FAR Councils Publish Proposed Rule on Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions
The FAR Councils have published the proposed rule to impose, for the first time, mandatory personal conflict of interest oversight responsibilities on contractors whose employees perform “acquisition functions closely associated with inherently governmental functions.” 74 Fed. Reg. 58,584 (Nov. 13, 2009). The proposed rule is the expected result of both congressional legislation and GAO recommendations, and creates new compliance system requirements for all federal contractors performing covered contracts. The proposal will add significant compliance burdens for many contractors performing covered contracts, including requirements to screen employees (including “close family members and other members of their household”) for conflicts and obtain and keep current records of the financial interests of contractor employees and to report conflict of interest violations to the government.
The proposed rule applies to employees of contractors (including subcontractors, consultants, partners and sole proprietors) who perform “acquisition function[s] closely associated with inherently governmental functions.” Those functions are defined to include supporting or providing advice or recommendations with regard to the following federal agency activities:
- Planning acquisitions
- Determining what supplies or services are to be acquired by the government, including developing statements of work
- Developing or approving any contractual documents, including documents defining requirements, incentive plans and evaluation criteria
- Evaluating contract proposals
- Awarding contracts
- Administering contracts, including ordering changes or giving technical direction in contract performance or quantities, evaluating performance and acceptance or rejection of performance
- Terminating contracts
- Determining whether contract costs are reasonable, allocable and allowable
The FAR Councils’ definition of “personal conflict of interest” generically prohibits financial interests, other employment or financial relationships (including “seeking or negotiating for prospective employment or business”), and gifts that “could impair the employee’s ability to act impartially and in the best interest of the Government.” The specific examples published, while not co-extensive with PCI restrictions applicable to government employees, incorporate some of the same standards. Sources of PCIs are defined to include “financial interests” of covered employees and their “close family members including other members of their household,” including consulting relationships, scientific and technical advisory board memberships, stock ownership and other investment interests (e.g., stock, real estate), referral fees, research funding, intellectual property interests and services provided in exchange for honorariums or travel expense reimbursements.
Contractors would have inquiry and reporting requirements under the proposed rule, including:
- Having procedures in place to periodically screen all covered employees for potential PCIs, including employee disclosure statements updated yearly or as a new PCI arises
- Informing covered employees of their obligation to disclose and prevent even the appearance of PCIs
- Preventing PCIs, including not assigning or allowing a covered employee who has a PCI to work under the contract if the PCI cannot be prevented or mitigated
- Maintaining effective oversight to verify compliance with PCI safeguards
- Reporting PCIs to the contracting officer as soon as identified, including a description of the violation and the actions taken by the contractor
- Prohibiting covered employees who have access to non-public government information from using such information for personal gain
- The proposed rule includes a new FAR clause, 52.203-16, Preventing Personal Conflicts of Interest, that would be included in solicitations and contracts that exceed the simplified acquisition threshold ($100,000) and “involve performance of acquisition functions closely associated with inherently governmental functions” on behalf of a federal agency. If only portions of a contract include such functions, contracting officers may apply these rules only to that portion of the contract.
While some federal agencies already have PCI programs similar to the FAR rule for their contractors, (e.g. HHS at the Centers for Medicaid and Medicare Services require similar programs from the contractors who administer all aspects of their programs) this is the first time such a rule has been proposed for all federal contractors. It is a natural consequence of the substantial growth in contracting out government support functions to the private sector and reflects recognition that ad hoc management of such risks had exposed the government to risks without clear tools to manage or remedy them. Both because of this reality and the statutory mandate, contractors should take this proposal seriously.
If you have substantive comments and suggestions to improve the proposal or make it more readily implemented, comments on the rule are due January 12, 2010.
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