Defense Contracting
Additional Personal Conflict of Interest Safeguards Needed for Certain DOD Contractor Employees Gao ID: GAO-08-169 March 7, 2008Many defense contractor employees work side-by-side with federal employees in Department of Defense (DOD) facilities performing substantially the same tasks affecting billions in DOD spending. Given concerns with protecting the integrity of DOD operations, GAO was asked to assess (1) how many contractor employees work in DOD offices and what type of mission-critical contracted services they perform, (2) what safeguards there are to prevent personal conflicts of interest for contractor employees when performing DOD's tasks, and (3) whether government and defense contractor officials believe additional safeguards are necessary. GAO reviewed conflicts of interest laws and policies and interviewed ethics officials and senior leaders regarding applicability to DOD federal and contractor employees. GAO judgmentally selected and interviewed officials at 21 DOD offices with large contractor workforces, and 23 of their contractors.
Indications are that significant numbers of defense contractor employees work alongside DOD employees in the 21 DOD offices GAO reviewed. At 15 offices, contractor employees outnumbered DOD employees and comprised up to 88 percent of the workforce. Contractor employees perform key tasks, including developing contract requirements and advising on award fees for other contractors. In contrast to federal employees, few government ethics laws and DOD-wide policies are in place to prevent personal conflicts of interest for defense contractor employees. Several laws and regulations address personal conflicts of interest, but just one applies to both federal and contractor employees. Some DOD offices and defense contractor companies are voluntarily adopting safeguards. For example, realizing the risk from personal conflicts of interest for particularly sensitive areas, the 19 DOD offices GAO reviewed that used contractor employees in the source selection process all use safeguards such as contract clauses that prohibit contractor employees' participation in a DOD procurement affecting a personal financial interest. In certain other tasks, only 3 of the 23 defense contractors GAO reviewed had safeguards requiring employees to identify potential conflicts of interest so they can be mitigated. In general, government officials believed that current requirements are inadequate to prevent conflicts from arising for certain contractor employees influencing DOD decisions, especially financial conflicts of interest and impaired impartiality. Some program managers and defense contractor officials expressed concern that adding new safeguards will increase costs. But ethics officials and senior leaders countered that, given the risk associated with personal conflicts of interest and the expanding roles that contractor employees play, such safeguards are necessary.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-169, Defense Contracting: Additional Personal Conflict of Interest Safeguards Needed for Certain DOD Contractor Employees
This is the accessible text file for GAO report number GAO-08-169
entitled 'Defense Contracting: Additional Personal Conflict of Interest
Safeguards Needed for Certain DOD Contractor Employees' which was
released on March 10, 2008.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to the Committee on Armed Services, U. S. Senate:
United States Government Accountability Office:
GAO:
March 2008:
Defense Contracting:
Additional Personal Conflict of Interest Safeguards Needed for Certain
DOD Contractor Employees:
GAO-08-169:
GAO Highlights:
Highlights of GAO-08-169, a report to the Committee on Armed Services,
U.S. Senate.
Why GAO Did This Study:
Many defense contractor employees work side-by-side with federal
employees in Department of Defense (DOD) facilities performing
substantially the same tasks affecting billions in DOD spending. Given
concerns with protecting the integrity of DOD operations, GAO was asked
to assess (1) how many contractor employees work in DOD offices and
what type of mission-critical contracted services they perform, (2)
what safeguards there are to prevent personal conflicts of interest for
contractor employees when performing DOD‘s tasks, and (3) whether
government and defense contractor officials believe additional
safeguards are necessary.
GAO reviewed conflicts of interest laws and policies and interviewed
ethics officials and senior leaders regarding applicability to DOD
federal and contractor employees. GAO judgmentally selected and
interviewed officials at 21 DOD offices with large contractor
workforces, and 23 of their contractors.
What GAO Found:
Indications are that significant numbers of defense contractor
employees work alongside DOD employees in the 21 DOD offices GAO
reviewed. At 15 offices, contractor employees outnumbered DOD employees
and comprised up to 88 percent of the workforce. Contractor employees
perform key tasks, including developing contract requirements and
advising on award fees for other contractors.
In contrast to federal employees, few government ethics laws and DOD-
wide policies are in place to prevent personal conflicts of interest
for defense contractor employees. Several laws and regulations address
personal conflicts of interest, but just one applies to both federal
and contractor employees.
Selected Laws and Regulations That Address Personal Conflicts of
Interest:
Prohibition, restriction, or requirement: Bribery, kickback, other
graft; Applicable to federal employees? Yes; Applicable to DOD
contractor employees? Yes.
Prohibition, restriction, or requirement: Participating in matter
affecting personal financial interest; Applicable to federal employees?
Yes; Applicable to DOD contractor employees? No[A].
Prohibition, restriction, or requirement: Avoiding appearance of
partiality when performing duties; Applicable to federal employees?
Yes; Applicable to DOD contractor employees? No[A].
Prohibition, restriction, or requirement: Disclosing financial
interests; Applicable to federal employees? Yes; Applicable to DOD
contractor employees? No[A].
Prohibition, restriction, or requirement: Accepting travel and gifts;
Applicable to federal employees? Yes; Applicable to DOD contractor
employees? No[A].
Prohibition, restriction, or requirement: Using nonpublic information
for personal gain; Applicable to federal employees? Yes; Applicable to
DOD contractor employees? No[A].
Prohibition, restriction, or requirement: Future employment contact;
Applicable to federal employees? Yes; Applicable to DOD contractor
employees? No[A].
Prohibition, restriction, or requirement: Misusing position to provide
preferential treatment to a private interest; Applicable to federal
employees? Yes; Applicable to DOD contractor employees? No[A].
Source: GAO analysis of selected laws and regulations.
[A] There may be other laws and regulations that may apply to DOD
contractor employees depending on the facts and circumstances of a
particular case.
[End of table]
Some DOD offices and defense contractor companies are voluntarily
adopting safeguards. For example, realizing the risk from personal
conflicts of interest for particularly sensitive areas, the 19 DOD
offices GAO reviewed that used contractor employees in the source
selection process all use safeguards such as contract clauses that
prohibit contractor employees‘ participation in a DOD procurement
affecting a personal financial interest. In certain other tasks, only 3
of the 23 defense contractors GAO reviewed had safeguards requiring
employees to identify potential conflicts of interest so they can be
mitigated.
In general, government officials believed that current requirements are
inadequate to prevent conflicts from arising for certain contractor
employees influencing DOD decisions, especially financial conflicts of
interest and impaired impartiality. Some program managers and defense
contractor officials expressed concern that adding new safeguards will
increase costs. But ethics officials and senior leaders countered that,
given the risk associated with personal conflicts of interest and the
expanding roles that contractor employees play, such safeguards are
necessary.
What GAO Recommends:
GAO recommends that DOD develop personal conflict of interest
safeguards for contractor employees similar to those required of DOD‘s
federal employees, which may require defense contractors to screen
financial disclosures from certain employees. DOD commented it has
established a contracting integrity subcommittee to review the
recommendations.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-169]. For more information, contact
Cristina T. Chaplain at (202) 512-4841 or chaplainc@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Contractor Employees Outnumber DOD Employees at Many Offices That GAO
Reviewed:
Few Laws or DOD-Wide Policies Address Personal Conflicts of Interests
among Contractor Employees:
Range of Views Indicate Additional Conflict of Interest Safeguards Are
Necessary for Contractor Employees:
Conclusions:
Recommendations:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: Comments from the Office of Government Ethics:
Appendix IV: Contractor Employees Are Key in DOD Offices GAO Reviewed:
Appendix V: Contract Clauses Used by DOD Organizations to Address
Contractor Employees Personal Conflicts of Interest:
Tables:
Table 1: Number and Percent of Defense Contractor versus DOD Employees
in DOD Offices That GAO Reviewed:
Table 2: Selected Laws and Regulations That Apply to Personal Conflict
of Interest Situations:
Table 3: FAR Procedures Modeled on DFARS Requirements for Contractor
Ethics Program:
Table 4: DOD Offices Reviewed That Have Conflict of Interest Safeguards
for Contractor Employees:
Table 5: Highlights of Selected Air Force and Army Contract Clauses
Addressing Personal Conflict of Interest Safeguards:
Table 6: DOD Offices Selected for GAO's Review:
Table 7: Information on Contractor Employees and Conflicts of Interest
Safeguards Obtained from Selected DOD Offices:
Table 8: Defense Contractors and FFRDCs Selected for GAO's Review:
Table 9: Information on Contractor Employees and Conflicts of Interest
Safeguards Generally Requested and Obtained from Selected Defense
Contractors and FFRDCs:
Table 10: Services and Support Tasks Provided by Contractor Employees
Closely Supporting Inherently Governmental Functions in DOD
Organizations Reviewed:
Table 11: Financial Conflict of Interest Clause Used by the Air Force's
Electronic Systems Center for Advisory and Assistance Services
Contracts:
Table 12: Organizational Conflict of Interest Clause Used by the Army's
Communications Electronics Lifecycle Management Command for Support
Services Contracts:
Abbreviations:
DFARS: Defense Federal Acquisition Regulation Supplement:
DOD: Department of Defense:
DPAP: Defense Procurement and Acquisition Policy:
FAR: Federal Acquisition Regulation:
FFRDC: federally funded research and development center:
GAO: Government Accountability Office:
OFPP: Office of Federal Procurement Policy:
OGE: Office of Government Ethics:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 7, 2008:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
The Honorable John Warner:
Committee on Armed Services:
United States Senate:
Contractors have long played an integral role in the development of
equipment and systems that fit the Department of Defense's (DOD) unique
needs and in the delivery of certain support services, such as building
maintenance, food service, and information technology services.
Increasingly, however, contractors are also being hired to perform
tasks affecting billions of dollars in DOD spending to oversee and
execute high-risk programs, such as the acquisition of major weapon
systems, and to assist in some of DOD's most sensitive and restricted
operations. In DOD facilities, certain contractor employees work side-
by-side with federal employees on substantially the same mission-
critical tasks.
Given concerns with protecting the integrity of DOD's operations and
federal spending, you asked us to review existing safeguards intended
to prevent contractor employees from having personal conflicts of
interest when performing tasks for DOD. In response, because DOD does
not maintain departmentwide data on the numbers of contractor employees
working side-by-side with federal employees, this report assesses (1)
the roles being played by certain contractor employees by identifying
how many of them are working at the DOD offices we reviewed as well as
what responsibilities they have. This report also assesses (2) what
safeguards there are to prevent conflict of interests for contractor
employees and (3) whether government and defense contractor officials
believe additional safeguards are necessary.
To address our objectives, we reviewed the conflicts of interest and
ethics laws and regulations applicable to DOD government employees and
defense contractor employees and DOD and federal policies on
contracting. To assess the mission-critical roles being played by
certain employees across a representative cross-section of DOD, we
obtained information from five major organizations judgmentally
selected for having large DOD contractor workforces: Air Force, Army,
Navy, Missile Defense Agency, Tricare Management Activity, and DOD
organizational sponsors for four federally funded research and
development centers (FFRDC), which are nonprofit organizations
established under long-term contracts with the federal government to
meet some special long-term research or development need. To describe
the types of mission-critical services that certain defense contractor
employees are providing to those five DOD organizations, we
judgmentally selected 21 DOD offices for review which were identified
by DOD officials as having large contractor workforce and representing
a cross-section of DOD organizations.[Footnote 1] We obtained
information from these offices to document how many DOD and contractor
employees worked there and the types of mission-critical contracted
services performed by contractor employees and interviewed program
managers, ethics and contracting officials about personal conflict of
interest safeguards. We obtained information about ethics programs from
23 contractor and 4 FFRDC organizations judgmentally selected because
their employees are performing contracted services at the 21 DOD
offices we reviewed. We also interviewed officials from those
contractor and FFRDC organizations to obtain information on conflict of
interest safeguards and met with the Office of Government Ethics (OGE)
to obtain views and information about conflict of interest safeguards
appropriate for contractor employees. We conducted this performance
audit from November 2006 through March 2008 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient and
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives. Appendix I provides additional details
of our scope and methodology.
This report focuses specifically on individual, or personal, conflicts
of interest among DOD contractor employees as opposed to organizational
conflicts of interest. For this report, we defined a "personal conflict
of interest" as a situation where an individual is employed by an FFRDC
or a defense contractor company and is in a position to materially
influence DOD's recommendations and/or decisions and, because of his/
her personal activities, relationships, or financial interests, may
lack or appear to lack objectivity or appear to be unduly influenced by
personal financial interest. By contrast, an organizational conflict of
interest occurs when a defense contractor has present or currently
planned interests that either directly or indirectly (including
business or relationships with other contractors) relate to the work to
be performed under a DOD contract and (1) may diminish its capacity to
give impartial, technically sound, objective assistance or advice, or
(2) may result in it having an unfair competitive advantage.
Results in Brief:
Indications are that a significant number of defense contractor
employees are working side-by-side with government employees in DOD.
DOD has not compiled departmentwide data. However, at 15 of the 21
offices we reviewed, contractor employees outnumbered DOD employees and
comprised as much as 88 percent of the workforce. At the other offices,
contractors comprised between 19 and 46 percent of the workforce.
Contractor employees are responsible for carrying out a range of tasks,
including studying alternative ways to acquire desired capabilities,
developing contract requirements, and advising or assisting on source
selection, budget planning, and award-fee determinations.
