On January 15, 2025, the Federal Acquisition Regulation (FAR) Council published a proposed rule overhauling the FAR’s Organizational Conflict of Interest (OCI) provisions. The proposed rule follows a December 2022 law that directed more examples and better definitions of OCIs in the FAR and is a redux of an earlier proposed rule from 2011, which languished in bureaucracy and was eventually withdrawn in 2021.
This year’s proposed rule would apply standard OCI rules to all FAR-covered procurements above the simplified acquisition threshold, except acquisitions of commercial products—prime contracts for commercial services would be subject to the rules. If adopted, the proposal would move the OCI rules to a different part in the FAR, expand the definition of OCIs, add five procurement clauses to the FAR, and provide new examples of OCIs.
President Trump’s regulatory freeze, announced on January 20, 2025, does not impede the FAR Council’s ability to solicit and review comments from industry on the proposed rule, but it does preclude the FAR Council from promulgating a final rule at least until approved by the cognizant appointees of the new administration.
Expanded OCI Rules and Definitions
The proposed rule moves the OCI regulations from FAR subpart 9.5, where they currently reside, to a new subpart at FAR 3.12. FAR Part 3 (currently named “Improper Business Practices and Personal Conflicts of Interest”) would be renamed “Business Ethics and Conflicts of Interest” to reflect its broader scope. The move to a new subpart accompanies a rewrite and expansion of the OCI rules, which begin with clearer guidance on their purpose and applicability. In addition to the new exception for commercial products, the proposed rule would not apply to subcontracts for commercial products or commercial services. Task orders, delivery orders, and basic purchasing agreements would be subject to the proposed rule.
The proposed rule categorizes the familiar three types of OCI (impaired objectivity, biased ground rules, and unequal access to information) into two broad categories. Impaired objectivity sits in a category of its own, whereas biased ground rules and unequal access to information are assigned to the general category of “unfair competitive advantage.” The rule maintains the existing acknowledgement that a contractor’s natural advantage based on incumbency or previous work is not itself an unfair advantage. In addition, the rule borrows the “hard facts” standard from precedent to establish an OCI. This standard requires that there be concrete evidence of an OCI and prevents bidders from being punished “based on mere innuendo and supposition.” See, e.g., Turner Constr. Co. v. United States, 645 F.3d 1377, 1387 (Fed. Cir. 2011); TeleCommunication Sys. Inc., B-404496.3, Oct. 26, 2011, 2011 CPD ¶ 229 at 3–4.
Consistent with the current regulations, the proposed rule would require the contracting officer to consider the potential for OCIs from the beginning of the acquisition process. The proposed rule adds a requirement that, as early as the sources sought notice, the contracting officer should ask potential offerors “if they had unequal access to any information relevant to the acquisition that could provoke an unfair advantage.” Contracting officers may rely upon offerors’ submissions, as long as there is not “conflicting information” about any possible OCI. Beyond offerors’ submissions, contracting officers may look to information from governmental sources or nongovernmental sources, including news reports, trade journals, and other third-party information sources, to check for potential OCIs.
Contracting officers may take four types of actions, or a combination thereof, to address OCIs, including a new approach of balancing the risk of an impaired objectivity OCI against the value of performance by the conflicted company:
- Avoidance: “Government action taken in one acquisition that is intended to prevent an organizational conflict of interest from arising in the current acquisition or in a future acquisition.” This includes writing performance work statements, so that contractors do not use their own subjective judgment that could taint future programs, or getting input from multiple contractors on subjective matters, so that no single contractor has unduly influenced a program.
- Limitation on future contracting: Contracting officers may preclude contractors from participating in future contracts or subcontracts if a contractor’s current work might create an OCI on a future program. Such limitations must “end on a specific date or upon the occurrence of an identifiable event.”
- Mitigation: Action taken by the government or contractor to reduce the risk from an OCI. Possible actions include creating firewalls and requiring a subcontractor to perform the portion of the work for which the prime has a conflict. Mitigation plans must be written into contracts.
- Determination of acceptable risk: For impaired objectivity OCIs, the contracting officer may determine that the risk to the government is acceptable when the risk is outweighed by the benefit of having the conflicted party perform and the performance risk is manageable. A determination of acceptable risk can be used in parallel with mitigation measures.
