Subpart 9.5 - Organizational and Consultant

Conflicts of Interest

Parent topic: Part 9 - Contractor Qualifications

9.500 Scope of subpart.

This subpart-

(a) Prescribes responsibilities, general rules, and procedures for identifying, evaluating, and

resolving organizational conflicts of interest;

(b) Provides examples to assist contracting officers in applying these rules and procedures to

individual contracting situations; and

(c) Implements section 8141 of the 1989 Department of Defense Appropriation Act, Pub.L.100-463,

102 Stat.2270-47 (1988).

9.501 Definition.

Marketing consultant, as used in this subpart, means any independent contractor who furnishes

advice, information, direction, or assistance to an offeror or any other contractor in support of the

preparation or submission of an offer for a Government contract by that offeror. An independent

contractor is not a marketing consultant when rendering-

(1) Services excluded in subpart 37.2;

(2) Routine engineering and technical services (such as installation, operation, or maintenance of

systems, equipment, software, components, or facilities);

(3) Routine legal, actuarial, auditing, and accounting services; and

(4) Training services.

9.502 Applicability.

(a) This subpart applies to contracts with either profit or nonprofit organizations, including nonprofit

organizations created largely or wholly with Government funds.

(b) The applicability of this subpart is not limited to any particular kind of acquisition. However,

organizational conflicts of interest are more likely to occur in contracts involving-

(1) Management support services;

(2) Consultant or other professional services;
(3) Contractor performance of or assistance in technical evaluations; or

(4) Systems engineering and technical direction work performed by a contractor that does not have

overall contractual responsibility for development or production.

(c) An organizational conflict of interest may result when factors create an actual or potential

conflict of interest on an instant contract, or when the nature of the work to be performed on the

instant contract creates an actual or potential conflict of interest on a future acquisition. In the latter

case, some restrictions on future activities of the contractor may be required.

(d) Acquisitions subject to unique agency organizational conflict of interest statutes are excluded

from the requirements of this subpart.

9.503 Waiver.

The agency head or a designee may waive any general rule or procedure of this subpart by

determining that its application in a particular situation would not be in the Government’s interest.

Any request for waiver must be in writing, shall set forth the extent of the conflict, and requires

approval by the agency head or a designee. Agency heads shall not delegate waiver authority below

the level of head of a contracting activity.

9.504 Contracting officer responsibilities.

(a) Using the general rules, procedures, and examples in this subpart, contracting officers shall

analyze planned acquisitions in order to-

(1) Identify and evaluate potential organizational conflicts of interest as early in the acquisition

process as possible; and

(2) Avoid, neutralize, or mitigate significant potential conflicts before contract award.

(b) Contracting officers should obtain the advice of counsel and the assistance of appropriate

technical specialists in evaluating potential conflicts and in developing any necessary solicitation

provisions and contract clauses (see 9.506).

(c) Before issuing a solicitation for a contract that may involve a significant potential conflict, the

contracting officer shall recommend to the head of the contracting activity a course of action for

resolving the conflict (see 9.506).

(d) In fulfilling their responsibilities for identifying and resolving potential conflicts, contracting

officers should avoid creating unnecessary delays, burdensome information requirements, and

excessive documentation. The contracting officer’s judgment need be formally documented only

when a substantive issue concerning potential organizational conflict of interest exists.

(e) The contracting officer shall award the contract to the apparent successful offeror unless a

conflict of interest is determined to exist that cannot be avoided or mitigated. Before determining to

withhold award based on conflict of interest considerations, the contracting officer shall notify the

contractor, provide the reasons therefor, and allow the contractor a reasonable opportunity to

respond. If the contracting officer finds that it is in the best interest of the United States to award
the contract notwithstanding a conflict of interest, a request for waiver shall be submitted in

accordance with 9.503. The waiver request and decision shall be included in the contract file.

