Praise from industry and dissatisfaction from watchdogs is the reception garnered by new Defense Department organizational conflict of interest rules--which by common agreement are less far-reaching than what the Pentagon initially proposed in April.

The new regs, issued as a final rule on Dec. 29, apply only to major defense acquisition programs rather than all DoD procurements, as the proposed rule had envisioned. MDAPs are programs the Pentagon estimates will require research, development, testing and evaluation spending in excess of $365 million in fiscal 2000 constant dollars, or simply will cost more than $2.19 billion to buy (not including lifecycle costs), also in constant fiscal 2000 dollars.

In another major change, the final rule places less stringent controls on firms hired to perform systems engineering and technical assistance from also bidding as a prime or a subcontractor on the development of a weapon system for which they were providing SETA work.

The original proposed rule always had exceptions baked into its prohibition on firms with SETA units from bidding on subsequent development work. But the final rule includes broader language not in the proposed rule that says that so long as a SETA unit or firm is "able to provide objective and unbiased advice," the head of a contracting activity can make a determination that allows future  company participation in a development and production procurement.

The final rule also backs off from calling mitigation the preferred method of resolving an OCI. Rather, Defense contracting officers are now instructed to resolve OCIs "in a manner that will promote competition and preserve DoD access to the expertise and experience of qualified contractors." Contracting officers are also enjoined not to "unnecessarily restrict the pool of potential offerors in current or future acquisitions."

In a discussion about the final rule printed in the Federal Register, Defense officials say that the original proposed language stressing mitigation could have had the unintended effect of contracting officers approving an OCI resolution "without considering all appropriate facts and information."

OCI mitigation includes actions such as placement of internal company firewalls (say, between SETA staff and the bid proposal team), having a company subcontract with an independent company to perform the work at the heart of an OCI, or the government simply deciding to release previously safeguarded information to all potential offerors to a potentially OCI-driven procurement.

In the discussion, Pentagon officials acknowledge that some DoD agencies might routinely favor avoidance rather than mitigation as an OCI solution, hence final rule language requiring contracting officers to consider all potential OCI resolutions. Avoidance consists of actions such as excluding a class of contractors from bidding on work if their participation would create a future OCI, structuring the contract so that a company only views already publically-available information, or contractually excluding from a procurement tasks that would require a contractor to utilize subjective judgment.

In a blog post, Project on Government Oversight General Counsel Scott Amey said the final rule "reads like a contracting association lobbying letter." Meanwhile, Professional Services Council President Stan Soloway said the final rule "provides much needed clarity and focus."

The final rule is hardly the government's last word on OCI, however, since the Office of Federal Procurement Policy is at work on a set of regulations that will modify the Federal Acquisition Regulation.

For more:
- read the final rule (.pdf) and the earlier proposed rule (.pdf)
- read POGO's reaction, PSC's reaction, or simply buy a Yin-Yang clock from Amazon.com

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