By Emelie Rutherford
The Pentagon’s newly unveiled rule for handling organizational conflicts of interest (OCI) by defense contractors is raising some concerns in the defense industry because it drops a previously proposed plan regarding mitigation of such clashes.
The Department of Defense (DoD) published the final OCI rule in the Federal Register on Dec. 29, 2010, eight months after it unveiled a draft rule that raised some eyebrows in industry and on Capitol Hill.
The Pentagon was directed in the Weapon Systems Acquisition Reform Act of 2009 to work to thwart OCIs that occur when one company both develops or builds a major defense system and also provides systems-engineering-and-technical-assistance (SETA) input on the product.
The Pentagon responded on April 22, 2010 by unveiling a draft rule that said some SETA contractors could be involved with the development or construction of weapon systems when mitigation steps are taken. The draft said “the preferred method to resolve an organizational conflict of interest is mitigation” over avoidance.
The Senate Armed Services Committee (SASC) questioned the “overall preference for mitigation over avoidance” in its report on the fiscal year 2011 defense authorization bill.
The Pentagon then removed the stated preference for mitigation from the final SETA rule that it unveiled last week.
The DoD says, in the Dec. 29, 2010 Federal Register notice, that it agreed with some critics of the proposed rule that “establishing a formal preference may have the unintended effect of encouraging contracting officers to make OCI resolution decisions without considering all appropriate facts and information.”
So, instead, the Pentagon replaced the draft rule’s explicit mitigation preference with a more general “statement of DoD policy interests in this area,” it says.
“Specifically, the rule now provides that it is DoD policy to promote competition and, to the extent possible, preserve DoD access to the expertise and experience of highly qualified contractors,” the final rule states. “To this end, the rule now emphasizes the importance of employing OCI resolution strategies that do not unnecessarily restrict the pool of potential offerors and do not impose per se restrictions on the use of particular resolution methods,” with some exceptions.
Richard Sylvester, vice president of acquisition policy at the Aerospace Industries Association (AIA) trade group, said yesterday he was “surprised” the final rule dropped the preference for mitigation in favor of a policy that says the Pentagon wants competition and the ability to do what is necessary to garner the right expertise.
Sylvester said the AIA is collecting feedback from its member companies on this new OCI rule. He said he suspects the firms will have concerns with the mitigation changes.
“The draft rule had said we have preference to mitigate, meaning that if at all possible we want to figure out a way to be able to employ a company that potentially has an OCI, but to be able to mitigate that OCI,” Sylvester said in an interview. “(Now) what they’ve said is, ‘We don’t have a preference for mitigation. What we want you to do is we want you to be able to make sure that there’s enough competition and that you get access to the right kind of expertise, the main expertise.’ What exactly does that mean?”
He added: “If I’m a contracting officer and I’m sitting at Wright Patterson Air Force Base, and the guidance now is, ‘I want to make sure there’s enough competition and that I get the right domain expertise.’ What do I do with that?”
It’s possible the Pentagon could issue further explanatory guidance clarifying such questions.
The Professional Services Council (PSC), the trade association for the federal government’s professional and technical services industry, also has closely monitored the OCI rulemaking process.
The PSC, in a statement, applauded the Pentagon’s move to remove the “preference for mitigation” from the final OCI rule.
That preference for mitigation, PSC said, “in practice, would most certainly not have supported almost any mitigation strategy proposed by companies.”
The AIA and PSC are both pleased the final rule dropped language in the draft saying the rule would apply to not only major defense acquisition programs but also to commercial items. The final version applies only to the big military programs.
Back in 2009 when the SASC was writing the weapons-system reform act, it received pushback from the defense companies on the OCI issue.
The original bill, crafted by SASC Chairman Carl Levin (D-Mich.) and 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 collected feedback 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 advice (Defense Daily, May 29, 2009).