Defense contractor employees are not subject to the same laws and
regulations that are designed to prevent personal conflicts of
interests among federal employees. While the Department of Defense FAR
Supplement (DFARS) and the Federal Acquisition Regulation (FAR) require
that the companies that provide contractor employees to DOD have
written ethics policies, no departmentwide or FAR policy obliges DOD
offices using contractor employees to require that they be free from
personal conflicts of interest. There are some safeguards being adopted
voluntarily at the program office level, however. For example,
realizing the risk from personal conflicts of interest for particularly
sensitive areas, 19 offices we reviewed that used contractor employees
in the source selection process all use safeguards such as contract
clauses to prevent personal conflicts of interest. In addition, most of
the contractor firms have policies requiring their employees to avoid a
range of potential interests--such as owning stock in competitors--that
conflict with the firms' interests. However, only three of those
contractors' policies directly require their employees to disclose
potential personal conflicts of interest with respect to their work at
DOD so they can be screened and mitigated by the firms.
In discussions with program managers on whether safeguards are needed,
many agreed, citing this was the reason why they put in safeguards at
their offices for the contractor employees involved in the source
selection process and sometimes for contractor employees involved in
other advisory and assistance tasks. In addition, DOD oversight
officials as well as OGE officials believed that current requirements
are inadequate to prevent certain conflicts from arising, especially
financial conflicts of interest, impaired impartiality, and misuse of
information and authority. These concerns have grown as contractor
employees have more influence on government operations and spending
decisions. An expert panel charged with examining ways to improve
acquisitions in government recently expressed similar concerns. At the
same time, however, a number of program managers and defense contractor
company officials expressed concern that adding safeguards will
increase costs and may be unnecessary since government officials--not
contractor employees--are the ones ultimately making the decisions. But
ethics officials, senior leaders, and panel experts countered that,
given the risk associated with personal conflicts of interest and the
expanding role that contractor employees play, such safeguards are
necessary.
Given the magnitude of DOD's contractor employee use, our analyses of
the range of key roles that contractor employees have across DOD, and
the need to ensure the integrity of federal spending, we believe that
DOD needs departmentwide personal conflict of interest safeguards for
certain contractor employees who are providing the type of services
affecting governmental decisions, similar to those required of DOD's
federal employees. As such, this report makes recommendations to DOD to
strengthen its personal conflict of interest policies for such
contractor employees.
We provided a draft of this report to DOD and OGE for comment. In its
written comments, DOD partially concurred with the recommendations,
stating it agreed with their intent and has tasked a contracting
integrity subcommittee to carefully review each recommendation. In its
written comments, OGE offered information that should help DOD as it
begins its efforts to address how best to implement our
recommendations. See appendixes II and III for DOD's and OGE's comments
in their entirety.
Background:
DOD hires contractors to provide a wide range of services that may
include basic services (custodial and landscaping); administrative
types of services (travel and management support); and complex
professional and management (i.e., advisory and assistance) services
that closely support inherently governmental functions, decisions, and
spending, (acquisition support, budget preparation, developing or
interpreting regulations, engineering and technical services, and
policy development).[Footnote 2] Contractor employees often work inside
DOD facilities, alongside DOD employees, to provide these services.
DOD's increased spending on services in recent years indicates there
are a large number of contractor employees working side-by-side with
federal employees. In fiscal year 2006, DOD obligated more than $151
billion on services contracts, a 78 percent real increase since fiscal
year 1996. Overall, according to DOD, the amount obligated on services
contracts in fiscal year 2005 exceeded the amount the department spent
on supplies and equipment, including major weapon systems. Some
categories of spending on services have grown significantly in recent
years. For example, obligations for professional, management, and
administrative support has grown about 161 percent from 1996 to 2005;
obligations for medical services grew by more than 400 percent during
the same time period.
Several reasons are behind DOD's increased reliance on contractors for
services. In addition to the belief that it is more cost-effective to
hire contractor employees instead of government employees, reasons
include the need for skills and expertise not currently found in DOD;
the flexibility and the relative ease in obtaining necessary support
from contractor employees instead of hiring more government employees;
and ceilings on the authorized number of government employees.
Contractor Employees Outnumber DOD Employees at Many Offices That GAO
Reviewed:
DOD has not compiled departmentwide data on the numbers of contractor
employees working at its facilities. Indications are, however, that
significant numbers of contractor employees are working side-by-side
with government employees in certain segments of the department, based
in part on information we obtained from 21 DOD offices we reviewed. As
shown in table 1, at 15 of these offices, contractor employees
outnumber DOD employees and the percentage of contractor employees in
the remaining offices ranges from 19 to 46 percent.
Table 1: Number and Percent of Defense Contractor versus DOD Employees
in DOD Offices That GAO Reviewed:
Army: Army Materiel Command (Communications Electronics Command):
Acquisition Business Process Systems, Enhancements and Industrial
Analyses Sector;
DOD employees: 12;
Defense contractor employees: 14;
Total number of personnel: 26;
Percent comprising contractor employees: 54%.
Army: Army Materiel Command (Communications Electronics Command):
Logistics and Readiness Center;
DOD employees: 41;
Defense contractor employees: 35;
Total number of personnel: 76;
Percent comprising contractor employees: 46%.
Army: Army Materiel Command (Communications Electronics Command):
Project Management Office, Tactical Radio Communications Systems;
DOD employees: Army: 101;
Defense contractor employees: 345;
Total number of personnel: 446;
Percent comprising contractor employees: 77%.
Army: Office of the Deputy Under Secretary of the Army for Business
Transformation: HR (Human Resources) Solutions Program Office;
DOD employees: 3;
Defense contractor employees: 15;
Total number of personnel: 18;
Percent comprising contractor employees: 83%.
Army: Army Contracting Agency; DOD employees: Contracting Center of
Excellence;
DOD employees: 106;
Defense contractor employees: 25;
Total number of personnel: 131;
Percent comprising contractor employees: 19%.
Air Force: Air Force Space Command: Deterrence and Strike Division
(A5MF);
DOD employees: 14;
Defense contractor employees: 24;
Total number of personnel: 38;
Percent comprising contractor employees: 63%.
Air Force: Air Force Space Command: Surveillance, Reconnaissance and
Spacelift Division (A5F);
DOD employees: Army: 21;
Defense contractor employees: 39;
Total number of personnel: 60;
Percent comprising contractor employees: 65%.
Air Force: Air Force Materiel Command: Aeronautical Systems Center
(303rd Air Wing);
DOD employees: 500;
Defense contractor employees: 400;
Total number of personnel: 900;
Percent comprising contractor employees: 44%.
Air Force: Air Force Materiel Command: Aeronautical Systems Center
(516th Air Wing);
DOD employees: 332;
Defense contractor employees: 202;
Total number of personnel: 534;
Percent comprising contractor employees: 38%.
Air Force: Air Force Materiel Command: Electronic Systems Center;
DOD employees: 2,891;
Defense contractor employees: 1,691;
Total number of personnel: Army: 4,582;
Percent comprising contractor employees: 37%.
Navy: Naval Sea Systems Command: Program Executive Office for Aircraft
Carriers;
DOD employees: 67;
Defense contractor employees: 102;
Total number of personnel: 169;
Percent comprising contractor employees: 60%.
Navy: Naval Sea Systems Command: Program Executive Office for
Integrated Warfare Systems;
DOD employees: Army: 36;
Defense contractor employees: 80;
Total number of personnel: 116;
Percent comprising contractor employees: 69%.
Missile Defense Agency: Ground-Based Midcourse Defense Program Office;
DOD employees: 282;
Defense contractor employees: 464;
Total number of personnel: 746;
Percent comprising contractor employees: 62%.
Missile Defense Agency: Terminal High Altitude Area Defense Program
Office;
DOD employees: 222;
Defense contractor employees: 191;
Total number of personnel: 413;
Percent comprising contractor employees: 46%.
Missile Defense Agency: Agency Operations Office[A];
DOD employees: 200;
Defense contractor employees: 1,089;
Total number of personnel: 1,289;
Percent comprising contractor employees: 84%.
Missile Defense Agency: Aegis Ballistic Missile Defense Program Office;
DOD employees: 82;
Defense contractor employees: 201;
Total number of personnel: 283;
Percent comprising contractor employees: 71%.
Missile Defense Agency: Engineering;
DOD employees: Army: 41;
Defense contractor employees: 246;
Total number of personnel: 287;
Percent comprising contractor employees: 86%.
Missile Defense Agency: Sensors;
DOD employees: 21;
Defense contractor employees: 90;
Total number of personnel: 111;
Percent comprising contractor employees: 81%.
Tricare Management Activity: Acquisition Management and Support Office;
DOD employees: 43;
Defense contractor employees: 57;
Total number of personnel: 100;
Percent comprising contractor employees: 57%.
Tricare Management Activity: Clinical Information Technology Program
Office;
DOD employees: 24;
Defense contractor employees: 112;
Total number of personnel: 136;
Percent comprising contractor employees: 82%.
Tricare Management Activity: Resources Information Technology Program
Office;
DOD employees: 14;
Defense contractor employees: 100;
Total number of personnel: 114;
Percent comprising contractor employees: 88%.
Sources: DOD (data); GAO (analysis and presentation).
[A] The number of DOD and contractor employees identified represent
three out of the five directorates that comprise the Agency Operations
Office. The three directorates include Business Operation;
Infrastructure and Environment; and Security/Intelligence Operations.
[End of table]
For the offices we reviewed, contractors are supporting key mission-
critical tasks that have the potential to influence DOD decisions. Some
of these tasks are similar to functions performed by federal employees.
For example, at the front end of the acquisition process, contractor
employees who work in various DOD program offices study alternative
ways to acquire desired capabilities, help develop requirements, and
help design and evaluate requests for proposals as well as responses to
those proposals and provide advice on the past performance of external
contractors competing for that work. In the course of an acquisition,
contractor employees recommend actions to program offices to correct
other contractors' performance problems, they analyze other
contractors' cost, schedule and performance data, and they assist in
award-fee determinations for other contractors. In addition, contractor
employees help DOD program offices develop long-range financial plans
as well as yearly budgets. They also assist in administrative tasks to
support program offices by tracking travel budgets and researching and
reconciling payment discrepancies.
Although we view the types of roles being played by contractor
employees as closely supporting inherently governmental functions, some
DOD officials had a different perspective. That is, when discussing
contractor employees' roles in the decision-making process, program
managers we spoke with characterize contractor employee involvement as
"technical" input into the decision-making process versus direct
involvement in the decisions themselves. It should be noted, the
Federal Acquisition Regulation (FAR) defines contractor participation
in the evaluation of contract proposals as one of those functions that
may approach being in the inherently governmental function
category.[Footnote 3]
Appendix IV provides more details on the key services contractor
employees are performing in the DOD offices we reviewed.
Few Laws or DOD-Wide Policies Address Personal Conflicts of Interests
among Contractor Employees:
Contractor employees are not subject to the same laws and regulations
that are designed to prevent conflicts of interests among federal
employees.[Footnote 4] While the DFARS and the FAR require that the
companies that provide contractor employees to DOD have written ethics
policies, no departmentwide or FAR policy obliges DOD offices using
contractor employees to require that they be free from personal
conflicts of interest. On the other hand, some program managers,
realizing the risk from potential personal conflicts of interest, have
established their own safeguards for particularly sensitive areas where
contractor employees provide support to decision processes. For
example, all DOD offices we reviewed that used contractor employees in
the source selection process use additional safeguard controls such as
contract clauses designed to prevent personal conflicts of interests.
The same offices, however, assessed risk differently when it came to
other types of activities that contractors perform--with only 6 of 21
offices using similar conflict of interest contract clauses for
activities such as requirements development, cost estimating, and test
and evaluation.
Most of the firms we visited have ethics policies that address personal
conflicts of interests, but only three directly require their employees
to identify potential personal conflicts of interest with respect to
their work at DOD so they can be screened and mitigated by the firms.
Lastly, because of recent public scrutiny regarding a conflict of
interest issue with a high-level FFRDC official, in January 2007 DOD
revised its policy for employees of FFRDCs.
Most Laws and Regulations Designed to Prevent Conflicts for Federal
Employees Do Not Apply to Contractor Employees:
Several laws and regulations exist that address situations where
individuals performing service to the government are, or might appear
to be, unduly influenced by a personal financial interest. These
include prohibition on bribery and kickbacks; bans on participating in
matters affecting personal financial interest; and requirements
relating to private employment contacts between certain procurement
officials and potential bidders on government contracts. For federal
employees, misconduct in some of these areas also violates criminal
statutes with potentially serious consequences, including dismissal,
prosecution, fines, and incarceration. As shown in table 2, there are
very limited prohibitions--relating to public corruption involving
criminal bribery activity--that apply to both DOD and defense
contractor employees.
Table 2: Selected Laws and Regulations That Apply to Personal Conflict
of Interest Situations:
Law or regulation[A]: Public corruption; Prohibition on bribery,
kickback, or other graft (18 U.S.C. § 201);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Check].
Law or regulation[A]: Financial conflicts of interest: Prohibition on
participation in a particular matter affecting personal financial
interests (18 U.S.C. § 208 and 5 C.F.R. § 2635, subpart D);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Empty].
Law or regulation[A]: Financial conflicts of interest: Requirement to
be and appear to be impartial in performing official duties (5 C.F.R.
§§ 2635.101(b)(8) and 2635.501-503);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Empty].
Law or regulation[A]: Financial conflicts of interest: Requirements for
certain federal employees to disclose financial interests (Title I of
the Ethics in Government Act, 5 U.S.C. app. §§ 101-107);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Empty].
Law or regulation[A]: Financial conflicts of interest: Prohibition on
using nonpublic information for personal gain and engaging in a
financial transaction using nonpublic information (5 C.F.R. §
2635.703);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Empty].
Law or regulation[A]: Seeking other employment conflicts of interest:
Prohibition on discussing future employment with a prospective bidder
or competing contractor while participating in the source
selection/procurement process (41 U.S.C. § 423 and FAR 3.104; 18 U.S.C.
