# Presentation: 734746

## Conflicts of Interest

**AMC Symposium**
**Sherley Mizzell and Darryl Grant**
**Division of Acquisition Policy & Evaluation (DAPE)**

## Background

**Outsourcing**
-  Shrinking base of federal employees
-  Increasing reliance on Contractors
**Renewed Public Attention on “Ethics”**
**Congressional Scrutiny of NIH **

**Notes:**
Increase Potential for COI due to:
Retirements of federal employees - not being replaced   
Outsourcing – increasing reliance on the advice and judgment of contractors
 contractors drafting specifications and evaluating proposals
 Contractors often work side-by-side with govt. employees
Ethics – Procurement Integrity (governs behavior of federal employees - intended to assure fair treatment of offerors, ban on disclosing procurement info. and limitations on employment), Code of Conduct required for certain contractors (FAC 2005-28/FAR Case 2007-006).
NIH over the past few years has been under tremendous scrutiny by Congress with respect to allegations of conflicts of interest.
In response to a Congressional request (Committee on Appropriations), NIH submitted a Congressional Appropriations Committee Report (CACR) to this Committee in May of this year which provided a timeline for implementation of a COI and financial disclosure policy for contractor staff.
 Congress has requested that NIH develop similar policies that are in place for its federal employees.
 At the same time as this was being written, a COI Workgroup consisting of procurement and program reps. throughout NIH was formed to assist with developing a comprehensive COI policy.  Assisted with reviewing HHS proposed HHSAR COI case.
 Waiting on input from legal counsel as to next steps – Was NIH in a position to draft policies and clauses without any implementing statute or is this responsibility of HHS (Exec. Agency)?

## Two types of Conflicts of Interest

**Organizational Conflicts of Interest**
**Personal Conflicts of Interest**

**Notes:**
I will discuss Organizational Conflicts of Interest and Sherley Mizzell will address personal conflicts of interest.

## Organizational Conflicts of Interest (OCI)

- Defined in FAR 2.101
- Means that because of other activities or relationships with other persons, a person is unable or potentially unable to render impartial assistance or advice to the Government, or the person’s objectivity in performing the contract work is or might be otherwise impaired, or a person has an unfair advantage.
- Guidance provided in FAR subpart 9.5
- GAO and Court of Federal Claims Decisions

**Notes:**
Definition confusing since the OCI’s arise at the organizational rather than personal level. 
OCIs result from relationships or activities that:
  May diminish its capacity to give impartial, technically sound, objective assistance and   advice, or may otherwise result in a biased product; or
 May result in being given an unfair competitive advantage.

An OCI may result from an actual or potential conflict of interest (that is on a future acquisition such as writing a SOW to be used in a future competitive requirement).
Unfortunately, limited tools available on how best to identify, evaluate and mitigate any potential OCI:
No uniform Govt.-wide policies or standard provisions/clauses prescribed for use in solicitations and contracts

FAR subpart 9.5 sets for the regulatory guidance regarding OCI’s with the focus being on prescribing responsibilities, general rules, and procedures for identifying, evaluating, and resolving OCIs.
 Applies to all types of acquisitions, to contractors as well as subcontractors

Implementation left up to each agency 
 legal opinion requested as to whether or not NIH can draft such a clause or whether only HHS can? 
FAR 1.301 – authority given to agency head (?) to supplement the FAR with regulations, policies, clauses, etc. -  If the proposed reg. has a significant cost or administrative impact on contractors, it must be published in the Federal Register for comment – follow appropriate regulatory channels)

 (In the past decade, the Govt. Accountability Office (GAO) and the Court of Federal Claims have developed a rich body of case law interpreting current OCI regulations and analyzing various mitigation strategies.

## Principles of OCIs

**Preventing an Unfair Competitive Advantage**
-   Unequal Access to Nonpublic Information
-   Proprietary
-   Source Selection Information
-   Other Nonpublic Information

**Notes:**

FAR 9.505 sets forth two guiding principles:  1st principle - Preventing unfair competitive advantage -concerns those situations whereby a contractor may have Unequal Access to Nonpublic Information (such as Proprietary and Source Selection Info.) – that is the info. must be highly specific confidential info. (FAR 9.505-4)
 During performance of a contract, firm has access to nonpublic information that may provide that firm a competitive advantage in a future competition for a govt. contract - No issue of bias
Questions asked by GAO in protest include:
  Whether or not the offeror had access to proprietary or source selection information under a prior contract not available to other competitors or was the info. freely disseminated?

