Federal Acquisition Regulation; Organizational Conflicts of Interest, 23236-23254 [2011-9415]

Agencies

• DEPARTMENT OF DEFENSE
• General Services Administration
• National Aeronautics and Space Administration

[Federal Register Volume 76, Number 80 (Tuesday, April 26, 2011)]
[Proposed Rules]
[Pages 23236-23254]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-9415]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 2, 3, 4, 7, 9, 11, 12, 13, 14, 15, 16, 18, 37, 42, 52, 
and 53

[FAR Case 2011-001; Docket 2011-0001; Sequence 1]
RIN 9000-AL82


Federal Acquisition Regulation; Organizational Conflicts of 
Interest

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

ACTION: Proposed rule.

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SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to provide revised regulatory coverage on 
organizational conflicts of interest (OCIs), provide additional 
coverage regarding contractor access to nonpublic information, and add 
related provisions and clauses. Section 841 of the Duncan Hunter 
National Defense Authorization Act for Fiscal Year 2009 required a 
review of the FAR coverage on OCIs. This proposed rule was developed as 
a result of a review conducted in accordance with Section 841 by the 
Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) and the Office of Federal 
Procurement Policy (OFPP), in consultation with the Office of 
Government Ethics (OGE). This proposed rule was preceded by an Advance 
Notice of Proposed Rulemaking (ANPR), under FAR Case 2007-018 (73 FR 
15962), to gather comments from the public with regard to whether and 
how to improve the FAR coverage on OCIs.

[[Page 23237]]


DATES: Interested parties should submit written comments to the 
Regulatory Secretariat at one of the addressees shown below on or 
before June 27, 2011 to be considered in the formation of the final 
rule.

ADDRESSES: Submit comments in response to FAR case 2011-001 by any of 
the following methods:
     Regulations.gov: https://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by inputting ``FAR Case 
2011-001'' under the heading ``Enter Keyword or ID'' and selecting 
``Search.'' Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2011-001.'' Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2011-001'' on your attached document.
     Fax: (202) 501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (MVCB), Attn: Hada Flowers, 1275 First Street, NE., 7th 
Floor, Washington, DC 20417.

Instructions: Please submit comments only and cite FAR Case 2011-001, 
in all correspondence related to this case. All comments received will 
be posted without change to https://www.regulations.gov, including any 
personal and/or business confidential information provided.

FOR FURTHER INFORMATION CONTACT: Mr. Anthony Robinson, Procurement 
Analyst, at (202) 501-2658, for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAR Case 2011-
001.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Current FAR Subpart 9.5, Organizational and Consultant Conflicts of 
Interest

    The integrity of the Federal acquisition process is protected, in 
part, by OCI rules currently found in FAR subpart 9.5. These rules are 
designed to help the Government in identifying and addressing 
circumstances in which a Government contractor may be unable to render 
impartial assistance or advice to the Government or might have an 
unfair competitive advantage based on unequal access to information or 
prior involvement in setting the ground rules for an acquisition. FAR 
9.504 directs contracting agencies to ``identify and evaluate potential 
OCIs as early in the acquisition process as possible'' and ``avoid, 
neutralize, or mitigate significant potential conflicts before contract 
award.''
    FAR coverage on OCIs has remained largely unchanged since the 
initial publication of the FAR in 1984. The FAR coverage was adapted 
from an appendix to the Defense Acquisition Regulation, which dated 
back to the 1960s.

B. Origins of This Case

    1. Changes in Government and Industry. In recent years, a number of 
trends in acquisition and industry have led to the increased potential 
for OCIs, including--
     Industry consolidation;
     Agencies' growing reliance on contractors for services, 
especially where the contractor is tasked with providing advice to the 
Government; and
     The use of multiple-award task- and delivery-order 
contracts, which permit large amounts of work to be awarded among a 
limited pool of contractors.
    2. SARA Panel. In its 2007 report, the Acquisition Advisory Panel 
(established pursuant to section 1423 of the Services Acquisition 
Reform Act of 2003) (SARA Panel) concluded that the FAR does not 
adequately address ``the range of possible conflicts that can arise in 
modern Government contracting.'' The SARA Panel observed that the FAR 
provides no detailed guidance to contracting officers regarding how 
they should detect and mitigate actual and potential OCIs and called 
for improved guidance, to possibly include a standard OCI clause or set 
of clauses. See Report of the Acquisition Advisory Panel (January 
2007), available at https://www.acquisition.gov/comp/aap/24102_GSA.pdf, at pp. 405-407, 417, 422.
    3. Duncan Hunter National Defense Authorization Act for Fiscal Year 
2009. Congress subsequently directed, in Section 841 of the Duncan 
Hunter National Defense Authorization Act for Fiscal Year 2009 (Pub. L. 
110-417), a review of the conflicts of interest provisions in the FAR. 
Section 841 required that appropriate revisions, including contract 
clauses, be developed as necessary, pursuant to that review.

C. Evaluation of FAR Subpart 9.5

    The Councils have worked with OFPP and consulted with OGE to 
evaluate FAR subpart 9.5. This evaluation was informed, in part, by the 
following:
    1. A review of recent case law and opinions from the Government 
Accountability Office (GAO) and Court of Federal Claims (CoFC). 
Collectively, this review indicated that, when addressing OCIs, 
agencies do not always perform adequate, case-by-case, fact-specific 
analysis.
    2. The findings of the SARA Panel, which concluded that contracting 
officers and agencies have encountered difficulties implementing 
appropriate OCI avoidance and mitigation measures.
    3. Responses to a 2008 ANPR which sought comment on whether the 
current guidance on OCIs adequately addresses the current needs of the 
acquisition community or whether providing standard provisions and/or 
clauses might be beneficial. The ten respondents to the ANPR offered a 
range of views, from the complete rewrite of FAR subpart 9.5, to 
maintaining the current coverage largely as is. Several respondents 
encouraged the Councils to adopt already-existing agency-level 
regulations, while two respondents stated that the regulations should 
consider providing Governmentwide standard clauses that allow agencies 
to add more stringent requirements, if needed, on a procurement-
specific basis. One respondent suggested that any change to FAR subpart 
9.5 should be consistent with existing case law on OCIs, as developed 
by GAO and the CoFC. Copies of all responses may be obtained at https://www.regulations.gov.
    4. Public comments provided in response to Defense Federal 
Acquisition Regulation Supplement (DFARS) Proposed Rule 2009-D015, 
published in the Federal Register on April 22, 2010 (see 75 FR 20954-
20965). DFARS Proposed Rule 2009-D015 was designed to implement section 
207 of the Weapons System Acquisition Reform Act of 2009 (WSARA) (Pub. 
L. 111-23), which requires DoD to revise the DFARS to provide uniform 
guidance and tighten existing rules regarding OCIs concerning major 
defense acquisition programs. To implement section 207 in the most 
effective manner possible, DoD concluded that the basic principles, 
policies, and practices governing OCIs must be clearly understood. DoD 
reviewed the FAR coverage and issued the proposed rule that clarified 
the prescribed general rules and procedures for identifying, 
evaluating, and resolving OCIs. As with the ANPR, respondents to the 
DFARS proposed rule provided a range of views regarding the proposed 
coverage.

