Final Rule on Personal Conflicts of Interests for Contractors

On November 2, 2011, the Department of Defense (“DoD”), General Services Administration (“GSA”), and the National Aeronautics and Space Administration (“NASA”) issued a final rule that holds federal contractors and subcontractors that perform acquisition functions closely associated with inherently governmental functions liable for their employees’ personal conflicts of interests.  As we previously reported, these agencies issued a proposed rule on November 13, 2009, which contemplated requiring each contractor with employees performing qualifying acquisition functions to identify and prevent personal conflicts of interest for such employees.  The final rule adopts, without change, many of the requirements of the final rule, including requirements that contractors:

  • Prohibit covered employees with access to non-public government information from using it for personal gain;
  • Have procedures to screen for potential personal conflicts of interest;
  • Inform covered employees of their obligations with regard to these policies;
  • Maintain effective oversight to verify compliance;
  • Report any personal conflicts of interest violations to the contracting officer; and
  • Take appropriate disciplinary action with employees who fail to comply with these policies.

For a complete list of the requirements under the proposed rule see our previous Alert

Although the final rule adopts many of the requirements without change, there were a few significant changes made to the final rule:

  • Revised the definition of “covered employee” to clarify that the contractor is not directly responsible for the employees of subcontractors.  Some respondents to the proposed rule were concerned that the definition of “covered employee” could be interpreted to include employees of subcontractors, consultants, and partners, which would create an unreasonable burden on prime contractors because they could not impose disciplinary actions on employees of other companies.  The final rule was revised to ensure that subcontractors are responsible for their own employees.
  • Revised the contracting officer procedures to make it clear that contractors are afforded some flexibility in determining how to implement the screening requirements for personal conflicts of interest (i.e., have employees review of list of covered work and disclose any conflicts they might have) and to allow that disclosures be limited to financial interests “that might be affected by the task to which the employee has been assigned.”
  • Added a new paragraph FAR 3.1106(c) to provide additional clarification that the personal conflict of interest FAR clause should not be inserted into solicitations or contracts with a self-employed individual if the acquisition functions closely associated with inherently governmental functions are to be performed entirely by the self-employed individual, rather than an employee of the contractor.
  • Amended the rule to clarify that the personal conflict of interest obligations do not apply to contracts for the acquisition of commercial items.
  • Amended the personal conflicts of interest FAR clause to: (1) adding a list of possible personal conflicts of interest violations, including failure of a covered employee to disclose personal conflicts of interest or comply with the terms of a non-disclosure agreement; and (2) clarifying that the flow down clause only applies to contracts that “will” (rather than “may”) involve performance of acquisition functions closely associated with inherently governmental functions.

The final rule will apply to all contracts, except for contracts for commercial items, and task delivery orders issued on or after the effective date of the rule, which is December 2, 2011.  Subcontracts over $150,000 will also be covered.

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