United States: Proposed FAR Rule: A New Regulatory Framework For Organizational Conflicts Of Interest And Unequal Access To Nonpublic Information

Last Updated: May 13 2011
Article by Keith Szeliga and Anne Perry

On April 26, 2011, the Department of Defense ("DoD"), General Services Administration ("GSA"), and National Aeronautics and Space administration ("NASA") published a proposed rule to amend the Federal Acquisition Regulation ("FAR") coverage of organizational conflicts of interest ("OCIs"). See 76 Fed. Reg. 23236 (Apr. 26, 2011). In addition to transferring the regulatory coverage of OCIs from FAR Part 9, "Contractor Qualifications," to FAR Part 3, "Improper Business Practices and Personal Conflicts of Interest," the proposed rule departs from existing FAR coverage of OCIs, as well as longstanding Government Accountability Office ("GAO") precedent, in several important respects. Comments on the proposed rule are due by June 27, 2011.

Organizational Conflicts of Interest

The proposed rule distinguishes between two categories of OCIs: (1) those that risk impairing the integrity of the competitive acquisition process by creating an unfair advantage in competing for a future requirement and (2) those that impact the Government's business interest by potentially compromising the objectivity of a contractor's judgment during performance. These categories of OCIs correspond to what GAO commonly refers to as "biased ground rules" OCIs and "impaired objectivity" OCIs, respectively. The third category of OCIs identified by GAO, "unequal access to nonpublic information," would be removed from the OCI context, but still addressed, just separately in FAR Part 4.

Under the proposed rule, contracting officers would have broader discretion to address – and even accept the risk – of OCIs that impact the Government's business interest as opposed to the integrity of the procurement process. With regard to the former category of OCIs, the proposed rule provides that "the contracting officer has broad discretion to select the appropriate method for addressing the conflict, including the discretion to conclude the Government can accept some or all of the performance risk." If an OCI impacts the integrity of the procurement process, in contrast, "the contracting officer must take action to substantially reduce or eliminate the risk." Hence, in those circumstances where the OCI creates what has traditionally been referred to as an "impaired objectivity OCI," the contracting officer could him/herself effectively waive the OCI.

The proposed rule also arguably departs from GAO precedent in its treatment of OCIs arising from work performed by an offerors' affiliates. GAO has traditionally treated a contractor and its affiliates as the same entity for purposes of OCI analysis. The proposed rule, however, would require the contracting officer to analyze the corporate and business relationship between the offeror and the affiliate to determine whether it is possible to mitigate the risk of an OCI arising from the affiliate's work. Specifically, the contracting officer would be required to consider factors such as whether the offeror and affiliate are controlled by a common corporate parent, whether the overall corporate organization includes internal barriers that limit the flow of information and personnel, whether the offeror and the affiliate are separate legal entities and managed by separate boards, whether the corporate organization has instituted recurring OCI training and protections against OCIs, and whether the affiliate can influence the offeror's performance of its contractual requirements. The proposed rule also identifies several "structural or behavioral barriers" that could be used to lessen the risk that the potentially conflicting financial interest of an affiliate will influence the contractor's exercise of judgment during contract performance. These include binding resolutions prohibiting certain individuals or entities from participating in contract performance, the requirement for a nondisclosure agreement between the contractor and its affiliate, the utilization of independent directors that have no prior relationship with the contractor, and the creation of a corporate OCI compliance official to oversee implementation of the mitigation plan. Properly managed by the contractor and evaluated by the government, this could reduce the risk of OCI created by affiliates.

The proposed rule also includes a new solicitation provision and three new contract clauses intended to increase uniformity in the treatment of OCIs:

  • FAR 52.203-XX, "Notice of Potential Organizational Conflict of Interest," would require an offeror to disclose all relevant information regarding any OCI, to represent that it has disclosed all such information, and to explain the actions it intends to use to address any OCI.
  • FAR 52.203-ZZ, "Disclosure of Organizational Conflict of Interest After Contract Award," would require a contractor to make a prompt and full disclosure of any new or newly discovered OCIs.
  • FAR 52.203-YY, "Mitigation of Organizational Conflicts of Interest," would incorporate an offeror's mitigation plan into the contract and also address changes to, and noncompliance with, the plan.
  • FAR 52.203-YZ, "Limitation of Future Contracting," would be used when the contracting officer determines to avoid a potential OCI through a limitation on future contracting.