9.505 General rules.

The general rules in 9.505-1 through 9.505-4 prescribe limitations on contracting as the means of

avoiding, neutralizing, or mitigating organizational conflicts of interest that might otherwise exist in

the stated situations. Some illustrative examples are provided in 9.508. Conflicts may arise in

situations not expressly covered in this section 9.505 or in the examples in 9.508. Each individual

contracting situation should be examined on the basis of its particular facts and the nature of the

proposed contract. The exercise of common sense, good judgment, and sound discretion is required

in both the decision on whether a significant potential conflict exists and, if it does, the development

of an appropriate means for resolving it. The two underlying principles are-

(a) Preventing the existence of conflicting roles that might bias a contractor’s judgment; and

(b) Preventing unfair competitive advantage. In addition to the other situations described in this

subpart, an unfair competitive advantage exists where a contractor competing for award of any

Federal contract possesses-

(1) Proprietary information that was obtained from a Government official without proper

authorization; or

(2) Source selection information (as defined in 2.101) that is relevant to the contract but is not

available to all competitors, and such information would assist that contractor in obtaining the

contract.

9.505-1 Providing systems engineering and technical direction.

(a) A contractor that provides systems engineering and technical direction for a system but does not

have overall contractual responsibility for its development, its integration, assembly, and checkout,

or its production shall not-

(1) Be awarded a contract to supply the system or any of its major components; or

(2) Be a subcontractor or consultant to a supplier of the system or any of its major components.

(b) Systems engineering includes a combination of substantially all of the following activities:

determining specifications, identifying and resolving interface problems, developing test

requirements, evaluating test data, and supervising design. Technical direction includes a

combination of substantially all of the following activities: developing work statements, determining

parameters, directing other contractors’ operations, and resolving technical controversies. In

performing these activities, a contractor occupies a highly influential and responsible position in

determining a system’s basic concepts and supervising their execution by other contractors.

Therefore this contractor should not be in a position to make decisions favoring its own products or

capabilities.
9.505-2 Preparing specifications or work statements.

(a)

(1) If a contractor prepares and furnishes complete specifications covering nondevelopmental items,

to be used in a competitive acquisition, that contractor shall not be allowed to furnish these items,

either as a prime contractor or as a subcontractor, for a reasonable period of time including, at

least, the duration of the initial production contract. The restriction in this paragraph (a)(1) shall not

apply to-

(i) Contractors that furnish at Government request specifications or data regarding a product they

provide, even though the specifications or data may have been paid for separately or in the price of

the product; or

(ii) Situations in which contractors, acting as industry representatives, help Government agencies

prepare, refine, or coordinate specifications, regardless of source, provided this assistance is

supervised and controlled by Government representatives.

(2) If a single contractor drafts complete specifications for nondevelopmental equipment, it should

be eliminated for a reasonable time from competition for production based on the specifications.

This should be done in order to avoid a situation in which the contractor could draft specifications

favoring its own products or capabilities. In this way the Government can be assured of getting

unbiased advice as to the content of the specifications and can avoid allegations of favoritism in the

award of production contracts.

(3) In development work, it is normal to select firms that have done the most advanced work in the

field. These firms can be expected to design and develop around their own prior knowledge.

Development contractors can frequently start production earlier and more knowledgeably than firms

that did not participate in the development, and this can affect the time and quality of production,

both of which are important to the Government. In many instances the Government may have

financed the development. Thus, while the development contractor has a competitive advantage, it is

an unavoidable one that is not considered unfair; hence no prohibition should be imposed.

(b)

(1) If a contractor prepares, or assists in preparing, a work statement to be used in competitively

acquiring a system or services-or provides material leading directly, predictably, and without delay

to such a work statement-that contractor may not supply the system, major components of the

system, or the services unless-

(i) It is the sole source;

(ii) It has participated in the development and design work; or

(iii) More than one contractor has been involved in preparing the work statement.

