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OCI Identification, Management and Mitigation

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					                 OCI Identification and Mitigation
                                                             1
                                          Joseph J. Kelley


                                                  1.


                                      THE OCI CHALLENGE

          The complexity of Lead System Integrator (LSI) type procurements presents a challenge to
all participants in the procurement process to find better ways to identify and mitigate OCI2.
LSI is a term in the government contracts lexicon which appears to resist definition. It generally is
used to describe a contractor with overall responsibility for integration of a complex weapon system
or system of systems. The lead integrator may also have roles in the design, development, and
procurement of weapon elements or sub-systems at various levels and may under appropriate
circumstances supply system elements or sub-systems. The need for LSI contractors arises out of the
ever increasing complexity and interconnectivity of modern weapon systems with multiple
components which must flawlessly perform together.

          Many if not all of the top 10 US defense contractors are either working in or competing for
LSI roles in which the government is not only relying on their ability to effectively integrate major
defense systems from diverse suppliers but also dealing with the long term obligation to preserve the
availability of the LSI as a manufacturer and supplier of elements of those systems.

         The ability of the LSI to remain viable as a hardware supplier is a big deal for the
Government because OCIs can, if not mitigated, prevent the LSI from competing for concurrent or
future hardware procurements. This was less of an issue when the Government used to obtain large
scale integration services from companies which functioned as pure “service” providers. However, n
recent years, many of the formerly pure “service” providers have merged with defense hardware
manufacturers; companies who are now competing for LSI roles. Whereas the service providers
didn’t care about OCI restrictions relating to future hardware procurements when they were pure
“systems engineering and technical services” plays, the LSI cares about them very much because it
needs to function and thrive in both spheres.

          In addition to preserving its ability to supply defense hardware, every LSI has a vested
interest in fair and effective OCI identification and mitigation because each LSI has a multi-faceted
identity as competitor, designer, manufacturer and supplier. LSI primes often serve as
subcontractors or suppliers to different LSI primes on other acquisitions sometimes for different
military agencies. Often, the LSI is required to enter into cooperation or associate contractor
agreements with important system element contractors, and to serve on Integrated Product Teams.3
A government contract may require performance of a task through an IPT, the membership of
which includes representatives from several different companies, and cross-membership from
different divisions or business units within each company.

1
  The views expressed herein are those of the author alone and do not necessarily represent the views
of any other party or employer.
2
  Organizational Conflicts of Interest
3 IPT’s are a type of virtual team within a company and across industry participants.




                                             Page 1 of 8
         Clearly, both the Government and LSI prime contractors have a vested interest in the
development of fair and effective OCI rules which address OCI mitigation in as narrow a way as
effectively possible, yet preserve the ability of the LSI primes to participate in competitive
acquisitions as manufacturers and suppliers.

         Unfortunately, the existing government contracts regulations and procurement practices
governing OCI simply do not match well with the complexith of modern LSI procurements, leading
to confusion, loss of competition, and litigation. In Section 2, we will take a look at what is ailing the
OCI process in the context of LSI type procurements, and in Section 3, we will look at some simple,
practical, near-term solutions to improve the ability of the Government and industry to identify and
mitigate OCI.



                                                     2.



                                         WHAT IS AILING OCI?


         a.       OCI is too confusing!

         The natural inclination of lawyers and other professionals working in highly regulated fields
is to consult the regulations when trying to understand difficult concepts. But in the case of OCI,
consulting the FAR might be the worst thing you could do, especially prior to getting a good
conceptual understanding of OCI. I realize that if we were discussing corporate income tax, it would
be heresy for me to tell you that you should not consult the tax code for a definition of “earned
income.”4 But the FAR definition of OCI is much more complicated than it need be and fails to
provide the necessary conceptual underpinnings of OCI. To begin with, the FAR attempt at defining
OCI5 suffers from a generality that makes it impractical to apply without additional guidance. So the
FAR, in Subpart 9.5, attempts to provide the guidance by stating four “general rules” which prescribe
limitations on certain contracting situations as a means of avoiding, neutralizing, or mitigating OCI
which might otherwise exist.6 Unfortunately, the rules use undefined terms and qualifiers which, in

