Legal Blog

The Search for Organizational Conflicts Of Interest

A recent General Accountability Office (GAO) decision underscores why all contractors should be on the lookout for potential Organizational Conflicts of Interest (OCIs) in every nook and cranny, including in their teaming partner’s nooks and crannies.  GAO’s opinion also suggests that the search for an OCI should be completed, and a mitigation plan, if necessary, should be implemented even before submission of a proposal. In International Business Machines Corporation, B-410639 (January 15, 2015), GAO found an OCI which led to the exclusion of International Business Machines (IBM) from a competition for DRAS2,a Defense Logistics Agency contract to modernize the Defense Retiree and Annuitant Pay System (DRAS).  GAO also concluded that the OCI could not be mitigated after-the-fact in the circumstances in which IBM found itself, leaving IBM out in the cold. The OCI was not IBM’s conflict.  Rather, the OCI was with Horizon Industries, a subcontractor to Booze Allen Hamilton (BAH) and IBM proposed BAH as a subcontractor on the DRAS2 procurement.   The OCI arose because BAH had been involved independently of its relationship with IBM in providing administrative, non-substantive support to an individual employed by Horizon when he was engaged in the acquisition planning for the DRAS2 procurement. When it came to the DRAS2 procurement, IBM said it had no OCI.  BAH said it had no OCI.  But, the government thought differently. DLA found that an OCI by any affiliate taints all other affiliates.  So, Horizon Industries had an OCI, which transferred to BAH because of the Horizon/BAH contractual relationship.   The Horizon/BAH conflict then infected IBM because of the teaming arrangement between IBM and BAH.  The OCI, therefore, was something for which IBM, the offeror on DRAS2, was responsible even though it knew nothing about it. DLA found that this conflict was a “biased ground rules” conflict, which arises when a firm proposing to perform a government contract has helped “set the ground rules” for that procurement.  The concern is that the firm’s work on the prior procurement could skew the second competition, even unintentionally, in favor of the firm or its affiliate.  Horizon Industries, in this case, had the ability to influence the work which would be solicited in the DRAS2 procurement, and that “biased ground rules” conflict transferred to BAH and ultimately to IBM. DLA also concluded that walling off or even terminating the affiliated Horizon Industries employee who had performed the acquisition planning work could not mitigate the OCI “due to the ultimate relationship of one entity to another” and because it came too late, i.e., “after he had influenced the ground rules for the procurement.”  GAO left open the possibility that an entity caught in this situation in the future could try to show that the acquisition planner did not know that the affiliate would be competing in the later competition and therefore had no reason or basis to influence the matter.  But, this type of proof could be hard to come by in many, if not most, situations. IBM lost the procurement because of a conflict of which it had no reason to know and which was several tiers removed from it.  The most important lesson learned from this convoluted OCI situation is to ask hard questions before you leap into a teaming relationship, and if there is any doubt, create a mitigation plan before it is too late.  Further, even if you see nothing in the form of a conflict, ask for representations and warranties from your teammates before you sign onto what could become a fool’s errand.  A contractual representation and warranty that turns out to be false can become a basis for a damages claim, and that possibility might encourage potential teaming partners to treat the OCI matter with the seriousness it is due, before representing that no OCI exists.  

About Edward Tolchin

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Mr. Tolchin’s practice is focused on government contracting, cybersecurity, business litigation, and technology matters. In government contracting issues, Mr. Tolchin represents prime and subcontractors in contract negotiation and formation matters and in disputes involving both government and commercial business issues. He has been involved in procurement cases before many of the federal and state boards of contract appeal, Government Accountability Office, Small Business Administration, United States Court of Federal Claims, Court of Appeals for the Federal Circuit and other federal and state courts across the United States.

His Business litigation practice involves large and small matters in federal and state courts and before numerous arbitration panels. In the technology arena, Mr. Tolchin has assisted in disputes, licensing, and business development matters for clients ranging from startups to Fortune 500 companies.