(2) Agencies should normally prepare their own work statements. When contractor assistance is

necessary, the contractor might often be in a position to favor its own products or capabilities. To

overcome the possibility of bias, contractors are prohibited from supplying a system or services

acquired on the basis of work statements growing out of their services, unless excepted in
paragraph (b)(1) of this section.

(3) For the reasons given in paragraph (a)(3) of this section, no prohibitions are imposed on

development and design contractors.

9.505-3 Providing evaluation services.

Contracts for the evaluation of offers for products or services shall not be awarded to a contractor

that will evaluate its own offers for products or services, or those of a competitor, without proper

safeguards to ensure objectivity to protect the Government’s interests.

9.505-4 Obtaining access to proprietary information.

(a) When a contractor requires proprietary information from others to perform a Government

contract and can use the leverage of the contract to obtain it, the contractor may gain an unfair

competitive advantage unless restrictions are imposed. These restrictions protect the information

and encourage companies to provide it when necessary for contract performance. They are not

intended to protect information-

(1) Furnished voluntarily without limitations on its use; or

(2) Available to the Government or contractor from other sources without restriction.

(b) A contractor that gains access to proprietary information of other companies in performing

advisory and assistance services for the Government must agree with the other companies to protect

their information from unauthorized use or disclosure for as long as it remains proprietary and

refrain from using the information for any purpose other than that for which it was furnished. The

contracting officer shall obtain copies of these agreements and ensure that they are properly

executed.

(c) Contractors also obtain proprietary and source selection information by acquiring the services of

marketing consultants which, if used in connection with an acquisition, may give the contractor an

unfair competitive advantage. Contractors should make inquiries of marketing consultants to ensure

that the marketing consultant has provided no unfair competitive advantage.

9.506 Procedures.

(a) If information concerning prospective contractors is necessary to identify and evaluate potential

organizational conflicts of interest or to develop recommended actions, contracting officers first

should seek the information from within the Government or from other readily available sources.

Government sources include the files and the knowledge of personnel within the contracting office,

other contracting offices, the cognizant contract administration and audit activities and offices

concerned with contract financing. Non-Government sources include publications and commercial

services, such as credit rating services, trade and financial journals, and business directories and

registers.

(b) If the contracting officer decides that a particular acquisition involves a significant potential
organizational conflict of interest, the contracting officer shall, before issuing the solicitation, submit

for approval to the chief of the contracting office (unless a higher level official is designated by the

agency)-

(1) A written analysis, including a recommended course of action for avoiding, neutralizing, or

mitigating the conflict, based on the general rules in 9.505 or on another basis not expressly stated

in that section;

(2) A draft solicitation provision (see 9.507-1); and

(3) If appropriate, a proposed contract clause (see 9.507-2).

(c) The approving official shall-

(1) Review the contracting officer’s analysis and recommended course of action, including the draft

provision and any proposed clause;

(2) Consider the benefits and detriments to the Government and prospective contractors; and

(3) Approve, modify, or reject the recommendations in writing.

(d) The contracting officer shall-

(1) Include the approved provision(s) and any approved clause(s) in the solicitation or the contract,

or both;

(2) Consider additional information provided by prospective contractors in response to the

solicitation or during negotiations; and

(3) Before awarding the contract, resolve the conflict or the potential conflict in a manner consistent

with the approval or other direction by the head of the contracting activity.

(e) If, during the effective period of any restriction (see 9.507), a contracting office transfers

acquisition responsibility for the item or system involved, it shall notify the successor contracting

office of the restriction, and send a copy of the contract under which the restriction was imposed.

9.507 Solicitation provisions and contract clause.

9.507-1 Solicitation provisions.

As indicated in the general rules in 9.505, significant potential organizational conflicts of interest are

normally resolved by imposing some restraint, appropriate to the nature of the conflict, upon the

contractor’s eligibility for future contracts or subcontracts. Therefore, affected solicitations shall

contain a provision that-

(a) Invites offerors’ attention to this subpart;

(b) States the nature of the potential conflict as seen by the contracting officer;

(c) States the nature of the proposed restraint upon future contractor activities; and
(d) Depending on the nature of the acquisition, states whether or not the terms of any proposed

clause and the application of this subpart to the contract are subject to negotiation.