The contracting officer would have discretion both in determining whether to include one or more of these clauses in a solicitation and in tailoring the clauses as appropriate. While the requirements of these clauses is likely not new to contractors, as similar requirements have been imposed by special contract clauses used by many agencies, the generalized coverage and reach of the FAR would likely expand their applicability to a far broader range of contracts and, thus, impose a heavier burden on companies to monitor potential OCIs over this increased contract pool.

Access to Nonpublic Information

The proposed rule includes a new FAR Subpart 4.4, entitled "safeguarding information within industry," that is intended to preclude contractor use or disclosure of nonpublic information for any purpose unrelated to contract performance and to ensure that contractors do not obtain any unfair competitive advantage by virtue of access to such information.

FAR Subpart 4.4 would create a new framework for addressing the potential competitive harm resulting from unequal access to nonpublic information. Under the new approach, the contracting officer would be required to consider whether access to the nonpublic information was provided either directly or indirectly by the Government or by a third party. If the information was provided by a third party, the contracting officer would not be required to take – but apparently would not be prohibited from taking – steps to mitigate the potential unfair competitive advantage. If, on the other hand, access to the information was provided either directly or indirectly by the Government, the contracting officer would be required to consider whether the nonpublic information is available to all potential offerors and whether access to the nonpublic information would be competitively useful. If the Government-provided information is competitively useful, and was not available to all offerors, the contracting officer would be required to mitigate the resulting unfair competitive advantage. The potential mitigation strategies identified in the proposed rule include disseminating the information to all offerors (if the nonpublic information is Government information), the use of a firewall (where only some offeror personnel have had access to the information), and disqualification from the procurement (where the contracting officer determines that neither of the foregoing strategies would be effective). The last of these mitigation techniques is particularly harsh and has not generally been required since firewalls and nondisclosure agreements should adequately resolve the unfair competitive advantage. Hence, we hope that disqualification would, as it should, remain a technique of last resort that is rarely imposed.

The proposed rule also includes four new solicitation provisions and contract clauses relating to nonpublic information. Two of these clauses are particularly interesting. FAR 52.204-XX, "Access to Nonpublic Information" would prohibit contractors from using nonpublic information for any purpose other than contract performance, require contractors to obtain nondisclosure agreements from personnel with access to such information, mandate reporting of any violations of the clause, and require the contractor to indemnify the Government for any misuse or disclosure of such information. Most sophisticated contractors already obtain and maintain nondisclosure agreements, but the requirement to report violations to the Government would likely impose a material additional burden on contractors. FAR 52.204-YZ, "Unequal Access to Information" would require an offeror to disclose whether it or its affiliates have obtained access to relevant nonpublic information from the Government, to represent that it has implemented any required firewall, and to report any breaches thereof. Again, while many contractors are familiar with such reporting requirements in proposals, the fact that the FAR would now standardize the requirement will likely require many contractors to institutionalize further their monitoring and data collection efforts in this regard.


The proposed rule is a mixed bag for contractors. On the one hand, the new contract clauses addressing unequal access to nonpublic information would impose additional compliance burdens and create additional risk. On the other hand, most contractors would benefit from the proposed rule's more flexible treatment of OCIs, particularly with regard to the contracting officer's discretion to accept the risk of OCIs that impact only the Government's business interests and the requirement for a contracting officer to consider the totality of the circumstances prior to disqualifying a contractor based on OCIs arising from work performed by an affiliate. Moreover, to the extent that most agencies adopt the ultimate FAR provisions and jettison their own unique OCI clauses and requirements, this could reduce the burden on contractors who have had to institute multiple policies and procedures to comply with the currently varied requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
22 Oct 2019, Roundtable, Los Angeles, United States

Please join us for Sheppard Mullin's Ethics and Eggs: A Breakfast Roundtable to Discuss Ethics Issues in IP Matters.

23 Oct 2019, Other, Dallas, United States

Marketing Wants To Do What? Sweepstakes, Influencers, Loyalty, and Other Advertising and Promotional Fun

25 Oct 2019, Webinar, Los Angeles, United States

Matthew Bonovich will be a speaker at this webinar.

State and local governments continue to incentivize renewable energy and battery storage, causing an increase in mergers and acquisitions among producers and specialized renewables.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions