United States General Accounting Office

GAO Report to Congressional Committees

October 1995 GOVERNMENT

CONTRACTORS

Selected Agencies’

Efforts to Identify

Organizational

Conflicts of Interest

GAO/GGD-96-15

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-260246 

October 25, 1995

The Honorable Ted Stevens

Chairman, Committee on

 Governmental Affairs

United States Senate

The Honorable John Glenn

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

The Honorable David H. Pryor

Ranking Minority Member

Subcommittee on Post Office and Civil Service

Committee on Governmental Affairs

United States Senate

The Honorable William F. Clinger, Jr.

Chairman, Committee on Government

 Reform and Oversight

House of Representatives

The Honorable Cardiss Collins

Ranking Minority Member

Committee on Government Reform

 and Oversight

House of Representatives

This report responds to a legislative requirement (P.L. 100-463) that we

review agency implementation of the Office of Management and Budget’s

(OMB) Policy Letter 89-1, “Conflict of Interest Policies Applicable to

Consultants,” dated December 8, 1989. This report also responds to a

request from the Ranking Minority Member, Subcommittee on Post Office

and Civil Service, Senate Committee on Governmental Affairs, that we

review organizational conflict of interest (OCI) requirements applicable to

advisory and assistance service contractors, including consultants.

Because the request was similar to the legislative requirement, we are

issuing one report on this subject. Our objectives were to (1) determine

whether selected agencies have complied with existing requirements to

identify and evaluate potential OCIs and (2) identify ways, if any, that

agencies might improve their screening for such conflicts. We selected the

Department of Energy (DOE), the Environmental Protection Agency (EPA),

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and the Department of the Navy (Navy) for review because they were

among the largest users of contracted advisory and assistance services.

Background OMB Policy Letter 89-1, “Conflict of Interest Policies Applicable to

Consultants,” issued by the Office of Federal Procurement Policy,

establishes federal policy relating to OCI standards for persons who

provide consulting services, including advisory and assistance services, to

the government.1

 The federal government obligated about $14 billion for

consulting and advisory and assistance services in fiscal year 1994. They

included activities such as special studies and analyses and professional,

administrative, and management support services.

The policy letter defines a conflict as a condition or circumstance in which

a person is unable or potentially unable to render impartial assistance or

advice to the government because of other activities or relationships with

other persons or organizations, or where a person has an unfair advantage

in competing for a federal contract. The policy letter also provides

examples of potential OCI situations. One could include a situation where a

contractor is providing advice and assistance to an agency where such

advice and assistance could benefit the contractor’s other clients. Another

situation could include a contractor hired to evaluate a third party’s

products or services when the contractor is or was substantially involved

in the development or marketing of those products or services.

To help avoid conflicts of interest, the policy letter states that for

contracts over $25,000, contractors must submit to the agency a certificate

describing the nature of the services to be rendered and a statement that

(1) no actual or potential organizational conflict of interest exists, or

(2) any actual or potential conflict has been communicated in writing to

the contracting officer. In addition, the policy letter requires agency

officials to evaluate the potential for a conflict of interest and to determine

whether an actual conflict exists before a contract is awarded. In carrying

out this responsibility, information from the contractor’s certificate and

any other available information may be used.

The provisions of the OMB policy letter are implemented by the Federal

Acquisition Regulation (FAR). The FAR sets forth governmentwide

regulations and requirements, including requirements for avoiding and

mitigating organizational conflicts, for all types of procurement by

1

Certain services, such as routine engineering and technical services, routine legal and accounting

services, and training services are excluded from the coverage of Policy Letter 89-1.

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contract. For example, the FAR requires agencies to determine whether an

OCI exists before awarding a contract for all types of services, including

advisory and assistance services as well as others not covered by the

policy letter. The FAR lists certain sources of information that may be used

to help identify conflicts. These include sources within the government,

such as personnel within the contracting office and other contracting

offices, and nongovernment sources, such as publications and credit rating

services.

