Federal Acquisition Regulation; FAR Case 2008-025, Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions

AGENCY:

Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION:

Proposed rule.

SUMMARY:

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) are proposing to amend the Federal Acquisition Regulation (FAR) to address personal conflicts of interest by employees of Government contractors as required by section 841(a) of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Pub. L. 110-417).

DATES:

Interested parties should submit written comments to the Regulatory Secretariat on or before January 12, 2010 to be considered in the formulation of a final rule.

ADDRESSES:

Submit comments identified by FAR case 2008-025 by any of the following methods:

• Regulations.gov: http://www.regulations.gov . Submit comments via the Federal eRulemaking portal by inputting “FAR Case 2008-025” under the heading “Comment or Submission”. Select the link “Send a Comment or Submission” that corresponds with FAR Case 2008-025. Follow the instructions provided to complete the “Public Comment and Submission Form”. Please include your name, company name (if any), and “FAR Case 2008-025” on your attached document.
• Fax: 202-501-4067.
• Mail: General Services Administration, Regulatory Secretariat (MVPR), 1800 F Street, NW., Room 4041, Washington, DC 20405, Attn: Hada Flowers.

Instructions: Please submit comments only and cite FAR case 2008-025 in all correspondence related to this case. All comments received will be posted without change to http:// www.regulations.gov , including any personal and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT:

Ms. Suzanne Neurauter, Procurement Analyst, at (202) 219-0310 for clarification of content. For information pertaining to status or publication schedules, contract the Regulatory Secretariat division at (202) 501-4755. Please cite FAR Case 2008-025.

SUPPLEMENTARY INFORMATION:

A. Background

The Duncan Hunter National Defense Authorization Act (NDAA) for Fiscal Year 2009, section 841(a), requires that the Office of Federal Procurement Policy (OFPP) develop policy to prevent personal conflicts of interest by contractor employees performing acquisition functions closely associated with inherently governmental functions for or on behalf of a Federal agency or department. The NDAA also requires OFPP to develop a personal conflicts-of-interest clause(s) for inclusion in solicitations, contracts, task orders, and delivery orders. To address the requirements of section 841(a) in the most effective manner possible, OFPP collaborated with the Councils on this case to develop regulatory guidance, including a new subpart under FAR part 3, and a new clause for contracting officers to use in contracts to prevent personal conflicts of interest for contractor employees performing acquisition functions for or on behalf of a Federal agency or department.

OFPP and the Councils are proposing a policy that will require each contractor that has employees performing acquisition functions closely associated with inherently governmental functions to identify and prevent personal conflicts of interest for such employees. In addition, such contractors will be required to prohibit covered employees with access to non-public Government information from using it for personal gain. The proposed rule also makes contractors responsible for (1) Having procedures to screen for potential conflicts of interest, (2) informing covered employees of their obligations with regard to these policies, (3) maintaining effective oversight to verify compliance, (4) reporting any personal conflict-of-interest violations to the contracting officer, and (5) taking appropriate disciplinary action with employees who fail to comply with these policies.

This proposed rule does not address the issue of personal conflicts of interest by contractor employees with respect to other functions, or the issue of additional coverage addressing organizational conflicts of interest. Those issues, which were the subject of an Advance Notice of Proposed Rulemaking (see Federal Register at 73 FR 15961 on March 26, 2008, and Federal Register at 73 FR 34600 on June 17, 2008), will be addressed consistent with the requirements of section 841, which requires review by the Administrator for Federal Procurement Policy, in consultation with the Director of the Office of Government Ethics, to determine whether further revision to the FAR, and action by the FAR Council, is necessary.

1. Sources Reviewed. In developing the proposed rule in this case, the Councils reviewed the Government Accountability Office (GAO) Report to the Committee on Armed Services, U.S. Senate, GAO-08-169, Defense Contracting: Additional Personal Conflict of Interest Safeguards Needed for Certain DoD Contractor Employees, dated March 2008, and internal policies, procedures, and regulations of various Federal agencies.

