Companies Must Avoid "Impaired Objectivity" Conflicts of Interest

By D'Agostino, Jim; Moorhouse, Dick et al. | National Defense, April 2006 | Go to article overview
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Companies Must Avoid "Impaired Objectivity" Conflicts of Interest

D'Agostino, Jim, Moorhouse, Dick, Hickey, Dave, National Defense

Conflicts of interest entailing "impaired objectivity" typically arise when government contract work involves contractor self-evaluation, or reviews of affiliates, customers or competitors. A presumption exists that individual loyalty to an employer responsible for salary, benefits or stock options conflicts with contractual obligations to render impartial advice to the government.

The Government Accountability Office recently sustained widely publicized protests involving "impaired objectivity" conflicts of interest, which undoubtedly will cause companies and program officials to take a harder look at this issue.

In two protests by Alion Science & Tech Corp., GAO recently overturned awards to ITT Industries by the Defense Information Systems Agency (DISA). Those awards required performance of electro-magnetic spectrum engineering support services that included analysis, evaluation and the exercise of subjective judgment in setting Defense Department policies and regulations governing the sale or use of spectrum-dependent products.

DISA's problem was that the successful offeror is a major manufacturer and marketer of electromagnetic spectrum-dependent products. Thus, contract performance would impact the contractor, its competitors and customers directly and economically. GAO sustained the protests primarily based on DISA's failure to consider the extent of the organizational conflict of interests reasonably. GAO disagreed with DISA's view that the conflict would be "minimal," even though DISA tried to demonstrate a low "maximum potential" for conflicts of interest to occur.

The Federal Acquisition Regulation requires contracting officers to identify and evaluate an organizational conflict of interest "as early in the acquisition process as possible." This is critical. For example, in a 2002 Ktech Corp. case, GAO sustained a protest because the Defense Threat Reduction Agency failed to consider or mitigate an organizational conflict of interest based upon the activities of a proposed subcontractor on a prior contract for testing and operations support services. GAO found that the agency failed to recognize the potential for conflict.

One surefire "red flag" for impaired objectivity arises whenever individual contractor employees must exercise subjective judgment that may affect their company's interests. In a 2004 PURVIS Systems Inc. protest, the GAO examined the statement of work and rejected the Navy's argument that the successful offeror merely would conduct non-subjective measurements. The GAO found that the work involved analytical and technical support for anti-submarine warfare readiness and dearly included subjective input or judgments.

The FAR requires contracting officers to thoroughly analyze potential conflicts of interest and whether the activities of a potential awardee conflict with an "official duty" required in performing a contract. The Internet provides a great deal of information, such as company annual reports, making an effective conflict-of-interest analysis a much less daunting task today.

Contractors have a reasonable opportunity to address this issue before a contract award, but should reveal potential conflicts of interest to agencies early in the process. Procurements based upon solicitations containing broad performance work statements or simple statements of objectives that require detailed contractor work statements increase the chances that conflict-of-interest issues are overlooked.

The FAR requires contracting officers to "avoid, neutralize, or mitigate significant conflicts before contract award." Once conflicts are identified, officers should never play down their significance. A thorough, subjective examination of the nature of the work and the activities of the company is required.

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Companies Must Avoid "Impaired Objectivity" Conflicts of Interest


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