4 For an explanation of why this is funny, see
http://www.aicpa.org/pubs/jofa/sep2004/taxbrief.htm
5 According to FAR 2.101, OCI “means that because of other activities or relationships with other

persons, a person is unable or potentially unable to render impartial assistance or advice to the
Government, or the person’s objectivity in performing the contract work is or might be otherwise
impaired, or a person has an unfair competitive advantage.” Is an organization the “person” referred
to in this definition? Or does it mean that the activities of employees are imputed to their
organizations? Is “potentially unable” a “potential conflict” or a real conflict?
6 These rules are stated as “shall not’s”, i.e. situations where, if certain factors exist, a contractor will

not be eligible for award of a subsequent contract. FAR 9.505-1 provides that a contractor providing
systems engineering and technical direction for an system without overall contractual responsibility
for development, integration, assembly and checkout or production of that system, shall not be
awarded a contract to supply the system or its major components. FAR 9.505-2 provides that
contractors preparing specifications or work statements for non-developmental items for competitive
acquisitions shall not be allowed to furnish those items for a reasonable period of time. FAR 9.505-3


                                                Page 2 of 8
practice, often lead to even more confusion and disagreements between contractors and Contracting
Officers over exactly what they really mean. See Lucent Technologies World Services Inc., B-295462,
March 2, 2005.

         Acquisition professionals rely on the FAR for guidance, and unclear guidance invariably
leads to confusion and sometimes leads to litigation. The large number of recent GAO protests
dealing with OCI appears to suggest that we are working backwards – that the acquisition agencies
and defense contractors are allowing the Comptroller to explain OCI to them.

        To turn this around, the FAR needs to be revised to capture the good, conceptual
explanations of OCI which can be found in GAO opinions such as American Mgmt. Sys., Inc., B-
285645, Sept. 8, 2000, 2000 CPD ¶ 163 at 4. In these opinions, the GAO categorizes OCI into the
following 3 general types:

        Biased Ground Rules Cases, where the primary concern is that a government contractor
could have an opportunity to skew a competition in favor of itself.

        Impaired Objectivity Cases, where the primary concern is that a government contractor
would be in a position of evaluating itself or a related entity (either through an assessment of
performance under a contract or an evaluation of proposals in a competition), which would cast
doubt on the contractor’s ability to render impartial advice to the government.

        Unequal Access to Information Cases, where the primary concern is that a government
contractor has access to nonpublic information that would give it an unfair competitive advantage in
a competition for another contract.

         Every OCI which I have ever seen or heard of falls neatly into one of those 3 categories.
Revising the FAR to capture these concepts and bring them into the regulations will accomplish 2
very valuable things. It will eliminate much of the confusion of the current rules and will help
acquisition personnel in both the Government and the defense community to do a better job in
identifying and resolving OCI before they become a problem.

        b.       The Government isn’t taking ownership of OCI!

         FAR 9.5 places the responsibility of OCI identification and resolution on the shoulders of
the Contracting Officer, and in some cases the chief of the contracting office. FAR 9.504 states that
Contracting Officers shall analyze planned acquisitions to identify and evaluate OCI as early as
possible in the acquisition process and avoid, neutralize or mitigate potential OCI before award.

         The burden for OCI identification and resolution rests with the Government for good
reason. OCI is a potential threat to the integrity of the procurement process. An undiscovered OCI
could result in a procurement decision that was influenced by factors other than competition and
best value.




provides that contracts for the evaluation of offers for products and services shall not be awarded to
a contractor that will evaluate its own offers or those of a competitor unless proper safeguards are in
place. FAR 9.505-4 states that contractors providing evaluation and advisory services requiring
access to third party proprietary data must reach agreement with the third parties to protect the data.


                                              Page 3 of 8
          Yet procuring agencies are clearly struggling with their regulatory mandate of early OCI
identification,7 especially in complex LSI type procurements. Given the tools they have to work
with,8 it is no surprise that agencies and contractors alike have great difficulty identifying OCI. For
example, FAR 9.506 provides that “If information concerning prospective contractors is necessary to
identify and evaluate potential organizational conflicts of interest or to develop recommended
actions, contracting officers first should seek the information from within the Government or from
other readily available sources. Government sources include the files and the knowledge of
personnel within the contracting office, other contracting offices, the cognizant contract
administration and audit activities and offices concerned with contract financing. Non-Government
sources include publications and commercial services, such as credit rating services, trade and
financial journals, and business directories and registers.” Citing these information sources is a cop-
out, the regulatory equivalent of saying “Ask around the office.”

