Obama, DOD see conflicts of interest differently

The Obama administration and the Defense Department apparently view organizational conflicts of interest from different perspectives. The administration has put out a potential rule on OCIs that differs from the DOD's 2010 draft. It allows the government to accept more risk and raises questions about conflicts among business affiliates.

The White House kept the general framework of the DOD’s proposed OCI rule with its preference for mitigation, but gives contacting officers more flexibility when faced with potential harm to the government and other vendors, according to the new proposal published April 26.

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The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council, along with the Office of Federal Procurement Policy, propose two types of harm that arise from OCIs. One type hurts the integrity of the competitive acquisition system. The other affects the government and its business interests alone.

While the DOD prefers mitigation, the administration's new proposal would allow contracting officers to accept risk if it’s appropriate.

“Acceptance of performance risk represents a novel means of addressing OCIs,” the proposal states. The risk factor would apply after the government and contractor first attempt other avenues.

“The risk of harm to the government’s business interests may sometimes be assessed as an acceptable performance risk,” according to the proposal. However, the risk must relate only to the government’s best interest, it has to be manageable, and the potential harm to the government’s interest is outweighed by the expected benefit.

The government also is questioning when a business affiliate or subsidiary becomes a conflict for a company, particularly in light of the amount of mergers and acquisitions that have taken place among government contractors.

Companies continue to consolidate and buy other companies. Meanwhile agencies are relying more and more on contractors, especially for advisory services.

Although the proposal’s purpose is to avoid prejudicing companies from certain contracts, officials recognize that corporate structural barriers—such as independent directors or separate legal offices, for instance—might be enough to mitigate a conflict, said Peter Eyre, counsel at Crowell and Moring law firm.

But, he called regulators' novel ideas vague at this point. "It’s not clear how the line will be drawn,” he said, but that’s where industry comes in.

Eyre described the council’s intent as, “Here’s a different vision. Which one do you like better?”

Officials urged industry to weigh in on the proposal.

“This proposed rule diverges substantially from the framework presented in [DOD’s proposed] rule, and we are seeking specific feedback regarding which course of action, or whether some combination of the two, is preferable,” the new proposal states.