This article is an excerpt from the 2023 edition of The Art of Tendering: A Global Due Diligence Guide.
In its August 2021 decision in Northrop Grumman Systems Corporation–Mission Systems., the U.S. Government Accountability Office (GAO) determined that the personal conflict of interest of a government employee created the appearance of a biased bidding process and tainted the resulting contract award. The bid protest dealt with a Request for Proposals (RFP) issued by the Department of the Navy for a new radar jamming system.
The complainant claimed that the government “failed to reasonably consider the impact of an apparent conflict of interest stemming from the actions of a government employee who developed specifications for the solicitation while at the same time negotiated for employment with L3Harris, a competitor and ultimate awardee under the solicitation.” The complainant asserted that the government employee engaged in the employment negotiations with L3Harris while he was “actively and extensively engaged” in the development of the contract specifications.
While the government argued that the employee’s actions “had no impact on the competition”, the GAO disagreed, finding that the employee’s actions “created the appearance of an unfair competitive advantage in favor of L3Harris and that the agency’s consideration of the conflict was unreasonable.” As the GAO stated, “contracting agencies are to avoid even the appearance of impropriety in government procurements” and that under the Federal Acquisition Regulation the “general rule is to avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships.”
Further, as the GAO stated, “where an agency knowingly fails to investigate and resolve a question concerning whether an agency employee who actively and extensively engaged in procurement-related activities should have been recused from those activities, the existence of an actual or apparent a conflict of interest is sufficient to taint the procurement.” The GAO determined that the conflict allegations fell within the category of “biased ground rules”, which covers situations where a firm has influenced the rules of competition by, for example, writing or providing input on solicitation specifications. As the GAO cautioned, “in these cases, the primary concern is that the firm could skew the competition, whether intentionally or not, in favor of itself.” The GAO concluded that the employee’s conduct fell within the meaning of “biased ground rules”:
The facts are clear and there is no dispute that X participated in the development of CB-1 specifications and the execution of the DET contracts, while engaged in employment negotiations with L3Harris. Accordingly, the record is consistent with the circumstances attendant to a “biased ground rules” conflict of interest.
While the government argued that this had no impact on the procurement since the employee had no authority to approve changes to the requirements and that all changes were approved at least two levels above that employee’s position, the GAO disagreed, concluding that this did not overcome the presumption of harm. More specifically, the GAO determined that the government’s subsequent investigation did not detail the approval process, explain the extent to which the approval process relied on the employee’s recommendations and technical expertise, or reflect any independent consideration of the employee’s recommendations.
The GAO cautioned that a conflict could still exist even if the government did not rely exclusively on the employee’s input and even if others within the organization retained ultimate decision-making authority over the specifications. The GAO concluded that “the appearance of impropriety resulting from the biased ground rules conflict of interest at issue here tainted the integrity of the procurement”. The GAO ordered the government to perform an independent review of the specifications, revise them as necessary, and revisit its original contract award decision.
As this case illustrates, biased specifications are a major risk factor in government procurement. Public institutions should implement internal governance practices to guard against biasing their requirements and compromising the defensibility of their contract award decisions.