II. Overview

    Based on their review, the Councils and OFPP reached the following 
main conclusions regarding OCIs:

[[Page 23238]]

A. Opportunity for Public Comment on Two Alternative OCI Frameworks

    Because the proposed DFARS rule (2009-D015) not only addressed the 
requirements of the WSARA but also contained a comprehensive OCI 
framework, the public now has a unique opportunity to comment on two 
distinct options for revising the regulatory coverage on OCIs. To this 
end, this proposed rule diverges substantially from the framework 
presented in the proposed DFARS rule, and we are seeking specific 
feedback regarding which course of action, or whether some combination 
of the two, is preferable.

B. OCI Case Law

    The fundamental approach provided in the proposed DFARS rule is 
sound and provides a regulatory framework that thoroughly implements 
the established OCI case law. However, the fact that the OCI 
regulations are not primarily based in statute means that revisions to 
the regulations need not conform with existing case law. Rather, 
substantive departures from the case law should be considered if such 
changes will produce an OCI framework that is clearer, easier to 
implement, and better suited to protecting the interests of the 
Government.

C. Similarities of Proposed FAR Rule to Proposed DFARS Rule

    Both this proposed FAR rule and the proposed DFARS rule propose 
coverage that recognizes the present-day challenges faced by 
acquisition officials in identifying and addressing OCIs in the 
procurement of products and services to satisfy agency requirements. In 
particular, both this proposed rule and the proposed DFARS framework--
    1. Reorganize and move OCI coverage to FAR part 3, so that OCIs are 
addressed along with related issues, namely other business practices 
and personal conflicts of interest (on which final coverage is pending 
under FAR Case 2008-025);
    2. Clarify key terms and provide more detailed guidance regarding 
how contracting officers should identify and address OCIs while 
emphasizing that each OCI case may be unique and therefore must be 
approached with thoughtful consideration;
    3. Provide standard OCI clauses, coupled with the opportunity for 
contracting officers to tailor the clauses as appropriate for 
particular circumstances; and
    4. Address unique policy issues and contracting officer 
responsibilities associated with OCIs arising in the context of task- 
and delivery-order contracts.

D. Differences Between Proposed FAR Rule and Proposed DFARS Rule

    The coverage in this proposed rule differs from that provided by 
the framework presented in the DFARS rule by--
    1. Providing an analysis of the risks posed by OCIs, and the two 
types of harm that can come from them, i.e.,--
     Harm to the integrity of the competitive acquisition 
system; and
     Harm to the Government's business interests;
    2. Recognizing that harm to the integrity of the competitive 
acquisition system affects not only the Government, but also other 
vendors, in addition to damaging the public trust in the acquisition 
system. The risk of such harm must be substantially reduced or 
eliminated. In contrast, the risk of harm to the Government's business 
interests may sometimes be assessed as an acceptable performance risk;
    3. Moving coverage of unequal access to nonpublic information and 
the requirement for resolving any resulting unfair competitive 
advantage out of the domain of OCIs and treating it separately in FAR 
part 4. Competitive integrity issues caused by unequal access to 
nonpublic information are often unrelated to OCIs. Therefore, treating 
this topic independently will allow for more targeted coverage that 
properly addresses the specific concerns involved in such cases; and
    4. Adding broad coverage regarding contractor access to nonpublic 
information, to provide a more detailed framework in which to address 
the topic of unequal access to nonpublic information.

III. Proposed OCI Coverage

    The Councils propose the following FAR coverage on OCIs:

A. Placement of Coverage in the FAR

    As noted above, OCIs are currently addressed in FAR subpart 9.5, 
which deals with contractor qualifications. While the ability to 
provide impartial advice and assistance is an important qualification 
of a Government contractor, the larger issues that underlie efforts to 
identify and address OCIs are more directly associated with some of the 
business practices issues discussed in FAR part 3. For this reason, the 
Councils propose to relocate the FAR coverage on OCIs from FAR subpart 
9.5 to a new FAR subpart 3.12.

B. Changes To Provide Greater Clarity of Purpose and Policy

    This proposed rule makes the following changes to clarify OCI 
policy:
1. Definitions
    a. Organizational Conflict of Interest. The proposed FAR rule 
establishes a clearer definition for ``organizational conflict of 
interest'' (which is included in FAR part 2 and applies throughout the 
FAR). The definition of ``organizational conflict of interest'' is 
refined to reflect the two types of situations that give rise to OCI 
concerns.
    b. Address. The verb ``address'' is defined in FAR subpart 3.12, 
for the purposes of the subpart, to provide a summary term for the 
various approaches for dealing with the risks and preventing the harms 
that may be caused by OCIs; each of those approaches is then explained 
in more detail in FAR 3.1204.
    c. Marketing consultant. In addition, the existing definition of 
``marketing consultant'' in FAR subpart 9.5 is removed as unnecessary 
because the proposed coverage is expanded beyond contracts for these 
entities.
    2. Policy. Within the new policy section at FAR 3.1203, the 
proposed rule explains the harm OCIs can cause and the actions the 
Government must take to address the risks of such harm. This involves 
an expanded discussion of the two types of harm that OCIs cause to the 
procurement system--harm to the integrity of the competitive 
acquisition process and harm to the Government's business interests.
    a. Harm to the Integrity of the Competitive Acquisition Process. In 
cases where there is a risk of harm to the integrity of a competitive 
acquisition process, both the Government's interests and the public 
interest in fair competitions are at risk. For this reason, such risks 
must be eliminated to the maximum extent possible. In the extremely 
rare case that such a risk cannot be eliminated, but award is 
nonetheless necessary to meet the Government's needs, a waiver 
provision that requires approval at the head of the contracting 
activity level or above is provided.
    b. Harm to the Government's Business Interests. In cases where the 
potential harm from an OCI threatens only the Government's business 
interests, it may be appropriate to accept this potential harm as a 
performance risk. Acceptance of performance risk represents a novel 
means of addressing OCIs and will often only be appropriate after other 
steps to reduce the risk have been taken, either by the contractor 
(e.g., implementation of a mitigation plan) or by the Government (e.g., 
additional contract management steps or oversight).

