The Department of Defense (DoD), General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) have proposed to amend the Federal Acquisition Regulation (FAR) to expand the scope of contractor duties with respect to their employees' personal conflicts of interest (PCIs). The FAR currently imposes PCI prevention requirements only where contractor personnel are performing "acquisition functions closely associated with inherently governmental functions." The proposed amendment would extend those requirements to apply where contractor employees are performing any "function closely associated with inherently governmental functions," including such tasks as organizational and strategic planning, budget preparation, training, and inspection services. This proposed rule change would significantly impact a large number of contracts across a range of services, and its development should be followed closely.
Current PCI Requirements
Under the FAR, a PCI arises when an employee "has a
financial interest, personal activity, or relationships that could
impair the employee's ability to act impartially and in the
best interest of the Government when performing under [a]
contract." The FAR's current PCI rules only apply where a
contractor's employee is performing an "acquisition
function closely associated with inherently governmental
functions." The activities covered by that term are relatively
straightforward, and are enumerated in the regulation as
follows:
1. Planning acquisitions;
2. Determining what supplies or services
are to be acquired by the Government, including developing
statements of work;
3. Developing or approving any contractual
documents, to include documents defining requirements, incentive
plans, and evaluation criteria;
4. Evaluating contract proposals;
5. Awarding Government contracts;
6. Administering contracts (including
ordering changes or giving technical direction in contract
performance or contract quantities, evaluating contractor
performance, and accepting or rejecting contractor products or
services);
7. Terminating contracts; and
8. Determining whether contract costs are
reasonable, allocable, and allowable.
The rules do not apply to contracts that do not exceed the
simplified acquisition threshold – currently $150,000 –
or acquisitions of commercial items.
The FAR PCI rules require that contractors have procedures in
place to identify, avoid, and mitigate PCIs for each covered
employee. These procedures include obtaining and maintaining
disclosures from covered employees of any interests that might be
affected by the work performed for the government, such as
financial interests of the employee and members of the
employee's family and household, other employment or financial
relationships, and gifts. Contractors must ensure that covered
employees keep this information updated. In addition, contractors
have a responsibility not to assign an employee to a task that
implicates an identified PCI, must prohibit the use of non-public
information for personal gain, and must require covered employees
to sign a non-disclosure agreement. Contractors must report any PCI
violations and subsequent corrective action to the contracting
officer. Although this list is not exhaustive, the administrative
burden of PCI compliance clearly is not insignificant.
The Proposed Amendment
The proposed amendment to the FAR PCI rules was prompted by the
National Defense Authorization Act for Fiscal Year
2013, which required the Secretary of Defense to examine
whether the PCI rules should be extended beyond contractor
personnel performing acquisition functions to cover (1) functions
other than acquisition functions; (2) personal services; and (3)
staff augmentation services. After requesting and reviewing
feedback from 23 military departments and defense agencies, the DoD
determined that extension of the PCI rules was in the best interest
of the taxpayers.
The proposed amendment would extend the scope of the PCI rules to
apply where contractor personnel perform not just acquisition
functions, but any function closely associated with inherently
governmental functions. The Federal Register notice announcing the
proposed amendment suggests that FAR 7.503(d) would provide the
definition of a "function closely associated with inherently
governmental functions." Notably, FAR 7.503(d) states that it
is meant to be "a list of examples of functions generally not
considered to be inherently governmental functions" (emphasis
added), but which might "approach being in that category"
under certain circumstances. The list of activities contemplated by
FAR 7.503(d) is far-reaching:
1. Services that involve or relate to
budget preparation, including workload modeling, fact finding,
efficiency studies, and should-cost analyses, etc.;
2. Services that involve or relate to
reorganization and planning activities;
3. Services that involve or relate to
analysis, feasibility studies, and strategy options to be used by
agency personnel in developing policy;
4. Services that involve or relate to the
development of regulations;
5. Services that involve or relate to the evaluation of another contractor's performance;
6. Services in support of acquisition planning;
7. Contractors providing assistance in contract management (such as where the contractor might influence official evaluations of other contractors);
8. Contractors providing technical evaluation of contract proposals;
9. Contractors providing assistance in the development of statements of work;
10. Contractors providing support in preparing responses to Freedom of Information Act requests;
11. Contractors working in any situation that permits or might permit them to gain access to confidential business information and/or any other sensitive information (other than situations covered by the National Industrial Security Program described in 4.402(b));
12. Contractors providing information regarding agency policies or regulations, such as attending conferences on behalf of an agency, conducting community relations campaigns, or conducting agency training courses;
13. Contractors participating in any situation where it might be assumed that they are agency employees or representatives;
14. Contractors participating as technical advisors to a source selection board or participating as voting or nonvoting members of a source evaluation board;
15. Contractors serving as arbitrators or providing alternative methods of dispute resolution;
16. Contractors constructing buildings or structures intended to be secure from electronic eavesdropping or other penetration by foreign governments;
17. Contractors providing inspection services;
18. Contractors providing legal advice and interpretations of regulations and statutes to Government officials; and
19. Contractors providing special
non-law-enforcement, security activities that do not directly
involve criminal investigations, such as prisoner detention or
transport and non-military national security details.
While the amended rule still would not apply to acquisitions not
exceeding the simplified acquisition threshold or commercial items,
the breadth of the list of activities in FAR 7.503(d) causes the proposed rule to
encompass a large number of contracts. Indeed, based on data from
the Federal Procurement Data System, the agencies
estimate that between March 1, 2012 and March 1, 2013, there were
22,716 contract actions over the simplified acquisition threshold
that were coded as functions closely associated with inherently
governmental functions. Thus, the proposed amendment would require
that many previously unaffected contractors put PCI prevention
protocols into place.
Public Comments
The Defense Acquisition Regulations Council and the Civilian Agency Acquisition Council are accepting written comments on the proposed amendment until June 2, 2014, and have expressly requested comments from small business concerns. The matter number is FAR Case 2013-022.
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