Results in Brief Agency compliance with the requirement to obtain contractors’ OCI

certifications has varied. At DOE and EPA—two of the three agencies we

reviewed—the certificates were being obtained in almost all cases that we

reviewed. To evaluate Navy compliance with the certification

requirements, we relied on a 1994 study made by the Department of

Defense (DOD) Inspector General (IG). The IG determined that in almost all

cases it reviewed, the Navy had not obtained contractors’ OCI

certifications. The IG concluded that the certificates were not being

submitted by contractors because they were not being requested or

required by contracting offices. In response to recommendations made by

the IG, the Navy reemphasized to contracting officials the importance of

obtaining OCI certificates.

In addition, the President’s Council on Integrity and Efficiency (PCIE)

reviewed agency compliance with the certification requirement. In

April 1993, PCIE reported that only 9 of 19 agencies it reviewed had

obtained the required certificates. EPA was included in the study but was

unable to respond at the time because needed information was not

available from agency records. EPA later concluded that it was complying.

DOE and Navy were not included in the PCIE study. The PCIE report did not

cite a reason for the noncompliance, but indicated that agency officials

generally believed that OCI self-certification would do little to deter

dishonest contractors. In our view, the perceptions of agencies’ officials

that contractor self-certifications have limitations have merit. For

example, even in situations where a potential contractor made a good faith

effort to identify potential conflicts, differences of opinion or

interpretation could cause a potential conflict not to be reported.

Accordingly, the policy letter requirement that agency officials evaluate

the potential for conflicts is an important supplementary control. Our

review of DOE and EPA contracts showed that both made the required

evaluations to detect conflicts of interest.

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Our review showed that the Navy did not routinely conduct OCI evaluations

prior to award as required by the FAR. Instead, the Navy generally

concentrated on the possibility that future benefits may accrue to the

contractor, and used contract clauses to prevent such situations. However,

corrective action was taken during our review to reemphasize the need for

contracting officials to comply with the FAR’s requirements on conflict of

interest evaluations.

We identified two opportunities to help agencies improve their screening

for OCI situations. The first involves ensuring that responsible agency

officials receive OCI training. Twenty-two of the 66 contracting officials

that we spoke with had not received such training. Nineteen of the 66

officials (29 percent) thought that more training would be helpful. The

second opportunity involves taking steps to avoid interpreting the FAR to

imply that if OCI certifications have been obtained from contractors,

agencies should not obtain other information in conducting an evaluation

of the potential for conflicts of interest. In evaluating the potential for

conflicts of interest, contracting officers may use any substantive

information that is available, whether or not the certificates have been

obtained.

Scope and

Methodology

We reviewed instructions for identifying organizational conflicts of

interest contained in the FAR and in OMB Policy Letter 89-1. We also

reviewed agency-specific procurement regulations at the agencies selected

for review—DOE, EPA, and Navy.

To determine whether agencies were complying with the requirements, we

reviewed a sample of advisory and assistance service contracts from a

fiscal year 1992 contract universe provided by the Federal Procurement

Data Center for DOE, EPA, and Navy. Fiscal year 1992 was the most recent

year for which data were available when we began our work.

We generated a random list of contracts identified by the Federal

Procurement Data Center as being for advisory and assistance services

and selected 102 contracts for review from the above agencies (DOE-36,

EPA-26, Navy-40). Our sample included DOE contracts administered by the

agency’s Washington, D.C., headquarters and field locations in Colorado.

Navy contracts included contracts from that agency’s headquarters as well

as field locations in California. EPA contracts included contracts

administered at its Washington, D.C., headquarters and at a Pennsylvania

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field location. Because of travel costs and other considerations, our

sample was of a limited size and was not designed to be projectable.

