Update Emerges for New Personal Conflicts of Interest Rule

Article excerpt

Effective Dec. 2, 2011, the Federal Acquisition Regulation requires U.S. government contractors and subcontractors to prevent personal conflicts of interest that arise during their employees' performance of certain acquisition functions closely associated with inherently governmental functions for or on behalf of federal agencies and departments (76 Fed. Reg. 68017).

This final rule comes two years after the office of federal procurement policy and the civilian agency and defense acquisition councils first proposed the rules at the behest of a congressional directive in November 2009 (41 U.S.C. [section] 2303 and FAR Case 2008-025 at 74 Fed. Reg. 58584). The February 2010 Ethics Corner explained this 2009 proposal for monitoring contractor employees with personal conflicts of interest. Over the past two years, the councils received and reviewed public comments on the proposed rules before incorporating changes for the final rule.

Under the new rule, a personal conflict of interest arises when a "covered employee" has personal or family financial or other interests or relationships that could impair impartiality, and thereby harm the government's best interests. Examples of financial interest include compensation, consulting arrangements, stock and real estate investments and intellectual property.

The rule requires a standard contract clause, (FAR 52.203-16, Preventing Personal Conflicts of Interest, Dec. 2011) in all service contracts that exceed the simplified acquisition threshold of $150,000 and involve "acquisition functions closely associated with inherently governmental functions." The requirement must also be "flowed down" in subcontracts greater than $150,000 when subcontractor employees will perform similar acquisition functions.

Covered acquisition functions include supporting or providing advice or recommenclations to the government for: planning acquisitions; developing statements of work; evaluating proposals; and awarding, administering and terminating contracts. Contractor employees performing these functions are referred to as "covered employees."

The final rule and clause apply to future task or delivery orders of existing contracts, as contractors must accept modifications of current contracts or risk being ineligible for additional orders. However, the councils included a new, specific exception barring inclusion of the clause in commercial item contracts, and also added a "de minimis interest" exception for personal conflicts of interest that would not impair a covered employee's impartiality in the best interest of the government.

The councils made several other changes to the original version. For example, they broadened the scope of the disclosure statements required of covered employees beyond solely financial matters, to include reporting of certain relationships and gifts, and reduced the disclosure statement updating requirement from an annual basis to an "as needed" basis, dependent on changed circumstances. …