[[Page 23239]]

C. Changes To Improve Policy Implementation

    This proposed rule assists contracting officers in implementing the 
Government's OCI policy by amending existing FAR coverage in two ways: 
consolidating the contracting officer's responsibilities regarding 
OCIs; and providing standard, but customizable, solicitation provisions 
and contract clauses related to OCIs.
    1. Consolidated Discussion of Contracting Officer Responsibilities. 
This proposed rule creates a new section FAR 3.1206 that provides a 
consolidated discussion of contracting officer responsibilities, 
including the steps a contracting officer must take during the 
different phases of an acquisition to identify and address OCIs.
     FAR section 3.1206-2 addresses OCI-related 
responsibilities associated with presolicitation activities and 
requires the contracting officer to determine whether an acquisition 
has the potential to give rise to an OCI early enough in the 
acquisition process to include an appropriate provision in the 
solicitation, if necessary.
     FAR section 3.1206-3 provides guidance related to 
evaluating information from the offeror and other sources to determine 
if an OCI is present during the evaluation phase and to then address or 
waive any OCI before making a contract award.
     FAR section 3.1206-4 addresses OCI-related 
responsibilities associated with contract award.
     FAR section 3.1206-5 addresses task- and delivery-order 
contracts, and requires the contracting officer to consider OCIs both 
at the time of award and at the time of issuance of each order.
    [cir] For interagency acquisitions where the ordering (customer) 
agency places orders directly under another agency's contract (a 
``direct acquisition''), the ordering agency would be responsible for 
addressing OCIs.
    [cir] For interagency acquisitions where the servicing agency 
performs acquisition activities on the requesting agency's behalf (an 
``assisted acquisition''), the interagency agreement entered into 
between the servicing and requesting agency to establish the terms and 
conditions of the assisted acquisition would need to identify which 
party is responsible for carrying out these responsibilities.
    By providing a more complete description of the steps involved in 
addressing OCIs, the rule will better equip contracting officers to 
identify conflicts and work with contractors to address them. This 
approach should also help to address the criticism with current FAR 
coverage that describing OCIs only through examples misleads 
contracting officers to believe that OCIs do not exist in contract 
actions that do not fall within the scope of an identified example.
    2. New Solicitation Provision and Contract Clauses Related to OCIs. 
This proposed rule contains a new solicitation provision and three new 
contract clauses related to OCIs. Existing FAR coverage anticipates 
appropriate handling of OCI issues through solicitation provisions and 
contract clauses, but does not provide a standard format (see FAR 
9.507). The Councils determined that it was desirable to provide 
contracting officers with standard language that can be used or 
tailored as appropriate. The Councils used the requirements currently 
in FAR 9.506 and 9.507 as the basis for the proposed provision and 
clauses on OCI, providing specific fill-ins the contracting officer 
must complete, and language that incorporates any mitigation plan by 
reference.
    The proposed solicitation provision and clauses are as follows:
     FAR 52.203-XX, Notice of Potential Organizational Conflict 
of Interest. This provision--
    [cir] References the definition of ``organizational conflict of 
interest;''
    [cir] Provides notice to offerors that the contracting officer has 
determined that the nature of the work is such that OCIs may result 
from contract performance;
    [cir] Requires an offeror to disclose all relevant information 
regarding any OCI (including active limitations on future contracting), 
and to represent, to the best of its knowledge and belief, that it has 
disclosed all relevant information regarding any OCI;
    [cir] Requires an offeror to explain the actions it intends to use 
to address any OCI, e.g., submit a mitigation plan if it believes an 
OCI may exist or agree to a limitation on future contracting; and
    [cir] Identifies the clauses that may be included in the resultant 
contract, depending upon the manner in which the OCI is addressed 
(i.e., FAR 52.203-YY or 52.203-YZ, described below);
     FAR 52.203-ZZ, Disclosure of Organizational Conflict of 
Interest After Contract Award. The Councils recognize that events may 
occur during the performance of a contract that give rise to a new 
conflict, or that a conflict might be discovered only after award has 
been made. This clause, which is included in solicitations and 
contracts when the solicitation includes the provision FAR 52.203-XX, 
Notice of Potential Organizational Conflicts of Interest, includes by 
reference the definition of ``organizational conflict of interest'' and 
requires the contractor to make a prompt and full disclosure of any new 
or newly discovered OCI.
     FAR 52.203-YY, Mitigation of Organizational Conflicts of 
Interest. This clause is generally intended to be used when the 
contract may involve an OCI that can be addressed by an acceptable 
contractor-submitted mitigation plan prior to contract award. The 
clause--
    [cir] Includes a reference to the definition of ``organizational 
conflict of interest;''
    [cir] Incorporates the mitigation plan in the contract;
    [cir] Addresses changes to the mitigation plan;
    [cir] Addresses noncompliance with the clause or with the 
mitigation plan; and
    [cir] Requires flowdown of the clause.
     FAR 52.203-YZ, Limitation of Future Contracting. This 
clause is intended for use when the contracting officer decides to 
address a potential conflict of interest through a limitation on future 
contracting. The contracting officer must fill in the nature of the 
limitation on future contractor activities and the length of any such 
limitation.

D. Other Remarks

    In addition to the changes described above, the Councils note the 
following proposed coverage:
     This rule continues to apply to contracts with both profit 
and non-profit organizations (current FAR 9.502(a)).
     This rule does not exclude the acquisition of commercial 
items, including commercially available off-the-shelf (COTS) items. 
This proposed rule only requires use of the provision and clauses in 
solicitations when the contracting officer determines that the work to 
be performed has the potential to give rise to an OCI. Therefore, use 
in acquisitions of commercial items, especially COTS items, will 
probably not be frequent. The Councils decided that allowing this 
discretion to the contracting officer is better than an outright 
exclusion of applicability to contracts for the acquisition of 
commercial items.
     This rule applies to contract modifications that add 
additional work. The Councils recognize that contracting officers may 
not be able to identify conflicts arising from all future modifications 
to a contract at the time of contract award.
     This rule adds a requirement at FAR 7.105(b)(18) to 
consider OCIs when preparing acquisition plans.