208 and 5 C.F.R. § 2635.601-606);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Empty].
Law or regulation[A]: Gifts and travel: Limitations on accepting gifts,
including travel, from outside, non-federal sources (5 U.S.C. § 7353
and 5 C.F.R. §§ 2635.201 and 2635.202[C]);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Empty].
Law or regulation[A]: Misuse of position/endorsement: Prohibition on
misuse of position for private gain (5 C.F.R. §§ 2635.101(b)(7) and
2635.702);
Applies to federal employees: [Check];
Applies to defense contractor employees[B]: [Empty].
Source: GAO analysis of federal personal conflicts of interest laws and
regulations.
[A] This table represents a selection of the federal personal conflict
of interest laws and regulations that are generally applicable to a
conflict of interest situation. It should be noted, that there may be
other laws and regulations that may apply depending on the facts and
circumstances of a particular situation.
[B] Includes FFRDC contractor employees.
[C] The Standards of Ethical Conduct for Executive Branch Employees at
5 C.F.R. part 2635 provide that an employee may not solicit or accept
any gift that is given because of the employee's official position or
that is given by a prohibited source. As defined in the standards of
conduct, a gift is almost anything of monetary value, such as cash,
meals, trips, or services. 5 C.F.R. §§ 2635.202 and 2635.203(b).
[End of table]
The type of public corruption addressed by laws for both federal and
contractor employees concern bribes, kickbacks, or other forms of
graft. The anti-bribery law seeks to prevent the type of "quid pro quo"
where an official action was taken in return for money, favors, travel,
gifts, or other things of value.[Footnote 5] Examples of this law being
applied to bribery cases involving contractor employees working on
government contracting matters are as follows:
A Navy contractor employee at the Space and Naval Warfare Systems
Center plead guilty in 2006 to accepting bribes from a freight
forwarding company. In exchange for awarding freight transportation
contracts to the company, this contractor employee received items
valued at more than $10,000, including extravagant dinners, concert and
NASCAR tickets, weekends at a bed-and-breakfast inn, jewelry, and "spa
days" at a department store. Investigators discovered that
coincidentally, the freight company's business was virtually
nonexistent before this contractor employee began awarding the company
contracts that eventually totaled over $700,000. The contractor
employee was sentenced to a year in prison and ordered to help repay
the government $84,000.
An Army contractor employee working for the Coalition Provisional
Authority in Iraq was put in charge of over $82 million in funding for
an area south of Baghdad. The contractor employee quickly began
accepting bribes in the form of cash, cars, jewelry, and sexual favors
provided by a U.S. citizen who owned and operated several companies in
Iraq and Romania in exchange for steering lucrative contracts in the
business owner's direction. Investigators recovered incriminating e-
mail traffic, including one e-mail from the contractor employee to the
business owner exclaiming, "I love to give you money!" The contractor
employee plead guilty in 2006 to bribery, conspiracy, and money-
laundering and was sentenced to 9 years in prison, 3 years of
supervised release, and ordered to forfeit $3.6 million.
DOD Lacks a Departmentwide Policy Requiring Safeguards for Personal
Conflicts of Interest with Contractor Employees:
DOD lacks a departmentwide policy requiring safeguards against personal
conflicts of interest for contractor employees. For example, although
DOD contracting policy in DFARS encourages companies providing
contractor employees to DOD to have written ethics policies,[Footnote
6] it fails to require that contractor employees be free from conflicts
of interest or to deploy other safeguards to help assure that the
advice and assistance received from contractor employees is not tainted
by personal conflicts of interest. This policy also fails to address
procurement integrity-related issues involving contractor employees
contacting prospective bidders to DOD contracts about future
employment.
Since December 2007, the FAR has required certain contractors to set
and follow written codes of business ethics and conduct.[Footnote 7]
However as shown in table 3, this new FAR requirement for contractors'
ethics programs--which were modeled on some of the DFARS requirements-
-will be insufficient in addressing DOD's lack of a departmentwide
policy requiring safeguards for personal conflicts of interest with
contractor employees. This is because, like DOD's policy, the new FAR
requirements also lack specific provisions to prohibit conflicts of
interest or employ other safeguards to assure that the advice and
assistance received from contractor employees is not tainted by
personal conflicts of interest.
Table 3: FAR Procedures Modeled on DFARS Requirements for Contractor
Ethics Program:
1. Written code of business ethics and conduct and an ethics training
program for all employees.
2. Periodic reviews of company business practices, procedures,
policies, and internal controls for compliance with standards of
conduct and the special requirements of government contracting.
3. Mechanism, such as a hot line, for employees to report suspected
instances of improper conduct and instructions that encourage employees
to make such reports.
4. Internal and/or external audits.
5. Disciplinary action for improper conduct.
Sources: FAR Subpart 3.10 and DFARS § 203.7001 (information); GAO
(analysis and presentation).
Note: The new FAR procedures (FAR Subpart 3.10) exempt small businesses
from suggested DFARS contractor ethics program procedures for a formal
training program and an internal control system. In addition, although
DFARS procedures for contractor ethics program included (1) timely
reporting to appropriate government officials of any suspected or
possible violation of law in connection with government contracts or
any other irregularities in connection with such contracts and (2) full
cooperation with any government agencies responsible for either
investigation of corrective actions, mandatory disclosure and full
cooperation are now being considered under a separate FAR proposal. 72
Fed. Reg. 64019-23 (Nov. 14, 2007).
[End of table]
Some DOD Offices Have Safeguards Addressing Contractor Employees'
Conflict of Interest in Particularly Sensitive Areas:
While DOD does not have a policy regarding contractor employee
conflicts of interest, many DOD offices believe there is a risk of
personal conflicts of interest when contractor employees participate in
source selection activities. All of the 19 DOD offices we reviewed had
established safeguard procedures such as contract clauses or self-
certifications to prevent conflict of interests for contractor
employees for the source selection process, as shown in table 4. By
contrast, program offices assessed risk differently when it came to
other types of contractor employees' participation in decision making.
Only 6 of the 21 offices had personal conflict of interest safeguards,
such as contract clauses for other types of contractor employee
services that involve advice and assistance on governmental decisions-
-which, for example, could include services related to requirements
development, test and evaluation, and cost estimation.
Table 4: DOD Offices Reviewed That Have Conflict of Interest Safeguards
for Contractor Employees:
Army: Army Materiel Command (Communications Electronics Command):
Acquisition Business Process Systems, Enhancement and Industrial
Analyses Sector;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Check][A].
Army: Army Materiel Command (Communications Electronics Command):
Logistics and Readiness Center;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Check][A].
Army: Army Materiel Command (Communications Electronics Command):
Project Management Office, Tactical Radio Communications Systems;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Check][A].
Army: Office of the Deputy Under Secretary of the Army for Business
Transformation: HR Solutions Program Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Check].
Army: Army Contracting Agency: Contracting Center of Excellence;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Check].
Air Force: Air Force Space Command: Deterrence and Strike Division
(A5MF);
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Air Force: Air Force Space Command: Surveillance, Reconnaissance and
Spacelift Division (A5F);
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Air Force: Air Force Materiel Command; Aeronautical Systems Center
(303rd Air Wing);
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Air Force: Air Force Materiel Command; Aeronautical Systems Center
(516th Air Wing);
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Air Force: Air Force Materiel Command; Electronic Systems Center;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Navy: Naval Sea Systems Command: Program Executive Office for Aircraft
Carriers;
Personal conflict of interest safeguards by task category: Source
selection support: [B];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Navy: Naval Sea Systems Command: Program Executive Office for
Integrated Warfare Systems;
Personal conflict of interest safeguards by task category: Source
selection support: [B];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Missile Defense Agency: Ground-Based Midcourse Defense Program Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [C].
Missile Defense Agency: Terminal High Altitude Area Defense Program
Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [C].
Missile Defense Agency: Agency Operations Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [C].
Missile Defense Agency: Aegis Ballistic Missile Defense Program Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [C].
Missile Defense Agency: Engineering;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [C].
Missile Defense Agency: Sensors;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [C].
Tricare Management Activity: Acquisition Management and Support Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Tricare Management Activity: Clinical Information Technology Program
Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Tricare Management Activity: Resources Information Technology Program
Office;
Personal conflict of interest safeguards by task category: Source
selection support: [Check];
Personal conflict of interest safeguards by task category: Other
advisory & assistance services: [Empty].
Sources: DOD offices (information); GAO (analysis and presentation).
[A] Policy revised in August 2007 and, as of September 2007, has yet to
be used in any solicitation.
[B] Command policy is to not use contractor employees to support source
selection tasks. However in excepted cases where contractor employees
are being used, Naval Sea Systems Command requires each individual to
sign agreement to not disclose procurement-related information.
[C] In a number of situations involving other advisory and assistance
services support, Missile Defense Agency policy may require each
individual to sign an agreement to not disclose any government
information and also to refrain from activities that would create an
actual or apparent conflict of interest during the course of their work
on a task and to promptly notify their employer and the contract
officer representative should this agreement be violated. For example,
under this policy, contractor employees involved in acquisition
planning or who have access to procurement sensitive, proprietary, or
source selection information may be required to sign the agreement. In
addition, the agency requires all contractor employees supporting
budget planning to individually sign a non-disclosure agreement that
forbids them from divulging budget data to outside parties.
[End of table]
The Air Force's Electronic Systems Center uses a contract clause as a
safeguard to prevent conflicts of interest for contractors involved in
source selection and other activities critical to mission-support and
government decision making.[Footnote 8] According to an Air Force
contracting official, this contract clause, highlighted in greater
detail in table 5, affects 38 prime contractor companies, with an
estimated value of $280,000,000 in task orders in 2007. An Air Force
official told us that this clause has been used for at least 10 years
in recognition of the close relationship between decision makers and
federal employee advisors--who are both required to identify and avoid
financial conflicts--and contractor employees directly advising them in
these roles. Thus, the clause provides a mechanism to address potential
and actual contractor financial conflicts that could affect the
integrity of the procurement system.
Also, the Army's Communications Electronics Lifecycle Management
Command developed a personal conflict of interest policy and
contractual procedural safeguards for its contractor employees after
our June 2007 visit to three of its offices where Army officials told
us they had not previously considered the need to do so.[Footnote 9]
According to a policy alert sent out in August 2007 to the command's
contracting activities, an underlying principle behind the policy is
preventing the existence of conflicting roles that might bias a
contractor employee's judgment. According to the new policy, conflicts
of interest are more likely to occur in support services contracts,
such as management support; consultants; preparing statements of work;
and performance of technical evaluations. Table 5 also highlights the
command's new safeguards in greater detail.
Table 5: Highlights of Selected Air Force and Army Contract Clauses
Addressing Personal Conflict of Interest Safeguards:
DOD offices using contract clauses: Air Force Electronic Systems
Center;
Highlights of contract clauses: Defines financial interest as any
interest in, or affiliation with, a prime contractor, a subcontractor
to a prime contractor, any offeror, or any prospective subcontractor to
any offeror for the program, contract, or other matter for which the
employee is performing the support task under a contract. According to
an Air Force program official, the financial conflict of interest
contract clause has been included in all advisory and assistance
services contracts for at least 10 years. The clause does the
following:
* Prohibits the prime contractor from assigning or allowing one of
their employees or subcontractors to perform any task under the
contract if that employee or employee's spouse, minor child, or
household member has a financial interest that poses a conflict;
* Directs the prime contractor to obtain and maintain a financial
disclosure statement from each employee assigned to perform support
tasks for the government when an employee is initially assigned to a
support task under the contract and to update the disclosure statement
at least on an annual basis;
* Directs the prime contractor, upon written request by the government
contracting officer, and at no increase in contract price, to make
financial disclosure statement available to the government for
inspection and review;
* Directs the prime contractor to obtain a written waiver from the
government contracting officer if the prime contractor wishes to assign
an employee to perform a task for which the employee has a financial
interest and conflict exists.
DOD offices using contract clauses: Army Communications Electronics
Lifecycle Management Command;
Highlights of contract clauses: Defines financial interest as
compensation for employment in the form of wages, salaries,
commissions, professional fees, or fees for business referrals, or any
financial investments in another contractor in the form of direct
stocks or bond ownership, or partnership interest (excluding non-
directed retirement or other mutual fund investments). The clause
establishes the following requirements:
* At the government contracting officer's discretion, contractor
employees are required to sign a "Contractor-Employee Personal
Financial Interest/Protection of Sensitive Information" agreement with
the command regarding personal financial interest;
* In this agreement, the contractor employee certifies that they have a
continuing obligation to inform their employer if their assigned duties
could affect the interests of a company or business entity in which the
employee, or spouse, minor children, or immediate family member has a
personal financial interest and thus could result in a conflict of
interest;
* The contractor employees are required to be trained and informed of
this contract provision.
Sources: Air Force and Army (information); GAO (analysis and
presentation).
[End of table]
Appendix V includes the full text of both contract clauses.
We obtained information from one defense contractor about how this
company--a large business--has implemented the clause required under
the company's subcontract with an Electronic Systems Center prime
contractor. According to the contractor's senior vice president, the
company developed policy and procedure for annual financial conflict of
interest employee certifications. According to the senior vice
president, this conflict of interest safeguard applies to every
employee working on this subcontract. The company's safeguard is
similar to the financial disclosure process used for DOD employees
covered by federal conflict of interest safeguards. For example, the
company's instructions to employees state that the annual financial
disclosure and certification process is done to assure that each
employee is "free from any actual, potential, or apparent financial
conflicts of interest with work he or she may perform on this
[sub]contract."
