGANIZATIONAL CONFLICTS OF INTEREST (OCIs)
ISSUES HIGHLY VISIBLE

• Point of Emphasis for GAO in Bid Protests
• Congressional Interest through Lead Systems
  Integrators
• DoD Merger and Acquisition Review and Other
  Business Planning

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WHY OCI ISSUES ARISE MORE FREQUENTLY

• Consolidation in Defense and Information
  Technology Industries
• OCI Principles Generally Treat The Entire
  Corporate Family As A Single Entity
• Trend to Extremely Broad Task Order Statements of
  Work
• OCIs measured by work that may be performed

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WHY OCI ISSUES ARISE MORE FREQUENTLY (contd)

• Protesters Success in GAO Protests
• OCIs apply to proposed subcontractors
• Trend to Government Outsourcing

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GOVERNMENT OUTSOURCING THE BLENDED WORK FORCE

• Government Lack of Experience/ Expertise
• Government Shortage of Contracting Professionals
• SETA Contractors
• Lead Systems Integrators

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BLENDED WORK FORCE ISSUES

• OCIs
• Personal Service Contracts
• Personal Conflicts of Interest
• Inherently Governmental Functions

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OCI PRINCIPLES

• An OCI Arises When, Because Of Other
  Relationships Or Circumstances, An Offeror May Be
  Unable, Or Potentially Unable To Render Impartial
  Advice Or Assistance To The Government, The
  Offerors Objectivity In Performing The Contract
  Work Is Or Might Be Impaired, And/Or Offeror
  Would Have An Unfair Competitive Advantage. Far
  2.101

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OCI PRINCIPLES (contd)

• Three Broad Types
• Unequal Access To Information
• Generally by reason of performance of another
  Government contract
• Can be proprietary or source selection
• Biased Ground Rules
• Pursuant to one contract, help write the ground
  rules statement of work, specifications for
  another competition

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OCI PRINCIPLES (contd)

• Impaired Objectivity
• Not necessarily arise from performance of another
  contract, any business interest that might affect
  judgment

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RED FLAG ACTIVITIES

• OCIs Can And Do Arise In Many Types Of Contracts
  FAR Recognizes Greater Risk In
• Management Support Services
• Consultant Or Other Professional Services
• Assistance In Technical Evaluation

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RED FLAG ACTIVITIES (contd)

• Systems Engineering And Technical Direction When
  Contractor Does Not Have Overall Responsibility
  For Development Or Production. FAR 9.502(b)
• OCI Significance Of Outsourcing And Blended Work
  Force Is Clear

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MITIGATION

• When OCI Arises, CO Obligated To Attempt To
  Devise A Mitigation Plan. FAR 9.504 and 9.506
• Some OCIs Cannot Be Mitigated

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MITIGATION (contd)

• The Mitigation Plan Must Be Tailored To Specific
  Facts And Address The Type Of OCI By Removing The
  Risk To The Government Some OCIs Easier To
  Mitigate Than Others
• Firewalls may be sufficient for unequal access to
  information rarely satisfactory for others
• Release of information to all

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MITIGATION (contd)

• Mitigation Plan May Significantly Reduce Value Of
  Contract, Financial Or Strategic
• Mitigation Plans In Discretion Of Contracting
  Officer Difficult To Anticipate Eventual
  Mitigation Impacts During Planning
• Agency Over-Reaction
• Waiver Agency Head

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RECENT SIGNIFICANT DECISIONS

• Science Applications Intl. Corp., B-293601, 2004
  CPD Par. 96
• GAO Sustained Protest Against EPA Award to
  Lockheed Martin For Support Services Contract
  Under Very Broad Statement of Work Because
  Services Could Impact Regulatory Policy and
  Enforcement and Lockheed Martin Was Regulated by
  EPA

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RECENT SIGNIFICANT DECISIONS (contd)

• EPA No Conflict
• Not A Contract-Based OCI Other Circumstances
• Statement of Work Too Broad Agency Wins Round 2
  B-293601.5, 2004 CPD Par. 201

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RECENT SIGNIFICANT DECISIONS (Contd)

