Impaired Objectivity is Tricky
A few months ago, we talked about how mergers and acquisitions can create risks of Organizational Conflict of Interest ("OCI"). As a refresher:
- If a company is responsible for both (a) performing work and (b) evaluating that work, the company is considered to have "impaired objectivity" OCI.
- Impaired objectivity can happen across contracts. If one contract involves the evaluation of work performed under another contract, that will trigger an OCI.
- If one company acquires another company doing work under a contract and the acquiring company is responsible for evaluating the work of the acquired company under a different contract, you now have an OCI.
So, you can buy your way into a conflict if you acquire a company performing work that you want to evaluate.
Obviously, there are other, simpler ways impaired objectivity OCI can happen. The most straightforward is where one company has two contracts: a contract involving performance and another involving evaluation. That situation — one company, two contracts — is the classic impaired-objectivity OCI case.
And, in that situation, there's a fairly easy mitigation strategy: subcontract out some of the work. The conflict is technically still there, but the risk of bad behavior is reduced by creating a firewall between the prime and the sub.
A few weeks ago, however, a GAO protest provided an interesting impaired objectivity OCI case where a subcontractor created OCI risk for the prime.
A Square Group, LLC involved a task order issued by the Center for Medicare and Medicaid Services ("CMS") for "operational analytics" related to healthcare.gov's federally facilitated exchange ("FFE"). Significantly for our purposes, the task order would, among other things, require a vendor to "reconcile and validate FFE enrollment and payment data."
Although seven vendors submitted bids, CMS eventually narrowed the competition to two companies—Cogent People Inc. and A Square Group LLC—and Cogent won on a best-value determination.
But ASG protested, arguing that Cogent had an impaired objectivity OCI because Cogent's unnamed subcontractor[1] already had a contract with CMS to create FFE enrollment and payment data. Because the task order would involve reconciling and validating that data, Cogent couldn't do both.
Now, you might imagine a solution here: implement a firewall, ensuring that Cogent handle the reconciliation and validation of the FFE data and keep the subcontractor out. And, to an extent, that was Cogent's mitigation plan:
Cogent stated it would “firewall [the subcontractor's] personnel from participation in reviewing and/or validating payments data generated by [the subcontractor's] personnel on the FFE contract. Only personnel from Cogent People or its other subcontractors will perform validation of [the subcontractor's]-generated payment data and reports on the OA contract.” Cogent added that it would “provide strict oversight of the payments data validation process”--including “continuous monitoring of all data validation activities”--and it would relocate “resources assigned to payments data validating as necessary and appropriate.”
But there were two problems with this plan. First, ASG noted that the mitigation plan only covered half of the data. Under the plan, Cogent made sure that it would prevent the subcontractor from evaluating payments data, but said nothing about the enrollment data. And that, GAO found, was enough to conclude that the OCI mitigation was inadequate.
And second, Cogent's quotation apparently failed to actually implement the firewall:
[W]e note that although Cogent stated it would firewall [the subcontractor's] personnel from validating payment data in the first revised quotation, and subsequently submitted three revised quotations, none of the revised quotations reflected this firewall. Instead, Cogent continues to state that [the subcontractor] would be “a direct participant in the core functions of the OA program”, which Cogent defined as “Enrollment Reconciliation, Payment Validation, and Premium Stabilization Reporting.” There is no evidence in the record that Cogent ever updated its staffing approach to remove [the subcontractor's] personnel from supporting the conflicted tasks.
That's just not going to cut it. If you say you're going to firewall off a subcontractor for certain functions, you can't include the subcontractor in that part of the staffing plan.
Notably, though, GAO also rejected an argument that might seem perfectly reasonable to the uninitiated. Cogent argued—and the contracting officer agreed—that the conflict itself was tiny and could be handled by an intra-corporate firewall. After all, the subcontractor was a big company and maybe the subcontractor could just make sure that the employees involved in generating the FFE data would not be involved in reviewing that data?
The contracting officer opines that because [the subcontractor] employs approximately 13,000 employees, and only a small portion are assigned to the FFE contract and are involved with enrollment and payment calculations, Cogent could use [the subcontractor] personnel who are not involved with the FFE contract to support OA task order performance.
Seems reasonable, right? After all, intra-corporate firewalls are used in other OCI situations...
Nope! That dog won't hunt:
As our prior decisions have explained, an impaired objectivity OCI exists when a contractor cannot perform its obligations in an objective and unbiased manner because of countervailing economic or business interests. The conflict of interest is not limited to employees of the contract that work on a given contract--it applies to the company as a whole.
In an impaired objectivity OCI, an intra-corporate firewall is not going to cut it because GAO has decided that, as a formal legal matter, impaired objectivity OCI applies to the whole corporation.
Because the subcontractor had even a small bit of unmitigated impaired-objectivity OCI, GAO sustained the protest and now it's back to the agency to figure out next steps. Them's the breaks.
But in the meantime, it's a good reminder that govcon is full of these sort of gotchas and nuances. Sometimes, your subcontractor can reduce the risk of an impaired objectivity OCI. Sometimes, though, your subcontractor can create it!
[1] We don't know who the subcontractor is because it's only identified in the opinion as "REDACTED." We do know, however, that the subcontractor employs 13,000 employees.