IV. Access to Nonpublic Information

    FAR subpart 9.5 and the GAO and CoFC cases interpreting the subpart

[[Page 23240]]

currently treat situations involving contractors having an unfair 
competitive advantage based on unequal access to nonpublic information 
as OCIs. However, the Councils recognized that these situations do not 
actually involve conflicts of interest at all, and may arise from 
circumstances unrelated to conflicts of interest, such as where a 
former Government employee (who has had access to competitively useful 
nonpublic information) has been hired by a vendor. Further, the 
Councils observed that the methods available to resolve situations 
involving unequal access to information differ from those available to 
address actual OCIs. For these reasons, the Councils determined that 
separating the coverage of unfair competitive advantage based on 
unequal access to nonpublic information from the general coverage of 
OCIs is a desirable outcome, as it will remove some of the confusion 
often associated with identifying and addressing OCIs.
    In developing coverage to treat situations involving unfair 
competitive advantage based on unequal access to information, the 
Councils recognized that much of such access comes from performance on 
other Government contracts. Accordingly, if appropriate contractual 
safeguards are established prior to, or at the time of, such access, 
the number of situations where unequal access to information will taint 
a competition can be minimized. For this reason, this proposed rule 
provides a new uniform Governmentwide policy regarding the disclosure 
and protection of nonpublic information to which contractors may gain 
access during contract performance. This coverage provides substantial 
safeguards designed to address some of the concerns created by unequal 
access to nonpublic information, while leaving it to the contracting 
officer to determine, for any given acquisition, whether the 
protections are adequate, or if a situation involving an unfair 
competitive advantage remains to be resolved. Because protection and 
release of information are administrative matters, this coverage has 
been placed in FAR part 4.
    The coverage provides--
     A definition of ``nonpublic information'' to clearly 
identify the scope of information covered;
     Coverage of contractor access to nonpublic information 
during the course of contract performance;
     Specific coverage for situations involving unfair 
competitive advantage based on unequal access to nonpublic information; 
and
     Appropriate solicitation provisions and contract clauses.

A. Definition

    The definition of ``nonpublic information'' provided by this 
proposed rule includes information belonging to either the Government 
or a third party that is not generally made publicly available, i.e., 
information that cannot be released under the Freedom of Information 
Act, or information for which a determination has not yet been made 
regarding ability to release.

B. Contractor Access to Nonpublic Information

    The SARA Panel recommended that the Federal Acquisition Regulatory 
(FAR) Council review existing rules and regulations and, to the extent 
necessary, create uniform, Governmentwide policy and clauses dealing 
with protection of nonpublic information. Additionally, a recent GAO 
report, ``Contractor Integrity: Stronger Safeguards Needed for 
Contractor Access to Sensitive Information'' (GAO-10-693), recommended 
that OFPP act with the FAR Council to provide more thorough protections 
when contractors are allowed access to sensitive information. These 
recommendations, combined with the need to provide preventive 
protections in dealing with cases of unfair competitive advantage based 
on unequal access to information, have prompted the Councils to develop 
the coverage in this section.
    Traditionally, the Government has relied primarily on civil 
servants to perform the functions that require access to third-party 
contract information and other information in the Government's 
possession that requires protection from unauthorized use and 
disclosure. However, in recent years, the Government has significantly 
increased its use of contractors to assist in performing many such 
functions. In addition, some agencies now utilize contractors to 
perform research studies that require the contractors to access third-
party information. With the increasing need for contractor access to 
nonpublic information, this rule seeks to establish a uniform, and more 
streamlined and efficient approach.
    The Councils are proposing that contractors should be contractually 
obligated to protect all nonpublic information to which they obtain 
access by means of contract performance (whether information from the 
Government or a third party), with certain exceptions (e.g., the 
information was already in the contractor's possession) (see FAR 
52.204-XX(c)). Further, the Councils are proposing that contractors 
should require all employees who may access nonpublic information to 
sign nondisclosure agreements and that the obligations arising from 
these agreements will be enforceable by both the Government and third-
party information owners. By implementing these protections as the 
default position, the proposed approach substantially enhances the 
protection for third-party and Government information provided by the 
FAR.
    Many contracts of the type described above involve not only 
multiple subcontractors, but also many lower-tier subcontracts. The 
current ad hoc approach employed by Government agencies for ensuring 
that all of these contractors have properly executed nondisclosure 
agreements among themselves has resulted in the existence of a 
substantial number of overlapping, but not necessarily uniform, 
agreements--and oftentimes confusion and misunderstandings between the 
Government and its contractors. The Councils have determined that the 
approach of requiring inclusion of an ``access'' clause to protect 
information disclosed to a contractor, and a ``release'' clause to 
notify third-party information owners of their rights when their 
information is improperly used or disclosed should provide thorough 
protection while eliminating the need for many interconnecting 
nondisclosure agreements.
    1. Access Clause. The first element of this new approach is the 
proposed Access clause at FAR 52.204-XX, Access to Nonpublic 
Information. The purpose of the Access clause is to preclude 
contractors from using Government or third-party information for any 
purpose unrelated to contract performance. This clause requires that 
contractors receiving access to nonpublic information must limit the 
use of such nonpublic information to the purposes specified in the 
contract, safeguard the nonpublic information from unauthorized outside 
disclosure, and inform employees of their obligations and obtain 
written nondisclosure agreements consistent with those obligations. The 
clause also sets forth certain exceptions (relating to the 
applicability of the contractor's obligations), but the exceptions do 
not apply unless the contractor can demonstrate to the contracting 
officer that an exception is applicable.
    The Access clause is subordinate to all other contract clauses or 
requirements that specifically address the access, use, handling, or 
disclosure of nonpublic information. If any restrictions or 
authorizations in the clause are inconsistent with any other clause or 
requirement of the contract,

[[Page 23241]]

the other clause or requirement takes precedence.
    This rule proposes, as the default position, mandatory use of the 
Access clause in solicitations and contracts when contract performance 
may involve contractor access to nonpublic information. However, the 
prescription allows agencies to provide otherwise in their procedures. 
The Access clause is prescribed on the same basis for use in 
solicitations and contracts for the acquisition of commercial items and 
in simplified acquisitions.
2. Alternate to the Access Clause
    a. Alternate I. Alternate I is prescribed for use if the 
contracting officer anticipates that there may be a need for executing 
confidentiality agreements between the contractor and one or more third 
parties that have provided nonpublic information to the Government. 
This alternate requires the contractor, if requested by the contracting 
officer, to negotiate and sign an agreement identical, in all material 
respects, to the restrictions on use and disclosure of nonpublic 
information in the Access clause, with each entity that has provided 
the Government nonpublic information to which the contractor must now 
have access to perform its obligations under the contract.
    b. Alternate II. Alternate II is for use if the contracting officer 
anticipates that the contractor may require access to a third party's 
facilities or nonpublic information that is not in the Government's 
possession. This alternate requires the contractor, if requested by the 
contracting officer, to execute a Government-approved agreement with 
any party to whose facilities or nonpublic information it is given 
access, restricting the contractor's use of the nonpublic information 
to performance of the contract.
    3. Release Clause. The purpose of the Release clause at FAR 52.204-
YY, Release of Nonpublic Information, is to obtain the consent of the 
original owners of third-party nonpublic information for the Government 
to release such information to those contractors who need access to it 
for purposes of contract performance and who have signed up to the 
conditions of the Access clause.
    Unless agency procedures provide otherwise, the contracting officer 
must use the Release clauses in all solicitations and contracts, 
including solicitations and contracts for the acquisition of commercial 
items and below the simplified acquisition threshold.
    A solicitation provision at FAR 52.204-XY, Release of Nonpublic 
Information, that provides similar coverage is prescribed for all 
solicitations.

