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. 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 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. 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 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.. 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 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. 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.