The Federal Acquisition Regulation (FAR) § 9.5 generally requires the Government to avoid, address, or mitigate significant conflicts of interest to prevent giving unfair competitive advantage to offerors. Contracting officers (CO) are responsible for avoiding and addressing potential conflicts of interest. The Government Accountability Office (GAO) will generally uphold a CO’s determination involving a potential conflict of interest unless the determination is unreasonable or otherwise unsupported by the record. A conflict of interest involving biased ground rules exists when a contractor performing on a government contract sets the ground rules for competition for that government contract. In doing so, the contractor knowingly or unknowingly gives itself a competitive advantage. An example of a procurement involving biased ground rules is a contractor competing for a contract for which it helped develop the statement of work. Depending on the specific facts, contractors may prevent companies who set the ground rules for a procurement from competing in that procurement through a pre or post-award protest. In bringing such protests, the protestors must present evidence that the ground rules for the competition were biased, giving an unfair advantage to a bidder or an awardee.

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.

The Federal Acquisition Regulation (FAR) prescribes the use of Limitation of Costs or Funds clauses in cost-reimbursable contracts that are either fully or incrementally funded. These clauses require contractors to follow specific procedures to notify the contracting officer (CO) when anticipated costs on a cost-reimbursable contract exceed a pre-determined threshold (typically 75 percent of the estimated costs), provide a revised estimate of costs for the remainder of the contract, and seek the CO’s approval to obtain additional funding. While FAR § 32.706-2 instructs the CO to insert the limitation of cost clause (LOCC) at FAR 52.232-20 in fully funded cost-reimbursable contracts, it instructs the CO to utilize the limitation of funds clause (LOFC) at FAR 52.232-22 in cost-reimbursable contracts that are incrementally funded.

These otherwise nearly identical clauses serve the dual purpose of protecting the contractor and the government from unfunded cost overruns. Firstly, the contractor is protected from the risk of the government’s unexpected refusal to pay additional costs due to the prior approval requirements imposed by the LOCC and the LOFC. Secondly, the LOCC and the LOFC protect the contractor by relieving any performance obligations on the contract beyond the stated cost limitation in the absence of the CO’s approval of a raised ceiling. Meanwhile, the clauses also protect the government by limiting the inherent risks of overpayments in cost-reimbursable contracts. That is, the LOCC and LOFC help prevent unnecessary cost overruns by requiring the contractor to go through an approval process to obtain additional funding before continuing performance on the contract beyond the contract’s stated cost ceiling. By setting a cost limitation ceiling, the government effectively protects itself from unexpectedly having to pay the contractor more than the anticipated costs set aside for the contract. The use of the LOCC or the LOFC also discourages contractors from utilizing unrealistically low pricing to obtain a competitive advantage during the solicitation stage of a cost-reimbursable contract.

*** REGULATORY UPDATE: On November 12, 2024, the General Services Administration, Department of Defense, and National Aeronautics and Space Administration issued an interim rule, which went into effect the same day. The interim rule amended the Federal Acquisition Regulation to clarify System of Award Management (SAM) pre-award registration requirements. The rule revises the solicitation provision at FAR 52.204-7 to clarify that while an offeror must be registered in SAM at the time of offer submission and at the time of contract award, the offeror need not be registered in SAM at every moment in between those two points. Accordingly, parts of the Government Accountability Office and the Court of Federal Claims decisions that levy a requirement for offerors to maintain a continuous, uninterrupted, SAM registration during the entirety of the pre-award process are no longer applicable.***

The Federal Acquisition Regulation (FAR) requires procuring agencies to include various mandatory provisions in solicitations to protect the government’s contractual and policy interests. For instance, the government must include the provision at FAR 52.204-7 “System for Award Management” in all solicitations unless specific exceptions apply. In recent bid protest decisions, the Government Accountability Office (GAO) has held that when the government fails to include a mandatory provision in a solicitation, it may not then rely on that provision to exclude prospective offerors from competition. Additionally, there is no requirement that mandatory FAR provisions must be incorporated into a solicitation by operation of law when they have been omitted. Consequently, the effects of such exclusion on the government’s award decision may be somewhat unpredictable. Notably, despite the general rule that government contracts be interpreted in accordance with the included terms, conditions, and clauses, and unless a deviation has been obtained – certain mandatory clauses (e.g. termination for convenience clause) are read into federal contracts whether or not expressly included in the contract under the Christian Doctrine.