Government Contracts Monitor

Failure to Resolve Conflict of Interest Requires Re-Do

November 30, 2015

The Government Accountability Office (GAO) recently was called upon, for the first time, to consider circumstances where an agency knowingly failed to investigate and resolve whether an agency employee who actively engaged in procurement-related activities should have been recused from those activities due to an apparent conflict of interest arising from the employee’s prior employment by the incumbent contractor (a potential offeror for the follow-on services). Satellite Tracking of People, LLC [STOP], B-411845; B-411845.2, Nov. 6, 2015. In a stinging rebuke to the agency, GAO first expressed concern as to why the agency failed to obtain acquisition-specific non-disclosure/conflict of interest (ND/CI) statements prior to beginning any procurement activities. GAO then held that the agency’s failure to protect the integrity of the procurement process after becoming aware of the conflict, and recuse the individual, required termination of the award and a complete re-do, excluding the conflicted employee and possibly others. In so holding, GAO stated that it would presume prejudice in such circumstances in the absence of “clear evidence” establishing the absence of prejudice, and analogized the situation to cases involving “the appearance of an impropriety.” GAO also was troubled by a fundamental inconsistency in the Contracting Officer’s representations as to when she first became aware of the problem, as well as the agency’s failure to have actively and thoroughly investigated allegations involving possible violation of the Procurement Integrity Act (PIA).

As if the foregoing were not juicy enough, these issues all arose out of what was a poorly-advised agency motion to dismiss STOP’s initial protest. The initial protest, by the substantially higher-priced incumbent, raised a number of challenges to the agency’s evaluation and source selection decision. Rather than simply responding to these challenges on the merits, the agency moved for summary dismissal, arguing that STOP was not an interested party because of an allegedly unmitigable organization conflict of interest (OCI). Specifically, the contracting officer argued that the agency’s Program Manager (PM), who had been “intimately involved” in virtually every aspect of the instant procurement, including development of the RFQ, formerly worked for STOP and had an alleged “continuing financial interest” in STOP due to two outstanding payments due to her from an escrow account holding the proceeds from the sale of certain stock she previously held in STOP.

STOP denied that these circumstances gave rise to an OCI. Moreover, STOP suggested that far from helping STOP, the individual could have been a disgruntled former employee with “an axe to grind.” Finally, STOP argued that the extensive participation of an agency employee who should have been recused based on a conflict of interest required that the procurement be scrapped and started over.

GAO agreed, citing FAR 3.101-1’s “clear and unambiguous guidelines” concerning the conduct of government personnel that engage in contracting activities. GAO described “the most fundamental guidance” as including the precept that “Government business shall be conducted in a manner above reproach,” and that “[t]he general rule is to avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships.” GAO noted that it previously has considered a number of cases involving questions concerning former government officials who went to work for contractors, as well as cases in which private industry representatives performed evaluation activities on behalf of an agency where the agency failed to investigate adequately whether a conflict existed. However, GAO said that the instant case is the first where GAO was called upon to consider circumstances where an agency knowingly failed to investigate and resolve whether an agency employee extensively involved in procurement activities should have been recused.

GAO made short shrift of the merits, finding that the PM should have been recused, and GAO sustained the protest on this basis. GAO recommended that the agency terminate the award, cancel the RFQ and go back to the drawing board and start over. However, what concerned GAO most were a number of issues pertaining to the agency’s position, including: (1) the agency’s unexplained failure to obtain the ND/CI statements prior to starting any procurement activities; (2) the inclusion in the record of an email establishing, contrary to the Contracting Officer’s statement to GAO, that she actually had been aware of the conflict early on and had expressly stated at that time that the PM would have to “recuse herself ‘totally’ from the [procurement],” but then inexplicably permitted the PM’s continued participation; (3) the agency’s further unexplained failure to pursue the ND/CI statement requested from the PM, but not submitted, particularly in light of the contracting officer’s subsequent representation that the statement, when belatedly submitted, gave rise to concerns on her part; and (4) the agency’s failure to have thoroughly investigated and resolved the contracting officer’s “serious,” but undeveloped, representation that STOP’s protest included proprietary information from the awardee’s quote, which GAO said implicated a possible PIA violation (although GAO commented that it was not apparent, from its review of the protest, what the contracting officer was referencing). GAO recommended that the agency thoroughly investigate the latter.

In sustaining the protest, GAO acknowledged that the impact of the PM’s continuing participation was “not clear” – i.e., there was no showing that such continuing participation actually prejudiced STOP. However, under the circumstances here, involving an agency’s failure to resolve a known conflict, and noting the need to “maintain the integrity of the procurement process,” as well as the fact that “the potential harm flowing from such situations frequently is, by its nature, not susceptible to demonstrable proof of bias or prejudice,” GAO stated that it will “presume prejudice unless the record includes clear evidence establishing the absence of prejudice.”

This decision is important in reiterating the need for Government agencies to fully vet proposed participants in the procurement process before even starting the procurement, and to preclude individuals with possible conflicts from participating in the procurement. As mandated in FAR 3.101-1, Government business must be conducted in a manner “above reproach,” and so as to “avoid strictly any conflict of interest or even the appearance of a conflict of interest.”