We reviewed contract files to determine compliance with contractor

certification requirements and to obtain documentation on the nature and

extent of agency OCI reviews. The Navy did not consider the contracts

selected to be for advisory and assistance services, but to be for routine

technical and engineering services which are not subject to contractor

certification requirements in the policy letter. Rather than resample Navy

contracts to test compliance with the certification requirements, we relied

on a DOD IG report, Organizational and Consultant Conflicts of Interest

(Report No. 94-174, August 10, 1994). We discussed the report with DOD IG

officials and reviewed the supporting working papers. We reviewed the 40

Navy contracts we had selected, however, to test compliance with the OCI

evaluation requirements set forth in the FAR.

We discussed OCI review procedures with agency officials. To do this, we

judgmentally selected 32 contracts from our sample and identified a total

of 66 procurement, program, and General Counsel officials who were

responsible for them. We interviewed these officials to obtain an

understanding of the steps followed as well as the types of external

sources of information such as contractor annual reports and marketing

brochures used in making OCI determinations. We also discussed OCI

training with these 66 officials to, among other things, obtain

(1) information on the extent that they had received OCI training and

(2) their views on the value of additional training. We reviewed available

training material at DOE and EPA to determine the content and nature of

training provided.

We reviewed an April 1993 survey report prepared by the PCIE on the

implementation of OMB Policy Letter 89-1. We also discussed the report

with PCIE officials and reviewed PCIE workpapers.

We did our work at the agencies’ headquarters in the Washington, D.C.,

area and selected field locations between April 1993 and July 1995 in

accordance with generally accepted government auditing standards. We

requested oral comments on a draft of this report from the Secretaries of

DOD, Navy, and DOE, the Administrator of EPA, and the Director of OMB or

their designees. Their comments are discussed on pages 15 to 17..

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Compliance With the

Certification

Requirement Has

Varied

Agency compliance with the requirement for obtaining contractors’ OCI

certifications or advisory and assistance service contracts has varied. At

two of the three agencies we reviewed—EPA and DOE—we found

certificates in contract files in almost all cases in which they were

required. For example, 19 of the 26 EPA contracts we selected were subject

to the certification requirement because they had been awarded after the

issuance of OMB Policy Letter 89-1. We found certificates for 18 of them. Of

36 DOE contracts, 26 were subject to the certification requirement.

Certificates had been filed for 25 of them. Officials at both agencies

believed that the two missing certifications had been received but had not

been included in the contract file.

To check Navy’s compliance with the certification requirement, we relied

on the 1994 DOD IG study. This study was done to determine whether DOD

contracting offices had effectively implemented FAR OCI policies and

procedures when planning procurements and awarding contracts. The IG

study included 46 contracting activities in the Army, Navy, Air Force, the

Defense Supply Service - Washington, the Advanced Research Projects

Agency, and the Defense Nuclear Agency.

The IG reported that, in most cases, DOD contracting officers failed to

obtain the OCI certificates required by the FAR. Of 101 contracts reviewed,

the IG determined certificates were required for 28 contracts. Certificates

were not, however, obtained for 25 of the 28 contracts. Twelve of the 28

contracts requiring certificates were Navy contracts. Certificates were

only obtained for two of them. Contracting officers at five contracting

activities told the IG that contractors probably ignored the applicable FAR

provisions. The IG concluded that certificates were not being submitted

because they were not requested or required by contracting offices. The IG

recommended that service procurement officials take steps to ensure

compliance with the FAR requirements concerning OCI contractor

certificates. In July 1994, the Director of Defense Procurement requested

defense agencies to remind contracting officers to obtain the certificates.

In addition, in September 1994, the Navy reemphasized to Navy

contracting offices the importance of obtaining the required contractor

certificates.

The PCIE had also reviewed agency compliance with the certification

requirements. Its April 1993 report stated that of 19 agencies reviewed,

contractors’ certifications were obtained only at 9 of them. EPA, one of the

agencies we reviewed, did not provide information on the number of

certificates because it was not available from agency records. EPA

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conducted its own sample and found that the certificates had been filed.

DOE and DOD did not participate in the PCIE study. The PCIE report did not

cite a reason for the noncompliance, but indicated that agency officials

generally believed contractors’ self-certification would do little to deter

dishonest contractors.