         Too often, what this lack of knowledge leads to are Contracting Officers being forced to
implement stop-gap measures which shift the burden of OCI entirely to the contractor side. One of
these measures is the insertion of punitive OCI provisions in solicitations and contracts, for example,
requiring contractors to submit with their proposal a written certification of all actual or potential
OCI,9 or imposing overly broad limitations on future participation.10 Another measure is the over-
reliance by the government on contractor-drafted OCI mitigation plans.

         This type of regulatory burden-shifting does nothing to advance the practice of OCI
identification and, if used injudiciously, can amount to an improper abdication of responsibility.

         Instead, the Government needs to build the tools necessary for it to take ownership of OCI
at the start of the acquisition cycle where it can be discovered and mitigated in a more effective
manner. This includes the development of more effective information sources, including electronic
OCI databases so that the Contracting Officers are not left to find OCI by searching trade journals.

         c        OCI should be handled differently in the procurement process!

        As part of taking ownership of OCI, the Government must handle OCI differently in the
procurement process. To make this happen, there are changes needed in the way OCI is currently
being handled in the acquisition process.

7 Prior to inserting an OCI clause in an RFP, FAR 9.504 requires government contracting officers to
analyze planned acquisitions in order to identify and evaluate potential OCI as early as possible in the
acquisition process and to make written recommendation to the Head of the Contracting Activity,
including draft solicitation provisions. This practice is often not followed. In Best Security First, Inc., v.
The United States, 62005 U.S. Claims LEXIS 00012233, the court of Federal Claims, citing Filtration
Dev. Corp., 60 Fed. Cl. 371 (2004), blasted a Contracting Officer for failing to fulfill the regulatory
mandate, stating “We also held that the CO not only failed to identify the conflict as early as
possible in the acquisition process, but once made aware of the potential OCI she failed to mitigate
the OCI before awarding the barrier filter contract to Westar’s subsidiary." Id. at 378. Moreover,
although the CO properly consulted with other government personnel in evaluating the potential
OCI, she exceeded her authority by personally concluding that appropriate measures were in place to
eliminate the conflict, a decision that should have rested with the chief of the contracting office. Id.
(citing 48 C.F.R. § 9.506(a), (b-d)).
8 I.e., pretty much none.
9 Leading in one case to liability under the False Claims Act. Harrison v. Westinghouse, 352 F.3d 908

(4th Cir. 2003).
10 Google the words “organizational conflict of interest default” for an eye-opening list of actual OCI

clauses being inserted in solicitations.


                                                 Page 4 of 8
        i.       For one thing, OCI identification should not be punitive.11 In practice, identifying
OCI is extremely complicated for reasons beyond simply agreeing on a practical definition, especially
considering the ever-increasing challenges posed by the shrinking of the defense industrial base, and
the development of new types of procurement solutions such as the LSI concept.

         Fewer prime contractors competing for work in both prime and subcontracting relationships
means exponentially greater challenges in identifying cross-company and cross-program conflicts due
to the simple fact that the Government does not know every activity its contractors are involved in,
and contractors lack a crystal ball to see the Government’s future plans. Agencies should refrain
from using clauses which punish contractors for failure to identify potential OCI which often are
impossible to identify until they become more apparent or until a previously undiscovered
connection arises. The use of punitive clauses is a way of avoiding ownership of OCI and turns what
should be a shared obligation into a default risk for contractors.12

         In the LSI type of procurement environment, the identification of potential OCI requires all
parties to “see” conflict based on a kind of “uber-awareness” of everything else that is going on. In
that type of environment, solicitation clauses which make identification of potential OCI punitive13
are both unrealistic and unfair, especially since tools for comprehensive identification are not
currently available to any party.

          ii.     Another change needed in order for the government to take ownership of OCI is
that OCI issues must be driven to a definitive resolution early in the procurement process and in any
event prior to award. The way OCI is currently handled in the procurement process often leaves
contractors hanging, uncertain as to whether they may be prohibited from participating in future
work. Often, OCI solicitation provisions simply cite to FAR 9.5 and state that if an OCI arises, the
contractor may be terminated or precluded from competing. Other OCI solicitation provisions cast
a wide limitation on future work, and require contractors to “check back” with the agency as to
whether they will be permitted to participate in future work.14 These types of clauses, while often
preferable to outright bans, leave contractors in the precarious situation of either not knowing
whether an unexpressed OCI might scuttle their future plans, or having to seek permission to pursue
critical work in areas of their core competence. Still more unclear are situations where the
Government attempts to impose a ban on future procurement activities notwithstanding the
conspicuous lack of an OCI provision in any of the effected solicitations. This kind of uncertainty is
bad for the industry. Contractors should be entitled to know ahead of time whether participation in
procurement could lead to loss of future work.