Other nonpublic information (neither proprietary or source selection info.) – 
 Did the offeror have useful info. beyond that of an ordinary incumbent such as materials related to the SOW under a separate contract that provides it a competitive advantage on the instant contract?  
 The mere existence of a prior or current contractual relationship does not create an unfair competitive advantage.

## Principles of OCIs

**Preventing an Unfair Competitive Advantage**
- Biased Ground Rules
- Concern the firm could skew the competition, whether intentional or not, in favor of itself
- Did the firm receive an “actual benefit”?

**Notes:**
Preventing unfair competitive advantage also concerns those situations whereby a contractor may have biased the ground Rules for a future requirement– FAR 9.505-1 and 9.505-2
 Contractor, in their performance of a govt. contract, has in some sense set the ground rules for another govt. contract.
 Primary concern is that the firm could skew the competition, whether intentional or not, in favor of itself.
 Unfair competitive advantage due to contractor’s special knowledge of the agency’s future requirements –
Did the firm receive an “actual benefit” in the competition as a result of setting the ground rules?  No such benefit presumed if not based on an actual corporate affiliation.
Ex. – Arises when a contractor has written or assisted in writing the specs. or SOW under a prior contract for which it has submitted a proposal.
 Resolution of such protests typically hinges on the contractor’s level of involvement in the overall project and the extent to which the SOW differs from the material provided by the contractor.

## Principles of OCIs

- Preventing Impaired Objectivity
- Does the contract at issue require the exercise of judgment by the contractor?
- Evaluation of Offers (FAR 9.505-3)
- Evaluation of Performance
- Protests
- Handled on a case-by-case basis
- “Common sense, good judgment and sound discretion” (FAR 9.505)

**Notes:**
2nd principle - Impaired Objectivity – Preventing the existence of conflicting roles that might bias a contractor’s judgment (known as impaired objectivity)
Firm’s work under one govt. contract could entail evaluating itself, its affiliates, or its competitors either through an assessment of its own proposals (offers) or performance under another contract 
Concern about the firm’s ability to render impartial advice potentially undermined by its relationship with the entity whose product is being evaluated.
Even if firm not evaluating itself, will providing impartial advice adversely impact any of the firm’s economic interests?
FAR 9.505-3 prohibits a contractor from evaluating its own offers for products or services, or those of a competitor without proper safeguards ensure objectivity.
Most common type of impaired objectivity OCI arises when a contractor is required to evaluate work that it has performed under a separate contract or work of a separate entity for which it possesses a financial interest.
FAR 9.505 emphasizes a case-by-case approach based upon the application of “common sense, good judgment, and sound discretion” to the particular facts and nature of the proposed contract.
Seminal GAO case regarding these two principles was Aetna Government Health Plans, Inc. – B-254397 (July 27, 1995)  

## CO Responsibilities

**FAR 9.504 **
- Identify and evaluate potential OCI’s as early in the acquisition process as possible
- Avoid, neutralize or mitigate significant potential conflicts before contract award.

**Notes:**
CO’s responsibilities:
Analyze planned acquisitions in order to (1 and 2).

 I have provided a handout to assist you in identifying OCI throughout the entire acquisition process from the Acquisition Planning stage through Post-award.

## Procedures

**FAR 9.506 – Necessary documentation**
- Written analysis, including recommendations for avoiding, neutralizing, or mitigating the OCI;
- A draft solicitation provision calling the attention of prospective offerors to the potential conflict; and
- If appropriate, a contract clause that precludes the awardee from performing certain related opportunities for a specified period

**Notes:**
FAR 9.506 refers to potential for OCI discovered prior to issuance of the solicitation.
 If the CO determines that no “significant” potential COI exists, no additional action or documentation is required.  
 Must be approved by the HCA
 Contractor must be given an opportunity to respond to the allegation before withholding an award based on an OCI

Preclusion provisions/clauses - Prohibits contractors from participating in certain type of future procurements for a specified period of time:  Such restrictions often used when:
 Contractor prepared the SOW to be used in a future competition.
 Contractor had access to nonpublic information including either proprietary or source selection info. which would give it a competitive advantage in a future competition. 