While contractor certifications are important controls required by the FAR

and the OMB policy letter, the perceptions of agency contracting officials

that contractors’ self-certifications have limitations appear to have merit.

For example, it is possible that even if a contractor made a good faith

effort to identify and report potential conflicts of interest, some might be

missed or go unreported because of different interpretations of the policy

letter and what constitutes a conflict. Consequently, independent efforts

by agencies to obtain additional information to use in identifying and

evaluating potential conflicts are, in our view, particularly important

supplementary controls.

Agency Organizational

Conflict of Interest

Evaluations

Policy Letter 89-1 and the FAR require that contracting officers, prior to

contract award, evaluate and identify the potential for such conflicts that

could be prejudicial to the interest of the federal government with regard

to persons who provide advisory and assistance services and take steps to

avoid or mitigate any conflicts believed to exist. We reviewed 62 advisory

and assistance service contracts at DOE and EPA. Our review showed that

contracting officials had conducted the required evaluations before

awarding the contracts.

We also reviewed case files for the 40 Navy contracts we had selected. As

discussed on page 5, these contracts were identified by Navy officials as

involving routine engineering and technical services rather than advisory

and assistance services, and were consequently not subject to Policy

Letter 89-1. However, the FAR still requires agencies to evaluate such

acquisitions for potential conflicts of interest prior to contract award. Our

contract file review found little documentation of such evaluations and

contracting officials whom we spoke with said they were not frequently

done. However, during our review, corrective action was taken in the form

of various directive memorandums to reemphasize the need for

contracting officials to comply with the FAR’s requirements on conflict of

interest evaluations.

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Evaluations of DOE and

EPA Advisory and

Assistance Contracts

The DOE and EPA contracts we reviewed included such advisory and

assistance services as health and safety assessments, environmental

studies and audits, assistance in developing regulations, and analyses of

the impact of regulations. The nature of potential conflicts involved

contractors performing work that could benefit the contractor or other

clients of the contractor, or evaluating products or services in which the

contractor had a financial interest.

Both DOE and EPA have agency-specific instructions and guidance that

supplement Policy Letter 89-1 and the FAR. For example, a DOE order

outlines the responsibilities of contracting personnel and describes OCI

procedures. DOE procedures include controls such as (1) requiring the

technical representative or contract specialist to complete an OCI abstract

that focuses on specific questions to be asked for each procurement and

(2) requiring contractors to complete an OCI questionnaire. EPA has a

procurement policy notice that describes similar procedures.

Our review of 36 advisory and assistance service contract files at DOE and

26 contract files at EPA indicated that evaluations aimed at identifying

potential conflicts of interest, as called for by the policy letter and the FAR,

had been made. The files generally included the types of documentation

called for by agency-specific procedures. In addition, the files often

included other sources of information for use by contracting officials in

making OCI determinations. These included contractor marketing

brochures, resumes of contractor personnel, and lists of a contractor’s

other contracts. Such sources can provide important information to

contracting officials in making OCI determinations.

The following two examples—both at EPA—illustrate the importance of

agencies’ reviews to identify and evaluate potential conflicts of interest.

Case 1. In this case, EPA awarded a $23 million contract in February 1993

for the study of the economic and environmental impacts of the Clean Air

Act’s provisions regulating acid rain. In August 1992, before the contract

award, program officials who reviewed the contractor’s proposal

discovered the potential for a conflict and expressed their concern. The

contractor had several contracts with electric utilities and a coal company.

These industries have been identified as prime contributors to acid rain.

The officials believed that such industry ties could possibly impair the

contractor’s objectivity in evaluating the Clean Air Act’s provisions

regulating acid rain.

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Also, two of the contractor’s subsidiaries had contracts with third parties

that could cause potential conflicts of interest. One subsidiary had

contracts of its own with electric utilities. The other subsidiary owned the

licensing rights of various technologies that the contractor was to evaluate

under the EPA contract.