         The Government, as part of its acquisition strategy, has an obligation to drive OCI to a
defined resolution. All actual OCI must be resolved prior to award. This obligation includes a
responsibility to analyze and resolve “known potential” OCI prior to award. If all actual and known
potential OCI are resolved prior to award, then the only other “types” of OCI left would be those
which are either unknown or undiscovered at the time of award, or those which arise in the future,
either due to the same contractor being awarded a different contract or through a modification of an

11 Except or course in cases of willful non-compliance.
12 The Government has, at times, sought industry involvement in drafting special OCI provisions.
See National Defense Industry Association, San Diego Chapter News Digest, Vol 12, Issue 4, April
2003.
13 Such as requiring all-encompassing certifications or clauses which impose termination for default

for failing to identify OCI.
14 See, www.smdc.army.mil/Contracts/SETAC/SETAC04/OCI%20Clause%20(modified)%20-

%2002%20Contracts.doc


                                             Page 5 of 8
existing contract. In either case, undiscovered or future unexpected OCI which are incapable of
mitigation or waiver should be handled in a fair and effective way such as through a partial
termination for convenience of the affected work, or through allowing contractors to opt out of
future contract modifications which would create an OCI for them. In this way, the guesswork is
minimized and the potential outcome will be as fair and narrow as possible.

        iii.     Finally, another change necessary for the government to own OCI in the
procurement process is that contractor plans for mitigation of specific OCI should not be part of the
source selection process.

          In some recent acquisitions, the Government has made the submission and evaluation of
contractor drafted OCI mitigation plans a specific part of the evaluation criteria for award of a
contract. This is not a good practice for several reasons. For one thing, the Contracting Officer has
an affirmative obligation to be actively involved in the identification and mitigation of OCI.
Throwing an OCI mitigation problem “over the fence” by requiring the contractor to draft a
comprehensive mitigation plan comes awfully close to an inappropriate delegation of authority. By
doing this, the Government, in effect, is conceding resolution of the problem to the very entity
whose organization is an integral part of the problem. Worse still, it can lead to situations like that in
Filtration Dev. Corp., 60 Fed. Cl. 371 (2004), where the adequacy and effectiveness of the mitigation
plan is completely misunderstood by the Contracting Officer and fails to have the intended effect.
While well-drafted OCI mitigation plans are very important in the mitigation of OCI, they should not
be evaluated as “OCI solutions” since they are no substitute for the written determinations and
findings of the responsible Contracting Officer.15

         Instead, the Government should actively participate with the contractor in OCI
identification and the development of mitigation strategies. In LSI source selections, the
Government should only evaluate the effectiveness of the LSI’s general plans for ongoing OCI
identification and mitigation in the performance of the contract.

                                                   3.



                                  PLOTTING A PATH FORWARD

        As we have seen, the growing complexity of OCI identification and mitigation requires
changes in the procurement regulations to reflect the reality that OCI has evolved into an industry-
wide problem which can best be dealt with through education, innovation and cooperation between
the Government and industry. While we wait patiently for these changes, there are some near-term
improvements we can make.

         In order to overcome some of the confusion and ownership issues surrounding OCI, the
Government needs to implement a new type of acquisition strategy, focusing on early identification,
analysis and resolution of OCI, the use of new type of OCI solicitation provisions, and involving the
contractor in ongoing OCI detection measures throughout the period of performance of the contract
and any related procurements. This “soup to nuts” approach is necessary to preserve the integrity of


15In PURVIS Systems Inc., B-293807.3, B-293807.4, Aug. 16, 2004, 2004 CPD ¶ 177, the Government
evaluated an offeror’s OCI mitigation plan as acceptable, but a competitor protested (and GAO
agreed) that the plan was defective.



                                               Page 6 of 8
LSI acquisition strategy and ensure all LSI suppliers that OCI is being implemented in a fair and
systematic way.

         Early identification and analysis can begin with the LSI acquisition strategy, a diagram of the
participants and collection of information both from government sources and from the participants
themselves. All of the information must be analyzed and reviewed by the contracting office both
against FAR 9.505 criteria and the GAO case law categories of OCI, and any OCI must be resolved
in writing. All of this should be done transparently, and in conjunction with the offerors.