If the OCI can be avoided or mitigated, the CO must make an award to the apparent successful offeror.  If the OCI cannot be avoided or mitigated, the HCA or designee may waive the OCI in accordance with FAR 9.503 and permit the conflicted contractor to participate in the procurement. 

Waiver can only be made if determined to be in the best interest of the Govt. to award the contract notwithstanding the OCI.

 The CO may not make an award to a contractor that possesses an OCI that has not been avoided, mitigated, or waived.

## Important Decisions

- _[Operational Resource Consultants, Inc.](http://www.wifcon.com/cgen/299131.pdf)__  B-299131.1; B-299131.2 (Feb. 16, 2007)_
-  Once an agency has given meaningful consideration to potential conflicts of interest, GAO will not sustain a protest challenging a determination unless it is unreasonable or unsupported by the record.
_**Axiom Resource Mgt. Inc. v. The United States (Sept. 28, 2007) – U.S. Ct. of Federal Claims**_
-  Relying on the Contractor’s OCI assessment in and of itself not sufficient.

**Notes:**
Operational Resource Consultants – this ruling has been repeated over and over throughout many GAO decisions.  The key is to document the investigation performed into the allegation of a potential COI.

Axiom: (allegation that the awardee, Lockheed, had unequal access to nonpublic info.)
Recognized growing potential for COI
Reiterated that the CO is responsible for identifying and evaluating COI as early as possible
Self-certification alone is not sufficient – however no guidance provided
 Even though Lockheed has submitted an OCI mitigation plan, this plan did not mitigate Lockheed’s significant competitive advantage due to their access to nonpublic info. – CO’s reliance on it was unreasonable
 Just because an OCI mitigation plan has been submitted, one can not assume that it is sufficient to mitigate the OCI

## Additional Rulings

_***United States v. Sci. Applications Int’l Corp.***__**, 502 F. Supp. 2d 75 (D.D.C. 2007)**_** **
- SAIC was required to disclose its sponsorship of and participation in a trade organization that created an appearance of bias
- held that a contractor could be liable under the civil False Claims Act for a false certification relating to an OCI

**Notes:**
Another important decision in the D.C District court (D.D.C.) issued in Sept.
2007 - Govt. had initiated a false claim lawsuit against a contractor for failing to
disclose a potential or actual OCI.

Important for 2 reasons:
It linked a contractor’s OCI representation with potential liability under the False Claims Act.  Although not a first, it was a reminder that OCI representations and certifications must be taken seriously and can be the source of compliance issues.
The decision was notable because the undisclosed conflict did not stem from a contractual relationship but rather from the contractor’s dealings with a trade association.  The court found that under the applicable definition of an OCI, the contractor was required to disclose not only the contracting and consulting relationship but also “any relationship which may have compromised its neutrality under the contracts.”
	The court concluded that, by working directly with a trade association whose goal was to advocate for certain policy decisions, the contractor’s ability to provide impartial assistance to the government could be called into question.  The failure to disclose the relationship was held to be improper and created the basis for a claim under the False Claims Act.

	These cases are vivid reminders that to both the Government and its contractors of the increasing risks of OCI’s and the potentially significant liability that contractors could face for failing to inform the Govt. of potential or actual OCI’s.  This risk also applies to the personal conflicts of interest which Sherley will address.

## Strategies to Mitigate OCI

**Prior to Award**
- Disqualify the offeror from award;
- Award the contract under the waiver provision of FAR 9.503;
- Require contractor to submit a comprehensive COI mitigation plan;
- Enter into nondisclosure agreements;
- Disclose sensitive information to all competitors; and
- Avoid or eliminate such conflicts by appropriate measures.