The contractor acknowledged in a September 1992 letter to the pre-award

contracting officer that the appearance of a conflict existed. The

contractor pointed out that “the electric utility industry is the principal

constituent of the acid rain program’s regulated community, and the mere

fact of providing professional services under contract both to the

regulated community and to the community of regulators can create the

appearance of potential conflict of interest.”

After examining the potential conflicts of interest, EPA had the contractor

prepare a conflict avoidance plan and awarded the contract. Among other

things, the plan prohibited the employees of the contractor who had

worked on other projects that could cause a conflict situation from taking

part in the EPA work. We did not evaluate the reasonableness of the

avoidance plan.

Case 2. This case involved the award by EPA of a $50 million contract in

March 1994 for the identification of parties responsible for pollution at

Superfund sites in one of EPA’s regions. Under the Superfund law, parties

responsible for contaminated sites may be required to clean them up or to

reimburse EPA for the cleanup it performs.

As instructed by EPA, the contractor searched EPA’s list of potential

polluters in the region to identify any party on the list with which the

contractor could have a conflict of interest. The contractor reported that it

had business relationships with approximately 40 parties on EPA’s list of

potential polluters, but did not believe they would constitute a conflict of

interest. The contractor certified to EPA that it was unaware of any

potential conflict of interest.

According to the pre-award contract officer, he and the technical

evaluation panel reviewed the identified relationships and found no

apparent conflict. He pointed out, however, that it was difficult to

determine whether the business relationships constituted a conflict

because actual work assignments and pollution sites had not been

identified. He said that the subject contract was essentially considered a

contract vehicle with no specific requirements. After the contract was

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entered into, work assignments were issued with specific requirements to

be performed under the contract at specifically identified pollution sites.

Another contracting officer was responsible for the post-award contract.

He identified 410 potential polluters for a site in a work assignment he

issued. Out of the 410, the contractor had identified approximately 40 with

which it had 500 to 1,000 contractual relations. The contracting officer

reviewed the contractual relationship with each of the potential polluters

and determined that four would be in conflict with the efforts to be

performed under the work assignment. The work assignment was issued

after the investigative activities to be performed by the contractor, which

were considered most susceptible to conflicts of interest, were deleted.

Navy Did Not Routinely

Perform Pre-Award OCI

Evaluations

The 40 Navy contracts that we selected primarily involved routine

engineering and technical services. They did not fall into the category of

advisory and assistance services that were subject to the contractor

certification requirement. According to section 9.504 (a) of the FAR,

however, all contracts are to be reviewed for potential conflicts of interest

prior to award. Our review of the contract files showed that with the

exception of 10 contractor officials’ resumes and 5 lists of other contracts

in which the contractors were involved, the 40 contract files we reviewed

included no documentation to indicate that any type of pre-award

evaluation had been made to disclose the possibility of an OCI or a

situation of an unfair advantage and contracting officials told us that

evaluations were not frequently done. Some of their comments are

summarized below.

• Officials at the Naval Air Weapons Station, China Lake, California, agreed

that pre-award analysis to help detect potential conflicts of interest would

be helpful.

• An official at the Naval Regional Contracting Center, San Diego, California,

acknowledged that contract personnel do not generally examine past

contracts held by a prospective contractor, or other financial relationships

in which the contractor may be involved. The official said that he

sporadically examines industry financial reports or corporate credit

ratings, but not on a routine basis.

• An official at the Naval Command and Control and Ocean Surveillance

installation, San Diego, California, said there was no screening of historic

data about a contractor to detect OCI situations.

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While the Navy did not routinely conduct OCI evaluations before awarding

these contracts, contracting officials pointed out that they concentrate on

the possibility of future benefits that may accrue to a contractor and use

contract clauses to prevent the possibility of such future conflicts. Our

review of the contract files supported this. For example, one contract we

reviewed contained a conflict of interest clause in which the contractor

agreed not to supply DOD for a period of 2 years after completion of the

contract with any major component which the contractor might suggest

DOD purchase.

