Organizational Conflicts of Interest for Software Companies: When Earlier Work Blocks a Bid

#bid-protests#saas#federal-market

By — Founder of GovExpress; prior domain experience at Bloomberg Government and GovWin IQ.

A software company that helps an agency early on, by advising on requirements, drafting a statement of work or evaluating tools, can find itself shut out of the contract that follows. The rule behind that is the organizational conflict of interest, or OCI, and it applies to commercial software companies as well as to traditional consultancies.

This guide covers what an OCI is, the situations the Federal Acquisition Regulation describes, what the contracting officer does about them and how a software company can plan around them. The rules quoted here are from FAR Subpart 9.5, Organizational and Consultant Conflicts of Interest.

What an OCI is

FAR Subpart 9.5 rests on two principles, set out in FAR 9.505:

  • Preventing the existence of conflicting roles that might bias a contractor’s judgment. A company should not be in a position to steer a requirement toward itself or to judge its own work.
  • Preventing unfair competitive advantage. A company should not compete using information its rivals cannot get. FAR 9.505 says this includes a contractor that possesses proprietary information obtained from a government official without proper authorization, or source selection information that is relevant to the contract but not available to all competitors, where that information would help it win.

Bid protest decisions commonly sort OCIs into three groups that map onto those principles: biased ground rules (you helped write the requirement), unequal access to information (you saw non-public information in earlier work) and impaired objectivity (your work for the government asks you to evaluate yourself or your products).

The situations FAR 9.5 describes

FAR 9.505-1 through 9.505-4 give the situations most likely to affect a software company.

Systems engineering and technical direction (9.505-1). A contractor that provides systems engineering and technical direction for a system, but does not have overall contractual responsibility for its development, integration or production, generally may not be awarded a contract to supply that system or its major components, or act as a subcontractor or consultant to a supplier of it.

Preparing specifications or work statements (9.505-2). A contractor that prepares and furnishes complete specifications for nondevelopmental items to be used in a competitive acquisition generally may not supply those items. A contractor that prepares or helps prepare a work statement for competitively acquiring a system or services generally may not supply them either. The subpart lists exceptions, including where the contractor is the sole source or where more than one contractor took part in drafting.

Evaluation services (9.505-3). Contracts for evaluating offers for products or services should not be awarded to a contractor that will evaluate its own offers, or those of its competitors, without proper safeguards to ensure objectivity.

Access to proprietary information (9.505-4). A contractor that gains access to other companies’ proprietary information while performing for the government must agree with those companies to protect the information from unauthorized use or disclosure and to refrain from using it for any purpose other than that for which it was furnished.

For a software company, the risky moments are usually advisory: a pilot that turns into requirements work, a market research engagement that shapes a statement of work, or a support contract that has you reviewing tools that compete with your own.

What the contracting officer does

Under FAR 9.504, the contracting officer has 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. The tools available include:

  • Avoidance. Excluding a conflicted offeror from the competition, or writing the requirement so the conflict does not arise.
  • Mitigation. Accepting a plan from the offeror that reduces the conflict, such as a firewall that keeps the people with the non-public information away from the proposal team.
  • Disclosure. Releasing the information that created an advantage to all offerors so the advantage disappears.
  • Restraint clauses. Under FAR 9.507, a solicitation can carry a provision describing the conflict, and the resulting contract can include a clause limiting the contractor’s future work, for example on follow-on acquisitions it helped define.

FAR 9.503 also lets the agency head or a designee waive a rule or procedure of the subpart where applying it would not be in the government’s interest. The waiver has to be in writing.

Before excluding an offeror for an OCI, FAR 9.504 requires the contracting officer to notify the contractor, give the reasons and allow a reasonable chance to respond.

Where OCIs show up in practice

OCIs are a frequent ground in bid protests. An excluded offeror may protest the exclusion, and a losing offeror may protest that the winner had an OCI the agency failed to address. Either way the dispute turns on facts the company can document: who worked on what, what information they saw and what safeguards were in place.

The question often surfaces before a solicitation is released. Agencies use sources sought notices and RFIs to learn the market, and a company that answers with general capability information is in a different position from one hired to draft the requirement. If you lose a competition and suspect the winner had a conflict, a debriefing is where to start asking.

What this means for a software company

  • Ask before you advise. Before accepting paid work that touches requirements, evaluation or acquisition planning, ask the contracting officer whether it would create an OCI for a later competition you want to bid.
  • Keep track of what your people see. Unequal access arguments turn on specific non-public information. A record of who had access to what makes a mitigation plan credible.
  • Build firewalls early. If your company does both advisory and product work, separate the teams, restrict access to sensitive files and have staff sign nondisclosure agreements before a conflict arises, not after.
  • Watch your partners. When teaming or subcontracting, a partner’s earlier work for the agency can create a conflict for the team. Ask about it while forming the team.
  • Read the solicitation for OCI language. A provision under FAR 9.507 tells you the agency has already identified a possible conflict and how it plans to handle it.

Where this fits

An OCI is not a finding of wrongdoing. It is a judgment about whether a company’s roles or information make a fair competition impossible without safeguards. A software company that plans for it can still advise agencies and still bid; it just decides in advance which of the two it wants for a given requirement.

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