By Emelie Rutherford

Industry groups are raising concerns about parts of the Pentagon’s new proposal for identifying and addressing organizational conflicts of interest (OCI) by defense contractors.

The Weapon Systems Acquisition Reform Act of 2009 notably calls for the Department of Defense (DoD) to curtail the practice of one company developing or building a major defense acquisition program while it or an affiliate provides systems-engineering-and-technical-assistance (SETA) input on the product. The Pentagon has been revising federal acquisition regulations regarding OCI, to address SETA-related and other concerns, as directed by the law that President Barack Obama signed last May.

The DoD published its proposed new OCI rule in the Federal Register on April 22 and is accepting comments on it up until June 21, as it crafts a final version.

The proposal includes some limited exceptions for when a SETA contractor also could work as the prime company or major subcontractor on a major Pentagon weapons system, though in general it would prohibit such practices.

The proposed rule also includes a new definition of an OCI and spells out three types of such conflicts, resulting from impaired objectivity, unfair access to non-public information, and biased ground rules. It says OCIs could be resolved by avoidance, limitation on future contracting, mitigation, or a combination of these methods. It would allow for waivers, at the discretion of the agency head, if the resolution of the OCI is deemed not possible or not in the government’s best interest. Contract bidders, also, would be required to disclose potential OCIs under the proposal.

Richard Sylvester, vice president of acquisition policy at the Aerospace Industries Association (AIA) trade group, gave the proposed OCI rule a mixed review in an interview with Defense Daily. He said he is pleased the proposal includes flexibility in regards to allowing companies to have different types of contracts with the DoD–so that contractors wouldn’t have to “declare their majors”–while also describing differing ways to handle OCIs.

“I’m generally pleased that it does have that kind of flexibility,” Sylvester said. He said he would like to see examples spelled out so “the contracting offices would have some ideas of what’s acceptable and not acceptable.”

Sylvester said he hopes the final rule ensures different contracting officers within the DoD are consistent in their approach to OCI rules governing the same contract. In the past, officials from different military services have set up different OCI approaches to one contract, he said.

The AIA and Professional Services Council (PSC) both raised concerns about a provision of the proposed rule that would apply the new OCI guidelines to not only major defense acquisition programs but also to some commercial items.

The newly published rule says the Pentagon is proposing “that, except for commercially available off-the-shelf (COTS) items, the rule should also apply to acquisitions of commercial items. DoD made this determination, in part, based on the belief that the acquisition of commercial services might not be free from OCI concerns.”

Sylvester said, as he reads the proposal now, “I’m concerned about how that would play out and if that’s even feasible.”

“I’m not sure how easy it is to implement contractual language for mitigation with a commercial company,” he said, questioning if commercial firms would avoid doing business with the DoD if unique OCI requirements are required in their contracts.

The PSC similarly said in a statement it is concerned that the rule would go beyond Congress’ direction in the 2009 law, which only calls for addressing OCIs for major defense acquisition programs.

The PSC, the trade association for the federal government’s professional and technical services industry, cites additional concerns with the proposed rule. It is concerned the proposal would treat multi-segment contractors as single entities, make it too easy to adopt a rule of exclusion with an OCI situation, and place too much responsibility on bidders and contractors to identify OCIs.

“While the proposal establishes a set of core principles that move in the right general direction, it nonetheless covers far more than Congress directed, adopts many new procedures and protocols that could confuse rather than aid contracting officers and contractors, presumes all market segments can and should be treated the same way, and fails to ensure that the government makes the necessary decisions in a timely manner,” said Stan Soloway, PSC’s president and CEO.

Soloway said if the “deficiencies” PSC sees aren’t fixed during the rulemaking process, “the proposed rule has the potential to negatively affect the national security industrial base.”

AIA and PSC intend to submit written comments on the proposed rule by the June 21 deadline.

Anxious about anti-OCI sentiment in Washington, D.C., 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).

The defense industry has been waiting for the new OCI rules to emerge, partly to see if similar divestitures might be forthcoming.