• Purvis Sys. Inc., B-293807.3, 2004 CPD Par. 177
• GAO Sustained Protest Against Award To Northrop
  Grumman Under Which Northrop Grumman Would
  Evaluate Performance Of Its Own And Its
  Competitors Undersea Warfare Systems

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RECENT SIGNIFICANT DECISIONS (Contd)

• Agency No Conflict
• Note OCI Not Only For Self-Evaluation

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RECENT SIGNIFICANT DECISIONS (Contd)

• Filtration Development Co. v. United States, 60
  Fed. Cl. 371 (2004)
• Court Enjoined Contract Performance (After A
  Period of Time for Which Contract Had Been Sole
  Source Justified Under Urgent and Compelling
  Circumstances) Because The SETA Contractors
  Affiliate Was Providing A Component

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RECENT SIGNIFICANT DECISIONS (Contd)

• Contract Was To Provide Engine Inlet Barrier
  Filters To Keep Sand Out of The Engines of
  Blackhawk Helicopters In Iraq
• Held SETA Contractors Were Categorically
  Precluded From Supplying The Components For This
  Program Even Though Agency Claimed Contractor Had
  Never Provided Services With Respect To This
  Component
• Subsequent OCI Waiver

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RECENT SIGNIFICANT DECISIONS (Contd)

• Lucent Technologies World Services, Inc.,
  B-295462, 2005 CPD Par. 55
• GAO Denied Protest By Offeror Excluded From
  Competition, Recognizing Broad Discretion Of
  Contracting Officer In Dealing With OCIs

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RECENT SIGNIFICANT DECISIONS (Contd)

• Lucent Was Design/Build Contractor For Army IRAQ
  Communications Sector. Had Designed Network
  System and Architecture For Network Of Wireless
  Radios, Done Cost Benefit Analysis of Competing
  Technologies, And Drafted What Became The
  Statement of Work.
• Lucents Proposal To Provide The Radios Excluded
  From The Competition

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RECENT SIGNIFICANT DECISIONS (Contd)

• Far 9.5 OCI Rules Are Only Examples Contracting
  Officer Must Make Factually Intensive
  Case-By-Case Analysis And Apply The OCI
  Principles If That Done, Contracting Officers
  Conclusion Will Be Given Great Deference
• Agency Did Not Have To Show Lucent In Fact
  Obtained An Unfair Competitive Advantage Because
  Contracting Officer Can Deal With Apparent OCIs

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RECENT SIGNIFICANT DECISIONS (Contd)

• THREE ALION CASES
• B-297022.3, 2006 CPD Par. 2
• B-297342, 2006 CPD Par. 1
• B-297027.4, 2006 CPD Par. 146
• 12. PROTESTS SUSTAINED
• Electro-Magnetic Spectrum Engineering Services
• Subjective judgments and policy recommendations
• Awardee had major business in electro-magnetic
  spectrum dependent products

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RECENT SIGNIFICANT DECISIONS (Contd)

• Impaired objectivity
• Agency underestimated amount of work subject to
  such OCI
• Firewalled subcontractor mitigation plan not
  approved
• Magnitude of work
• Difficulty of prediction
• After further agency analysis and consideration,
  new protest denied
• Firewalled subcontractor mitigation plan approved
• Evaluation issues

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RECENT SIGNIFICANT DECISIONS (Contd)

• GREENLEAF CONSTRUCTION, B-293105.18, 2006 CPD
  Par. 19
• Lender type of financial interest in continuing
  financial health of another firm to be overseen
  is sufficient to create impaired objectivity OCI
• Impact of mitigation on evaluation

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WHAT IS NOT AN OCI

• No judgment involved
• Additional contractor knowledge the result of
  incumbency
• Developer preparation of specifications and work
  statements. FAR 9.505-2(a)(3) 9.505-2(b)(1)(ii)

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FIREWALLED SUBCONTRACTORS

• New, but GAO will probably accept
• Risk of impaired objectivity
• Principle of prime contractor responsibility
• Evaluation issues
• Pragmatic Solution to Governments Lack of
  Expertise?