In 2006, a conflict of interest for one of this company's employees was
disclosed on the annual certification. According to the company's
senior vice president, after the employee disclosed that his wife had
taken a job with one of the center's prime contractors, the company
removed him from performing service under the subcontract. That was
because the company's annual review revealed not only that the employee
might have a financial conflict of interest that could not reasonably
be mitigated with the subcontracted work he was performing at the
Electronic Systems Center,[Footnote 10] but he had not complied with
the company's ongoing requirement for employees to avoid prohibited
financial interests and to immediately notify the company when
financial interests change from what was certified in an employee's
last disclosure.
Firms Policies and Practices Vary:
We analyzed the ethics program documents available for 22 of the 23
contractors we reviewed and found that 18 have written policies and
procedures that address avoidance of personal conflicts of interest by
their employees.[Footnote 11] However, the policies require their
employees to avoid a range of interests--such as owning substantial
stock in competitors or suppliers--that conflict with the firms'
interests. Except in three cases, the policies did not require written
disclosure forms identifying potential conflicts of interest with the
employees' work at DOD.
More specifically, our review of the documents showed that:
* policies for 4 of the contractor firms did not address avoidance of
personal conflicts of interests at all;
* policies for 18 of the firms did address avoidance of personal
conflicts of interest, but just 3 specifically required written
disclosures identifying potential conflicts of interest with respect to
their work for customers, including DOD, so they can be screened and
mitigated by the firms; and:
* 16 of the firms extended their conflicts policies to the employees'
family members.
Our analysis of contractors' ethics documents found variation in how
the contractors' policy and procedural safeguards address how
employees' financial interests that could conflict or create the
appearance of a conflict in the work they do for clients such as DOD.
For example, several companies have conflict of interest policies
addressing business ethics and standards of conduct requiring all
employees to avoid having a range of financial or personal interests
that would interfere in any way with their work for the company and
could make others question the company's integrity, or give the
appearance of impropriety. These contractors' conflicts of interest
policies generally describe a range of potential activities that
include employees' financial or other interests, arrangements, and
outside business interests and personal relationships that could pose
an actual or the appearance of a conflict to be avoided.
In three cases, however, the policies required written disclosure forms
identifying potential conflicts of interest related to work carried out
for DOD. That is, three contractor firms we reviewed require their
employees to disclose potential conflicts related to their work at DOD
and have employees working at the Air Force, Navy, and Army advising
and assisting on engineering development and operation of aircraft and
missile programs and acquisition management support on a communications
program. For example as presented below, two firms have measures for
ensuring that their employees do not have personal interests that would
conflict with their work at DOD. According to the firms' ethics
documentation, these measures are part of the corporate mission and
values statements so that all levels of their employees are aware that
their services to clients as well as individual and company decisions
are based on core business values such as honesty and the highest
standards of ethics and integrity. For example:
* One small business contractor has employees who work on a range of
aeronautical systems programs of the Air Force Materiel Command. Their
responsibilities for one of the offices we visited in the area of
acquisition management include tasks in various phases of the
acquisition cycle, such as development, award, management, and contract
closeout.[Footnote 12] The company has a 3-page Financial Conflict of
Interest Reporting Form--and according to company officials, it is
modeled on the federal financial disclosure form--that each of its
professional employees must submit when initially hired and annually
thereafter. The contractor's reporting form asks each employee if there
are any personal or household financial interests in the matters dealt
with under the Air Force contract, such as stock ownership in any of
the contractors who are involved in the aeronautical systems programs
that the employee works on as part of his or her tasks. The company's
vice-president stated that, as the employee's supervisor, he evaluates
reported interests on the financial conflict of interest form and
reviews the circumstances in light of present and prospective duties of
the individual to ensure that both actual and apparent conflicts of
interest are avoided. According to the vice-president, he also decides
on how any conflict or apparent conflict will be resolved, such as
reassignment, divestiture, or disqualification.
* A large business defense contractor has employees who work on missile
programs under the Naval Sea Systems Command. Their responsibilities
for the Navy include systems engineering and program office support,
including contract management input for award fee deliberations and
contract modifications. The company has a 1-page Certificate on
Conflict of Interest, Relationships with Suppliers, and Standards of
Business Conduct that, according to contractor officials, employees are
required to submit annually by e-mail, fax, or on-line. The
certification form requires yes or no answers to seven questions that
serve to prompt each employee to disclose certain interests in the
company's suppliers or prospective suppliers, such as whether they or a
member of their family has a substantial financial interest. The form
also asks each employee if they or their family members have any other
interest or agreement which may violate the Standards of Business
Conduct or may otherwise result in an actual or perceived conflict of
interest. According to the company's ethics and Navy contracting
managers, the annual conflict-of-interest certification process
receives a fair amount of supervisory review and screening by corporate
business ethics offices in order to prevent or mitigate actual or even
the appearance of an employee being in a position with a personal
conflict of interest.
Stricter Conflict of Interest Safeguards Recently Developed for DOD
FFRDC Employees:
DOD's FFRDCs are private nonprofit organizations established to meet
specialized or long-term research or development needs that cannot be
met by existing government or contractor resources.[Footnote 13] For
example, employees from FFRDCs may provide design and systems
engineering expertise to major space or weapon acquisition programs,
and even work along side DOD employees. They may be involved with
conducting independent assessments of technical risk, management, cost,
and schedule for particular programs or in broader research on
international security and defense strategy, acquisition and technology
policy, force management, and logistics.
In 2006, prompted by the aftermath of public and congressional scrutiny
regarding a conflict of interest with the president of one DOD-
sponsored FFRDC,[Footnote 14] DOD's Deputy General Counsel (Acquisition
and Logistics) reviewed the conflict of interest policies and
procedures in place at each of DOD's 10 FFRDCs. DOD's review addressed
FFRDC sponsoring agreements, contracts, and internal policies and
procedures. DOD concluded that some of these documents failed to meet
minimum FAR requirements and others needed revision to better protect
DOD from conflicts of interest by FFRDC employees.[Footnote 15]
As a result, in January 2007, the Undersecretary of Defense
(Acquisition, Technology, and Logistics) revised DOD's policy adding
stricter contracting safeguards for FFRDC contractors requiring them to
have procedures that address personal conflicts of interest for FFRDC
employees. DOD revised the policy to ensure that FFRDC employees
operate in the public interest with objectivity and independence. DOD's
revised policy requires in part that each administrator of its FFRDCs
do the following:
* maintain written, corporatewide conflict of interest policies for
their employees; report any personal conflicts of interest to
contracting officers or their representatives; provide annual
compilations of personal conflicts of interest and their dispositions;
maintain audit programs to verify compliance;
* establish policies for their employees that address all major areas
of personal conflicts of interest including, but not necessarily
limited to gifts, outside activities, and financial interest;
* set procedures to screen for potential conflicts of interest for all
employees in a position to make or materially influence research
findings and/or recommendations to DOD;
* provide initial and annual training to address ethics and conflicts
of interest for affected employees; and:
* designate an office responsible for ethics compliance and training.
All four FFRDC administrators that we contacted for this report had
written corporatewide ethics policies and training for their employees
prior to DOD's new policy. According to FFRDC administrator officials,
three of the FFRDCs have updated their ethics compliance program and
policies, which include their training programs, and are in compliance
with the new requirements. As of October 2007, a fourth FFRDC we
contacted has yet to reach agreement with its Air Force sponsor
organization on whether additional safeguards are necessary.[Footnote
16] Of the three FFRDCs that have already changed practices to
implement the revised DOD-wide policy, there were some differences in
how they changed their procedures to screen for potential conflicts of
interest for all employees in a position to make or materially
influence research findings and/or recommendations to DOD. For example,
according to FFRDC administrator officials:
* New requirements are being implemented by two of the FFRDCs for their
employees to complete an on-line personal conflict-of-interest
screening questionnaire as part of their initial assignment to a DOD-
sponsored task. The on-line screening tool will prompt these FFRDC
employees, on a task-by-task basis, to disclose and list any financial
interests they, their spouse, or family members have in specific DOD
prime and subcontractors pre-loaded in the FFRDC database for each
defense weapon system or DOD program being researched or advised on
under the FFRDC project. According to ethics officials for these two
FFRDCs, any disclosure of financial interests from the on-line tool is
reviewed by the employee's project manager or supervisor as well as the
ethics office to identity actual or potential conflicts of interest,
which would then be mitigated in ways similar to practices for federal
employees.[Footnote 17]
* Instead of task-by-task screening, a third FFRDC's procedures require
all employees (except project directors) working on DOD tasks to submit
annual disclosures identifying personal and family financial interests
for review by supervisors and ethics offices to screen for actual or
potential conflicts of interest in the employees' tasks for DOD.
Project directors are now required to submit financial disclosures task-
by-task.
Range of Views Indicate Additional Conflict of Interest Safeguards Are
Necessary for Contractor Employees:
A majority of government officials we spoke with indicated support for
changes in contracting policy to address risks from contractor
employees having personal conflicts of interest when participating in
matters affecting DOD's decisions. Those closest to the situation--DOD
program managers--all agreed that safeguards are needed for contractor
employees participating in the source selection process. Moreover, some
of these managers had also put in safeguards for contractor employees
involved in other types of advisory and assistance tasks. However, a
number of program managers as well as defense contractor company
officials expressed concern that adding new safeguards will increase
costs for the government and are unnecessary since government
officials--not contractors--are the ones ultimately making the
decisions. DOD oversight officials as well as OGE officials, however,
believed additional safeguards are necessary to maintain public
confidence, particularly since contractors are increasingly being
involved in spending decisions, though this could be achieved through
changes in policy and practice and changes in regulations rather than
changes in the law. A congressionally mandated Acquisition Advisory
Panel recently concluded that there is a need to assure that the
increase in contractor employees' involvement in agency activities does
not undermine the integrity of the government's decision-making process
and that changes in the FAR should be considered to establish
additional conflict of interest safeguards across agencies through
contract clauses.
Program Managers' Viewpoints:
All of the 19 offices we reviewed established safeguard procedures such
as contract clause or self-certifications to prevent conflict of
interest for contractor employees when involved in the source selection
process. At the same time, six offices had safeguards for contractors
performing other types of advisory and assistance tasks. For example,
the Army's Communications Electronics Lifecycle Management Command and
the Air Force's Electronics Systems Center have recognized the need to
prevent the existence of conflicting interests that might bias a
contractor employee's judgment and have developed contract clauses for
other types of contractor employees who directly advise and assist
federal decision-makers in those organizations. In addition, some of
DOD's program managers said they should require certain contractor
employees to file financial disclosures with their companies so that
they can screen for potential personal conflicts of interest in the
work they do at DOD.
However, when it comes to using contractor employees to perform tasks
other than source selection, some program managers believed that
additional safeguards are unnecessary. In fact, some believed it could
create a cost and oversight burden. For example, these managers also
stressed that government officials are ultimately responsible for
decision-making, not contractor employees. When we asked DOD officials
to tell us about cases of improper conduct involving contractor
employees, some officials also pointed out that very few cases of
actual conflicts of interest or other ethics problems involving
contractor employees have been publicly identified and in most of these
cases, the situations were handled informally. They were also concerned
that requiring contractor employees to abide by certain safeguards,
such as submitting financial disclosure forms for government or
contractor ethics review processes, could chase away qualified
contractors from federal work.
Contractor Officials' Viewpoints:
We spoke to various company representatives responsible for managing
their companies contracting business and/or employee ethics matters at
the 21 DOD offices where we conducted our review. Some of the
contractor company officials told us that they believed additional
safeguards are not needed because their employees were aware that
personal conflicts of interest are prohibited under their corporate
ethics programs. Moreover, they pointed out that their employees would
know to advise their supervisors of any potential conflicts, consistent
with the companies' ethics program procedures. Contractor officials
also contended that the creation of new safeguards could drive up costs
for the government because of contractor administrative costs for
collecting and maintaining employee financial conflict of interest
paperwork.
Company officials cited other reasons for not establishing additional
conflict of interest safeguards for contractor employees, but we found
evidence that contradicted these positions. For example, one reason was
that defense contractor companies' business ethics and standards of
conduct for their employees are already consistent with the
government's ethics requirements for federal employees. Our review of
22 contractors' ethics program documents found that they did not
address the same issues that the government ethics programs are
required to address.[Footnote 18] Also, in some cases, they were
designed to protect the contractor's interests, not the government's.
Another reason was that the risk of conflicts of interest for
contractor employees was low because it would be obvious if these
employees tried to steer decision making to favor a personal interest
or bias. Some contractor officials also stressed that the role that
their employees were playing in decisions was minimal. Some government
officials we spoke with, however, indicated that these types of inputs
into decisions are not trivial and that it may not always be obvious
when employees are providing biased information.
On the other hand, many company officials told us that if the federal
government were to require contractor employees to submit financial
conflict of interest certifications or disclosures, then the companies
would comply in the interest of maintaining the public's confidence in
the integrity of government operations supported by contractor
employees. In addition, a manager of one small business defense
contractor said that the company's personal conflicts of interest and
ethical conduct policy already requires all employees to submit annual
financial conflict of interest reporting forms when assigned to perform
government work. He added that most support contractor employees are
retired military and have been accustomed to abiding by government
rules for 30 years.
Viewpoints of Ethics Officials and Senior Leaders:
Senior officials within DOD responsible for ensuring integrity in
employee conduct and in the contracting function as well as the OGE
told us that they believed that there are risks associated with
personal conflicts of interests not just in program offices that
involve contractors in source selection, but those that use contractors
in other ways to support spending decisions. In fact, during our
review, DOD undertook steps to begin assessing the need for
departmentwide policies for preventing personal conflicts of interests
for its contractor employees.
