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Organizational Conflicts of Interest (“OCI”) has been a “hot topic” in government contracts ever since new DoD OCI regulations for Major Defense Acquisition Programs were published in December of 2010.  While the final regulations were far narrower than anticipated, the original scope of revisions contemplated troubled many Government contractors which considered the proposed revisions a harbinger of things to come.  And they were correct.  In April 2011, the FAR Council published proposed revisions to the FAR’s OCI provisions which are similar in scope to the broad and extensive revisions initially contemplated by DoD.

In addition to these regulatory developments in the world of OCIs, the Government Accountability Office has issued a number of significant OCI decisions in the last couple of years.  OCI now is a popular protest count and an even a more popular lightening rod of discontent for federal contractors.  With the contraction of the industry, many contractors are convinced that some larger federal contractors have unfair competitive advantages in important procurements.

It is against this backdrop that the GAO issued an interesting OCI protest decision at the end of 2011.  The case is VSE Corporation, B-404833.4 (November 21, 2011).  In my opinion, the decision is interesting because of two things:  (1) the decision focuses on the “appearance of impropriety” of VSE’s consulting relationship with a former Government employee and (2) the decision addresses OCI in the context of the government’s post-employment regulations.  In this blog post, I discuss the first point.

Here are the facts (abridged).  The decision concerns an Army procurement for “alternative staffing.”  The incumbent is CACI.  In mid 2010, the Army plans to resolict the contract.  The Deputy Program Manager at that time participates in a number of acquisition planning meetings regarding the procurement.  He also participates in a board meeting determining the award fee owed CACI, the incumbent.  Later in the year, the DPM reviews and comments on the draft SOW.  In December he resigns, but his official termination date is January 31, 2011.  On February 4, 2011, he signs a consulting agreement with VSE, which intends to submit a proposal in response to the new solicitation for the Army’s alternative staffing contract.  The former DPM advises VSE with regard to its proposal.  VSE is awarded the contract, but the Contracting Officer ultimately decides to terminate the contract award because she believes VSE’s consulting arrangement with the Army’s former DPM creates “an appearance of impropriety.”

Most federal contractors are aware of the OCI regulations and restrictions.  Per FAR Part 9, an OCI exists where certain factors create “an actual or potential conflict of interest” on an existing contract or when the nature of the work performed on an existing contract creates “an actual or potential conflict” on a future acquisition.  FAR 9.502(c).  The FAR expresses a policy of avoiding, neutralizing or mitigating actual or potential OCIs because of two underlying principles:  (1) preventing the existence of conflicting roles for contractor that might bias its judgment in performing a contract and (2) preventing a contractor from having an unfair competitive advantage – for example, when the contractor may have had unequal access to proprietary information or source selection information.  FAR 9.505.

Many contractors, however, are not aware that a mere “appearance of impropriety” can endanger a proposal or a contractor’s chance of contract award, with good reason.  The term or phrase “appearance of impropriety” does not appear in FAR Part 9.  Instead, the concept appears in FAR Part 3, which addresses Improper Business Practices and Personal Conflicts of Interests (emphasis added by me).   Specifically, FAR 3.101-1,  discussing Standards of Conduct for Government employees, states that “The general rule is to avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships.”  This provision, however, addresses standards of conduct for Government employees, whereas FAR Part 9 addresses the conduct of contractors.  Notwithstanding this distinction, the GAO has linked FAR Part 3 and FAR Part 9 by holding in prior cases that, where a firm gains an unfair competitive advantage through its hiring of a former government official, the firm may be disqualified from the competition based upon the “appearance of impropriety” this relationship can create.  In a footnote to the VSE decision, the GAO explains that a contractor’s hiring of a former government employee is “virtually indistinguishable” from the considerations that arise in a situation where a contract awardee has gained an unfair competitive advantage in a procurement from its unequal access to proprietary or source selection information.  See Health Net Fed. Servs., LLC, B-401652.3 and .5, Nov. 4, 2009.

In the VSE case, the GAO reiterates this precedent and makes another point most contractors miss –  disqualification of a contractor may be upheld on the basis of an “appearance of impropriety” – even if no actual impropriety can be shown.  The “appearance of impropriety” standard, however, is not defined in the FAR.  According to the GAO,  an “appearance of impropriety” depends on the facts and circumstances of each case.

At first glance, this sounds very much like  a “I’ll  know when I see it” analysis.  In the VSE case, the Contracting Officer used this analysis.  The Contracting Officer stated a number of reasons supporting her determination that VSE’s use of the former Deputy Program Manager in preparing its proposal created an “appearance of impropriety.”  She cited his participation in the acquisition planning meetings, his review of the draft SOW, his access to government files until his termination of employment, his participation in award fee meetings regarding the incumbent, and his role in advising VSE in the actual procurement conducted by the Army.  During the hearing held in the protest, the Contracting Officer admitted that she had no real proof that the Deputy Program Manager actually had access to non-public,  proprietary or source selection information.  She stated that she based her determination instead on all these factors combined and her belief that  “something was going on that just wasn’t adding up.”

The GAO held that the Contracting Officer did not have a legitimate basis for terminating  contract.  The GAO found that the facts cited by the Contracting Officer in support for her opinion did not show that the Deputy Program Manager actually had access to proprietary or source selection information that he could have passed on to VSE and that could have provided VSE with an unfair competitive advantage.  Her determination only reflected her assumptions that, because his prior involvement in the program and procurement, that the Deputy Program must have had access to proprietary and source selection information.

Do you see the fine line here?  A protester doesn’t have to show that a contractor actually had unequal access to protected information in this type of situation, only that the contractor could have had unequal access to protected information because its consultant/former government employee had access to the protected information.  The fact that the contractor could have had access to protected information is enough to create “an appearance of impropriety.” But the GAO held that in order to show “an appearance of impropriety” there must be “hard facts’ and not just “innuendo and suspicion”.   In this case, since the Contracting Officer failed to cite any “hard facts” demonstrating that the Deputy Program Manager had access to protected information, the GAO found she unreasonably determined that his relationship with VSE created “an appearance of impropriety.”

What this decision stands for is that, while the “appearance of impropriety” standard seems like a mushy, I’ll-know it-when-I-see-it standard, in fact, it’s not.  Yes, the standard is met just by showing the possibility of an unfair competitive advantage vs. actual competitive advantage.  But, on the other hand, you have to have “hard facts” demonstrating such a possibility.

Interesting, no?  My next blog post will talk about the second aspect of this case that I find interesting – the intersection of these OCI rules with the government post-employment rules.  Here is a teaser:  in this case, the Deputy Program Manager got an opinion from an Army ethics counselor that stated he could provide “behind-the-scenes” assistance to contractors participating in the procurement.