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Conflicts of Interest

DAU GLOSSARY DEFINITION

Alternate Definition

A conflict of interest is a situation where a person is torn between duties (or loyalties) to two or more different parties. A conflict of interest can arise when someone finds him- or herself trying to serve (or to be loyal to) two or more persons or organizations whose interests conflict with one another; i.e., "serving two masters." The Government Accountability Office identifies three broad categories of conflict of interest: (i) Unequal access to information; (ii) Impaired objectivity; (iii) Biased ground rules. FAR Part 3 (Improper Business Practices and Personal Conflicts of Interest) provides in-depth coverage of personal conflicts of interest. FAR Subpart 9.5 (Organizational and Consultant Conflicts of Interest) covers organizational conflicts of interest.

General Information

Using a judicial example, Judge Jones would encounter a personal conflict of interest in the court case of Company ABC vs. Company DEF if Judge Jones owned stock in Company ABC, and was asked to preside in a lawsuit between the two companies. The three elements of the personal conflict of interest in this scenario would be:

  • the conflicted party (Judge Jones)
  • the conflicted party's interest in the situation (Judge Jones' interest in the value of the stock)
  • a responsibility to a third party (Judge Jones' duty to the judicial system)

Just as in our legal system, federal government business must be conducted in a manner above reproach and, except as authorized by statute or regulation, with impartiality. The general rule is to avoid strictly any conflict of interest, or even the appearance of a conflict of interest in Government-contractor relationships. While many Federal laws and regulations place restrictions on the actions of Government personnel, their official conduct must be such that they would have no reluctance to fully disclosure of their actions to the public.

No Government employee may solicit or accept any gratuity, gift, favor, entertainment, loan, or anything of monetary value from anyone who (a) has or is seeking to obtain Government business with the employee’s agency, (b) conducts activities that are regulated by the employee’s agency, or (c) has interests that may be substantially affected by the performance or nonperformance of the employee’s official duties. Certain limited exceptions are authorized in agency regulations.

Moreover, a contracting officer must not award a contract to a Government employee or to a business concern or other organization owned or substantially owned or controlled by one or more Government employees. This policy is intended to avoid any conflict of interest that might arise between the employees’ interests and their Government duties, and to avoid the appearance of favoritism or preferential treatment by the Government toward its employees. The agency head may authorize an exception to this policy only if there is a compelling reason to do so, such as when the Government’s needs cannot reasonably be otherwise met.

Organizational Conflicts of Interest

An organizational conflict of interest is similar to a personal conflict of interest in terms of its harmful effects on the integrity of the acquisition process. The difference is that, with an organizational conflict of interest, no person stands to directly benefit from the conflict of interest. Rather, the organization — whether it’s a government organization or a company — stands to benefit. An organizational conflict of interest may result when factors create an actual or potential conflict of interest on an instant contract, or when the nature of the work to be performed on the instant contract creates an actual or potential conflict of interest on a future acquisition. In the latter case, some restrictions on future activities of the contractor may be required.

Organizational conflicts of interest are most likely to occur in contracts involving:

  1. Management support services;
  2. Consultant or other professional services;
  3. Contractor performance of or assistance in technical evaluations; or
  4. Systems engineering and technical direction work performed by a contractor that does not have overall contractual responsibility for development or production.

Consider the following scenario:

  • Company A received a contract from the U.S. Navy to prepare the performance specifications which the Navy requires for a new fuel for an advanced sea-launched missile. Company A has not performed any work towards developing the new fuel. Navy engineers and fuel specialists approved the fuel specifications that Company A developed. The Navy’s Missile Program Manager was so impressed with Company A's performance under its contract to develop the specifications that she believes Company A can also produce the fuel to meet the new specifications. She asks the cognizant Navy Contracting Officer if Company A should be allowed to compete for the award. Is this a potential organizational conflict of interest?

Since the specifications from the scenario above form the basis for the selection of the missile fuel, a potential conflict of interest exists. Company A should be excluded from the initial missile fuel acquisition to avoid the conflict of interest (they may be able to compete for follow-on fuel acquisitions). Note that FAR 9.503 allows the agency head to waive any specific prohibition against organizational conflicts of interest by determining that its application in a particular situation would not be in the Government’s interest.