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Major Changes to FAR's OCI Coverage Proposed

The Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration are proposing to amend the Federal Acquisition Regulation to provide revised regulatory coverage on organizational conflicts of interest and contractor access to nonpublic information. Section 841 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (PL 110-417) required a review of the FAR coverage on OCIs. The proposed rule follows an evaluation of FAR Subpart 9.5, Organizational and Consultant Conflicts of Interest, conducted by the Civilian Agency Acquisition Council, the Defense Acquisition Regulations Council, and the Office of Federal Procurement Policy, in consultation with the Office of Government Ethics. The evaluation was informed, in part, by a review of recent case law and opinions from the Government Accountability Office and the Court of Federal Claims, which indicated agencies do not always perform adequate, case-by-case, fact-specific analyses when addressing OCIs. The evaluation also considered the findings of the Acquisition Advisory Panel, which concluded contracting officers and agencies have encountered difficulties implementing appropriate OCI avoidance and mitigation measures, responses to a 2008 advance notice of proposed rulemaking, which sought comment on whether the current guidance on OCIs adequately addresses the current needs of the acquisition community, and comments on a 2010 Defense FAR Supplement proposed rule (70,020.263) implementing Section 207 of the Weapons System Acquisition Reform Act of 2009 (PL 111-23).

Organizational Conflicts of Interest

The rule proposes to relocate the FAR coverage on OCIs from FAR Subpart 9.5 to a new FAR Subpart 3.12. Definitional changes include refining the term "organizational conflict of interest" to reflect the two types of situations that give rise to OCI concerns. For a new policy section at FAR 3.1203, the rule explains the two types of harm OCIs can cause to the procurement system --harm to the integrity of the competitive acquisition process and harm to the government's business interests --and the actions the government must take to address the risks of these harms. In cases involving the first type of harm, both the government's interests and the public interest in fair competitions are at risk, so these risks must be eliminated to the maximum extent possible. In cases involving the second type of harm, it may be appropriate to accept this potential harm as a performance risk. Acceptance of this risk represents a novel means of addressing OCIs, and it will often only be appropriate after other steps to reduce the risk have been taken, either by the contractor, through measures such as implementation of a mitigation plan, or by the government, through measures such as additional contract management steps or oversight. The rule would apply to contracts with both profit and non-profit organizations, and it does not exclude the acquisition of commercial items. Also, the rule applies to contract modifications that add additional work, and it adds a requirement at FAR 7.105 (b)(18) to consider OCIs when preparing acquisition plans.

CO Responsibilities

The proposed rule consolidates CO responsibilities regarding OCIs and provides standard, but customizable, solicitation provisions and contract clauses related to OCI. Proposed FAR 3.1206 and its subsections provide a consolidated discussion of CO responsibilities, including the steps a CO must take during the different phases of an acquisition to identify and address OCIs. Proposed FAR 52.203-XX, Notice of Potential Organizational Conflict of Interest, provides notice to offerors that the CO has determined OCIs may result from contract performance, and requires an offeror to disclose all relevant information regarding any OCI and explain the actions it intends to use to address any OCI. Proposed FAR 52.203-ZZ, Disclosure of Organizational Conflict of Interest After Contract Award, requires the contractor to make a prompt and full disclosure of any new or newly discovered OCI. Another proposed clause, FAR 52.203-YY, Mitigation of Organizational Conflicts of Interest, would be used when the contract may involve an OCI that can be addressed by an acceptable contractor-submitted mitigation plan prior to contract award. Finally, proposed FAR 52.203-YZ, Limitation of Future Contracting, would be used when the CO decides to address a potential conflict of interest through a limitation on future contracting. The CO must fill in the nature of the limitation on future contractor activities and the length of any limitation.

Access to Nonpublic Information

According to the Councils, cases interpreting FAR Subpart 9.5 treat situations involving unfair competitive advantage based on unequal access to nonpublic information as OCIs, but these situations do not actually involve conflicts of interest and may arise from circumstances unrelated to conflicts of interest, such as where a former government employee has been hired by a contractor. Further, the methods available to resolve situations involving unequal access to information differ from those available to address actual OCIs. Therefore, the Councils have separated coverage of this topic from the general coverage of OCIs. The rule provides a new uniform governmentwide policy regarding the disclosure and protection of nonpublic information to which contractors may gain access during contract performance. This coverage provides substantial safeguards designed to address some of the concerns created by unequal access to nonpublic information, while leaving it to the CO to determine, for any given acquisition, whether the protections are adequate, or if a situation involving an unfair competitive advantage remains to be resolved. The new coverage would be placed in FAR Part 4. The rule provides a definition of "nonpublic information" to clearly identify the scope of information covered, and it addresses both contractor access to nonpublic information during the course of contract performance and situations involving unfair competitive advantage based on unequal access to nonpublic information.