C. Unequal Access to Nonpublic Information

    1. Policy. FAR section 4.402 addresses situations in which access 
to nonpublic information constitutes a risk to the competitive 
integrity of the acquisition process. It includes a policy section, 
expressing the Government's policy that contracting officers must take 
action to resolve situations where one or more offerors hold an unfair 
competitive advantage. The policy section also states that 
disqualification of an offeror is the least-favored approach and should 
only be adopted if no other method of resolution will adequately 
protect the integrity of the competition.
    2. General Principles. FAR subsection 4.402-3 contains general 
principles for determining when access to nonpublic information 
requires resolution. Specifically, the access must be Government-
provided, the access must be unequal (that is, not all of the 
prospective offerors have access), the information must be 
competitively useful, and the competitive advantage must be unfair.
    3. Contracting Officer Responsibilities. FAR subsection 4.402-4 
contains details covering contracting officer responsibilities. This 
begins with requirements to collect information regarding unequal 
access to nonpublic information, both from within the Government and 
from offerors. If the contracting officer becomes aware that an offeror 
may have unequal access to nonpublic information, the rule requires 
that the contracting officer conduct an analysis, consistent with the 
general principles discussed above, to determine whether resolution is 
required. If resolution is not required, the contracting officer simply 
documents the file. If resolution is required, the contracting officer 
must take action consistent with the section detailing appropriate 
resolution techniques, which consist of information sharing, mitigation 
through the use of a firewall, or disqualification.
    4. Solicitation Provision. FAR subsection 4.402-5 prescribes a 
solicitation provision, FAR 52.204-YZ, Unequal Access to Nonpublic 
Information, that requires offerors to identify, early in the 
solicitation process, whether it or any of its affiliates possesses any 
nonpublic information relevant to the solicitation and provided by the 
Government. It also requires that the contractor certify by submission 
of its offer that, where a mitigation plan involving a firewall is 
already in place (addressing nonpublic information relevant to the 
current competition), the offeror knows of no breaches of that 
firewall.

V. Solicitation of Public Comment

    When commenting on the proposed rule, respondents are encouraged to 
offer their views on the following questions:
    A. Do the policy and associated principles set forth in the 
proposed rule provide an effective framework for evaluating and 
addressing conflicts of interest?
    B. Is the definition of ``organizational conflict of interest'' 
sufficiently comprehensive to address all potential forms of such 
conflicts?
    C. Do the enumerated techniques for addressing OCIs adequately 
address the Government's interests? Are any too weak or overbroad? Are 
there other techniques that should be addressed?
    D. Does the rule adequately address the potential conflicts that 
may arise for companies that have both advisory and production 
capabilities? What, if any, improvements might be made?
    E. Do the proposed solicitation provisions and contract clauses 
adequately implement the policy framework set forth in the proposed 
rule? For example, is a clause limiting future contracting an 
operationally feasible means of resolving a conflict? Would it be 
beneficial and appropriate for this information generally to be made 
publicly available, such as through a notice on FedBizOpps? Do the 
solicitation provisions and contract clauses afford sufficient 
flexibility to help an agency meet its individual needs regarding a 
prospective or actual conflict?
    F. Is there a need for additional guidance to supplement the 
proposed FAR coverage of OCIs (e.g., guidance addressing the management 
of OCI responsibilities)? If so, what points should the guidance make?
    G. Is the framework presented by this proposed rule preferable to 
the framework presented in the DFARS Proposed Rule 2009-D015 published 
in the Federal Register on April 22, 2010 (75 FR 20954-20965)? Why or 
why not? Would some hybrid of the two proposed rules be preferable?
    H. Does the proposed rule strike the right balance between 
providing detailed guidance for contracting officers and allowing 
appropriate flexibility for dealing with the variety of forms that 
organizational conflicts of interest take and the variety of 
circumstances under which they arise?
    Are there certain types of contracts, or contracts for certain 
types of services,

[[Page 23242]]

that warrant coverage that is more strict than that provided by the 
proposed rule?

VI. Executive Orders 12866 and 13563

    This is a significant regulatory action and, therefore, was subject 
to Office of Management and Budget review under Section 6(b) of 
Executive Order 12866, Regulatory Planning and Review, dated September 
30, 1993. This rule is not a major rule under 5 U.S.C. 804.
    In accordance with Executive Order 13563, Improving Regulation and 
Regulatory Review, dated January 18, 2011, DoD, GSA, and NASA 
determined that this rule is not excessively burdensome on the public, 
and is consistent with Section 841 of the Duncan Hunter National 
Defense Authorization Act for Fiscal Year 2009, which required a review 
of the FAR coverage on OCIs.

