By Emelie Rutherford
A Senate panel is charging the Pentagon’s proposed rule for handling organizational conflicts of interest (OCI) by defense contractors is not restrictive enough.
As directed by the Weapon Systems Acquisition Reform Act of 2009, the Defense Department in April unveiled a draft rule for limiting when one company is allowed to both develop or build a major defense system and also provide systems-engineering-and-technical-assistance (SETA) input on the product (Defense Daily, April 27).
The Pentagon is accepting comments on the proposed rule until June 21, and the Senate Armed Services Committee (SASC) wants it to make changes to the draft.
The committee, in its newly unveiled report on the fiscal year 2011 defense authorization bill, says the Pentagon’s draft rule seems to be broader in scope than Congress intended, because it states SETA contractors could be involved with the development or construction of weapon systems when mitigation steps are taken.
The SASC expresses concern with the Pentagon’s draft rule showing an “overall preference for mitigation over avoidance.”
Specifically, the Pentagon’s proposed amendment to the Defense Federal Acquisition Regulation Supplement (DFARS) says “generally, the preferred method to resolve an organizational conflict of interest is mitigation.” The Defense Department proposal states a contract for SETA functions for a major defense acquisition program should ban the contractor from developing or constructing the system unless “the contractor is highly qualified with domain experience and expertise and the organizational conflict of interest will be adequately resolved” through mitigation.
“The exception provided by the proposed DFARS rule appears to be broader in scope than the exception authorized by the statute,” the SASC says in its report. “Moreover, when this language is taken in conjunction with the rule’s overall preference for mitigation over avoidance, the rule may be read to reverse the statutory presumption that SETA contractors may be permitted to participate in development and production only in exceptional cases.”
The Senate panel’s report, thus, “directs the Secretary of Defense to review this issue and ensure that the final DFARS rule is consistent with the requirements of the statute.”
The SASC also notes that some Defense Department components already have issued their own OCI guidance that is tighter than the proposed rule.
“The committee believes that the final DFARS rule should make it clear that it is not intended to override tighter standards that have been issued by DoD components,” the report states.
It remains to be seen when the Senate will debate the FY ’11 defense policy bill, which the SASC completed May 27. SASC Chairman Carl Levin (D-Mich.) wants it passed before Congress’ Fourth of July recess.
When the Senate panel began writing last year’s weapons-system reform act, it received pushback from the defense companies on the OCI issue.
The original bill, crafted by Levin and SASC Ranking Member John McCain (R-Ariz.), called for outright banning companies that provide SETA work on programs from also developing or building them. The language was relaxed after the SASC received pushback from industry.
Now the law, which President Barack Obama signed in May 2009, allows for “limited exceptions” for when contractors can develop or construct weapons systems for which they provide SETA input, to ensure the Pentagon receives needed SETA advice (Defense Daily, May 29, 2009).
Some defense companies already have reorganized because of the pending new OCI rules.
Northrop Grumman [NOC] agreed last November to sell its advisory services business TASC, Inc. to private- equity investors for $1.65 billion (Defense Daily, Nov. 10, 2009). Lockheed Martin [LMT] said this month it plans to sell its Enterprise Integration Group unit, which provides independent systems engineering and integration products and services, to avoid any OCI (Defense Daily, June 3).