What are organizational conflicts of interest?

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You might be wondering, “What’s so important about Organizational Conflicts of Interest (“OCI”)?” The answer is quite simple: it is essential to understand both the causes of OCI and how to mitigate them, because unmitigated OCI can prevent a contractor from (1) competing for future contract work, (2) performing certain tasks under existing contracts, (3) transferring staff. between corporate organizations, (4) hiring personnel, (5) associating with certain vendors, and/or (6) entering into certain corporate transactions. Additionally, undisclosed or unmitigated OCI may create liability exposure under the False Claims Act. In this Part 1 of a three-part series, we provide a summary of what creates OCIs and general mitigation strategies. In Part 2, we will detail how OCI arises during protests, and in Part 3, we will discuss the risks of liability under the False Claims Act arising from undisclosed OCI.

What is an organizational conflict of interest?

An OCI arises when, due to other business activities or relationships, a company, its employees, consultants or contractors:

  1. is unable or potentially unable to provide impartial assistance or advice to the government;

  2. Potential lack of the necessary objectivity in the execution of the contractual work; Where

  3. Has an unfair competitive advantage.

These fall into three general categories of OCI: (1) Unequal access to information, (2) Impaired objectivity, and (3) Biased ground rules. Each category raises different concerns and requires different mitigation or avoidance strategies. As explained later, impaired objectivity and biased OCI ground rules present a higher level of risk to entrepreneurs because they are harder to mitigate.

A unequal access to information OCI occurs when the performance of a contract provides a contractor with information that is not publicly available, and that information provides an unfair competitive advantage in a competition for another contract. Examples of this type of information include proprietary information about a competitor received from the government and sensitive selection information from non-public sources, such as internal government estimates and valuation strategies. Information provided voluntarily without limitation of use or publicly available information is excluded from this category.

A impaired objectivity OCI occurs when a contractor’s work under a government contract involves evaluating itself or a related entity (for example, through evaluation of performance under another contract or evaluation of proposals) so that the contractor’s ability to provide impartial advice to the government might appear compromised by the contractor’s relationship. entrepreneur with the assessed party. This category of OCI encompasses the evaluation, for example, (1) an entrepreneur’s own offers, products or services; (2) a competitor’s offerings, products or services; or (3) a Contractor’s own regulatory compliance. Therefore, a contractor cannot be awarded a contract (or subcontract) to evaluate its own or a competitor’s products, services or offerings without appropriate safeguards being in place to ensure objectivity. .

To finish, OCI biased ground rules involve situations where a contractor has somehow established the ground rules for a competition for a particular contract, which could cause the contractor to bias the competition in its favor. This includes, for example, prepare specifications, write statements of work, and perform systems engineering and technical support (“SETA”) services. As a general rule, it does not matter whether the bias is intentional. In these circumstances, a contractor cannot be awarded a contract (or subcontract) to supply the system or any of its major components.

How can OCI be mitigated or avoided?

Depending on the nature of the conflict, a potential OCI is resolved by placing some type of restriction on the contractor’s eligibility for future contracts or its ability to perform particular services under an existing contract. Procurement agencies will frequently deal with OCI preemptively by requiring bidders to agree to an exclusion clause on future work. Additionally, here are specific ways entrepreneurs can mitigate or avoid each of the three categories of OCI.

Unequal access to OCI information can be mitigated by placing restrictions on personnel with access to third-party confidential information or selection of sources. First, a contractor should require its employees to sign Non-Disclosure Agreements (“NDAs”) to prohibit unauthorized use and disclosure of any non-public information. This prevents employees from disseminating information and also limits access to information to employees with a “need to know”. Second, a contractor must establish and document a firewall device to prevent the transfer of this information from one unit to another. This can be accomplished by establishing and maintaining a log that identifies the particular types of nonpublic information each employee has access to, physical and electronic controls, implementing separate reporting structures, and prohibiting sharing personnel between units. It is essential to have the firewall in place before gaining access to non-public information that could create an OCI.

Although a firewall is an effective method to mitigate or avoid unequal access to OCI information, it is an inadequate mitigation strategy for biased ground rules or impaired OCI objectivity. Indeed, a firewall does not eliminate the relevant financial incentives at the heart of these two categories of OCI. However, there are still a few mitigation strategies that can be used, such as recusal of procurement, reassignment of OCI that may result in work to a subcontractor or government, assignment of company in conflict or recourse to an independent third party. to perform the work or review the work affected by the potential OIC. These techniques do not guarantee that the company will be allowed to compete, but without such mitigation efforts, the company will be absolutely excluded.

OICs continue to be an issue in federal government procurement and remain a successful challenge in bid protest forums. So, contractors should be aware of these potential issues, especially if there is a potential OCI issue for you or a competitor that could lead to a bid challenge.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 208

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