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Final Rule Provides Guidance on OCIs in Major DoD Programs

The Department of Defense has finalized, with significant changes, a proposed rule (DFARS Case 2009-D015, 70,020.263) implementing Section 207 of the Weapon Systems Acquisition Reform Act of 2009, which addresses organizational conflicts of interest in major defense acquisition programs. Section 207 requires DoD to revise the DFARS to provide uniform guidance and tighten existing requirements relating to OCIs. The guidance and requirements are added under new DFARS 209.571, Organizational conflicts of interest in major defense acquisition programs.


Under DFARS 209.571-2, the new requirements apply to "major defense acquisition programs." This is a change from the proposed rule, which would have applied to all DoD procurements. According to DoD, coordinating and reconciling the many comments received on the proposed rule with the team developing FAR coverage would have delayed finalization of the rule and potentially created unnecessary confusion. DFARS 209.571-1, Definitions, defines MDAP by cross-reference to 10 USC 2430. Under 10 USC 2430, MDAPs are programs that are designated as MDAPs by the Secretary of Defense, or are expected to meet stated expenditure levels. The thresholds for fiscal year 2009 were $365 million for research and development and $2.19 billion for procurements (see http://www.acq.osd.mil/ara/mdaplist.html).


The policy provision, DFARS 209.571-3, requires agencies to obtain advice on MDAPs and pre-MDAPs from sources that are objective and unbiased. Accordingly, contracting officers generally should seek to resolve OCIs in a manner that will promote competition and preserve DoD access to the expertise and experience of qualified contractors and employ OCI resolution strategies that do not unnecessarily restrict the pool of potential offerors in current or future acquisitions. DFARS 209.571-6, Identification of organizational conflicts of interest, requires COs to consider the ownership of business units performing systems engineering and technical assistance, professional services, or management support services to a MDAP or a pre-MDAP by a contractor that simultaneously owns a business unit competing (or potentially competing) to perform as the prime contractor for the same MDAP or the supplier of a major subsystem or component for the same MDAP. The CO's assessment must also consider the proposed award of a major subsystem by a prime contractor to business units or other affiliates of the same parent corporate entity, particularly the award of a subcontract for software integration or the development of a proprietary software system architecture, and the performance by, or assistance of, contractors in technical evaluation.

Systems Engineering & Technical Assistance

DFARS 209.571-7, Systems engineering and technical assistance contracts, requires agencies to obtain advice on systems architecture and systems engineering matters with respect to MDAPs or pre-MDAPs from Federally Funded Research and Development Centers or other sources independent of the MDAP contractor. Further, a contract for the performance of SETA for an MDAP or a pre-MDAP shall prohibit the contractor and its affiliates from participating as a contractor or major subcontractor in the development or production of a weapon system under the program. However, the requirement does not apply if the head of the contracting activity determines an exception is necessary because DoD needs the domain experience and expertise of the highly qualified, apparently successful offeror and, based on the agreed-to resolution strategy, the apparently successful offeror will be able to provide objective and unbiased advice without a limitation on future participation in development and production. A "major subcontractor" is a subcontractor that is awarded a subcontract that equals or exceeds both the cost or pricing data threshold and 10 percent of the value of the contract under which the subcontracts are awarded, or $50 million (DFARS 252.209-7009). A new provision in the DFARS companion resource, Procedures, Guidance, and Information, PGI 209.571-7, states it is more practical to separate SETA-type work from design-and development-type work, and not include both types of work in the same task order or other contract vehicle. New DFARS 209.571-5, Lead system integrators, cross-references DFARS 209.570's limitations on contractors acting as lead systems integrators.

Mitigation Preference Removed

In another change to the final rule, DoD removed a provision that would have required the CO to give preference to the use of mitigation to resolve OCIs. After considering comments, DoD concluded establishing a formal preference may have the unintended effect of encouraging COs to make OCI resolution decisions without considering all appropriate facts and information. The preference is replaced by language in the policy provision (DFARS 209.571-3) emphasizing 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. The new mitigation provision (DFARS 209.571-4) requires mitigation plans to be incorporated into the contract. If the government concludes an OCI cannot be mitigated, the CO must use another approach to resolve the OCI, select another offeror, or request a waiver in accordance with FAR 9.503.

New Contract Clauses

Finally, new DFARS 209.571-8 prescribes two new contract clauses: DFARS 252.209-7008, Notice of Prohibition Relating to Organizational Conflict of Interest --Major Defense Acquisition Program, and DFARS 252.209-7009, Organizational Conflict of Interest --Major Defense Acquisition Program. The effective date of the final rule is December 29, 2010. For the text of the rule, see 70,016.615.




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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