“Impaired Objectivity” OCIs – Be On the Lookout

As most federal contractors are aware, there are three basic types of Organizational
Conflicts of Interest (“OCIs”): “biased ground rules,” “impaired objectivity” and “unequal access
to information” OCIs. As federal contractors become more and more entrenched in particular
agencies and programs, the potential for problematic OCIs increases. This is particularly true
with “impaired objectivity” OCIs, where contractors are placed in a position of evaluating their
performance on other contracts. The purpose of this article is to explore the legal principles
behind this particular conflict of interest in the hope that problems may be avoided.

At the outset, it is important to recognize that the responsibility for determining whether
an actual or apparent OCI will arise, and the extent to which a firm should be excluded from
the competition, rests with the contracting agency, and the GAO will not overturn such a
determination unless it is shown to be unreasonable.1 In assessing whether a significant potential
conflict exists and in developing appropriate ways to resolve it, contracting officers are required
to exercise “common sense, good judgment, and sound discretion.”2 Moreover, the FAR
obligates the contractor to analyze planned acquisitions and identify and evaluate OCIs as early
in the acquisition process as possible.

An “impaired objectivity” OCI is found in cases where “a firm’s work under one
government contract could entail its evaluating itself, either through an assessment of
performance under another contract or an evaluation of proposals.”3 The concern in such
situations is that the firm’s ability to render impartial advice to the government could appear to
be undermined by its relationship with the entity whose work product is being evaluated.

An “impaired objectivity” OCI should not be found where a contractor tests products
that it also manufactures under the same contract. Indeed, the requirement that “impaired
objectivity” OCIs implicate outside financial interests of the contractor (i.e., performance
under another contract, or evaluation of proposals under another requirement) is evident in OCI
precedent.4 However, there may be situations in which a different conclusion might be reached.
If a contractor were to supply and evaluate the very same materials that it sells more broadly to
the federal government outside of that contract, an “impaired objectivity” OCI may be possible.
In that situation, the contractor might be in a position to favorably evaluate its own materials,
which could, in turn, inure to its financial benefit with regard to its sales of the same materials
under other contract vehicles.5

The GAO has also held that there is no “impaired objectivity” OCI where the contractor
performs quality assurance of its own work under an existing contract. The GAO found that
any such quality assurance would not entail a subjective evaluation of its performance.6 More
specifically, in one case, where the contractor was required to develop a “quality assurance
program to provide surveillance of-that is, to monitor-the required scheduled maintenance” under
another contract it was performing, it was not considered to be responsible for making judgments
as to what maintenance was required or how well the maintenance was being performed. The

GAO has also noted that “monitoring, standing alone, does not necessarily create the potential
for impaired objectivity.”7 In contrast, a prohibited OCI has been found where the contractor
was to “establish requirements for tests” that it or its prime contractor would perform under
another contract.8 In such case, the contractor is in a position to exercise subjective judgments
regarding its own work on an existing contract.

Although contracting officers are charged with the responsibility for monitoring OCIs,
an effective OCI mitigation plan will include procedures by which the contractor will screen
work assignments for OCIs. Once identified, the contractor must have a plan to avoid or
mitigate the OCI. Firewalling the evaluators from the contractor teams that are performing the
work on another contract, will not be considered an effective means of mitigating an “impaired
objectivity” OCI. Rather, “impaired objectivity” OCIs are often avoided or mitigated by recusal
of the contractor slated to perform the particular task.9 This is typically an effective method of
conflict avoidance, particularly if the OCI mitigation plan describes a procedure for identifying
conflicted areas of work, and reassigning that work to a subcontractor that does not have a
conflict. Similarly, where an “impaired objectivity” OCI is identified at the subcontractor level,
the OCI can be avoided or mitigated by reassigning the work to another subcontractor or to
the prime contractor. An “impaired objectivity” OCI can also be mitigated by performance
of the affected work by the government agency.10 Needless to say, this method requires close
coordination with the procuring agency.

Additionally, in limited circumstances, “impaired objectivity” OCIs may be mitigated
short of recusal. For example, in one case, the GAO found that an alleged “impaired objectivity”
OCI was adequately controlled by the following procedures: (i) the evaluation services were
to be conducted in accordance with procedures in the agency’s “Master Evaluation Plan”; (ii)
the agency’s Project Officer was to work closely with the contractor and monitor and review
its performance of evaluation services; (iii) two other agency offices were required to review
the documents to be used in the evaluation; and (iv) the evaluation contract was on a task order
basis, and, as a result, the Agency could exercise care and directly control the scope of the
contractor’s work to ensure that the firm did not evaluate a program in which it was heavily
involved.11 As is evident, there were a number of controls in place that were found to adequately
mitigate the OCI. These factors will not be present in most cases, and accordingly, as a general
matter, recusal is considered the safest and most effective method for mitigating these types of
OCIs.

Finally, a newly proposed OCI rule (proposed on April 26, 2011), if enacted, would
revamp the OCI mitigation playing field. Specifically, under the proposed rule, three primary
means of mitigation are listed: (1) requiring a subcontractor or team member to perform (i.e.,
recusal); (2) requiring the contractor to “implement structural or behavioral barriers, internal
controls or both”; and (3) obtaining advice from more than one source on a particular issue. It
remains to be seen whether this rule will be enacted, and if so, how it may broaden the effective
means of OCI mitigation techniques.