VII. Regulatory Flexibility Act

    A. The proposed changes are not expected to result in a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because--
    1. The requirements of FAR subpart 3.12 do not differ from the 
burden currently imposed on offerors and contractors by FAR subpart 9.5 
and the requirements of subpart 3.12 are not significantly burdensome. 
It is good business practice to have procedures in place to identify 
potential organizational conflicts of interest and to have prepared 
mitigation plans for obvious conflicts. This proposed rule has also 
reduced the potential burden by--
    a. Not including a certification requirement; and
    b. Providing for avoidance, neutralization, or mitigation of 
organizational conflicts or interest or, under exceptional 
circumstances, waiver of the requirement for resolution.
    2. Unless the Access clause is used with Alternate I or Alternate 
II, this approach standardizes and simplifies the current system of 
third-party agreements envisioned by FAR 9.505-4. Having each 
contractor implement specific safeguards and procedures should offer 
the same or better protection for information belonging to small 
business entities. Moreover, this rule should ease the burden on most 
small business entities by not requiring them to enter multiple, 
interrelated third-party agreements with numerous service contractors. 
If the Access clause is used with Alternate I or Alternate II, then 
that is no more burdensome than the current requirements of FAR 9.505-
4.
    B. However, an Initial Regulatory Flexibility Analysis has 
nevertheless been prepared and is summarized as follows:
    This proposed rule implements Section 841 of the Duncan Hunter 
National Defense Authorization Act for Fiscal Year 2009 (Pub. L. 110-
417) by providing revised regulatory coverage on organizational 
conflicts of interest (OCIs) and unequal access to information. The 
rule also provides additional coverage regarding contractor access to 
nonpublic information, and adds related provisions and clauses.
    The objective of the rule is to help the Government in identifying 
and addressing circumstances in which a Government contractor may be 
unable to render impartial assistance or advice to the Government or 
might have an unfair competitive advantage based on unequal access to 
information or prior involvement in setting the ground rules for an 
acquisition.
    In recent years, a number of trends in acquisition and industry 
have led to the increased potential for OCIs, including--
     Industry consolidation;
     Agencies' growing reliance on contractors for services, 
especially where the contractor is tasked with providing advice to the 
Government; and
     The use of multiple-award task- and delivery-order 
contracts, which permit large amounts of work to be awarded among a 
limited pool of contractors.
    Section 841 of the Duncan Hunter National Defense Authorization Act 
for Fiscal Year 2009 (Pub. L. 110-417) directed a review of the 
conflicts of interest provisions in the FAR. Section 841 required that 
appropriate revisions, including contract clauses, be developed as 
necessary, pursuant to that review.
    Competitive integrity issues caused by unequal access to nonpublic 
information are often unrelated to OCIs. Therefore, treating this topic 
independently will allow for more targeted coverage that properly 
addresses the specific concerns involved in such cases; and including 
broad coverage of contractor access to nonpublic information will 
provide a framework for the topic of unequal access to nonpublic 
information.
    An OCI is defined as a situation in which a Government contract 
requires a contractor to exercise judgment to assist the Government in 
a matter (such as in drafting specifications or assessing another 
contractor's proposal or performance) and the contractor or its 
affiliates have financial or other interests at stake in the matter, so 
that a reasonable person might have concern that when performing work 
under the contract, the contractor may be improperly influenced by its 
own interests rather than the best interests of the Government; or a 
contractor could be viewed as having an unfair competitive advantage in 
an acquisition as a result of having previously performed work on a 
Government contract, under circumstances such as those just described, 
that put the contractor in a position to influence the acquisition. The 
circumstances that lead to OCIs are most likely to occur in large 
businesses that have diverse capacity to provide both upfront advice 
and also a capacity for production. Although a small business might 
become involved in OCIs through its affiliates, we estimate that the 
proposed rules on OCIs would not impact a significant number of small 
entities. Furthermore, this rule is not adding burdens relating to OCIs 
that are beyond the current expectations of FAR subpart 9.5. It is just 
providing standard procedures and clauses, rather than requiring each 
contracting officer to craft unique provisions and clauses appropriate 
to the situation.
    With regard to contractor access to information, the rule will 
impact entities that have access to nonpublic information in 
performance of a Government contract. We estimate that about half of 
the entities impacted will be small entities (estimated at 25,000 small 
entities). Typical contracts that may provide access to nonpublic 
information include services contracts such as professional, 
administrative, or management support or special studies and analyses. 
Furthermore, small entities that are submitting offers to the 
Government must inform the Government, prior to submission of offers, 
if they possess any nonpublic information relevant to the current 
solicitation (estimated at 5,750 small entities).
    This rule requires the following projected reporting burdens for 
access to information:
    a. Provide copy of nondisclosure agreement upon request (6,250 
respondents x .5 hours per response = 3,125 hours).
    b. Notify contracting officer of violation (250 respondents x 4 
hours per response = 1,000 hours).
    c. Notify contracting officer if access information that should not 
have access to (125 respondents x 1 hour per response = 125 hours).
    d. Explain in solicitation any unequal access to nonpublic 
information (5,750

[[Page 23243]]

respondents x 3 hours per response = 17,250).
    e. Explain if firewall was not implemented, or breached (rare) (10 
respondent x 5 hours per response = 50 hours).
    We estimate that the respondents will be administrative employees 
earning approximately $75 per hour (+ .3285 overhead).
    This rule overlaps, with other Federal rules: FAR Cases 2007-018, 
2007-019, 2008-025, 2009-022, and 2009-030; and DFARS Case 2009-D015.
    The Councils identified a significant alternative that would 
accomplish the objectives of the statute and the policies. See the 
discussion in the rule preamble about DFARS case 2009-D015.
    DoD, GSA, and NASA invite comments from small business concerns and 
other interested parties on the expected impact of this rule on small 
entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by the rule in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 610 (FAR Case 2011-001), 
in correspondence.

VIII. Paperwork Reduction Act

    The proposed changes to the FAR impose a new information collection 
requirement that requires the approval of the Office of Management and 
Budget under 44 U.S.C. chapter 35, et seq. Under this proposed rule, an 
offeror may be required to submit information to identify an OCI and 
propose a resolution, such as a mitigation plan submitted by the 
offeror with its proposal. While this requirement existed informally 
since 1984 in FAR subpart 9.5, it is only now being formalized via the 
new contract provision and clause at FAR 52.203-XX and FAR 52.203-YY.

A. Annual Reporting Burden:

    Public reporting burden for this collection of information is 
estimated to average approximately 4.6 hours per response, including 
the time for reviewing instructions, searching existing data sources, 
gathering and maintaining the data needed, and completing and reviewing 
the collection of information.
    The annual reporting burden is estimated as follows:
    1. Organizational Conflicts of Interest.
    Respondents: 30,930.
    Responses per respondent: 1.0.
    Total annual responses: 30,930.
    Preparation hours per response: 6.96.
    Total response burden hours: 215,273.
    2. Contractor Access to Nonpublic Information.
    Respondents: 24,760.
    Responses per respondent: 1.
    Total annual responses: 24,760.
    Preparation hours per response: 2.
    Total response burden hours: 49,520.
    3. Total.
    Respondents: 55,690.
    Responses per respondent: 1.
    Total annual responses: 55,690.
    Preparation hours per response: 4.755.
    Total response burden hours: 264,793.

B. Request for Comments Regarding Paperwork Burden

    Submit comments, including suggestions for reducing this burden, 
not later than June 27, 2011 to: FAR Desk Officer, OMB, Room 10102, 
NEOB, Washington, DC 20503, and a copy to the General Services 
Administration, Regulatory Secretariat (MVCB), Attn: Hada Flowers, 1275 
First Street, NE., 7th Floor, Washington, DC 20417.
    Public comments are particularly invited on: Whether this 
collection of information is necessary for the proper performance of 
functions of the FAR, and will have practical utility; whether our 
estimate of the public burden of this collection of information is 
accurate, and based on valid assumptions and methodology; ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and ways in which we can minimize the burden of the 
collection of information on those who are to respond, through the use 
of appropriate technological collection techniques or other forms of 
information technology.
    Requester may obtain a copy of the supporting statement from the 
General Services Administration, Regulatory Secretariat (MVCB), 1275 
First Street, NE., 7th Floor, Washington, DC 20417. Please cite OMB 
Control Number 9000-0178, Organizational Conflicts of Interest, in 
correspondence.