         The new OCI solicitation provision would acknowledge the responsibility of the Contracting
Officer to identify, and then to avoid, mitigate or waive significant potential conflicts prior to
contract award, and more importantly, would recognize that no award should be made unless existing
OCI are avoided, mitigated or waived.16

          A sample model solicitation provision would read as follows:

                     Model Solicitation Provision - Organizational Conflict of
                     Interest

                     (a) In accordance with FAR Subpart 9.5, The Contracting
                     Officer will identify and evaluate actual and potential
                     organizational conflicts of interest (OCI) prior to award. An
                     award will be made to the apparent successful offereror unless
                     an OCI is determined to exist that cannot be avoided,
                     mitigated or waived.

                     (b) The successful performance of this contract requires both
                     the contractor and the government to cooperate in the early
                     identification and avoidance, mitigation or waiver of
                     organizational conflicts of interest which may arise in the
                     implementation of this contract. This is an ongoing
                     responsibility which is part of contract performance.

                     (c) The contractor represents that it will act in good faith and
                     take reasonable steps to identify and disclose to the
                     Contracting Officer organizational conflicts of interest as that
                     term is used in FAR Subpart 9.5 which exist or which may
                     arise in the implementation of this contract, as soon as they
                     become known to the contractor.

                     (d) The contractor represents that if it discovers an OCI or
                     potential OCI a prompt and full disclosure shall be made in
                     writing to the Contracting Officer. The disclosure shall
                     include a description of the action the contractor has taken or
                     proposes to take in order to avoid or mitigate the OCI.

                     (e) If, in compliance with this clause, the contractor discovers
                     and promptly reports an organizational conflict of interest (or
                     potential conflict of interest), the Contracting Officer will
                     analyze the OCI or potential OCI and make a written
                     determination and finding as to how the OCI will be resolved,
                     taking into consideration the contractor’s plans to avoid or


16   FAR 9.504(e).


                                                    Page 7 of 8
                 mitigate the OCI. In the event that the Contracting Officer
                 determines that the OCI cannot be effectively avoided,
                 mitigated, or waived, then the Contracting Officer may
                 terminate the portion of the contract affected by the conflict
                 for convenience, if such termination is determined to be in the
                 best interests of the Government.

                 (f) The contractor agrees to abide by the provisions of FAR
                 9.505-4 and will implement appropriate procedures for the
                 proper handling and protection of third party proprietary and
                 or competition sensitive information to which it is given
                 access in the implementation of this contract.

                 (g) The contractor shall prepare and submit an OCI
                 identification and mitigation plan, setting forth in detail the
                 actions the contractor will take to provide for the early
                 identification, and avoidance or mitigation of OCI as required
                 by this clause. An initial draft of the plan shall be submitted
                 with the contractor’s proposal and the final plan shall be
                 submitted for Contracting Officer approval after contract
                 award.

                 (h) In the event that a future modification to this contract
                 would result in an actual or potential OCI, the contractor shall
                 notify the Contracting Officer as set forth in paragraph (e) of
                 this clause. If the Contracting Officer determines that the OCI
                 cannot be adequately avoided, mitigated or waived, the
                 contractor shall have the right to decline acceptance of the
                 modification in order to avoid the OCI.



         Finally, the ongoing identification and mitigation of OCI can be fulfilled through the
development of effective post-award identification and mitigation strategies which include
collaboration with LSIs. These strategies can be centered around the development of good OCI
identification and mitigation plans, which can evolve with the contract. These mitigation plans
should not be left solely to the contractor, but the development and improvement of these plans
should be part of contract performance and subject to review, comment and approval by the
Contracting Officer. They should be “up on the web” for everyone to see, including all of the other
participants in the LSI procurement, not only for the purposes of transparency, but also to encourage
buy-in. Going even further still, the government should fund the implementation and improvement
of the OCI plans, and encourage LSIs to meet with LSI participating contractors to find innovative
ways to improve them.

         If supported by the Government, OCI identification and mitigation can become something
that contractors want to get good at; a core competency and a competitive discriminator.17 This
would benefit the Government, since it will help ensure that OCI does not adversely affect
procurements, and it would benefit the contractor by making OCI predictable and manageable. In
any event, from almost any standpoint, it beats waiting for the regulations to change or additional
protests to be filed.



17Not, as aforementioned, for the purpose of evaluating a specific mitigation strategy, but rather a
contractors competency at OCI identification and mitigation.


                                                Page 8 of 8

				
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