OGE: OGE, which promulgates ethics guidance for the executive branch,
has expressed concerns that current federal requirements and policies
are inadequate to prevent certain kinds of ethical violations on the
part of contractor employees. The office is specifically concerned with
potential financial conflicts of interest, impaired impartiality, and
misuse of information and authority. As such, additional conflict of
interest safeguards should be targeted at contractor employees engaged
in the types of services that influence governmental spending,
contracting, and mission delivery decisions and concern the type of
processes and operations upon which considerations of management and
delegation must turn. OGE has also observed that federal and contractor
employees work so closely on a day-to-day basis, it is difficult to
distinguish whether employees are government or contracted and they see
greater risks to the integrity of decisions given the growing influence
that contractors appear to be having on government operations and
expenditure of funds.
OGE has advocated policy changes to apply conflicts of interest
requirements to contractors. In considering additional contract-based
safeguards to ensure that the government's interests are not
compromised by contractor employees' conflicts of interest, OGE's
acting director has expressed concerns in several areas, such as:
* advisory and assistance services support,[Footnote 19] especially
those where contractor personnel regularly perform in the government
workplace and participate in deliberative and decision-making processes
along with government employees;
* management and operations contracts involving large research
facilities and laboratories, military bases, and other major programs;
and:
* large indefinite delivery or umbrella contracts that involve
decentralized ordering and delivery of services at multiple agencies or
offices.
DOD ethics and general counsel officials: Defense ethics and other
general counsel officials we spoke to from several DOD offices
responsible for DOD-wide standards of conduct and ethics compliance had
generally the same concerns raised by OGE. For example, according to
the director of DOD's Standards of Conduct Office in 2006,[Footnote 20]
as DOD increases its integration of contractor employees into the
actual administration of its organizations and offices, the larger the
gap between employees in its blended workforce in terms of the conflict
of interest requirements that apply only to federal employees, and the
more difficult it becomes to ensure the integrity of government
decision making. DOD ethics and general counsel officials also
expressed concerns about risks associated with reliance on contractor
employees, particularly when they perform many of the same advisory and
management functions as federal employees. An Army general counsel
official observed that contractor employees are exerting greater
influence over Army operations given that the Army has lost expertise
and leadership over the years.
Further, DOD ethics and general counsel officials stated that those
contractor employees participating in and supporting the government's
decision-making processes should be subject to stricter conflict of
interest rules so that agencies can better judge the objectivity of
their advice to the government. An Air Force ethics official said his
office has come across situations in which contractor employees would
have been in violation of the government ethics rules had they been
government employees. An Army general counsel official told us that not
requiring financial disclosure statements from contractor employees
poses the greatest risk to the integrity and impartiality of the work
they perform under contract for the government. Unlike for federal
employees who are prohibited under conflict of interest law from
participating in a particular matter involving specific parties in
which they have a financial interest, there is no way to know whether
contractor employees are doing so.
In 2006, an approach to apply conflict of interest laws to contractor
employees was identified by DOD's Standards of Conduct Office director,
who offered his personal views at one public policy discussion on the
issue of contractor ethics that the FAR Council[Footnote 21] should
consider some model language, or instruction to government agencies to
include conflict of interest provisions within contracts.
DOD's Directorate of Defense Procurement and Acquisition Policy (DPAP):
The DPAP director concurred with the views of ethics officials across
the department and recently directed a DOD panel examining various
aspects of contracting integrity to specifically examine the need for
departmentwide policies to prevent conflicts of interest with its
contractor employees. The Panel on Contracting Integrity is comprised
of senior leaders representing a cross section of DOD.[Footnote 22] The
director told us that existing policy may be inadequate given the
growing reliance on contractor employees across DOD program offices. He
was specifically concerned with contractors who are involved in source
selection and contract management.
Acquisition Advisory Panel: This panel, comprised of recognized experts
in government acquisition law and policy, was established by a
congressional mandate to examine and report on ways to improve federal
acquisition practices.[Footnote 23] According to the panel, the trend
toward more reliance on contractors in the federal workplace raises the
possibility that the government's decision making could be undermined
as a result of personal conflicts of interest on the part of contractor
employees. The panel concluded that, in view of the tremendous amount
of federal contracting for services, and particularly in the context of
the blended workforce, additional safeguards to protect against
personal conflicts of interest by contractor employees are needed. The
panel believed that conflict of interest safeguards are more critical
for certain types of contracts (primarily services contracts) and that
further study was needed to identify those types of contracts where the
potential for contractor employee conflicts of interest raises a
concern.
The panel believed that achieving greater governmentwide consistency in
safeguarding against contractor employees conflicts of interest would
be beneficial, in that it would allow agencies to implement best
practices and it would also help to assure that all bidders on federal
contracts--whether successful or not--are aware of their
responsibilities and that they structure their operations knowing what
was expected of them. The panel concluded that it was not necessary to
adopt any new federal statutes to impose additional conflict of
interest safeguards on contractors or their employees. Rather, the
additional safeguard requirements should be imposed--where appropriate--
through contract clauses.[Footnote 24]
As a result, the panel recommended to the Office of Federal Procurement
Policy (OFPP) that the FAR Council should determine when contractor
employee personal conflicts of interest need to be addressed, and
whether greater disclosures, specific prohibitions, or reliance on
specified principles are needed to maintain public confidence in the
integrity of government operations reliant on contractors. The panel
recommended that the FAR Council's efforts should consider whether
development of a standard ethics clause or a set of standard clauses
that establish the contractor's responsibility to perform the contract
with a high level of integrity needs to be included in solicitations
and contracts.
According to OFPP officials, the FAR council was asked to initiate a
case review process to consider changes to the FAR to include new
conflict of interest safeguards for contractor employees. This
anticipated action would be separate from the November 2007 amendment
to the FAR requiring certain contractors to have written codes of
ethics and business conduct, employee ethics and compliance training
programs, and internal control systems to guard against violation of
these codes.[Footnote 25] The final rule does not speak to development
of a standard ethics clause concerning when contractor employee
personal conflicts of interest need to be addressed.
Conclusions:
The environment in which DOD makes its most significant spending
decisions is changing. As programs grow more complex and costly, DOD
has increasingly become reliant on technical, business, and procurement
expertise supplied by contractors--sometimes to a point where the
foundation on which decisions are based may be largely crafted by
individuals who are not employed by the government, who are not bound
by the same rules governing their conduct, and who are not required to
disclose whether they have financial or other personal interests that
conflict with the responsibilities they have performing contract tasks
for DOD. To its credit, DOD has recognized that this condition and its
risks needs to be studied and addressed by adding personal conflicts of
interest among contractor employees as a tasking for its Panel on
Contracting Integrity and adopting stricter safeguards for FFRDC
employees early in 2007. Such attention is important.
While few cases of improper conduct have been publicly identified,
there are also few safeguards in place to identify whether personal
conflicts of interest even exist. The new FAR requirements making it
mandatory for certain contractors to set and follow written codes of
business ethics and conduct will not assure that the advice and
assistance received from contractor employees is not tainted by
personal conflicts of interest. The officials in most offices we
reviewed that operate within this environment believe that the risk to
the government is considerable enough to warrant safeguards when
contractors are involved in source selection; at least some believe
that risk extends to contractors that are involved in other activities
that feed into spending decisions. Arguments that no change is needed
focus on costs, which may be calculable. Yet, costs of contractor
employees constructing options for their personal gain--an outcome
increasingly likely based on sheer numbers--would likely never be
known, let alone calculable as long as there is no transparency.
Changes to current policy and practices that are targeted, tailored and
implemented at the lowest practicable level are a way to minimize the
cost of addressing personal conflicts of interest among contractor
employees and to maximize the value of any additional safeguards.
Several program offices have already demonstrated this is possible
through the use of contract clauses and processes to identify potential
conflicts and at least one small company has adopted similar safeguards
on its own.
Recommendations:
We recommend that the Secretary of Defense direct the Under Secretary
of Defense (Acquisitions, Technology, and Logistics), to develop and
implement policy that requires personal conflict of interest contract
clause safeguards for defense contractor employees that are similar to
those required of DOD's federal employees. In developing its policy,
DOD should include requirements for contractor companies to identify
and prevent personal conflicts of interest for certain of their
contractor employees who are performing contracted services that
provide inputs to DOD's decision-making in such mission-critical areas
as the development, award, and administration of government contracts
and other advisory and assistance functions.
In developing its policy, DOD should include the following requirements
for defense contractor companies:
* require a written code of business ethics and conduct applicable to
contractor personnel working on certain DOD mission-critical advisory
and assistance type services to:
- prohibit contractor personnel from participating in a government
contract in which they have a personal conflict of interest;
- require contractor personnel to avoid the appearance of loss of
impartiality in performing contracted duties for DOD;
- require contractor personnel to disclose personal conflicts of
interest to their employer prior to beginning work on these contracts;
- require the contractor to review and address any personal conflicts
of interest its employees might have before assigning them to deliver
contracted services;
- prohibit contractor personnel from using non-public government
information obtained while performing work under the contract for
personal gain;
- prohibit contractor employees providing procurement support services
from having future employment contact involving a bidder in an ongoing
procurement;
- impose limits on the ability of contractors and their employees on
accepting gifts (defined as almost anything of monetary value, such as
cash, meals, trips, or services) in connection with contracted duties;
and:
- prohibit misuse of DOD contract duties to provide preferential
treatment to a private interest.
In developing its policy, DOD should include requirements for
contractor companies to:
* Report any contractor personnel conflict of interest violations to
the applicable contracting officer or contracting officer's
representative as soon they are identified.
* Maintain effective oversight to verify compliance with personal
conflict of interest safeguards, and have procedures in place to screen
for potential conflicts of interest for all employees in a position to
make or materially influence findings, recommendations, and decisions
regarding DOD contracts and other advisory and assistance functions.
This screening can be done on a task-by-task basis or on an annual
basis, such as a financial disclosure statement.
Agency Comments:
We provided a draft of this report to DOD and OGE for comment. The DPAP
director wrote that DOD partially concurred with the recommendations.
Specifically, he wrote that he agrees with their intent and that each
of our recommendations will be carefully reviewed by the Panel on
Contracting Integrity's subcommittee, Contractor Employee Conflicts of
Interest. According to the DPAP director, this subcommittee was
established in order to respond to the concerns and recommendations
voiced in the exit conference for our work. DOD's comments are
reproduced in appendix II.
In providing comments, OGE's Director commended the draft report for
breaking important new ground by providing data regarding the ethical
implications of contractors in the federal workplace. OGE offered a few
comments on our recommendations that should help DOD as it begins its
efforts to address how best to implement them. Also, OGE offered its
expertise to assist DOD in developing its policy in response to our
recommendations regarding the scope of personal conflicts of interest
and other ethics requirements that would be appropriate for contractor
employees in comparison to federal employees. OGE's comments are
reproduced in appendix III.
We are sending copies of this report to the Secretary of Defense, the
Director of the Office of Management and Budget, the Director of the
OGE, and other interested parties. We will make this report available
to the public on the GAO Web site at [hyperlink, http://www.gao.gov].
If you have any questions about this report or need additional
information, please contact me at (202) 512-4841 or chaplainc@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Key contributors
to this report were Carolyn Kirby, Assistant Director; Russ Reiter;
Martene Bryan; Lily Chin; John Krump; Meredith Moore; Lillian
Slodkowski; and Suzanne Sterling.
Signed by:
Cristina T. Chaplain:
Director, Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
Our overall objective was to review existing safeguards to prevent
contractor employees from having personal conflicts of interest that
could affect the integrity of their service while performing tasks to
their employer under contract with DOD. Because DOD does not maintain
departmentwide data on the numbers of contractor employees working side-
by-side with federal employees, a specific objective was to (1) assess
the roles being played by certain contractor employees by identifying
how many of them were working at DOD offices included in this review as
well as what responsibilities they were undertaking. Other specific
objectives were to assess (2) what safeguards there are to prevent
conflict of interests for contractor employees and (3) whether
government and contractor officials believe additional safeguards are
necessary.
We reviewed federal statutes and government ethics and federal
acquisition regulations concerning personal conflicts of interest to
assess their scope and applicability, focusing our analysis on conflict
of interest laws and regulations that safeguard or promote the
integrity of the government's decisions, approvals, disapprovals, and
recommendations. In addition, we reviewed information on personal
conflict of interest requirements for federal employees versus
contractor employees and interviewed officials from the Office of
Government Ethics (OGE); several offices that administer the defense
ethics program including the Standards of Conduct Office in DOD's
General Counsel (Office of the Secretary of Defense) and the Army,
Navy, and Air Force general counsels for ethics.
To determine what conflict of interest safeguards for contractor
employees that DOD has of its own for contractor employees, we reviewed
DOD offices who used contractor employees to perform the type of tasks
closely associated with inherently governmental functions and that
influence government decision making. To obtain an understanding on the
scope of DOD-wide safeguards, we reviewed the Defense Federal
Acquisition Regulation Supplement (DFARS) to identify relevant
contracting policies or contract clauses restricting contractor
employees participation in DOD matters regarding personal conflicts of
interest. To gain an understanding of the extent to which DOD offices
use any DFARS policies or have augmented DFARS to establish local
conflict of interest safeguards for contractor employees supporting
their mission and operations, we visited and/or obtained information
from 21 DOD offices in the Air Force, Army, Navy, Missile Defense
Agency, and Tricare Management Activity. We judgmentally selected these
DOD organizations and offices for review because they were cited by
various DOD officials as having large contractor workforces and
representing a cross-section of DOD organizations growing trend of
reliance on support contractors. Table 6 lists the specific DOD offices
selected for our review.
Table 6: DOD Offices Selected for GAO's Review:
Army: Army Materiel Command (Communications Electronics Lifecycle
Management Command):
* Acquisition Business Process Systems, Enhancements and Industrial
Analyses Sector.