New limits would restrict the contracting officer’s discretion to disqualify offerors based on OCIs. For unfair competitive advantage OCIs, the contracting officer must determine that evidence exists of the unfair advantage and that “[n]o mitigation strategy will protect the integrity of the competition” except for disqualification. To disqualify an offeror for impaired objectivity, the contracting officer must determine that “less restrictive techniques” could not “adequately protect the Government’s interests.” In addition, consistent with the current regulations, the contracting officer must provide notice and an opportunity to respond to an otherwise successful offeror prior to withholding award because of an OCI.
The proposed rule would replace the definition of OCI at FAR 2.101 with the following: “an entity or its affiliate(s) has impaired objectivity or an unfair competitive advantage as a result of other activities or relationships with other entities or their affiliates, including with public, private, domestic, and foreign entities.” Notably, an “entity” for the purposes of these rules would include individuals, so the impaired objectivity or unfair advantage of a single individual might create an OCI for the entire offeror.
The proposal would further define biased ground rules as any situation in which a company “has or may have materially influenced” the competition or contract requirements. Impaired objectivity could arise from “financial or other interests or an incentive to provide other than impartial advice to the Government.” The definition of unequal access to information states that such a situation arises whenever government-provided information that is not available to all offerors for a contract provides an advantage in the competition. The proposed definitions largely track, but do not directly match, language that the Government Accountability Office has developed in its bid protest precedent.
New Clauses in FAR Part 52
The proposed additions to FAR Part 52—two solicitation provisions and three contract clauses—would standardize OCI provisions across executive agency procurement. Today, the FAR requires that contracting officers include OCI provisions in certain solicitations and contracts, but it does not actually provide those clauses. Some agencies have created their own provisions, which are not uniform across agencies. The 2022 law stated that, while the FAR should include standard clauses, agencies should still be allowed to modify those clauses to meet their own needs.
Contractors would have to disclose information related to OCIs and represent compliance with the rules under the first proposed solicitation provision. Disclosure would include “all relevant information regarding any OCI,” professional standards or procedures that are in place to prevent OCIs, and plans to address OCIs that occur. Offerors would also have to make a representation as to the accuracy of the disclosure and promise to update disclosures if any information changes after submission. This provision would be included in any solicitation for which a contracting officer “has identified the likelihood” of an OCI.
Any procurement that includes the solicitation disclosure provision would also include a contract clause for the post-award disclosure of OCIs. This clause would obligate the contractor to report any new OCIs that arise during performance, or which existed previously but were only discovered after the contract was awarded. This clause will flow down to subcontracts exceeding the simplified acquisition threshold, except subcontracts for commercial products or commercial services.
The other solicitation provision would require an offeror to represent that it had determined, “to the best of its knowledge or belief,” whether it or any affiliate had unequal access to information that could create an OCI. If any potential unequal access to information was discovered, then the offeror would have to inform the contracting officer of the potential OCI prior to bid submission. This provision would be included in all solicitations that exceed the simplified acquisition threshold, except solicitations for commercial products, to which the OCI regulations do not apply.
The final two contract clauses in the proposal would govern OCI mitigation plans and limitations on future contracting. The clause for mitigation plans sets forth provisions for the parties to modify such plans and address noncompliance during contract performance. The clause for limitations on future contracts requires the contracting officer to specify the scope and length of the limitations before contract award. Both clauses will flow down to certain subcontracts that exceed the simplified acquisition threshold, except subcontracts for commercial products and commercial services.
Takeaways
Although much of the proposed rule simply updates the FAR to bring the regulations into conformity with existing practice and GAO decisional law, these clarifications and updates are welcome. Agencies and contractors will benefit from this clearer articulation of the OCI principles, and contracting officers have new tools (such as the express ability to accept an OCI based on a risk analysis) to avoid situations of a tail wagging the dog.
The blanket exemption of contracts for commercial products and subcontracts for commercial products and services from the OCI subpart is particularly interesting. On the one hand, this would streamline OCI analysis. On the other, one can think of situations where potentially troubling conflicts might emerge. For example, an exempted commercial services subcontractor may be performing work that provides it unequal access to competitively useful nonpublic information about an exempted commercial products prime contract that it wants to pursue. We expect this part of the rule will receive further attention as stakeholders decide how to balance streamlining and risk safeguards.
Comments on the proposal must be submitted by March 17, 2025.
*Ethan Sterenfeld, a law clerk in our Washington, D.C., office, contributed to the writing of this article.
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