We also discussed the apparent lack of pre-award evaluations with DOD

and Navy procurement officials. They agreed that the Navy should comply

with the FAR requirement to evaluate the potential for conflict of interest

situations prior to contract award. They provided us with documentation

that showed that corrective action had been taken to reemphasize the

need for contracting officials to comply with the FAR’s requirements on

conflict of interest evaluations.

Possible

Improvements in OCI

Controls

During our work we identified two opportunities to help agencies meet the

objective of OMB’s policy letter regarding the avoidance of OCI situations.

These include ensuring that all appropriate agency officials receive OCI

training. Among other things, such training could emphasize the

availability and usefulness of possible sources of information—such as

annual reports and marketing brochures—that can assist contracting

officials in understanding the business relationships of potential

contractors and identifying possible OCI situations. In addition, we

identified the potential for the FAR to be interpreted to imply that if

certificates had been obtained from contractors, agencies should not

obtain other information in conducting an evaluation of the potential for

conflicts of interest. OMB could provide clarification to avoid such an

interpretation.

Agency OCI Training Officials at the three agencies we visited received varying amounts of OCI

awareness and detection training. DOE and EPA offered formal in-house OCI

training. The Navy did not have an OCI training course. However, some

Navy officials received training from other sources. In none of the three

agencies had all of the officials received training.

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We asked 66 procurement officers at the three agencies (DOE-27, EPA-15,

and Navy-24) whether they had received 1 day or more of OCI training, less

than 1 day of training, or no training. We also asked them how they

believed the OCI screening process could be improved. Several of the

officials said the process could be improved with more training. The

results of our discussions are shown in Table 1.

Table 1: Extent That Agency Officers

Had/Had Not Received OCI Training

and Their Views on Whether More

Training Would Improve the Process

DOE EPA Navy Total

Number of officers who had

1 day or more of OCI

training

12 1 3 16

Number of officers who had

less than 1-day of OCI

training

10 8 10 28

Number of officers who had

no OCI training

5 6 11 22

Number of officers who

said the OCI screening

process could be improved

with more training

2 9 8 19

Source: GAO interviews with 66 agency procurement officers.

As shown, 44 of 66 contracting officers reported receiving some OCI

training. (Sixteen reported receiving more than 1-day of OCI training and 28

reported receiving less than 1-day of OCI training.) However, 22 (one-third)

of the officers reported receiving no training. Nineteen of the 66 officers

expressed the belief that more training would improve the OCI screening

process.

We reviewed EPA’s and DOE’s OCI training materials. EPA’s material

discussed Policy Letter 89-1 and FAR requirements, procedures to follow if

the existence of an OCI were to be identified, and basic steps in making an

OCI decision. The training materials also emphasized basic information in

making OCI determinations, including whether the work to be performed

by the contractor was related to work the contractor was also doing for

the industry and how much work was performed for commercial clients

over the last 3 years.

DOE’s training materials covered similar subjects. In addition, DOE’s training

emphasized the availability of a variety of sources of information such as

annual reports that could (1) be used by contracting officials to

understand the business relationships of a contractor, (2) assist in

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verifying the information in the contractor’s certificate that no actual or

potential conflict of interest exists, and (3) help identify potential conflicts

of interest.

To identify the extent that agencies used such independent sources of

information in examining for potential contracts, we asked 57 contract and

program personnel at the 3 agencies (DOE-26, EPA-11, Navy-20) whether

they were using selected external sources of information. Table 2 shows

the results of our discussions.

Table 2: Number of Agency Officials

Who Said They Reviewed Various

Information Sources

Information source DOE EPA Navy Total

Annual reports 13 1 1 15

SEC filings (10-Ks)a 10 0 1 11

Resumes 19 7 10 36

Marketing brochures 5 5 3 13

List of contracts 19 7 5 31

aSEC Form 10-K is a corporate annual report required by the SEC Act of 1934 and contains

financial information and a description of the general scope and nature of the business of a

company and its subsidiaries.

