New Law Mandates Overhaul of FAR Conflict of Interest Rules
The FAR’s conflict of interest rules will be overhauled and strengthened in the coming months, thanks to a new law enacted in late 2022. On December 27, with little fanfare, the President signed the bipartisan “Preventing Organizational Conflicts of Interest in Federal Acquisition Act,” which directs the FAR Council to make substantial changes to the conflict of interest rules within 18 months.
The new law requires the FAR Council to provide much-needed guidance to contractors about what activities may constitute a conflict of interest. In practice, the government often describes organizational conflicts of interest in three categories: “unequal access to information,” “impaired objectivity,” and “biased ground rules.” For contractors, understanding these three categories is essential to preventing and mitigating potential conflicts.
The current FAR, however, does not clearly define these three categories or provide easy-to-understand examples of activities that would constitute a conflict of interest in each category. Instead, contractors must look to GAO bid protest decisions and other third party sources for interpretive information and guidance. This, of course, is burdensome for many contractors – particularly those without the resources for legal counsel.
The new law will correct this problem by requiring the FAR Council to provide “definitions related to specific types of organizational conflicts of interest, including unequal access to information, impaired objectivity, and biased ground rules.” The new law also requires the FAR Council to provide “illustrative examples of situations” when conflicts of interest may arise under different circumstances. When the new FAR provisions take effect, contractors should have a much better understanding of what constitutes a conflict of interest.
Together with the additional information and guidance, the law will impose new disclosure requirements. The bill requires the FAR Council to provide agencies with “solicitation provisions and contract clauses to avoid or mitigate organizational conflicts of interest, for agency use as needed, that require contractors to disclose information relevant to potential organizational conflicts of interest and limit future contracting with respect to potential conflicts of interest with the work to be performed under awarded contracts[.]”
While the “as-needed” language could offer some wiggle room, the law’s chief sponsor, Michigan Senator Gary Peters, says that the intent of this provision is to “require federal contractors to disclose any potential conflicts of interest before they are awarded a federal contract.”
Assuming the FAR Council’s proposal mirrors this intent, it would be a significant change from current practice. Currently, while some solicitations are tailored to require contractors to disclose any conflicts or potential conflicts upfront, many solicitations don’t impose such requirements and, instead, place the burden of identifying conflicts of interest primarily on the contracting officer. The new law says the FAR Council should continue to allow agencies to tailor solicitations to take into account case-by-case circumstances, but it seems likely that the burden of identifying conflicts will shift, at least in part, to contractors.
The federal government’s conflict of interest rules have been largely frozen in place for many years. Without sufficient information in the FAR, many contractors have found it difficult to understand when a conflict exists, much less educate their employees about identifying and mitigating conflicts. Once the FAR Council takes action in response to the new law, contractors should have a much better understanding of how the conflict rules work. They’ll also likely face a new compliance obligation: identifying and reporting actual and potential conflicts upfront.
While the new law is already in effect, it doesn’t impact contractors yet. The law gives the FAR Council up to 18 months to make the changes the law requires. Keep your eyes peeled, because the FAR’s conflict rules will be overhauled no later than mid-2024.
Nothing contained in this article is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This article is intended for educational and information purposes only. Although the author strives to present accurate information, the information provided in this article is not guaranteed to be accurate, complete, or up-to-date. Reading this article does not establish an attorney-client relationship with the author.