* Logistics and Readiness Center;
* Project Management Office: Tactical Radio Communications Systems.
Army: Office of the Deputy Under Secretary of the Army for Business
Transformation:
*HR Solutions Program Office.
Army: Army Contracting Agency:
* Contracting Center of Excellence.
Air Force: Air Force Space Command:
*Deterrence and Strike Division (A5MF);
*Surveillance, Reconnaissance and Spacelift Division (A5F).
Air Force: Air Force Materiel Command:
* Aeronautical Systems Center (303rd Air Wing);
* Aeronautical Systems Center (516th Air Wing);
* Electronic Systems Center.
Navy: Naval Sea Systems Command:
* Program Executive Office for Aircraft Carriers;
* Program Executive Office for Integrated Warfare Systems.
Missile Defense Agency:
* Ground-Based Midcourse Defense Program Office;
* Terminal High-Altitude Area Defense Program Office;
* Agency Operations Office;
* Aegis Ballistic Missile Defense Program Office;
* Engineering;
* Sensors.
Tricare Management Activity:
* Acquisition Management Support Office.
Tricare Management Activity: Joint Medical Information Systems Office:
* Resources Information Technology Program Office;
* Clinical Information Technology Program Office.
[End of table]
Within these DOD organizations and 21 offices, we obtained information
from and interviewed contracting officials, program managers, and other
management officials. We also met with officials from DOD sponsoring
organizations for federally funded research and development centers
(FFRDC) within the office of the Undersecretary of Defense
(Acquisition, Technology, and Logistics), Army, Air Force, and Navy. To
obtain similar information from each of the 21 DOD offices, we
interviewed these officials to obtain their views and supporting
documentation using a structured set of questions covering several
topics including (1) the types of services being provided by contractor
employees, (2) their concerns about the integrity of the information
and advice being provided by the contractor employees with regard to
personal conflicts of interest, and (3) what safeguards such as
contract clauses the offices are using to ensure that the assistance
and advice provided is not impaired due to contractor employees
conflicts of interest. (See table 7, which summarizes the structured
topics discussed with the DOD offices selected for this review.)
Table 7: Information on Contractor Employees and Conflicts of Interest
Safeguards Obtained from Selected DOD Offices:
* Number of military and civilian employee positions required to
disclose their financial interests and outside activities under
government ethics financial disclosure laws;
* Specific assets and income in which the employees (or spouse and
dependent child) are prohibited from having an interest in while
working in this office;
* Office reliance on contractor employees--which contractors and/or
FFRDCs support the office, the number of contractor employees and
examples of their responsibilities, advice, or assistance;
* How the office would become aware if a contractor employee had a
personal conflict of interest;
* Examples of a contractor employee with an apparent conflict of
interest that would have been prohibited if they were a federal
employee;
* Safeguard mechanisms used by office (i.e., contract clauses requiring
non-conflict of interest certifications, financial disclosures,
mitigation plans, etc.) to address contractor employees personal
conflicts of interest;
* Awareness if contractor ethics programs include standards to avoid
personal conflicts of interest;
* Risks to DOD in not applying personal conflict of interest
requirements to contractor employees who perform the same types of
tasks as federal employees;
* Views on whether contractor employees performing tasks closely
associated with inherently government functions should be required to
follow the same conflict of interest standards that federal employees
are required to follow (i.e., financial, employment, or outside
activities conflicts of interest, financial disclosure, gifts and
travel, etc.)
[End of table]
In that regard we also obtained and reviewed available contract clauses
or other documented safeguards to prevent, identify, and mitigate
contractor employees' personal conflicts problems. We also interviewed
defense procurement and acquisition policy and general counsel and
contractor oversight officials from the Office of the Undersecretary of
Defense (Acquisitions, Technology, and Logistics), Army, Navy, Air
Force, and Missile Defense Agency, DOD Procurement Fraud Working Group,
Defense Contract Management Agency, and Defense Contract Audit Agency
to obtain information and views on their oversight and monitoring of
defense contractor ethics programs and contractor employees conflict of
interest issues.
To identify safeguards that DOD contractors have implemented for their
employees to avoid conflicts of interest, we met with and obtained
documentation on ethics programs from 23 defense contractors and four
FFRDC administrator organizations. We judgmentally selected these
contractors and FFRDCs for review because they were cited by program
managers in the 21 DOD offices we reviewed as having contractor
employees who are performing contracted services for them. According to
fiscal year 2006 contract award data, DOD obligated $8.0 billion for
professional, administrative, and management support services contracts
with the 23 contractors, which accounted for 25 percent of total
dollars obligated that year for this category of services contracts.
The contractors and FFRDCs we selected for review are listed in table
8.
Table 8: Defense Contractors and FFRDCs Selected for GAO's Review:
* Aerospace FFRDC;
* Alion Sciences and Technology Corporation;
* Axiom Resources Management, Inc.;
* BAE Systems, Inc.;
* Booz Allen Hamilton, Inc.;
* CACI, Inc.;
* Center for Naval Analyses FFRDC;
* Computer Sciences Corporation;
* EG&G Technical Services, Inc.;
* Engineering and Professional Services, Inc.;
* General Dynamics Corporation;
* Global Solutions Network, Inc.;
* HMR Tech LLC;
* Institute for Defense Analyses Studies and Analyses Center FFRDC;
* Irving Burton Associates, Inc.;
* Jacer International, Inc.;
* Kennell and Associates, Inc.;
* L-3 Communications Corporation;
* Lockheed Martin Corporation;
* Logtec;
* Northrop Grumman Corporation;
* P E Systems, Inc.;
* Arroyo Center FFRDC;
* The Ravens Group, Inc.;
* Sensor Technologies, Inc.;
* Tecolote Research, Inc.;
* Viatech, Inc.
[End of table]
We reviewed examples of the contractors' statements of work or other
documentation to identify the types of advice and assistance services
being provided by their employees to the 21 DOD offices reviewed. To
obtain similar information for each of the contractors and FFRDCs, we
interviewed their officials to obtain their views and supporting
documentation using a structured set of questions covering several
topics including (1) DOD's reliance on contractor employees in terms of
their numbers and responsibilities, (2) steps the contractors take to
identify and mitigate their employees' conflicts of interest, and (3)
views or concerns about the need for additional safeguards to ensure
that the assistance and advice provided is not impaired by contractor
employees conflicts of interest. (See table 9, which summarizes the
structured topics discussed with the contractors and FFRDCs selected
for this review.) We also discussed and obtained documentation from the
FFRDC administrators on changes in their ethics policies and procedures
to address safeguards for employee conflict of interest problems in
response to DOD's January 2007 revised policy for FFRDCs.
Table 9: Information on Contractor Employees and Conflicts of Interest
Safeguards Generally Requested and Obtained from Selected Defense
Contractors and FFRDCs:
* Number of employees at company providing services to the DOD program
office(s) included in our review;
* Employees' duties and responsibilities for DOD;
* Examples of areas of advice or recommendations that the contractor
employees provide to this DOD program office;
* Steps taken by contractors to identify and mitigate potential or
actual problems with contractor employees' ethics and personal
conflicts of interest, e.g., require employees to report or disclose
their financial interests and/or outside business activities;
* Any specific assets and income that the employees (or spouse and
dependent child) are prohibited from having an interest in while
working in this company;
* Examples of a company employee having an actual or potential personal
conflict of interest and/or engaging in conduct that would have been
considered unethical and thus prohibited if they were a government
employee;
* Documentation of company's ethics program, policy, or guidance;
* Views on what gaps pose the greatest vulnerability--i.e., of the
range of ethics rules applicable to government employees but not to
contractor employees;
* Views on whether contractor employees, i.e., those performing
functions closely associated with inherently governmental functions
should be required to follow the same ethical standards that the
government employees are required to follow.
[End of table]
To determine if government and contractor officials believe additional
safeguards are necessary for contractor employees, we used the results
of the above discussions with officials from DOD organizations,
including program managers and ethics and contracting officials. In
addition, we used the results from the above discussions with officials
at the 23 defense contractors and four FFRDCs included in our review.
We also reviewed the report of the Acquisition Advisory Panel and met
with OGE and OFPP officials to obtain information on actions being
considered in response to Panel recommendations related to personal
conflict of interest safeguards for contractor employees. We also met
with representatives of industry and other groups, including the
Defense Industry Initiative on Business Ethics and Conduct,
Professional Service Council, Ethics Resource Center, and members of
the American Bar Association's Public Contract Law Section on
Professional Responsibility and Contracting Ethics.
We conducted this performance audit from November 2006 through March
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient and appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives:
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
Acquisition, Technology And Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
February 28, 2008:
Ms. Christina T. Chaplain:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Chaplain:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-08-169, "Defense Contracting: Additional Personal Conflict
of Interest Safeguards Needed for Certain DoD Contractor Employees,"
dated January 23, 2008 (GAO Code 120592).
The Department partially concurs with the recommendations. Detail
comments on the report recommendations are enclosed.
Sincerely,
Signed by: Susan M. Hildman:
For: Shay D. Assad:
Director, Defense Procurement and Acquisition Policy:
Enclosure: As stated:
GAO Draft Report Dated January 23, 2008:
GAO-08-169 (GAO CODE 120592):
"Defense Contracting: Additional Personal Conflict Of Interest
Safeguards Needed For Certain DOD Contractor Employees"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Acquisition, Technology and
Logistics) to develop and implement policy that requires personal
conflict of interest contract clause safeguards for Defense contractor
employees that are similar to those required of DoD's Federal
employees. In developing the policy, DoD should include requirements
for contractor companies to identify and prevent personal conflicts of
interest for certain of their contractor employees who are performing
contracted services that provide inputs to DoD's decision-making in
such mission-critical areas as the development, award, and
administration of government contracts and other advisory and
assistance functions. (p. 32/GAO Draft Report) [On pages 31 and 32 of
this report].
DOD Response: Partially Concur. The Department formed the Panel on
Contracting Integrity in response to Section 813 of the John Warner
National Defense Authorization Act of Fiscal Year 2007. The purpose is
to conduct a Department-wide review to eliminate areas of vulnerability
of the defense contracting system that allow fraud, waste, and abuse to
occur. The Panel is required to recommend changes in law, regulations,
and policy as determined necessary. The first annual report was
submitted to Congress on December 31, 2007. A subcommittee, Contractor
Employee Conflicts of Interest, was established in late December to
respond to the concerns and recommendations voiced in the exit
conference of the GAO-08-169 report. DoD agrees with the intent of the
recommendations. The subcommittee will have the opportunity to
carefully review each recommendation. A plan of action and milestones
(PO&AM) has not been submitted. We will provide updated information
regarding timelines. We will issue a policy to implement the
subcommittee's recommendations upon acceptance by the Panel comprised
of senior leaders representing a cross section of the Department.
Recommendation 2: The GAO recommends that in developing its policy, DoD
should include the following requirements for defense contractor
companies:
Require a written code of business ethics and conduct applicable to
contractor personnel working on certain DoD mission-critical advisory
and assistance type services to:
* Prohibit contractor personnel from accepting illegal gratuities in
connection with contracted duties;
* Prohibit contractor personnel from participating in a government
contract in which they have a personal conflict of interest;
* Require contractor personnel to avoid the appearance of loss of
impartiality in performing contracted duties for DoD;
* Require contractor personnel to disclose personal conflicts of
interest to their employer prior to beginning work on these contracts;
* Require the contractor to review and address any personal conflicts
of interest its employees might have before assigning them to deliver
contracted services;
* Prohibit contractor personnel from using non-public government
information obtained while performing work under the contract for
personal gain;
* Prohibit contractor employees providing source selection support
services from having future employment contact involving a bidder in an
ongoing procurement;
* Impose limits on the ability of contractors and their employees on
accepting gifts (defined as almost anything of monetary value, such as
cash, meals, trips, or services) in connection with contracted duties;
and;
* Prohibit misuse of DoD contract duties to provide preferential
treatment to a private interest. (p. 32/GAO Draft Report)[On page 32 of
this report]
DOD Response: Partially Concur. See response to Recommendation 1 above.
Recommendation 3: The GAO recommends that in developing its policy, DoD
should include requirements for contractor companies to report any
contractor personnel conflict of interest violations to the applicable
contracting officer or contracting officer's representative as soon as
they are identified. (p. 33/GAO Draft Report)[On page 32 of this
report]
DOD Response: Partially Concur. See response to Recommendation 1 above.
Recommendation 4: The GAO recommends that in developing its policy, DoD
should include requirements for contractor companies to maintain
effective oversight to verify compliance with personal conflict of
interest safeguards, and have procedures in place to screen for
potential conflicts of interest for all employees in a position to make
or materially influence findings, recommendations, and decisions
regarding DoD contracts and other advisory and assistance functions;
this screening can be done on a task-by-task basis or on an annual
basis, such as by financial disclosure statement. (p. 33/GAO Draft
Report)[On pages 32 and 33 of this report]
DOD Response: Partially Concur. See response to Recommendation 1 above.
[End of section]
Appendix III: Comments from the Office of Government Ethics:
United States Office of Government Ethics:
1201 New York Avenue, NW, Suite 500:
Washington, DC 20005-3917:
February 7, 2008:
Cristina T. Chaplain:
Director, Acquisition and Sourcing Management:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Ms. Chaplain:
Thank you for the opportunity to review and comment on the Government
Accountability Office's (GAO) draft report, Defense Contracting:
Additional Personal Conflict of Interest Safeguards Needed for Certain
DoD Contractor Employees (GAO-08-169).
