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Proposed Change to DFARS: Heading Off Organizational Conflict of Interest

DoD has proposed new amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) to comply with Section 207 of the Weapons System Acquisition Reform Act of 2009 (WSARA).  The new regulation, which will be Subpart 203.12 of DFARS, requires DoD to revise DFARS to create standardized guidance for reporting  organizational conflicts of interest (OCI) and to tighten existing requirements on contractors in major defense acquisition programs.

General guidelines for OCI are defined in the current Federal Acquisition Regulation in Subpart 9.5.  Work areas singled out as OCI-prone in the FAR are:

  1. Management support services
  2. Consultant or other professional services
  3. Contractor performance of or assistance in technical evaluations
  4. Systems engineering and technical direction work performed by a contractor that does not have overall contractual responsibility for development or production.

DFARS subpart 203 currently covers personal conflicts of interest, reflecting that “contractor” in DFARS is currently defined as an individual rather than an organization.  The amendment to DFARS clarifies that the entire contractor firm is included in guidance to protect against conflicts of interest.  The proposed rule change reflects GAO’s decision on Aetna Government Health Plans, “that there is no basis to distinguish between a firm and its affiliates, at least where concerns about potentially biased ground rules and impaired objectivity are at issue.”

The rule change proposes two ways to avoid OCI: “Firewall, a combination of procedures and physical security arrangements intended to restrict the flow of information either within an organization or between organizations;” and “Resolve, to implement an acquisition approach that will enable the Government to acquire the required goods or services while adequately addressing any organizational conflict of interest.”

In another difference from FAR subpart 9.5., the proposed DFARS OCI rule does not include a definition of “marketing consultant” because the wording covers all contractors at DoD.

This additional subpart “Applies to contracts (including task or delivery orders) and modifications to contracts with both profit and nonprofit organizations, including nonprofit organizations created largely or wholly with Government funds” but “does not apply to the acquisition of commercially available off-the-shelf items, but does apply to acquisitions of other commercial items.”

The rule change also specifies acquisitions that are more likely to cause OCI:

  1. Pre-solicitation acquisition support services
  2. Other support services
  3. Advisory and assistance services
  4. Contractor access to non-public information

Looks like DoD has taken the steps necessary to prevent further organizational conflicts, and it’s no surprise that SETA-type services are specifically noted as more likely to cause OCI.  Contractors are on notice: either completely segregate SETA from the rest of your business (the “firewall” solution) or divest and spin it off from the company (the “resolve” solution).

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David Melcher: “a good acquisition is one that complements your core capabilities”