Source: GAO interviews with 57 agency officials.

As shown, DOE contracting officials most frequently cited using the full

range of information sources. DOE procurement officials attributed such

widespread use to its training courses.

Officials at DOE, EPA, Navy, and OMB generally agreed about the importance

of ensuring that contracting officials receive sufficient conflict of interest

training. EPA officials also pointed out that subsequent to our interviews

with procurement officials additional training had been provided. OMB

officials said that they believed agency procurement staff needed to be

reminded of the importance of conflict of interest training and they

thought it would be helpful for OMB to remind agencies to ensure that their

staffs are adequately trained in this area.

FAR Organizational

Conflict of Interest

Requirements Can Be

Clarified to Avoid

Misinterpretation

OMB Policy Letter 89-1 states that, before an award of an advisory and

assistance contract is made, agency officials must take steps to identify

and evaluate the potential for conflicts of interest and determine whether

an actual OCI exists. The policy letter states that agency officials may use

information (1) from contractor certificates and (2) from any other

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substantive information available to them. Section 9.505-3 of the FAR

entitled “Providing technical evaluation or advisory and assistance

services” implements the OMB policy letter. However, the following section

of the FAR (9.506) entitled “Procedures” suggests that various sources of

information that could be helpful in evaluating the potential for conflicts

of interest should be used only in situations where contractors’ certificates

have not been obtained:

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

potential organizational conflicts of interest or to develop recommended actions, and no

organizational conflicts of interest certificates have been filed contracting officers should

first 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.” (Underscoring added)

In our opinion, this language could be interpreted to indicate that such

external sources of information should not be sought in instances where

contractor certificates have been obtained. However, OMB’s policy letter

provides that in evaluating the potential for conflicts of interest,

contracting officers may use any substantive information that is available

whether or not the certificates have been provided.

Officials at DOE, Navy, and OMB generally agreed that there was a need to

clarify the FAR. EPA officials said they were not sure such clarification may

be needed. They said that contractors’ certifications should, in most cases,

be sufficient to protect the government’s interests.

Conclusions OCI situations can be detrimental to the interests of the federal government

and, as a matter of policy, are to be identified, avoided, and/or mitigated.

As shown by a 1993 PCIE study, however, agencies’ implementation of OCI

requirements for advisory and assistance services has varied. Although

two of the three agencies covered in our review appeared to be complying,

the third agency—Navy—was reported by the DOD IG as not ensuring that

contractor certificates were received prior to contract award. Corrective

action, however, was taken during our review that reemphasized the need

for contracting officials to obtain such certificates. We also noted that

Navy contracting officials were not routinely evaluating contracts prior to

award for potential conflicts of interest. However, corrective action was

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also taken during our review that reemphasized the need for contracting

officials to comply with the conflict of interest policies and procedures set

forth in the FAR.

One-third of the agency contracting officials we spoke with indicated that

they had received no OCI training. About 19 (29 percent) believed that

additional training could help improve OCI screening. Each of the agencies

included in our review agreed on the importance of OCI training and OMB

suggested it would be helpful if OMB reminded agencies to ensure that

training is provided.

The importance of the OCI requirements of the OMB policy letter are

reflected by their inclusion into the FAR as federal regulation.

Unfortunately, the FAR could be interpreted to suggest that if OCI

certifications have been obtained from contractors, agencies should not

obtain additional information in conducting an evaluation of the potential

for conflicts of interest. In actuality, whether or not OCI certifications have

been obtained, contracting officials should be encouraged to obtain any

additional information they believe is necessary and appropriate in order

for them to identify and evaluate the potential for conflicts of interest.

Recommendations to

the Director, OMB

We recommend that the Director, OMB (1) emphasize to heads of agencies

the importance of ensuring that contracting officials receive sufficient

training to help them to identify and to avoid and mitigate OCI situations

and (2) take steps to avoid the possibility that the FAR might be interpreted

to imply that if certificates have been obtained from contractors, agencies

should not obtain other information in conducting an evaluation of the

potential for conflicts of interest. One way of accomplishing both

recommendations without going through the formal process of modifying

the FAR would be by issuing a new policy letter or supplement to Policy

Letter 89-1.