2. Definitions (FAR 3.1101) and 52.203-16.

a. Personal conflict of interest. The legislation requires development of a definition for “personal conflict of interest”. The Councils reviewed various documents on personal conflicts of interest in developing the proposed definition, including identification of sources of personal conflicts of interest and examples of financial interests.

b. Acquisition function closely associated with inherently governmental functions. The statute requires that contractors, whose employees perform acquisition functions closely associated with inherently governmental functions, identify and prevent personal conflicts of interest for employees of the contractor who are performing such functions. The Councils developed the definition of “acquisition function closely associated with inherently governmental functions” by reviewing FAR subpart 7.5, Inherently Governmental Functions, especially 7.503(d), and identifying those functions that are acquisition related. Supporting or providing advice or recommendations with regard to any such acquisition function is defined to be an acquisition function closely associated with inherently governmental functions. Additional changes may be made to this guidance as part of the Office of Management and Budget's (OMB) review of the definition of inherently governmental function and the manner in which agencies identify critical functions to be performed by Federal employees. OMB is performing this review in accordance with the President's March 4, 2009, Memorandum on Government Contracting and section 321 of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Pub. L. 110-417).

c. Covered employee. In order to simplify the regulation, the Councils defined the term “covered employee” so that term could be used in lieu of constantly repeating the phrase “contractor employee who performs an acquisition function closely associated with inherently governmental functions”. In addition, the Councils have included in the definition of “covered employee” (i) subcontractor employees, (ii) consultants, (iii) partners, or (iv) sole proprietors. Although, these categories might not ordinarily be considered to be an employee of the contractor, the Councils believe that covering these categories is necessary to effectively meet the objective of the statute.

d. Non-public Government information. The statute requires that contractors must prohibit contractor employees who have access to non-public Government information obtained while performing such functions from using such information for personal gain. Therefore, a definition of “non-public Government information” is also necessary to implement the law. The Councils adapted the definition of non-public Government information found at 5 CFR 2635.703, the Office of Government Ethics regulation entitled “Use of nonpublic information,” to make it applicable to contractor employees. Non-public Government information means any information that a covered employee gains by reason of work under a Government contract and that the covered employee knows, or reasonably should know, has not been made public (e.g., proprietary contractor information in the possession of the Government).

3. Policy (FAR 3.1102). The proposed policy would require contractors to identify and prevent personal conflicts of interest of their covered employees and prohibit covered employees who have access to non-public Government information from using such information for personal gain. The basis of the policy is derived from FAR section 841(a)(1)(B)(i) and (ii) of the statute.

4. Procedures (FAR 3.1103(a) and 52.203-16(b)).

a. Use of contract clause to impose requirements on contractors. The procedures at FAR 3.1103(a) mirror the requirements in paragraph (b) of the clause, implementing the statutory requirement at FAR section 841(a)(1)(B) in more detail, adding the requirements to—

• Have procedures in place to screen covered employees for potential personal conflicts of interest (FAR section 841(a)(1)(B)(v));
• Inform covered employees with regard to their obligations to disclose and prevent personal conflicts of interest; not use non-public Government information for personal gain; and avoid even the appearance of personal conflicts of interest;
• Maintain effective oversight to verify compliance with personal conflict-of-interest safeguards (FAR section 841(a)(1)(B)(iv));
• Take appropriate disciplinary action in the case of covered employees who fail to comply with policies established pursuant to this section (FAR section 841(a)(1)(B)(vi)); and
• Report to the contracting officer any personal conflict-of-interest violation by a covered employee as soon as identified (FAR section 841(a)(1)(B)(iii)), including the actions taken by the contractor in response to the violation.

b. Contracting officer actions upon receipt of contractor reports of personal conflict-of-interest violation. At FAR 3.1103(b), the Councils have proposed the following general guidelines for the contracting officer to follow, upon receipt of a contractor report of a personal conflict-of-interest violation:

(i) Review the actions taken by the contractor;

(ii) Decide whether the contractor has resolved the violation satisfactorily; and

(iii) Take any other appropriate action in consultation with agency legal counsel or an agency ethics official.

c. Non-disclosure agreements. The proposed rule requires contractors to obtain non-disclosure agreements from covered employees.

5. Mitigation and waiver (FAR 3.1104 and 52.203-16(c)). Although the statute did not specifically provide for mitigation or waiver authority, the Councils recommend allowing the head of the contracting activity, in exceptional circumstances, to agree to mitigation of a personal conflict of interest or waive the requirement to prevent conflict of interest for a particular employee, if he/she determines in writing that such mitigation or waiver is in the best interest of the Government. This authority cannot be re-delegated.

6. Violations and remedies (FAR 3.1105 and 52.203-16(d)). To ensure compliance with this policy, the proposed rule includes a “remedies” clause that spells out the additional relief to which the Government may be entitled for contractor noncompliance, including suspension of contract payments, loss of award fee, termination for cause, and suspension or debarment. The Councils welcome comment on additional controls or remedies to help deter noncompliance, such as annual reporting requirements to verify compliance with the clause requirements, or certification by the contractor or by the contractor's employees.