Nondisclosure Agreements

The proposed changes in this area reflect the Councils' view that contractors should be contractually obligated to protect all nonpublic information obtained through contract performance, with certain exceptions, and that contractors should require all employees who may access nonpublic information to sign nondisclosure agreements. By implementing these protections as the default position, the proposed approach substantially enhances the protection for third-party and government information provided by the FAR. Many contracts involve not only multiple subcontractors, but also lower-tier subcontracts. The current ad hoc approach employed by the government for ensuring all of these contractors have properly executed NDAs among themselves has resulted in a substantial number of overlapping, but not necessarily uniform, agreements, and oftentimes confusion and misunderstandings between the government and contractors. The Councils have determined that the approach of requiring inclusion of an "access" clause to protect information disclosed to a contractor, and a "release" clause to notify third-party information owners of their rights when their information is improperly used or disclosed should provide thorough protection while eliminating the need for many interconnecting NDAs.

New Clauses

Proposed FAR 52.204-XX, Access to Nonpublic Information, requires contractors receiving access to nonpublic information to limit the use of this information to the purposes specified in the contract, safeguard the nonpublic information from unauthorized outside disclosure, and inform employees of their obligations and obtain written NDAs consistent with those obligations. The clause also contains exceptions. The rule proposes, as the default position, mandatory use of the Access clause in solicitations and contracts when contract performance may involve contractor access to nonpublic information. However, the prescription allows agencies to provide otherwise in their procedures. Alternate I may be used if the CO anticipates there may be a need for executing confidentiality agreements between the contractor and third parties that have provided nonpublic information to the government. Alternate II is to be used if the CO anticipates the contractor may require access to a third party's facilities or nonpublic information that is not in the government's possession. The purpose of proposed FAR 52.204-YY, Release of Nonpublic Information, is to obtain the consent of the original owners of third-party nonpublic information for the government to release such information to those contractors who need access to it for purposes of contract performance and who have signed up to the conditions of the Access clause. A proposed solicitation provision, FAR 52.204-XY, Release of Nonpublic Information, provides similar coverage and is prescribed for all solicitations.

Other Provisions

Proposed FAR 4.402 addresses situations in which access to nonpublic information constitutes a risk to the competitive integrity of the acquisition process, and it expresses the government's policy that COs must take action to resolve situations where one or more offerors hold an unfair competitive advantage. This section also states disqualification of an offeror is the least-favored approach and should be adopted only if no other method of resolution will adequately protect the integrity of the competition. Proposed FAR 4.402-3 contains general principles for determining when access to nonpublic information requires resolution. Another proposed provision, FAR 4.402-4, addresses CO responsibilities. The CO must collect information regarding unequal access to nonpublic information from the government and offerors. If the CO learns an offeror may have unequal access to nonpublic information, the CO must conduct an analysis, consistent with the general principles discussed above, to determine whether resolution is required. If resolution is not required, the CO simply documents the file. If resolution is required, the CO must take action consistent with the section detailing appropriate resolution techniques, which consist of information sharing, mitigation through the use of a firewall, or disqualification. Finally, proposed FAR 4.402-5 prescribes a solicitation provision, FAR 52.204-YZ, Unequal Access to Nonpublic Information, that requires an offeror to identify, early in the solicitation process, whether it or any of its affiliates possesses any nonpublic information relevant to the solicitation and provided by the government. The provision also requires the contractor to certify by submission of its offer that, where a mitigation plan involving a firewall is already in place, the offeror knows of no breaches of that firewall.


A complete listing of all of the FAR provisions impacted by the rule appears in the regulation table below. Comments referencing FAR Case 2011-001 are due June 27, 2011. DoD, GSA, and NASA encourage respondents to offer their views on specific questions outlined in the supplementary information. For the text of these questions and the rule itself, see 70,006.250.




(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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