Last week, the Department of Defense (DoD) did a complete 180-degree turn on an ethics regulation that would have prevented contractors from becoming too entrenched inside the Pentagon. DoD gutted a proposed rule on organizational conflicts of interest, publishing a watered-down final rule that speaks volumes about the contracting industry’s influence over DoD policies and programs.
Organizational conflicts of interest (OCIs) present one type of ethics risk to the government that must be identified and avoided through full disclosure by contractors and careful government oversight. OCIs are often grouped into three general categories based on the problems they create: unequal access to information, impaired objectivity, and biased ground rules. Current regulation requires contracting officials to avoid, neutralize, or mitigate potentially significant conflicts of interest so as to prevent an unfair competitive advantage or the existence of conflicting roles that might impair a contractor’s objectivity. Organizational conflicts are more likely to occur on contracts involving certain services, such as management support services and consultant or other professional services.
Absent from the final rule is the strong language about providing uniform guidance and a tightening of existing requirements. In its place is a rule that was significantly scaled back (limited to major defense acquisition programs (MDAPs) and Systems Engineering and Technical Assistance (SETA) work) and altered in tone. The following language appears throughout the final rule, and it reads like a contracting association lobbying letter:
Specifically, the rule now provides that it is DoD policy to promote competition and, to the extent possible, preserve DoD access to the expertise and experience of highly qualified contractors. To this end, the rule now emphasizes the importance of employing OCI resolution strategies that do not unnecessarily restrict the pool of potential offerors and do not impose per se restrictions on the use of particular resolution methods …
POGO hoped that the proposed rule would be clarified and made stronger, applying to all DoD acquisitions—including contracts and task or delivery orders and not just those deemed to be major weapons systems—and also to contractors' total organization, including all subsidiaries and affiliates. Also missing are clearly defined penalties for violating conflict-of-interest regulations, including termination of a contract, fines, withholding of payments, and suspension or debarment. A lack of a remedy clause will hamper DoD’s ability to hold contractors accountable for failing to disclose an actual or apparent OCI.
Only time will tell if the new rule helps protect DoD and taxpayers, but I have a feeling that this rule will create numerous competition problems for small and mid-sized contractors and others who aren’t part of the inner circle. As someone wrote in an email to me, "Score one for contractors."
-- Scott Amey
Image by Flickr user t3rmin4t0r.