The Office of Government Ethics (OGE) wishes to commend GAO for the
work it has done on this project. As you know, and the report
acknowledges, OGE has sought opportunities in recent years to raise
awareness about the potential ethical concerns presented by contractor
employee personal conflicts of interest. In OGE's view, the draft
report breaks important new ground by providing data for the first time
regarding the ethical implications of contractors in the federal
workplace. In particular, the report catalogs the kinds of sensitive
work contractors are performing for the Federal Government and
underscores the Government's need for conflict of interest protections
under those circumstances, just as certain safeguards are in place for
federal employees.
While the Department of Defense (DoD) was the subject of GAO's inquiry,
OGE notes that other agencies undoubtedly have issues similar to those
described in this report. In addition, it is likely that contractor
employees working outside the procurement area have personal conflicts
of interest that could impair the integrity of their services to the
Government. OGE is aware of at least one such instance that was
documented recently by the Department of Education Inspector General.
In its final audit report entitled, RMC Research Corporation's
Administration of the Reading First Program Contracts (ED-OIG/A03F0022,
March 2007) (EDOIG report), the Education Inspector General's Office
found that a Department contractor did not adequately screen those it
hired to provide technical assistance under the Reading First program
to ensure that those individuals were free of potential bias or
impaired objectivity. According to the report, several of those hired
by the contractor to perform work under the contract had significant
personal conflicts of interest that may have contributed to criticisms
of the Reading First program, including concerns that "some individuals
were promoting or pushing reading products they were affiliated with
and had exerted influence over the products being selected by" the
state and local education agencies receiving technical assistance. ED-
OIG report at 8.
OGE would like to offer a few comments on the recommendations contained
in the draft report. First, the draft report recommends that DoD
"develop and implement policy that requires personal conflict of
interest contract clause safeguards for defense contractor employees."
While OGE does not have expertise in the area of procurement policy,
OGE's efforts to raise awareness about the potential problems with
contractor employee personal conflicts of interest have suggested that
contract clauses are only one possible solution in this area. Others
could include legislation, and education and training by both the
Government and contractors. However, OGE is aware of at least one case
in which a contract clause on personal conflicts of interest was
successfully enforced. In United States v. President and Fellows of
Harvard College, 323 F.Supp.2d 151 (D. Mass. 2004), investments in
Russia by individuals hired by Harvard College to assist Russia in
developing capital markets and foreign investments under an agreement
between USAID and Harvard College contravened the terms of the contract
barring such business activity and resulted in a breach of the
contract.
Second, GAO recommends that, as DoD develops its policy, it should
include several requirements for contractor companies, such as to
report any personal conflict of interest violations among their
employees and to maintain effective oversight to verify compliance with
personal conflict of interest safeguards. GAO may also wish to
recommend that DoD establish a process to ensure that appropriate
actions are taken by DoD and/or the contractor if personal conflict of
interest violations are reported or otherwise come to light.
Finally, since GAO is recommending that DoD's policy require personal
conflict of interest safeguards that are "similar to those required of
DoD's federal employees," OGE would be pleased to offer its expertise
to assist DoD's development of what the term "personal conflicts of
interest" means in this context. OGE has often stated, in its comments
on this issue, that not all of the conflict of interest and other
ethics requirements that apply to federal employees would be
appropriate for contractor employees.
Again, thank you for the opportunity to comment on this report. If you
have any questions, please contact Marilyn Glynn, OGE's General
Counsel, at (202) 482-9292.
Sincerely,
Signed by:
Robert I. Cusick:
Director:
[End of section]
Appendix IV: Contractor Employees Are Key in DOD Offices GAO Reviewed:
For the purposes of understanding how key defense contractor employees
are used to perform mission-critical tasks that could influence DOD
decisions similar to functions carried out by federal employees, we
obtained information from 21 offices across the five DOD organizations
we reviewed. We also reviewed examples of contracting documents
including statements of work and task orders.[Footnote 26]
The contract documents described a range of services that closely
support inherently governmental functions, such as developing
briefings, preparing contracts, proposing award fee amounts for
contractors, conducting systems engineering studies, analyzing
technical issues, and providing financial management support. Most of
the documents we reviewed described services requiring contractor
employees to provide program management oversight duties and entailed
providing these contractors with classified, business proprietary, and
otherwise nonpublic information to perform duties closely associated
with inherently governmental functions. Table 10 lists a range of
professional and management services and support that contractor
employees provided to different DOD organizations we reviewed.
Table 10: Services and Support Tasks Provided by Contractor Employees
Closely Supporting Inherently Governmental Functions in DOD
Organizations Reviewed:
DOD organization: Air Force;
Types of services provided by defense contractor employees:
* Source selection: Assist in the evaluation of proposals and provide
support to past performance and cost evaluation teams; assist in
developing evaluation criteria, source selection plans, and track award
fee plans;
* Cost estimates: Analyze contractor cost, schedule, and performance
data; conduct financial management and assist in executing program
funds; administer the Defense Travel System; track travel program
funds; track budgets through congressional review and appropriation
process;
* Support test and evaluations: Recommend, assess, and analyze test and
evaluation strategies, requirement and objects. Provide assistance in
recommending and assessing test data requirements necessary to meet
program test objectives within program cost and schedule constraints; *
* Security management support: Plan, design, review, analyze, and
report on tailored security plans for the protection of systems during
testing and evaluation and make recommendations for changes to security
test procedures. Analyze adequacy of the weapon system prime
contractor's and/or subcontractors' program protection planning/efforts
and report on discrete areas of concern.
DOD organization: Army;
Types of services provided by defense contractor employees:
* Business functions: Responsible for managing, coordinating, tracking,
and documenting support operations to include financial operations,
administrative support, payments processing and customer relations
support. Support controlling and maintaining budget forecasts, and
travel funds. Research and support reconciliation of billing and
payment discrepancies;
* Procurement support: Provides support from pre-procurement planning
through solicitation, award, administration and closeout. Help with
cost and pricing and preparation of performance work statement and
specifications. Provide technical evaluation support to source
selection panels;
* Contract management support: Provide support for closeout of
contracts, delivery and task orders. Identify and support resolution of
any uncompleted obligations or pending liabilities on the part of
either the government or the contractor..
DOD organization: Missile Defense Agency;
Types of services provided by defense contractor employees:
* Technical and engineering support for a weapon system: Analyze system
requirements, evaluates system engineering trade studies, participate
in design reviews. Conduct independent analysis to substantiate
requirements, and requirements traceability developed by the prime
contractor and subcontractors;
* Test planning and execution: Plan, execute, and report on testing and
evaluation events. Assist in the data collection, reviews,
dissemination and analysis of data products from experiments;
* Recommendations to DOD management: Recommend solutions for resource
shortfalls. Develop alternatives and provide recommendations to include
timelines and benefits;
* Financial management: Support the development and review of program
financial execution plans. Assist in drafting, reviewing, and
coordinating funding modifications, and purchase requests.
DOD organization: Navy;
Types of services provided by defense contractor employees:
* Technical expertise: Perform studies to evaluate alternatives,
propose design changes, and provide recommendations to address
potential warfare systems upgrades and modifications. Develop input to
ship and weapon systems specifications and contracts. Identify and
provide recommendations to resolve weapon system test and evaluation,
integration, and specification issues;
* Award fee evaluations: Act as moderator for award fee board meetings
and provide recommendations with regard to evaluation proceedings.
Determine award fee amount the contractor is eligible to earn;
* Program management: Evaluate issues and provide recommendations
related to weapons system cost, schedule, performance, and contract
modifications. Provide recommendations regarding programming, planning,
and budget management. Analyze contractor proposals.
DOD organization: Tricare Management Activity;
Types of services provided by defense contractor employees:
* Technical and business proposals: Develop criteria to evaluate
technical and business proposals submitted in response to government
requests for proposals and prepare analysis of criteria for evaluation
cost proposals submitted in response to proposals;
* Project management support: Conduct project planning, develop project
plans and documentation, define and manage project resources, and
provide general project support to government project officers;
* Cost certification: Perform independent analysis of the offerors who
are awarded future health care and health care-related contracts.
Develop options and recommendations governing the
feasibility/advisability of revising current and future contracts.
Sources: DOD organizations (information); GAO (analysis and
presentation).
[End of table]
[End of section]
Appendix V: Contract Clauses Used by DOD Organizations to Address
Contractor Employees Personal Conflicts of Interest:
Under Air Force Electronic Systems Center and Army Communications
Electronics Lifecycle Management Command policies affecting 4 of the 21
DOD offices we reviewed, we identified two examples of local contract
clauses establishing conflict-of-interest safeguards for contractor
employees performing advisory and assistance services tasks and other
support services. To illustrate the scope and breadth of these local
contract clauses for addressing contractor employees' personal
conflicts of interest, the clauses are reproduced in their entirety.
Air Force Electronic Systems Center:
With its annual budget of about $3 billion, the mission of the
Electronic Systems Center is to develop, acquire, modernize, and
integrate command and control, intelligence, surveillance and
reconnaissance capabilities, as well as combat support information
technology systems. According to the center, advisory and assistance
services contractor employees comprise a substantial portion of its
workforce helping to execute this mission. And, according to the
center's law division, although these contractor employees cannot
perform inherently governmental functions, they do provide essential
technical and business advice and expertise that may be highly
influential in decision making by government employees.
Given the close relationship between Air Force decision-makers and
federal employee advisors at the center--who are both required to
identify and avoid financial conflicts--and contractor employees
directly advising them in these roles, the clause (as shown in table
11), which has been used for advisory and assistance services contracts
for at least 10 years, provides a mechanism to address potential and
actual contractor financial conflicts that could affect the integrity
of the procurement system. According to the center, the clause places
an obligation on the part of the contractor to monitor for personal
financial conflicts of interest and maintain its own disclosure
records. The center does not routinely monitor or review these records,
but relies on a self-certification model, consistent with its treatment
of similar requirements in such contracts.
Table 11: Financial Conflict of Interest Clause Used by the Air Force's
Electronic Systems Center for Advisory and Assistance Services
Contracts:
Part I--The Schedule:
Section H--Special Contract Requirements:
Section H Fa8721-07-F-0103:
ESC.H008: Financial Conflict Of Interest (April 2007);
Except as provided for under subparagraph (d) hereof, the prime
contractor shall not assign, nor allow any employee for whom it
receives payment under this contract to perform any task under this
contract concerning any program, prime contractor, contract, or other
matter in which that employee, or that employee's spouse, minor child
or household member has a financial interest. For each employee who
performs a task in violation of this prohibition, the price of the
contract line item number (CLIN) under which the prime contractor
receives payment for that performance shall be reduced by the product
of the hourly rate prescribed for that employee in the schedule
(including wages, indirect costs, general and administrative expenses
and profit), multiplied by the number of hours in which that employee
was performing the task in violation of this prohibition, and the prime
contractor shall forfeit any right to receive said payment. Direct and
indirect costs allocable to the expended hours for which payment has
been forfeited shall be accounted for as unallowable costs and shall
not be charged to this or any other Government contract.
A financial interest consists of any interest in, or affiliation with,
a prime contractor, a subcontractor to a prime contractor, any
offerors, or any prospective subcontractor to any offeror for the
program, contract, or other matter for which the employee is performing
the support task under this contract. A financial interest does not
consist of an interest in, or affiliation with, the prime contractor
that is the party to this contract. The financial interest can take the
form of any ownership interest (e.g. stock; ownership of bonds; a loan
or other financial arrangement that is other than an arm's length
transaction; employment, or an arrangement concerning prospective
employment, including negotiations therefore, or, any non-arm's length
loan, any gift from, or any other non-arm's length financial
arrangement or interest with, any person who is directly communicating
with the Government on behalf of any prime contractor, subcontractor
holder thereto, or any prospective subcontractor or offeror as
described above).
The prime contractor shall obtain and maintain, as part of its
personnel records, a financial disclosure statement from each employee
assigned to perform support tasks for the Government under any order
resulting from this program. The financial disclosure statement shall:
(1) list any financial interests described in subparagraph (b) hereof,
(2) be obtained not later than each employee's initial assignment to a
support task under this program, (3) be updated at least annually, and
(4) be reviewed by the prime contractor with each employee on an annual
basis during the term of the orders under this program.
Whenever the prime contractor wishes to assign an employee to perform a
task on an order under this program concerning any program, contract,
prime contractor, or other matter in which the employee has a financial
interest as defined under subparagraph (b) hereof, the prime contractor
shall, before making the assignment, obtain a written waiver from the
primary contracting officer (PCO), by submitting to the PCO a written
request for waiver including all relevant supporting information. The
PCO shall have the sole discretion to grant or deny the waiver in whole
or in part. The PCO's determination shall be discretionary, final and
conclusive and not subject to appeal under the Disputes clause or the
Contract Disputes Act of 1978.
The prime contractor shall, upon written request by the PCO, and at no
increase in contract price, make such financial disclosure statement
available to the Government for inspection and review.
Source: Electronic Systems Center.
[End of table]
Army Communications Electronics Lifecycle Management Command:
In August 2007, the chief of the command's Acquisition Process Change
Group distributed a policy applicable to all of the command's
contracting activities to establish personal conflict of interest
safeguards to be addressed for contractor employees as part of current
contracting procedures for identifying, evaluating, and resolving
organizational conflicts of interest. The underlying principles behind
the revised policy are preventing the existence of conflicting roles
that might bias a contractor's judgment and unfair competitive
advantage. According to the command's policy, conflicts of interest are
more likely to occur in support services contracts involving:
* management support services;
* consultant or other professional services;
* contractor performance of or assistance in technical evaluations;
* preparing specifications or work statements; and:
* systems engineering and technical direction work performed by a
contractor that does not have overall contractual responsibility for
development or production.