**Notes:**
No. 2 – If unable to mitigate or avoid the apparent COI if in the best interest of the govt. and there is public exigency (due to an urgent need), or work cannot otherwise be obtained.
No. 3 – Mitigation plan should create organizational, physical and geographic firewalls (a combination of procedures and physical security that restricts the flow of confidential info. between certain contractor business units and personnel). The ability to draft an effective mitigation plan may enable a contractor to continue performance under the contract.  
No. 4 – Nondisclosure agreements -
Requires contractor to disclose, and in some cases, certify that it has disclosed or does not possess any OCIs with regard to the procurement as well as all OCIs that arise after award.
States that contractor may be disqualified from award if it fails to provide, or makes any misrepresentation in connection with, required OCI certifications or disclosures.
States that the agency may terminate the contract for convenience if any OCI arises after award.
States that misrepresenting or failing to disclose information related to OCIs may result in termination for default, debarment, prosecution for the making of false statements, or other severe consequences.
Requires contractor to flow down to subcontractors certain OCI restrictions.
No. 6 – Appropriate measures such as the inclusion of terms and conditions suggested by legal counsel in the resulting contract such preclusion clauses (previously discussed).
What is important is that CO’s should work together with legal counsel and appropriate specialist as a team to evaluate and mitigate potential conflicts 
	(FAR 9.504)

## Strategies to Mitigate OCI

**Post Award**
- Notify the CO and program officials ASAP;
- Require the Contractor to complete a disclosure statement;
- Avoid or mitigate effects of the COI;
- Exclude contractor from subsequent NIH contracts; and
- In severe cases, contractor could reorganize, restructure or divest corporate entities.

**Notes:**
Many of the strategies are similar to those to be considered prior to award.
No. 3 – Such as :
By including with the assistance of legal counsel, appropriate clauses in the contract.  
Require the contractor to stipulate how they intend to mitigate any potential COI.  Strategies include:
Setting up Firewalls (often used when a contractor has unequal access to nonpublic info. - such as when used to limit the exchange of sensitive information with personnel from other business units.
Recusal from the affected tasks (often used to mitigate an “impaired objectivity” OCI).

No. 4 – This is a reference to preclusion clauses (for work of a similar nature for a specific period of time) – previously discussed

## Personal Conflicts of Interest (PCI)

**Limitations**
- FAR Subpart 2 – defines OCI, no definition provided for PCI
- FAR Subpart 3.1
- Contractor Code of Ethics and Business Conduct
- No guidance provided for identifying, evaluating and resolving personal COI committed by contractor employees
- FAR Subpart 9.5 – Guidance for OCI only
- Code of Federal Regulations (CFR)

**Notes:**
PCI is a new term first used in the recent FAR case requesting comments on the need for developing standard policies and clauses to address personal conflicts of interest.

Over the past few years, Congress has been particularly concerned with the increasing potential for personal conflicts of interest committed by contractor staff under government contracts.
 Even more so than OCI, the rules and regulations currently in place to address PCI which are very limited.

## Personal Conflicts of Interest (PCI)

- 	Occur when contractor staff, including spouses and dependent children, receive personal financial reward from an external company, agency, institution, individual, or any other entity which may bias the individual’s judgment, or compromise his or her ability to carry out their contractual obligation to the contracting organization.

**Notes:**
No clear-cut definition exist – this definition derived from various articles since the FAR does not provide a definition of PCI.

GAO provided the definition below for the purposes of their report titled “Additional Personal Conflict of Interest Safeguards Needed for Certain DOD Contractor Employees” (March 2008):
  A situation where an individual is in a position to materially influence a federal agencies (actually read FFRDC or a defense contractor company) recommendations and/or decisions and, because of his/her personal activities, relationships, or financial interests, may lack or appear to lack objectivity or appear to be unduly influenced by personal financial interest.

Coverage extends not only to financial interest but also to personal activities and relationships.  However, the only regulatory coverage that exists for NIH use is in Code of Federal Regulations at 45 CFR Part 94. 

