Personal Conflict of Interest Regs: Good Start, Minefields Ahead

When the government announced its intention last year to come up with regs on contractors’ personal conflicts of interest (PCOI), there was almost an audible dread in the industry.  Already under the gun with renewed and heightened oversight, a growing we-they fissure with civil servants, and amplified bad press for a handful of deeply troubled contracts, the new regs spelled trouble.

So what? Now that the proposed regs are out , industry anxiety should decline, especially for firms that have been working this problem in advance.  Still, for all of industry, minefields can be expected because of plentiful gray areas and the potential misuse of the regs in some cases by civil servants and/or contractors.  But don’t get us wrong; the regs are needed; as always, the magic is in the “how.”

The scope of the regs is flawed by definition because they apply only to contractor activities that are “closely associated with inherently governmental functions” in the acquisition sphere.  Inherently governmental is hotly debated in general, but the still-gray line is clearer when it comes to acquisition support, in our view.  Nonetheless,  there has been no fresh guidance from OFPP since 1991.  OFPP has committed to issue an updated, crisper definition by the end of December.

The FY09 Defense Authorization Act only required OFPP to address personal conflicts of interest only in the acquisition area, even though they can intrude with great damage later on in the contracting cycle.  PCOI could make a big difference, for example, when it comes to:  the drawing of conclusions in studies of a diagnostic nature, the management of indicators that shape award-fee determinations, or in key contract staffing decisions.

In our view, there is actually little documented intrusion of personal conflicts of interest in acquisition; note the lack of specifics in claims that contractors are taking over governmental functions.  And to state the obvious, whatever contractors do, the government solicited the services.  You could almost say contractors have been drafted as the acquisition workforce shrank.  But some experienced contractor executives we know would rather give up business than be subject to draining intense scrutiny, doubt, and contention because they work in the acquisitiion zone.

Another  feature, far more good than bad, is that contractors make the calls and keep the records on personal conflicts of interest.  This includes the filing of annual financial disclosure forms, a process that government employees in policy- and acquisition-related positions have been used for around 15 years.

However, there is a problem because, faced with the same regulations, different companies will set the threshold of potential PCOI differently. Some will be conservative, others not.  This inconsistency echoes what we see in government, where agencies often differ, for example, in their tolerance for organizational conflicts of interest and the stringency of mitigation measures.

We see no way to achieve alignment–out of fairness and to protect the government’s interest–except by judicious audits every once and awhile.  But you can be sure that allegations will be used, out in the open, indirectly, or furtively by some companies and some civil servants who may want to keep the playing field other than level. We see this today in aspects of some significant acquisition (e.g., questionable choices of vehicle, cryptic statements of work, overly constrained evaluation factors, gamey sole-source justifications).  There is every reason to expect such games to be played with respect to personal conflicts of interest.

The defenses are:  career civil servants and political appointees who actually manage and act as alert stewards for the taxpayers, continued good-ethics behavior by the majority of contractors.  They recognize that in the long run there is far more to be gained from good values than looking the other way, or worse.

Reference: Federal Acquisition Regulation; FAR Case 2008-025, Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions. The draft appeared in the November 13, 2009 Federal Register. Comments are due by January 12, 2010.