New Law Seeks to Overhaul Organizational Conflict of Interest Regulatory Framework

There has been much discussion over the past decade about overhauling the regulations regarding Organizational Conflicts of Interest (“OCI”) in federal acquisition. After one admirable attempt failed, Congress has recently revitalized the effort through new legislation. 

On December 27, 2022, President Biden signed into law the Preventing Organizational Conflicts of Interest in Federal Acquisition Act (S.3905) aimed at overhauling the OCI regulatory scheme set forth in the Federal Acquisition Regulation (“FAR”). This law comes on the heels of the cancellation of a proposed rule—first published in 2011, but withdrawn just a shade under a decade in 2021—which would have revamped the OCI rules and regulations, and included new standardized contract clauses.

The current OCI regulations, which date back to the 1960s, are set forth in FAR 9.5, and provide contracting officials with discretion to exclude contractors who are deemed to have an OCI of one of three types—(1) contractors whose competing business interests will prevent it from providing unbiased advice to the government customer (“biased ground rules”); (2) where a contractor possess the ability to steer work towards itself by virtue of its position, i.e. where a contractor is writing a Statement of Work, and then bidding, either itself or its affiliate, on that procurement (“impaired objectivity”); or (3) where a contractor has an unfair competitive advantage for future contracts because of information learned during the performance of current contracts.

Despite the presence of these complex regulations, these rules are often criticized for being insufficient to cover many OCI scenarios. In particular, the existing regulations still lack standard contract clauses which government officials can use in federal contracting to create binding obligations on contractors.

The new law directs the Federal Acquisition Regulatory Council (“FAR Council”) to do a number of things. First, the FAR Council is to revise the FAR to provide and update (1) definitions related to specific types of OCIs; (2) definitions, guidance, and illustrative examples related to relationships of contractors with public, private, domestic, and foreign entities that may cause contract support to be subject to potential OCIs; and (3) illustrative examples of situations related to the potential OCIs identified.

This set of instructions highlights the proposed expansion of the current OCI regulations to cover commercial and foreign relationships. Although FAR 9.5 is broad enough to cover potential conflicts between a contractor’s government and private sector business, the vast majority of OCI issues do not arise in this context—rather, OCIs most frequently arise in the context of a contractor’s work on one government contract conflicting with its work on another government contract. Thus, while the existing framework should extend to conflicts involving commercial work, many consider them insufficient in providing the applicable guidance. The new law takes aim at strengthening these provisions to make them more explicit and robust.

In addition, the new law directs the FAR Council to draft solicitation provisions and contract clauses requiring contractors to disclose information relevant to potential OCIs and to limit future contracting with respect to potential conflicts with the work to be performed under awarded contracts. The FAR Council is also directed to give agencies discretion to tailor these provisions and clauses as needed to address certain risks and considerations unique to the agency.

The FAR Council is also instructed to establish or update agency conflict of interest procedures to implement the future revisions to the FAR made as a result of the new law and to periodically assess and update such procedures as needed to address agency-specific conflict issues.

Last, the FAR Council is directed to update FAR procedures to permit Contracting Officers to take into consideration “professional standards and procedures” to prevent OCIs to which an offeror or contractor is subject.

The new law directs the FAR Council to make these updates within the next 18 months. Thus, new proposed regulations are expected for public comment. Although time will tell how these proposed regulations shake out, contractors might expect that they will reflect a more aggressive posture with respect to OCI enforcement.