## PHS Regulations – Financial Conflicts of Interest (FCOI)

** ****For Grants and Cooperative Agreements**
- 42 CFR Part 50 Subpart F – “Responsibility of Applicants for Promoting Objectivity in Research”
**For Contracts**
- 45 CFR Part 94 – “Responsible Prospective Contractors”
**Note:  The regulations became effective on October 1,   ****	****  1995**

**Notes:**
Solicitation and Contract clauses required in NIH contracts for Research (Except SBIR Phase I’s and STTR’s) which notifies offerors/contractors of their institutional and certification requirements regarding FCOI under 45 CFR Part 94

 Should be inserted into Section H as applicable
 Certification language to be inserted in all R&D solicitations (except SBIR Phase I’s and STTR’s)
 Requires offerors to certify that a written and enforced administrative process is in effect at the time of proposal submission or within 30 days of proposal submission to identify and manage, reduce or eliminate FCOI.
 Requires offerors to notify the CO of the establishment of a written and enforced FCOI policy

## Promoting Objectivity is the Goal

- Institutions must establish standards to ensure there is no reasonable expectation that the _design_, _conduct_, or _reporting_ of PHS funded research is biased by a conflicting financial interest of an Investigator

**Notes:**
The purpose of the FCOI regulation is to promote objectivity in research.

Why is it important to comply with the regulation?  To ensure that potential conflicts are disclosed to the Institution, and that that Institution manages, reduces or eliminates FCOIs and reports them to the NIH so that the research is unbiased, and the public trust preserved.

## Applicability of FCOI Regulations

- To be applicable, three elements must exist:
- Public Health Service (PHS) funds
- Research – as defined in the regulation
- Investigator – specific definition
**(Note:  The regulations do not apply to Phase I SBIR or STTR projects)**

**Notes:**
The regulation applies to any domestic or foreign, public or private entity or organization (excluding a Federal agency) that applies for grants or cooperative agreements for research or submits a research contract whether in response to a solicitation or otherwise (could include unsolicited proposals)

Does not apply to SBIR Phase I contracts or Small Business Technology Transfer Programs.

## The Big View

**Institutions must:**
- Maintain a written, enforced FCOI policy for research investigators
- Ensure that Investigators are informed of the regulations, the policy, and the reporting responsibilities

**Notes:**
NIH (CO) is responsible for ensuring that contractors comply with the regulation – Review Section K certification to ensure compliance.

## The Big View (cont’d)

- Designate an Official (DO) to solicit and review Financial Disclosure Statements from Investigators planning to participate in the research
- Assume that by the time of application submission, the DO has received Financial Disclosure Statements from Investigators
- Report to awarding components the existence of FCOI’s and that the FCOI’s are managed, reduced or eliminated

**Notes:**
DO makes the determination as to whether or not a FCOI exists, and if yes, what actions should be taken by the Institution to manage, reduce, or eliminate such FCOI.

What happens after a conflict is reported to NIH?  Must report the existence of the FCOI to the CO.

CO and program official should review the reported FCOI to determine if additional info. is needed.  If determined that the conflict will bias the objectivity of the NIH-funded research to such an extent that further action is needed to assure the objectivity of the research, or that the Institution has managed, reduced or eliminated the FCOI in accordance with the regulation, suspension of funding may be necessary until the matter is resolved.

FCOI liaisons are available for assistance (Darryl for OD).

## Key Terms

**Investigator:  **P.I. and anyone responsible for the design, conduct, or reporting of PHS-funded research (includes Investigator’s spouse & dependent children)
**Significant Financial Interest (SFI):**
**	**Anything of Monetary Value” (However, exclusions include salary from the applicant institution and equity interest not exceeding $10,000 and 5% ownership)

**Notes:**
Significant Financial Interest:  Includes, but not limited to:

Salary or other payments for services (e.g. consulting fees of honoraria)
Equity interest such as stocks, stock options
Intellectual property rights (patents, copyrights and royalties from such rights)

Also excludes:

Income from seminars, lectures, services on advisory committees or review panels

## Key Terms (cont’d)

_**Financial Disclosure Statement**_**:**  A listing of Investigator’s SFIs (and those of his/her spouse and dependent children):
- 	(i)  that would reasonably appear to be affected by the research; or
- 	(ii) in entities whose financial interests would reasonably appear to be affected by the research (e.g., stocks)
- Required to be updated annually or as new SFI’s occur

**Notes:**
For research contracts, records of financial disclosures and any resulting actions must be kept by the Institution for three years after final payment.

## When Does a FCOI Exist?

- When the **Institutional Designated Office (DO) **_reasonably determines_ that a SFI could _directly and significantly_ affect the design, conduct, or reporting of the PHS funded research.

**Notes:**
	Institution must certify in their proposal that it has a written and enforced administrative process to identify, manage, reduce or eliminate FCOI with respect to all research projects for which funding is sought from the NIH.