List of Subjects in 48 CFR Parts 2, 3, 4, 7, 9, 11, 12, 13, 14, 15, 
16, 18, 37, 42, 52, and 53

    Government procurement.

    Dated: April 13, 2011.
Millisa Gary,
Acting Director, Office of Governmentwide Acquisition Policy.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 2, 3, 
4, 7, 9, 11, 12, 13, 14, 15, 16, 18, 37, 42, 52, and 53 as set forth 
below:
    1. The authority citation for 48 CFR parts 2, 3, 4, 7, 9, 11, 12, 
13, 14, 15, 16, 18, 37, 42, 52, and 53 continues to read as follows:

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

PART 2--DEFINITIONS OF WORDS AND TERMS

    2. Amend section 2.101 in paragraph (b)(2) by--
    a. Removing from paragraph (3) in the definition ``Advisory and 
assistance services'' ``(see 9.505-1(b))'';
    b. Adding, in alphabetical order, the definition ``Nonpublic 
information''; and
    c. Revising ``Organizational conflict of interest.''
    The added and revised text to read as follows:


Sec.  2.101  Definitions.

* * * * *
    (b) * * *
    (2) * * *
    Nonpublic information means any Government or third-party 
information that--
    (1) Is exempt from disclosure under the Freedom of Information Act 
(5 U.S.C. 552) or otherwise protected from disclosure by statute, 
Executive order, or regulation; or
    (2) Has not been disseminated to the general public, and the 
Government has not yet determined whether the information can or will 
be made available to the public.
* * * * *
    Organizational conflict of interest means a situation in which--
    (1) A Government contract requires a contractor to exercise 
judgment to assist the Government in a matter (such as in drafting 
specifications or assessing another contractor's proposal or 
performance) and the contractor or its affiliates have financial or 
other interests at stake in the matter, so that a reasonable person 
might have concern that when performing work under the contract, the 
contractor may be improperly influenced by its own interests rather 
than the best interests of the Government; or
    (2) A contractor could have an unfair competitive advantage in an 
acquisition as a result of having performed work on a Government 
contract, under circumstances such as those described in paragraph (1) 
of this definition, that put the contractor in a position to influence 
the acquisition.
* * * * *

PART 3--BUSINESS ETHICS AND CONFLICTS OF INTEREST

    3. Revise part 3 heading to read as set forth above.
    4. Revise section 3.000 to read as follows:

[[Page 23244]]

Sec.  3.000  Scope of part.

    This part prescribes policies and procedures for addressing issues 
regarding business ethics and conflicts of interest.


Sec.  3.603  [Amended]

    5. Amend section 3.603 by removing from paragraph (b) ``subpart 
9.5'' and adding ``subpart 3.12'' in its place.
    6. Add subpart 3.12 to read as follows:

Subpart 3.12--Organizational Conflicts of Interest
Sec.
3.1200 Scope of subpart.
3.1201 Definition.
3.1202 Applicability.
3.1203 Policy.
3.1204 Methods of addressing organizational conflicts of interest.
3.1204-1 Avoidance.
3.1204-2 Limitation on future contracting (neutralization).
3.1204-3 Mitigation.
3.1204-4 Assessment that risk is acceptable.
3.1205 Waiver.
3.1206 Contracting officer responsibilities.
3.1206-1 General.
3.1206-2 Pre-solicitation responsibilities.
3.1206-3 Addressing organizational conflicts of interest during 
evaluation of offers.
3.1206-4 Contract award.
3.1206-5 Issuance of task or delivery orders or blank purchase 
agreement calls.
3.1207 Solicitation provision and contract clauses.

Subpart 3.12--Organizational Conflicts of Interest


Sec.  3.1200  Scope of subpart.

    (a) This subpart prescribes policies and procedures for 
identifying, analyzing, and addressing organizational conflicts of 
interest (as defined in 2.101). It implements 41 U.S.C. 2304 and 
section 841(b)(2) of Public Law 110-417.
    (b) This subpart does not address unequal access to nonpublic 
information, which is addressed in 4.402.


Sec.  3.1201  Definition.

    ``To address,'' as used in this subpart, means to protect the 
integrity of the competitive acquisition process, as well as the 
Government's business interests (see 3.1203(a)(2)), by one or more of 
the following methods:
    (1) Avoidance.
    (2) Neutralization through limitations on future contracting.
    (3) Mitigation of the risks involved.
    (4) Assessment that the risk inherent in the conflict is acceptable 
(either without further action or in conjunction with application of 
one or more of the other methods listed in paragraphs (a) through (c) 
of this definition). (See 3.1204.)


Sec.  3.1202  Applicability.

    (a) This subpart--
    (1) Applies to contracts and subcontracts with both profit and 
nonprofit organizations, including nonprofit organizations created 
largely or wholly with Government funds. Contracts include task and 
delivery orders and modifications that add work; and
    (2) Applies to the acquisition of commercial items, including 
commercially available off-the-shelf items (see 12.301(d)(3)) if the 
contracting officer determines that contractor performance of the work 
may give rise to an organizational conflict of interest.
    (b) Although this subpart applies to every type of acquisition, 
organizational conflicts of interest are more likely to arise when at 
least one of the contracts involved is for acquisition support services 
or advisory and assistance services.
    (c) Application of this subpart is independent of coverage 
concerning unequal access to nonpublic information (see 4.402). 
Contracting officers must consider each issue separately in determining 
whether steps must be taken to protect the interests of the Government.
    (d) This subpart shall not be applied in any manner that conflicts 
with an agency-specific conflict of interest statute.


Sec.  3.1203  Policy.

