Bottom Line Up Front:  OCI exists when work performed by a contractor on a federal contract may: (a) result in an unfair competitive advantage for the contractor; or (b) impair the contractor’s objectivity in performing federal contract work.  OCI or the appearance of OCI must be avoided at all costs because OCI can lead to the contractor being excluded from a contract competition, having a contract terminated, or being suspended / debarred from performing future federal contract work.    

OCI is addressed in Subpart 9.5 of the Federal Acquisition Regulation (the “FAR”).  The responsibility for determining whether an actual or apparent OCI exists lies with a procuring agency’s Contracting Officer (“CO”).  The CO is responsible for identifying potential conflicts of interest and, if a conflict of interest has been identified, determining whether the OCI can be neutralized or mitigated.  Most OCI claims are raised by a contractor’s competitors in the form of a bid protest challenging the contractor’s unfair competitive advantage in a procurement or the contractor’s ability to perform federal contract work without bias.    

The FAR requires that COs “exercise common sense, good judgment, and sound discretion to determine whether a conflict exists and the appropriate means of resolving it.”  In other words, the FAR intends that the CO and accused contractor work together to identify and resolve the OCI issue as best as possible.  This generally starts with an OCI inquiry letter from the CO to the accused contractor, who has a chance to investigate the alleged OCI and respond. 

It is imperative that contractors diligently investigate any alleged OCI and put together a comprehensive and compelling response to the government refuting (or admitting) the OCI claims.  OCI that can be neutralized or mitigated generally does not require the disqualification of the accused contractor from a procurement, but the existence of actual OCI that cannot be adequately mitigated will likely lead to disqualification of the contractor and possibly the loss of contracting opportunities.  In other words, OCI allegations should not be taken lightly.      

OCI generally falls into one of three categories of conflicts of interest:

(1) Biased ground rules – where a contractor sets the “ground rules” for a federal procurement (e.g., writing a procurement’s statement of work, specifications, or performing systems engineering and technical direction for the procurement), which appears to skew the competition in favor of the contractor.  This scenario comes into play when a procuring agency hires a contractor to help develop the terms of a procurement and the assisting contractor or one of its affiliates subsequently competes for that contract work;

(2) Impaired objectivity – where a contractor’s work under a federal contract requires the contractor to evaluate proposals / past performance of itself or a competitor, which calls into question the contractor’s ability to render impartial advice to the government; and

(3) Unequal access to information – where a contractor has access to nonpublic information as part of its performance of a federal contract, which may provide the contractor (or an affiliate) with an unfair competitive advantage in current or future procurements.  

When an actual or apparent OCI exists, COs must neutralize, mitigate, or waive the OCI to ensure that no unfair competitive advantage exists in a federal procurement.  COs can neutralize OCI by suspending / debarring contractors from competing for specific federal procurements, or taking other drastic actions to offset the OCI.  COs can mitigate OCI by reducing the effects of OCI to acceptable levels of risk to ensure the government’s interest in fair competition and superior contract performance are not impaired.  This step generally involves working with the contractor to prepare and incorporate an OCI mitigation plan, which generally creates firewalls within the government and the contractor’s organization to ensure that competitive information does not provide the contractor an unfair competitive advantage (i.e., the contractor personnel responsible for drafting contract specifications are walled off from the contractor’s personnel that are preparing a proposal for that specific contract competition).  COs can also release key information that has caused OCI to all contractors competing for a federal contract to negate any competitive advantages held by one contractor with unfair access to the information.  In sum, COs have many tools at their disposal to mitigate OCI when it arises.    

When conflicts of interest cannot be successfully neutralized or mitigated, a procuring agency may waive a conflict if the waiver is deemed to be in the best interest of the government.  Such a waiver must generally come from the head of the agency, and is very rarely granted. 

OCI is a very subjective and fluid concept that most contractors and COs have little experience with or exposure to, until it creeps up into a procurement and surprises most everybody. Since the concept is so amorphous, the litmus test to determine whether OCI exists is usually based on whether the government believes it exists, not necessarily based on the underlying facts of a situation.  Reasonable people can disagree about whether an OCI exists with regard to a specific federal procurement, but if the government believes one exists contractors are forced to deal with it and must mitigate it as soon as possible.    

Lessons Learned:  To avoid allegations of actual or apparent OCI, contractors must: (1) analyze their activities on all federal contracts; (2) ensure that those activities cannot lead a rational person to believe that actual or apparent OCI might exist due to those activities; (3) where actual or apparent OCI might exist, take steps to neutralize or mitigate that OCI as best as possible.  These avoidance efforts are usually conducted through an internal investigation of a contractor’s federal activities and strategies, and the subsequent development of an OCI mitigation / avoidance plan.  As with all federal compliance matters, an ounce of prevention is worth a pound of cure.  Further, contractors should disclose the existence of any actual OCI discovered during an internal investigation if such OCI will provide the contractor an unfair competitive advantage in a procurement.  Contractors that fail to make such disclosures run the risk of procurement disqualification, termination, or sanctions down the road for failing to disclose the OCI.    

Doug Hibshman is a partner in Fox Rothschild LLP’s Federal Government Contracts and Procurement, Construction, and Infrastructure Practice Groups in Washington, DC, and assists federal contractors with preventing, identifying, mitigating, and resolving actual, apparent, and alleged OCIs.