	By the time the proposal is submitted to NIH, each Investigator (as defined under the reg.) must have submitted to the DO a listing of his/her known Significant Financial Interest:

that would reasonably appear to be affected by the research, and
in entities whose financial interests would reasonably appear to be affected by the research

When should the existence of a FCOI be reported to the NIH (CO)?
At the time of submission of the proposal

## Ways to Manage, Reduce or Eliminate Conflicts

- Institutions may:
- Publicly _**disclose**_ the SFI (most common)
_**Monitor**_ research by independent reviewers
_**Modify**_ research plan
_**Divest**_ the SFI
_**Sever relationship(s)**_ that create conflicts
**(Note: examples offered in the regulations)**

**Notes:**
Institutions may also disqualify the individual from participation in all or a portion of the research funded by NIH

NIH can request more information about these matters.

NIH can at any time inquire into the Institutional procedures and actions taken regarding FCOI in research funded by NIH, including a requirement for submission, or review on site, of all records pertinent to compliance with the regulation.

DAPE conducted such a review at one of our Institutions in response to allegations of COI.

## What lies ahead?

**Section 841 of the FY 2009 Duncan Hunter National Defense Authorization Act **
- OFPP to take lead
- Issue standard PCI policy within 270 days of enactment to prevent PCI by contract employees performing acquisition functions
- Review FAR within 12 months of enactment to determine need for FAR changes and uniform policies to address PCI and OCI
**Proposed HHSAR COI Case**
-  Limited coverage
**Advanced Notice of Proposed Rulemaking (ANPRM) drafted **
-  Expand scope of CFR regulations

**Notes:**
New law supersedes review of previously proposed rules on conflicts of interest.  
Regulators have placed their review of public comments on the earlier proposed conflict of interest rules (FAR Cases 2007-017 and 2007-018 issued in March 2008) on hold while a proposed new rule to meet the requirements of the Act is being drafted.  
 OFPP required within 270 days of the enactment of the Act to develop and issue a standard policy to prevent PCI by contractor employees performing acquisition functions (including the development, award and administration of Govt. contracts) on behalf of a Federal Agency.  
 Additionally, OFPP, in consultation with the Office of Govt. Ethics, within 12 months of the enactment of the Act must review the FAR to identify contracting methods, types and services that raise heightened concerns about potential PCIs and OCIs and determine whether changes to the FAR are needed to address PCI concerns on contracts beyond those involving functions closely associated with inherently governmental functions or to “achieve sufficiently rigorous, comprehensive, and uniform government-wide policies to prevent and mitigate OCIs”.  OFPP must submit a report to various Senate and House committees on its PCI and OCI findings by March 1, 2010 
HHSAR COI Case – Departmental effort to develop standard COI Regulatory Guidance for issuance in the HHSAR currently in the works – NIH had submitted comments on the 1st draft which included the following coverage:
  Focuses only on OCI and Technical evaluator COI 
  No guidance or standard clauses provided that addressed personal conflicts of interest.
 Had anticipated issuance of next draft by the end of this calendar yr. or early next year for review by all of the HHS OPDIVS however Defense Authorization Act may impact this effort.

## More Information?

- Conflict of Interest Information Resources Available on the Web
- 	_[http://grants.nih.gov/grants/policy/coi/index.htm](http://grants.nih.gov/grants/policy/coi/index.htm)_
- Web-based tutorial
- 	_[http://grants.nih.gov/grants/policy/coi/tutorial/fcoi.htm](http://grants.nih.gov/grants/policy/coi/tutorial/fcoi.htm)_
- Frequently asked questions
- 	_[http://grants.nih.gov/grants/policy/coifaq.htm](http://grants.nih.gov/grants/policy/coifaq.htm)_
- Handout – Identifying Latent Organizational Conflicts of Interest by Sarah McWilliams

## Contact Point 

**Darryl Grant**
- Phone (301) 496-2874; Fax (301) 402-1199
- Email addresses: 	_[grantda@od.nih.gov](mailto:grantda@od.nih.gov)_
- Division of Acquisition Policy and Evaluation
- Office of Acquisition Management and
- Policy, Office of the Director, NIH, DHHS