    (a) The Government's interests. It is the Government's policy to 
identify, analyze, and address organizational conflicts of interest 
that might otherwise exist or arise in acquisitions in order to 
maintain the public's trust in the integrity and fairness of the 
Federal acquisition system. Organizational conflicts of interest have 
the potential to undermine the public's trust in the Federal 
acquisition system because they can impair--
    (1) The integrity of the competitive acquisition process. The 
Government has an interest in preserving its ability to solicit 
competitive proposals and affording prospective offerors an opportunity 
to compete for Government requirements on a level playing field. In 
some cases, an organizational conflict of interest will be accompanied 
by a risk that the conflicted contractor will create for itself, or 
obtain, whether intentionally or not, an unfair advantage in competing 
for a future Government requirement. The result may be a seriously 
flawed competition, which is unacceptable in terms of good governance, 
fairness, and maintenance of the public trust; and
    (2) The Government's business interests. As a steward of public 
funds, the Government has an interest in ensuring both that it acquires 
products and services that provide the best value to the Government and 
that the contractor's performance in fulfilling the Government's 
requirements is consistent with contractual expectations. In many 
cases, an organizational conflict of interest will be accompanied by a 
risk that the conflict will affect the contractor's judgment during 
performance in a way that degrades the value of its services to the 
Government. This type of risk is most likely to appear when the 
exercise of judgment is a key aspect of the service that the contractor 
will be providing.
    (b) Addressing organizational conflicts of interest. (1) Agencies 
must examine and address organizational conflicts of interest on a 
case-by-case basis, because such conflicts arise in various, and often 
unique, factual settings. Contracting officers shall consider both the 
specific facts and circumstances of the contracting situation and the 
nature and potential extent of the risks associated with an 
organizational conflict of interest when determining what method or 
methods of addressing the conflict will be appropriate.
    (2) If an organizational conflict of interest is such that it risks 
impairing the integrity of the competitive acquisition process, then 
the contracting officer must take action to substantially reduce or 
eliminate this risk.
    (3) If the only risk created by an organizational conflict of 
interest is a performance risk relating to the Government's business 
interests, then the contracting officer has broad discretion to select 
the appropriate method for addressing the conflict, including the 
discretion to conclude that the Government can accept some or all of 
the performance risk.
    (c) Waiver. It is the policy of the Government to minimize the use 
of waivers of organizational conflicts of interest. However, in 
exceptional circumstances, the agency may grant a waiver in accordance 
with 3.1205.


Sec.  3.1204  Methods of addressing organizational conflicts of 
interest.

    Organizational conflicts of interest may be addressed by means of 
avoidance, limitations on future contracting, mitigation, or the 
Government's assessment that the risk inherent in the conflict is 
acceptable. In

[[Page 23245]]

some cases, a combination of methods may be appropriate.


Sec.  3.1204-1  Avoidance.

    Avoidance consists of Government action taken in one acquisition 
that is intended to prevent organizational conflicts of interest from 
arising in that acquisition or in a future acquisition. In order to 
successfully implement an avoidance strategy, the contracting officer 
should work with the program office or requiring activity early in the 
acquisition process. Methods of avoiding organizational conflicts of 
interest include, but are not limited to, the following:
    (a) Drafting the statement of work to exclude tasks that require 
contractors to utilize subjective judgment. This strategy may be used 
to avoid or prevent organizational conflicts of interest both in the 
instant contract and in future acquisitions. Tasks requiring subjective 
judgment include--
    (1) Making recommendations;
    (2) Providing analysis, evaluation, planning, or studies; and
    (3) Preparing statements of work or other requirements and 
solicitation documents.
    (b) Requiring the contractor (and its affiliates, as appropriate) 
to implement structural barriers, internal corporate controls, or both, 
in order to forestall organizational conflicts of interest that could 
arise because, for example, the contractor will be participating in 
preparing specifications or work statements in the performance of the 
immediate contract. This avoidance method differs from mitigation in 
that it is used to prevent organizational conflicts of interest from 
arising in future acquisitions, rather than addressing organizational 
conflicts of interest in the instant contract.
    (c) Excluding an offeror or offerors from participation in a 
procurement. (1) Use of this method may be appropriate when the 
contracting officer concludes that--
    (i) The offeror will have an unfair advantage in the competition 
because of its prior involvement (or an affiliate's prior involvement) 
in developing the ground rules for the procurement; or
    (ii) The risk that the offeror's judgment or objectivity in 
performing the proposed work will be impaired because the substance of 
the work has the potential to affect other of the offeror's (or its 
affiliates') current or future activities or interests is more 
significant than the Government is willing to accept.
    (2) This approach may be used only if the contracting officer has 
determined that no less restrictive method for addressing the conflict 
will adequately protect the Government's interest. This determination 
must be documented in the contract file.
    (3) Before excluding an offeror from participation in a procurement 
on the basis of an organizational conflict of interest that arises 
because of work done by an affiliate of the offeror (creating an unfair 
competitive advantage), the contracting officer shall identify and 
analyze the corporate and business relationship between the offeror and 
the affiliate. The contracting officer's efforts should be directed 
toward understanding the nature of the relationship between the 
entities and determining whether the risk associated with the 
organizational conflict of interest can be addressed through mitigation 
(see 3.1204-3). The contracting officer should, at a minimum, examine 
whether--
    (i) The offeror and affiliate are controlled by a common corporate 
headquarters;
    (ii) The overall corporate organization has established internal 
barriers, such as corporate resolutions, management agreements, or 
restrictions on personnel transfers, that limit the flow of 
information, personnel, and other resources between the relevant 
entities;
    (iii) The offeror and affiliates are separate legal entities and 
are managed by separate boards of directors;
    (iv) The corporate organization has instituted recurring training 
on organizational conflicts of interest and protections against 
organizational conflicts of interest; and
    (v) The affiliate can influence the offeror's performance of its 
contractual requirements.


Sec.  3.1204-2  Limitation on future contracting (neutralization).

    (a) A limitation on future contracting allows a contractor to 
perform on the instant contract but precludes the contractor from 
submitting offers for (or participating as a subcontractor in) future 
contracts where the contractor would have an unfair advantage in 
competing for award (or could provide the prime contractor with such an 
advantage). The limitation on future contracting effectively 
``neutralizes'' the organizational conflict of interest.
    (b) Limitations on future contracting shall be restricted to a 
fixed term of reasonable duration that is sufficient to neutralize the 
organizational conflict of interest. The restriction shall end on a 
specific date or upon the occurrence of an identifiable event.


Sec.  3.1204-3  Mitigation.

    (a)(1) Mitigation is any action taken to reduce the risk that an 
organizational conflict of interest will undermine the public's trust 
in the Federal acquisition system.
    (2) Mitigation may require Government action, contractor action, or 
a combination of both.
    (b) When this approach is utilized, a Government-approved 
mitigation plan, reflecting the actions a contractor has agreed to take 
to mitigate a conflict, shall be incorporated into the contract. The 
required complexity of the mitigation plan is related to the complexity 
of the organizational conflict of interest and the size of the 
acquisition. While implementation of a mitigation plan may rest largely 
with a contractor, the Government bears responsibility for ensuring 
that mitigation plans are properly implemented, and the Government must 
not leave enforcement to the contractor.
    (c) Ways of mitigating organizational conflicts of int