9.507-2 Contract clause.

(a) If, as a condition of award, the contractor’s eligibility for future prime contract or subcontract

awards will be restricted or the contractor must agree to some other restraint, the solicitation shall

contain a proposed clause that specifies both the nature and duration of the proposed restraint. The

contracting officer shall include the clause in the contract, first negotiating the clause’s final terms

with the successful offeror, if it is appropriate to do so (see 9.506(d)).

(b) The restraint imposed by a clause shall be limited to a fixed term of reasonable duration,

sufficient to avoid the circumstance of unfair competitive advantage or potential bias. This period

varies. It might end, for example, when the first production contract using the contractor’s

specifications or work statement is awarded, or it might extend through the entire life of a system

for which the contractor has performed systems engineering and technical direction. In every case,

the restriction shall specify termination by a specific date or upon the occurrence of an identifiable

event.

9.508 Examples.

The examples in paragraphs (a) through (i) of this section illustrate situations in which questions

concerning organizational conflicts of interest may arise. They are not all inclusive, but are intended

to help the contracting officer apply the general rules in 9.505 to individual contract situations.

(a) Company A agrees to provide systems engineering and technical direction for the Navy on the

powerplant for a group of submarines (i.e., turbines, drive shafts, propellers, etc.). Company A

should not be allowed to supply any powerplant components. Company A can, however, supply

components of the submarine unrelated to the powerplant (e.g., fire control, navigation, etc.). In this

example, the system is the powerplant, not the submarine, and the ban on supplying components is

limited to those for the system only.

(b) Company A is the systems engineering and technical direction contractor for system X. After

some progress, but before completion, the system is canceled. Later, system Y is developed to

achieve the same purposes as system X, but in a fundamentally different fashion. Company B is the

systems engineering and technical direction contractor for system Y. Company A may supply system

Y or its components.

(c) Company A develops new electronic equipment and, as a result of this development, prepares

specifications. Company A may supply the equipment.

(d) XYZ Tool Company and PQR Machinery Company, representing the American Tool Institute,

work under Government supervision and control to refine specifications or to clarify the

requirements of a specific acquisition. These companies may supply the item.

(e) Before an acquisition for information technology is conducted, Company A is awarded a contract

to prepare data system specifications and equipment performance criteria to be used as the basis for

the equipment competition. Since the specifications are the basis for selection of commercial

hardware, a potential conflict of interest exists. Company A should be excluded from the initial
follow-on information technology hardware acquisition.

(f) Company A receives a contract to define the detailed performance characteristics an agency will

require for purchasing rocket fuels. Company A has not developed the particular fuels. When the

definition contract is awarded, it is clear to both parties that the agency will use the performance

characteristics arrived at to choose competitively a contractor to develop or produce the fuels.

Company A may not be awarded this follow-on contract.

(g) Company A receives a contract to prepare a detailed plan for scientific and technical training of

an agency’s personnel. It suggests a curriculum that the agency endorses and incorporates in its

request for proposals to institutions to establish and conduct the training. Company A may not be

awarded a contract to conduct the training.

(h) Company A is selected to study the use of lasers in communications. The agency intends to ask

that firms doing research in the field make proprietary information available to Company A. The

contract must require Company A to-

(1) Enter into agreements with these firms to protect any proprietary information they provide; and

(2) Refrain from using the information in supplying lasers to the Government or for any purpose

other than that for which it was intended.

(i) An agency that regulates an industry wishes to develop a system for evaluating and processing

license applications. Contractor X helps develop the system and process the applications. Contractor

X should be prohibited from acting as a consultant to any of the applicants during its period of

performance and for a reasonable period thereafter.