Agency Comments DOE, EPA, DOD, Navy, and OMB officials reviewed a draft of this report.

Comments were provided on various dates between September 7 through

20, 1995, by the Deputy Assistant Secretary for Procurement and

Assistance Management and the Acting Director, Office of Headquarters

Procurement Operations, DOE; the Director, Office of Acquisition

Management, EPA; the Director, Defense Procurement, DOD; the Special

Assistant for Management and Administration, Navy; and the Deputy

Page 15 GAO/GGD-96-15 Government Contractors
B-260246 

Administrator and the Deputy Associate Administrator, Office of Federal

Procurement Policy, OMB.

Each of the agencies agreed with our observations and recommendation

to OMB regarding the need to emphasize the importance of ensuring that

contracting officials receive sufficient conflict of interest training.

DOE, DOD, Navy, and OMB agreed with our recommendation to OMB

regarding the need to take steps to avoid the possibility that the FAR could

be misinterpreted. EPA officials, however, said they interpreted section

9.506 of the FAR as providing guidance to contracting officials in those

instances when contractors’ certificates are not required. When a

certificate is required by the FAR, the officials believed that the certificate

itself will provide the primary source of information on potential conflicts.

They said that the contracting officer may choose to seek additional

information, as he or she sees fit.

We do not disagree with EPA’s view that when a certificate is required

under the FAR, the contracting officer may choose to seek additional

information in order to evaluate the potential for conflicts of interest. Our

point, however, is that the current wording in the FAR could be interpreted

as indicating that such information should be sought only in instances

when contractor certificates have not been obtained. To avoid this

possibility, we believe the FAR should be clarified.

EPA officials also said they believed that our suggested approach to

accomplishing both recommendations to OMB through issuing a new policy

letter or supplement to Policy Letter 89-1 could lead to conflicting

guidance on the subject since the FAR language would remain the same. We

provided this suggestion as a possible alternative to modifying the FAR. If

OMB chooses, the FAR could be modified. In its comments, OMB suggested

another possible means to implement the recommendations—sending a

memorandum to senior agency procurement officials. We believe the

manner of implementation should be up to OMB’s discretion.

OMB officials also suggested that it might be beneficial for us to address

our recommendations to the Administrator, Office of Federal Procurement

Policy, rather than to the OMB Director. Our usual practice is to address the

recommendations to the agency head. The Director, of course, could

delegate the responsibility to implement the recommendations to the

Administrator.

Page 16 GAO/GGD-96-15 Government Contractors
B-260246 

DOD and Navy officials agreed that the Navy should comply with the FAR

requirement to evaluate the potential for conflict of interest situations

prior to contract award. They pointed out that corrective action had been

taken during the course of our review, in the form of various directive

memorandums, to reemphasize the need for contracting officials to

comply with the FAR’s requirements. Because of the action taken, we are

not making a recommendation on this issue.

As agreed with your office, unless you publicly announce the contents

earlier, we plan no further distribution until 30 days from the date of this

report. At that time, we will send copies of this report to the Director of

the Office of Management and Budget, the Secretaries of Energy, Defense,

and Navy, and the Administrator of the Environmental Protection Agency.

We will also provide copies to the Chairman, Subcommittee on Post Office

and Civil Service, Senate Committee on Governmental Affairs, and other

appropriate congressional committees. Copies will be made available to

other interested parties upon request.

Richard Caradine, William Bosher, and Carolyn Samuels of our General

Government Division and Ronald Belak of our Denver Regional Office

were major contributors to this report. If you have any questions about

this report, please call me on (202) 512-3511.

Sincerely yours,

Timothy P. Bowling

Associate Director

Federal Management and Workforce

 Issues

(966588) Page 17 GAO/GGD-96-15 Government Contractors
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