By: Paul Emanuelli
This article is an excerpt from the 2021 edition of The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its December 2019 decision in Leidos, Inc., the U.S. Government Accountability Office (GAO) rejected the use of communication firewalls and recusals as means of mitigating a conflict arising out of impaired objectivity. In making its decision, the GAO found that such measures are only effective if the work in question is transferred to a different company, but it ruled that those measures are not effective when the work in question remains within the same legal entity. The dispute dealt with a new technology solicitation for the provision of ongoing managed cloud services for the United States Air Force based on industry best practices and processes. The government disqualified a bidder due to concerns that one of its proposed subcontractors was in a conflict of interest.
The disqualified bidder challenged the conflict of interest decision. However, the GAO agreed with the government’s conflict ruling, finding that the government would not receive objective advice due to the proposed subcontractor’s ongoing financial interest in maintaining and expanding the use of the current system that it was involved in providing under a prior contract:
The PCO concluded that Subcontractor A’s contractual obligations under the EITaaS program and HNI strategic planning allow Subcontractor A direct input to the overall HNI enterprise IT strategy, which includes CCE. AR, Tab 24, Analysis and Determination Memorandum, at 8; AR, Tab 26, A&AS Contract. Subcontractor A is the migration architect under the EITaaS contract. COS/MOL at 16. Subcontractor A is advising the Air Force about how a contractor is performing under the C&S and EUS RRE and has the ability with that advice to influence the decision about whether more or less of the cloud computing work will be allocated to the CCE program or involve work from the CCE program. Agency Response to GAO, Nov. 18, 2019, at 7; AR, Tab 36, Decl. of Program Manager for Acquisition and Resourcing on EITaas, at 3 (Subcontractor A can provide advice and recommendations on future acquisition strategies “such as the amount of applications that would be migrated under CCE or under another contract/vehicle.”).
Specifically, the agency was concerned that if Subcontractor A served as the primary subcontractor under the CCE follow-on, the agency would not receive objective advice regarding the Air Force’s transformation strategy because Subcontractor A would have a vested interest in ensuring that the CCE follow-on was maximized and that option years are exercised. AR, Tab 36, Decl. of Program Manager for Acquisition and Resourcing on EITaaS, at 3. The agency was also concerned that because CCE is a labor hour contract for application rationalization and migration, Subcontractor A could recommend migration and cloud hosting strategies for the Air Force enterprise from the CCE task order when developing the transformation strategy. Id.
We find that the agency reasonably concluded that Leidos had a potential impaired objectivity OCI as a result of Subcontractor A’s role as a subcontractor for the EITaaS program. While Leidos argues that Subcontractor A does not have an impaired objectivity OCI because it does not currently evaluate any CCE related work, an impaired objectivity OCI is not limited to situations in which a contractor is evaluating its own or a competitor’s work. Rather, an impaired objectivity OCI is concerned with whether the contractor’s performance on one contract can affect other interests of the contractor. FAR § 9.505 (one underlying principle concerning conflicts is “[p]reventing the existence of conflicting roles that might bias a contractor’s judgment”); see Aetna Gov’t Health Plans, Inc., Foundation Health Federal Services, Inc., supra, at 13. Here, the agency concern is that through its work on the EITaaS programs, Subcontractor A will have the opportunity to influence the programs to favor its own performance on the CCE award.
While the complainant argued that the conflict could be mitigated by implementing communication firewalls and recusals so that the same staff was not involved in both contracts, the GAO rejected this mitigation strategy and ruled that those measures are only effective where the work in question is transferred to a separate legal entity:
We find the agency reasonably concluded that Subcontractor A’s OCI mitigation plan does not mitigate the impaired objectivity OCI. There are situations in which our Office has concluded that an impaired objectivity OCI can be mitigated by a firewall. Those cases involved subcontracting or transferring work to a separate entity, and establishing a firewall around the impaired entity. See Business Consulting Associates, LLC, B-299758.2, Aug. 1, 2007, 2007 CPD 134 at 10. Our Office has also found that firewalls are irrelevant to an OCI involving potentially impaired objectivity where the conflict at issue pertains to the organization, and not the individual employees. Nortel Gov’t Solutions, Inc., B-299522.5, B-299522.6, Dec. 30, 2008, 2009 CPD ¶ 10 at 6-7; Cognosante, LLC, B-405868, Jan. 5, 2012, 2012 CPD ¶ 87 at 5 (dual role as both state and federal audit contractor of Medicaid program created impaired objectivity OCI that could not be mitigated by a firewall).
Here, Subcontractor A’s mitigation plan does not propose transferring work to a separate entity, and then creating a firewall. Rather, it only involves creating a firewall around Subcontractor A employees working on the EITaaS programs. Thus, personnel under the EITaaS and CCE programs will be working for the same organization, and have an incentive to benefit that organization. See Nortel Gov’t Solutions, Inc., supra; Cognosante, LLC, supra. Accordingly, the agency could reasonably conclude that a firewall alone does not avoid, neutralize, or mitigate the impaired objectivity OCI resulting from Subcontractor A’s dual roles. Id.
The GAO therefore upheld the government’s decision to reject the bidder due to conflict of interest and rejected that bidder’s resulting protest. As this case illustrates, while government conflict of interest determinations may be contentious, government decision-makers should avoid accepting ineffective mitigation measures as a means of allowing conflicted bidders to continue participating in new bidding opportunities.