In the acquisition planning process for all support services, the
contracting officer is required to use local clause HS6001,
Organizational Conflict of Interest, in the solicitation and contract
(see table 12). As a condition of award, the contractor is required to
have its employees and subcontractors who will perform work on the task
execute the Contractor-Employee Personal Financial Interest/Protection
of Sensitive Information Agreement, to maintain copies of those
agreements, and provide them to the contracting officer upon request.
Table 12: Organizational Conflict of Interest Clause Used by the Army's
Communications Electronics Lifecycle Management Command for Support
Services Contracts:
Prescription:
(a) Insert in solicitations and contracts when (1) the contractor will
provide support services (e.g., program management support services,
budgeting or accounting services or advisory and assistance services
including consultant services, and (2) the contracting officer has
reason to believe the conditions of FAR 9.505 apply. It is only
necessary for a potential conflict to exist. The Contracting Officer
needs to consider input from the requiring activity, legal counsel, and
even the contractor itself when considering the need for and nature of
any potential organizational conflict of interest clause. Prior to
insertion of this clause, the approval of the Chief of the Contracting
Office (i.e., Director, CECOM LCMC Acquisition Center) must be obtained
in accordance with FAR 9.506.
(b) The nature of any potential conflict of interest will vary.
Therefore, the Contracting Officer may modify the language of paragraph
(b), to specify the program or acquisition for which the organizational
conflict of interest applies or may apply. Paragraph (c)(2) may also be
modified as to the elements to be addressed in a mitigation plan to
delete overly burdensome or complex elements for small businesses, or
to add items for more complex programs (e.g., a plan addressing
subcontractors with potential organizational conflict of interests.)
HS6001 Organizational Conflict Of Interest (August 2007);
(a) Definition. Per FAR 2.101, an "organizational conflict of interest
means that because of other activities or relationships with other
persons, a person is unable or potentially unable to render impartial
assistance or advice to the Government, or the person's objectivity in
performing the contract work is or might be otherwise impaired, or a
person has an unfair competitive advantage." It does not include the
normal flow of benefits from incumbency;
(b) The Contracting Officer has determined that potentially significant
organizational conflicts of interest may arise due to the nature of the
work the Contractor will perform under this contract that may preclude
the Contractor from being awarded future CECOM LCMC Acquisition Center
contracts in a related area. Whereas the Contractor has agreed to
undertake this contract to provide ________________________________
[Contracting Officer insert the program or acquisition], it is agreed
that the Contractor shall be ineligible to act as a prime contractor,
consultant, or subcontractor to any prime contractor or subcontractor
at any tier who is to supply the services, system or major components
thereof for any project where the Contractor has provided or is
providing support as described in FAR 9.505-1 through 9.505-4;
(c) The Contracting Officer may make a determination to allow a
Contractor to participate in an acquisition subject to the submission
of an acceptable mitigation plan in accordance with paragraphs (1) and
(2) below. This determination may not be appealed; (1) If the
Contracting Officer requests, and the Contractor submits an
organizational conflict of interest mitigation plan that, after
Government review is acceptable to the Government, the Contractor's
parent corporation, subsidiaries, or other physically separate profit
and loss centers may not be precluded from acting as a subcontractor or
consultant on future CECOM LCMC Acquisition Center contracts. The
Government's determination regarding the adequacy of the mitigation
plan or the possibility of mitigation are unilateral decisions made
solely at the discretion of the Government and are not subject to the
Disputes clause of the contract. The Government may terminate the
contract for default if the Contractor fails to implement and follow
the procedures contained in any approved mitigation plan; (2) Any
mitigation plan shall include, at a minimum, non-disclosure agreements
to be executed by the Contractor and the Contractor's employees
supporting the Government per paragraph (c) above. Items for
consideration in a mitigation plan include the following:
identification of the organizational conflict(s) of interest; reporting
and tracking system; an organizational conflict of interest compliance/
enforcement plan, to include employee training and sanctions, in the
event of unauthorized disclosure of sensitive information; a plan for
organizational segregation (e.g., separate reporting chains); and data
security measures;
(d) These restrictions outlined in paragraph (b) shall apply to
____________________[Contracting Officer insert the company name upon
award of the contract]. This clause shall remain in effect for
_________________ [Contracting Officer insert timeframe, which should
normally be one year after completion of this contract. However, the
contracting officer may insert a different timeframe, if another
timeframe is justified];
(e) The Contractor shall apply this clause to any subcontractors or
consultants, who have access to information, participate in the
development of data, or participate in any other activity related to
this contract which is subject to terms of this clause at the prime
contractor level, unless the Contractor includes an acceptable
alternate subcontractor provision in its mitigation plan. For
subcontractors or consultants under this contract, if an organizational
conflict of interest mitigation plan is submitted and acceptable to the
Government, the subcontractor's parent corporation, subsidiaries, or
other physically separate profit and loss centers may not be precluded
from acting as a prime, subcontractor, or consultant on future CECOM
LCMC Acquisition Center contracts;
(f) The Contractors employees shall be trained and informed of Subpart
9.5 of the FAR and this contract provision, and shall execute a
"Contractor-Employee Personal Financial Interest/Protection of
Sensitive Information" Agreement as appropriate;
(g) The Contactor agrees that it will use all reasonable diligence in
protecting proprietary data received by it. The Contractor further
agrees it will not willfully disclose proprietary data to unauthorized
parties without the prior permission of the Government, and that
proprietary data shall not be duplicated, used or disclosed, in whole
or part, for any purpose other than to accomplish the contracted
effort. This restriction does not limit the contractors right to use,
duplicate or disclose such information if such information was lawfully
obtained by the contractor from other sources;
(h) The Contractor agrees to enter into written agreements with all
companies whose proprietary data it shall have access and to protect
such data from unauthorized use or disclosure as long as it remains
proprietary. The Contractor shall furnish to the Contracting Officer
copies of these written agreements. The Contractor agrees to protect
the proprietary data and rights of other organizations disclosed to the
Contractor during performance of this contract with the same caution
that a reasonably prudent Contractor would use to safeguard highly
valuable property. The Contractor agrees to refrain from using
proprietary information for any purpose other than that for which it
was furnished;
(i) The Contractor shall not distribute reports, data or information of
any nature arising from its performance under this contract, except as
provided by this contract or as may be directed by the Contracting
Officer;
(j) Government Representatives shall have access to the Contractors
premises and the right to inspect all pertinent books and records in
order to insure that the contractor is in compliance with FAR 9.5;
(k) The Contractor agrees that if after award it discovers a potential
organizational conflict of interest, a prompt and full disclosure shall
be made in writing to the Contracting Officer. This disclosure shall
include a description of the actions the Contractor has taken or
proposes to take, to avoid or mitigate such conflicts;
(l) The Government may waive application of this clause when it is
determined to be in the best interest of the Government to do so.
Source: Communications Electronics Lifecycle Management Command.
[End of table]
[End of section]
Footnotes:
[1] By "contractor employee in the workforce," we mean nongovernment
employees in various DOD offices, including FFRDC employees and
subcontractors to DOD contractors.
[2] A function is inherently governmental if it is "so intimately
related to the public interest as to mandate performance by government
employees" either because the function involves the discretionary
exercise of government authority or monetary transactions and
entitlements. Federal Acquisition Regulation (FAR) 2.101. Consistent
with the types of services described above, FAR 2.101 describes a broad
range of advisory and assistance services that can be provided under
contract to support and affect government decision-making, for example,
program management support, systems engineering, technical assistance,
contract and acquisition support, budgeting, and direct support of a
weapon system that is essential to the research, development,
production, operation, or maintenance of the system.
[3] FAR 7.503 (d)(8).
[4] Both federal employees and contractor employees involved in source
selection and related activities supporting award of government
contracts are subject to laws and regulations to prevent release of
protected procurement-related information. 41 U.S.C. 423(a) and FAR
3.104-4.
[5] 18 U.S.C. § 201.
[6] DFARS § 203.70--Contractor Standards of Conduct.
[7] Contractors receiving awards worth more than $5,000,000 and
involving work in excess of 120 days are required to have a written
code of business ethics and conduct. The rule allows for flexibility
and where appropriate, contractor discretion, by providing certain
exemptions for small businesses. In addition, it does not apply to
contracts for commercial items or to contracts performed outside the
U.S. FAR Subpart 3.10.
[8] Under Electronic Systems Center policy, this clause is to be used
for a full range of advisory and assistance services that include
providing essential technical and business advice that may be highly
influential in government employees's decision making. These advisory
and assistance services include preparation of specifications,
contractor performance monitoring, analysis and evaluation of technical
performance issues, etc.
[9] Under the command's policy, its clause is to be used for all
support services for program management support services, budgetary or
accounting services, or advisory and assistance services including
consultant services.
[10] According to the company, the employee's 2006 conflict of interest
certification disclosed through the company's process that his wife had
started working 7 months earlier as a product line manager for a prime
contractor that is one of the firms whose work was reviewed by this
employee under the subcontract. Upon further investigation, the
contractor determined that 85 percent of this employee's tasks
consisted of review of data from the company where his wife now worked.
After the company offered to reassign him to another contract to avoid
the conflict of interest, the employee resigned rather than have a
longer commute.
[11] One firm did not respond to our request for documentation of their
ethics policy, nor did they indicate to us that they have any such
policy.
[12] For example, this contractor has employees who assist the Air
Force in preparing source selection material, development of evaluation
criteria, assist source selection teams in the evaluation of proposals,
and provide support to past performance and cost evaluation teams.
[13] DOD agencies fund FFRDCs that are operated by universities or
nonprofit organizations under long-term contracts. Provisions of the
Competition in Contracting Act authorize agencies to award these
contracts noncompetitively. 10 U.S.C. §§ 2304(b)(1)(C) and (c)(3)(B).
[14] In September 2006, the president and trustee of the Institute for
Defense Analyses resigned before it was determined by DOD's Inspector
General that his position on two defense subcontractors' corporate
boards violated the FFRDC's conflicts of interest policy. In July of
that year, his dual roles as FFRDC president and as a member of one of
the defense subcontractor's board of directors drew public and
congressional scrutiny regarding a business case for the Air Force on
the multi-year procurement of the F-22 Raptor aircraft. Because this
subcontractor manufactures a missile launcher for the F-22 aircraft's
prime contractor, conflict of interest concerns were raised that the
FFRDC president stood to financially profit from a favorable multi-year
procurement decision for the F-22.
[15] The FAR requires an FFRDC to conduct its business in a manner
befitting its special relationship with the government, to operate in
the public interest with objectivity and independence, to be free from
organizational conflicts of interest, and to have full disclosure of
its affairs to the sponsoring agency. FAR 35.017.
[16] According to a senior vice president and general counsel with this
FFRDC, the company had submitted documentation on its robust and long-
time collection of ethics and conflicts of interest practices and
programs to demonstrate its commitment to objectivity and freedom from
conflicts of interest and in its opinion, it has an effective program
in place and does not need to implement the additional requirements set
forth in DOD's new FFRDC policy. As of October 2007, the official told
us that this FFRDC is awaiting a response from its DOD sponsor to its
February 2007 questions including how best to report potential
conflicts even if the company determines that the conflict does not
exist.
[17] When review of a disclosure reveals the existence of an actual or
potential conflict, FFRDC ethics officials told us that their ethics
procedure provides such mitigations as disqualification from being
assigned to the DOD task, reassignment, or divestiture.
[18] One contractor firm did not respond to our request for
documentation of its ethics policy.
[19] The Federal Acquisition and Streamlining Act of 1994 defines
advisory and assistance services as management and professional support
services; studies, analyses, and evaluations; and engineering and
technical services. As defined in the FAR, these types of contract
services are to support or improve agency functions, such as program
management, decision making, and administration. FAR 2.101.
[20] On behalf of DOD's General Counsel, the Standards of Conduct
Office, which is part of the Defense Legal Services Agency, is
responsible for overseeing the ethics and standards of conduct programs
throughout DOD, including providing guidance to the Army, Navy, Air
Force, and defense agencies.
[21] The FAR Council was established to assist in the direction and
coordination of governmentwide procurement policy and regulatory
activities in the federal government. The Council manages, coordinates,
controls, and monitors the maintenance and issuance of changes in the
FAR.
[22] In February 2007, the Under Secretary of Defense (Acquisition,
Technology, and Logistics) established the Panel on Contracting
Integrity, as required by section 813 of the fiscal year 2007 defense
authorization act (Pub. Law No. 109-364). The panel's executive
director is the Director, Defense Procurement and Acquisition Policy,
and includes more than 20 senior-level procurement executives,
inspector general, and other representatives from across DOD as
members. As required by the act, the first annual report to Congress
was issued in December 2007 on the panel's findings and recommendations
to foster and monitor contracting integrity across the department.
[23] Report of the Acquisition Advisory Panel to the Office of Federal
Procurement Policy and the United States Congress (Washington, D.C.:
January 2007).
[24] According to the panel's report, such clauses would not
necessarily impose specific prohibitions on contractors and or their
employees. Rather, it might be possible to achieve an appropriate level
of integrity on the part of contractors and their employees by
developing general ethical guidelines and principles and/or by
requiring disclosure of potential conflicts of interest.
[25] A separate proposed rule was recently published at the request of
the Justice Department to amend the FAR to require that companies
holding certain types of contracts disclose suspected violations of
federal criminal law in connection with the award or performance of
contracts, or face suspension or debarment. Public comments were due in
January 2008. 72 Fed. Reg. 64019-23 (Nov. 14, 2007).
[26] Task orders are placed against a preexisting contract for services
that does not procure or specify a firm quantity (other than a minimum
or a maximum quantity) and that provides for the issuance of orders for
the performance of tasks during the period of the contract. FAR 16.501-
1.
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "Subscribe to Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office:
441 G Street NW, Room LM:
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