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TEACHINGS FROM RECENT PROTEST DECISIONS

• Contracting Officer Discretion
• Biased Ground Rules OCIs strictly enforced
• Many different circumstances give rise to
  impaired objectivity OCIs
• Not in FAR
• Regulated status
• Commercial Business Interest Affected by Policy
• Self-evaluation or Evaluation of Competitors

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TEACHINGS FROM RECENT PROTEST DECISIONS (CONTD)

• Contractors and Agencies Need Expertise,
  Understanding of Principles
• If Agency Misses the Issue or Fails to Analyze
  Correctly, Protest Will Be Sustained
• If Agency Analyzes the Issue Thoroughly, Its
  Determination and Mitigation Plan Will Be
  Accorded Significant Deference Cuts Both Ways

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PRACTICAL CONSIDERATIONS

• DOD MERGER/ACQUISITION APPROVAL
• Increasing Level of Scrutiny
• Mitigation
• General Dynamics Anteon divestiture
• Services vs. Supplies

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PRACTICAL CONSIDERATIONS

• OCI CONSIDERATIONS IN MERGER AND ACQUISITION
  PLANNING
• Business Analysis Must Take OCI Into Account,
  Particularly If Services Involved
• OCIs Will Be Analyzed Based On Combined Entity

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PRACTICAL CONSIDERATIONS

• Must Consider Possible Loss of Contracts
• Must Consider OCI Constraints on Future Business
  Opportunities for Both Entities
• OCIs Complicate Due Diligence
• Scope of statement of work vs. work actually
  performed
• Analysis must extend beyond contracts of two
  entities

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PRACTICAL CONSIDERATIONS

• Policy ramifications of contracts
• Other interests that may create OCIs
• Future business plans
• Approval of Mitigation Uncertain

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• RAMIFICATIONS FOR GOVERNMENT CONTRACTORS OF
  INCREASED FREQUENCY OF ISSUES, AND INCREASED
  GOVERNMENT EMPHASIS ON OCI PREVENTION AND
  ENFORCEMENT
• Increased Expertise And Vigilance Necessary
• Disqualification from future competitions
• Termination of existing contracts
• Key Principles That Drive Significance of OCIs,
  not the FAR

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• OCI Identification in Advance Planning for
  Targeting Opportunities
• OCIs Apply To Subcontractors
• OCI Mitigation Plans Required By RFP
• No OCI Certifications And False Claims Act
• Harrison v. Westinghouse Savannah River Co., 352
  F.3d 908 (4th Cir. 2003)
• Bid Protest Possibilities

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OCI RAMIFICATIONS FOR GOVERNMENT AGENCIES

• NEED SIGNIFICANT OCI EXPERTISE AND UNDERSTANDING
  OF PRINCIPLES
• Analysis of Risks of Impaired Objectivity Other
  Contractor Interests
• Planning for Future Competitions Work With
  Present Contractors to Avoid Disqualifying Them

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OCI RAMIFICATIONS FOR GOVERNMENT AGENCIES

• Analysis Of Proposed Mitigation Plans
• Adequacy to resolve the risk
• Solve the problem without imposing additional,
  unnecessary costs
• Include In Evaluation Factors?

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LEAD SYSTEMS INTEGRATORS

• RELIANCE ON CONTRACTORS TO MANAGE HIGH DOLLAR,
  HIGHLY COMPLICATED WEAPONS SYSTEMS ACQUISITION
• Coast Guard Deepwater Program
• Joint venture between Lockheed Martin and
  Northrop Grumman
• Army Future Combat System
• Boeing

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LEAD SYSTEMS INTEGRATORS

• HOW CLOSE TO INHERENTLY GOVERNMENTAL FUNCTIONS
• Congressional Proposals
• OCIs
• Procurements In Which LSIs Subs Can Compete
• Biased Ground Rules
• Evaluations of self and competitors both for
  award of work and adequacy of performance
• Mitigation Preclude LSI from participation in
  choosing subcontractors if it is competing
• FUTURE RE-COMPETITIONS UNLIKELY