Organizational Conflicts of Interest Due to the "Revolving Door" in Federal Contracts

It is common for individuals to switch roles between the public and private sectors in the federal contracts industry. Also known as the "revolving door" in industry parlance, this practice often leads to government officials leaving their positions to work for federal contractors or contractor employees obtaining roles in government agencies that regulate or award contracts to their former employers. As one can imagine, this practice can and often does lead to actual or perceived conflicts of interest at various stages of the procurement process. The Federal Acquisition Regulation (FAR) subpart 9.5 describes three types of organizational conflicts of interest (OCI) that may arise during the procurement lifecycle. These include biased ground rules, unequal access to non-public information, and impaired objectivity. Moreover, FAR § 3.1101 defines personal conflict of interest as a situation in which a covered employee has a financial interest, personal activity, or relationship that could impair the employee's ability to act impartially and in the government's best interest when performing under the contract.

Generally, an OCI involving biased ground rules arises when a contractor that helped develop the solicitation requirements for a contract attempts to compete for that contract. However, a biased ground rules conflict of interest may also arise when a government employee who helped develop the requirements for a solicitation engages in employment negotiations with a contractor that later competes for that contract. Furthermore, FAR § 3.104-2(b)(2) warns agency officials that contact with an offeror during an ongoing acquisition may constitute seeking employment. In such situations, the personal conflict of interest, whether actual or perceived, may be attributed to the contractor with which the government employee engages in employment negotiations. Government employees who engage in such negotiations must disqualify themselves from the procurement process per 5 C.F.R. §§ 2635.604 and 2635.606. Additionally, FAR § 3.104-2(b)(2) puts government officials on further notice that the statutory prohibition in 18 U.S.C. 208 may require their disqualification even if their duties do not amount to personal and substantial participation in the acquisition process.

In B-419560.3 (Comp. Gen.), B-419560.4, B-419560.5, B-419560.7, such a conflict of interest led to the Government Accountability Office (GAO) sustaining a bid protest against the award of a $544 million Navy contract for an aircraft-mounted hamming system for low band radar. In the 2021 protest, the protestor alleged that the Navy failed to reasonably consider the impact of an apparent conflict of interest stemming from the actions of a government employee who developed specifications for the subject solicitation while negotiating a potential employment opportunity with the eventual awardee. Notably, during his time at the Navy, the former government official worked closely with both the awardee and the protestor during the performance of the previous contract. The Navy did not dispute that this former government employee actively participated in the development of specifications for the solicitation of the subject contract. The Navy also did not dispute that this former government employee was negotiating an employment opportunity with the eventual awardee during the same period. It was also uncontested that the official engaged in this conduct without meeting the qualification or reservation requirements of FAR § 3.104-2(b) or its related applicable government ethics rules.

Instead, the crux of the Navy’s arguments was centered around an internal investigation the Navy conducted in response to the protestor’s initial allegations of conflict of interest. The Navy argued that according to the investigation results, the official’s actions had no discernable impact on the competition. The Navy took the position that the official had no authority to approve changes to the specification requirements as all such changes were approved at least two levels above him. The Navy also maintained that not only did the former employee have no impact on the results of the evaluation, but any recommendations he made may have actually benefited the protestor instead of the awardee. The GAO disagreed with the Navy and sustained the protestor’s allegations, determining that, at a minimum, an apparent conflict of interest existed under the circumstances, which the Navy had failed to address or mitigate.

The GAO began its analysis by explaining that there was a presumption of competitive prejudice in cases such as these, where the facts establish an apparent conflict of interest. To overcome this presumption, the agency must affirmatively demonstrate an absence of competitive harm. Here, the Navy failed to do so. In response to the Navy’s arguments regarding the official’s lack of authority to approve changes to the specifications, the GAO determined that considering the official’s input in developing the specifications, it was of little consequence that higher-ranking Navy officials retained ultimate decision-making authority. The GAO explained that the Navy failed to detail the specification approval process or describe the extent to which the approval process relied on the official’s recommendations and technical expertise. Therefore, the Navy failed to overcome the presumption of competitive prejudice as a conflict could exist even if the Navy did not rely solely on the official’s input in developing or changing the specifications.

The GAO also found the Navy’s second line of arguments regarding the official’s lack of impact on the eventual evaluation unpersuasive and entirely misplaced. In sustaining the protest, the GAO explained that the reasoning behind a strict limitation on both actual and apparent conflict of interests in such situations is that the potential of competitive harm is generally difficult to prove through demonstrable evidence. Therefore, a failure to find verifiable evidence that the official impacted the evaluation was insufficient to suggest a lack of a conflict or bias in the specifications because the competitive harm flowing from such conflicts is not always susceptible to demonstrable proof. Therefore, the GAO ultimately decided that the appearance of impropriety resulting from the official’s actions during this acquisition sufficiently tainted the integrity of the procurement to unacceptable levels, and the protest was sustained.

Contractors should be mindful of the conflict of interest risks posed by the "revolving door" in federal procurement. Contractors should avoid holding employment discussions with government officials that help develop the requirements of a solicitation in which they may wish to participate later since even the perception of impropriety may be particularly difficult to overcome in such situations. Additionally, employment negotiations with such government officials should be avoided altogether just before or during an acquisition to prevent the creation of any actual or perceived conflict of interest, as either may disqualify the contractor from participating in the acquisition. If contractors become aware of such a conflict of interest, it is imperative that they bring it to the attention of procurement officials immediately. If flagged promptly, it may be possible to mitigate the impacts of the conflict of interest in certain situations through subsequent activities by unbiased officials that restore the actual and perceived integrity of the acquisition. If employment discussions with government officials are anticipated, contractors can benefit from having standardized internal procedures for holding such discussions. If designed with input from counsel, such procedures may address and mitigate potential conflicts through practices that promote conflict avoidance such as early identification and appropriate disclosure.

This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.

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Organizational Conflicts of Interest Due to the "Revolving Door" in Federal Contracts

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