7. Contract clause.

a. Prescription (FAR 3.1106). A new contract clause was developed that specifically sets out the contractor's duty to comply with the language in the legislation. In accordance with FAR section 841(a)(3)(A), the clause must be included in contracts that exceed the simplified acquisition threshold and are for services that involve performance of acquisition functions closely associated with inherently governmental functions for or on behalf of a Federal agency or department.

FAR Section 841(a)(3)(B) provides that, if only a portion of a contract is for the performance of acquisition functions described in that subparagraph, then the clause must be applied only to that portion of the contract (see FAR 3.1106(b)).

b. Flowdown (FAR 52.203-18(e)). The Councils have provided for flowdown to subcontracts that meet the same requirements as provided in the clause prescription, i.e., subcontracts that exceed $100,000 and in which subcontractor employees may perform acquisition functions closely associated with inherently governmental functions.

8. Effective date and applicability. The statute requires that the final rule shall apply to—

(a) Contracts entered into on or after the effective date; and

(b) Task or delivery orders awarded on or after that effective date. If the contracts pursuant to which such task or delivery orders are awarded do not contain the clause at FAR 52.203-16, then the clause must be included in such contracts by bi-lateral modification.

This is a significant regulatory action and, therefore, was subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

The Councils do not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the requirements of the clause are not significantly burdensome. The requirement to obtain and retain information on employees' potential conflict of interest is limited to service contractors whose employees are performing acquisition functions closely associated with inherently governmental functions for or on behalf of Federal agencies. This class is a minority of Government contractors and is becoming smaller as Government agencies bring more such functions back in house, e.g., DOD announced in April that it is bringing 10,000 acquisition positions back in house. Further, there is no requirement to report the information collected to the Government. It is not a significant economic burden to report to the contracting officer personal conflict-of-interest violations by covered employees and the corrective actions taken. The proposed rule has also reduced potential burden by—

1. Not including a certification requirement;

2. Not requiring a formal training program; and

3. Allowing mitigation under exceptional circumstances.

An Initial Regulatory Flexibility Analysis has, therefore, not been performed. We invite comments from small businesses and other interested parties. The Councils will consider comments from small entities concerning the affected FAR Parts 3 and 52 in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 601, et seq. (FAR case 2008-025), in all correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does apply because the proposed changes to the FAR impose information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

Annual Recordkeeping Burden

The proposed rule will require the contractor to collect and review information from covered employees. There is, however, no requirement for the contractor to submit this information to the Government. There will be an estimated 250,000 covered contractor employees working for an estimated 10,000 contractors (recordkeepers). There will be an estimated 36 records per recordkeeper (using an average of 25 employees per recordkeeper and allowing for updates during the year when a covered employee's reportable circumstances change). We estimate that it will take approximately 10 minutes review time per response.

We estimate the annual total recordkeeping burden hours as follows:

Annual Reporting Burden

There will be an estimated 200 burden hours for the required reporting to the contracting officer of violations in connection with the award or performance of any Government contract or subcontract (10 violations × 2 hours per response) and 1,800 hours for submission of mitigation requests (450 responses × 4 hours per response).

We estimate the annual total reporting burden hours as follows:

Respondents: 460

Responses per respondent: 1

Total annual responses: 460

Preparation hours per response: Approximately 3.96

Total reporting burden hours: 1,820

D. Request for Comments Regarding Paperwork Burden

Submit comments, including suggestions for reducing this burden, not later than January 12, 2010 to: FAR Desk Officer, OMB, Room 10102, NEOB, Washington, DC 20503, and a copy to the General Services Administration, Regulatory Secretariat (MVPR), 1800 F Street, NW., Room 4041, Washington, DC 20405.

Public comments are particularly invited on: Whether this collection of information is necessary for the proper performance of functions of the FAR, and will have practical utility; whether our estimate of the public burden of this collection of information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology.

Requester may obtain a copy of the justification from the General Services Administration, Regulatory Secretariat (MVPR), Room 4041, Washington, DC 20405, telephone (202) 501-4755. Please cite OMB Control Number 9000-00xx, Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions, in all correspondence.

List of Subjects in 48 CFR Parts 3 and 52

• Government procurement

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 3 and 52 as set forth below:

1. The authority citation for 48 CFR parts 3 and 52 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c).

PART 3—IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST

2. Add Subpart 3.11 to read as follows:

Subpart 3.11—Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions

PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES

3. Add section 52.203-16 to read as follows: