Strong, Consistent Federal Contractor Conflict of Interest Regulations Needed
General Services Administration
Regulatory Secretariat (VPR)
1800 F Street, NW
ATTN: Laurieann Duarte
Washington , DC 20405
Sent by Facsimile : (202) 501-4067
Subject: FAR Case 2007-017
Dear Ms. Duarte:
The Project On Government Oversight (POGO) provides the following public comment to FAR Case 2007-017–"Service Contractor Employee Personal Conflicts of Interest" (73 Fed. Reg. 34600, June 17, 2008). The advanced notice of proposed rulemaking issued by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) seeks comments and recommendations related to whether service contractor personal conflict of interest (PCI) regulations are needed. As an independent nonprofit organization committed to achieving a more accountable federal government, POGO strongly supports additional ethics measures to govern service contractor employees.
POGO's History of Investigating Conflicts of Interest
For years, POGO has been concerned about PCI and the revolving door. In 2004, we released an investigative report titled "The Politics of Contracting" which looked at the revolving door between the government and large private contractors where conflicts of interest are the rule, not the exception. This practice is both accepted and entrenched.
The revolving door has become such an accepted part of federal contracting in recent years that it is frequently difficult to determine where the government stops and the private sector begins. The incidence of senior federal employees going to work for the federal contractors over which they had authority creates six critical problems:
(1) It provides a vehicle for public servants to use their office for personal or private gain at the expense of the American taxpayer;
(2) It creates an opportunity for government officials to be lenient toward or favor prospective future employers;
(3) It creates an opportunity for government officials to be lenient toward or favor former private sector employers, now regulated or overseen by the government officials;
(4) It sometimes provides the contractor with an unfair advantage over its competitors due to insider knowledge that can be used to the benefit of the contractor but to the detriment of the public;
(5) It has resulted in a highly complex framework of ethics and conflict of interest regulations. Enforcing these regulations has become a virtual industry within the government, costing significant resources, but rarely, as the record shows, resulting in sanctions or convictions of those accused of violating the rules; and
(6) It creates an appearance of impropriety with two significant negative implications. First, it exacerbates public distrust in government, ultimately resulting in a decline in civic participation. Second, the vast majority of career civil servants do not use their government jobs as stepping stones to high paying jobs with government contractors, and it demoralizes them to see their supervisors and co-workers do so.
POGO made thirteen recommendations that would restrict some movement through the revolving door, increase public disclosure of people moving from the public to the private sector, limit contractor campaign contributions, enhance federal advisory committee independence, and add additional protections when former government officials work as lobbyists.
POGO also has highlighted the need to improve conflict of interest standards for federally funded research and development centers (FFRDCs). In one example, the military relied on a report written by a FFRDC despite a blatant conflict involving a senior FFRDC official who was also working for a contractor that stood to benefit from government's decision. POGO recommended that the government apply federal conflict of interest laws to FFRDCs, concluding that those organizations are fully funded by the federal government and should be required to meet the same ethics standards as federal agencies.
Strong, Consistent Federal Regulations Needed
As contractors have assumed increasingly important roles in all manner of government operations over the years, distinctions between government and contractor employees have become nearly non-existent. In its final report, the Acquisition Advisory Panel (AAP) stated that "many federal agencies rely extensively on contractors in the performance of their basic missions. In some cases, contractors are solely or predominantly responsible for the performance of mission-critical functions that were traditionally performed by civil servants, such as acquisition program management and procurement, policy analysis, and quality assurance. In many cases contractor personnel work alongside federal employees in the federal workspace; often performing identical functions."
In addition, the Government Accountability Office (GAO) found that contractor employees outnumbered Department of Defense (DOD) employees in 15 of 21 DOD offices surveyed in its report "Defense Contracting: Additional Personal Conflict of Interest Safeguards Needed for Certain DOD Contractor Employees." The GAO also noted that contractors are "being hired to perform tasks affecting billions of dollars in DOD spending to oversee and execute high-risk programs."
As the role of contractors has expanded, they have come ever closer to performing "inherently governmental functions." While contractors do not have the authority to make final decisions, their input can largely determine the government's action and create the appearance that federal employees are simply rubber-stamping decisions that have already been made by contractors. An excellent example of the very fine line between contractors giving input and effectively making decisions can be found in a case POGO investigated several years ago. In this case, the General Services Administration (GSA) temporarily hired several contractor employees to "analyze [Office of the Inspector General] recommendations for suspension/debarment (of contractors) and recommend and draft appropriate responses," as stated in an internal GSA e-mail. A GSA official later wrote that "GSA recognizes our suspension/debarment authority is indeed inherently governmental, and has retained that authority throughout this temporary measure." One cannot help but ask how much real decisional authority GSA employees retained on cases where contractors conducted analysis, made recommendations, and even drafted responses. If the consultants had acted improperly and made biased recommendations, a GSA official probably would not have been able to detect this impropriety without repeating the consultants' work and reviewing the entire case, which would have completely defeated the purpose of outsourcing the work to a contractor. In the chance that a conflict had been discovered, the government would have had virtually no means to hold the contractor employee accountable.
Because contractors are not subject to the same conflict of interest laws as government employees, the contractor employees could have violated the impartiality expected of the federal government while acting fully within the bounds of federal legal and regulatory constraints.
What makes the GSA example far more troubling is the fact that many more contractors are regularly put in positions to greatly influence decisions across the government. As the AAP wrote in its report, "In addition to contracting out significant portions of the acquisition function...most, if not all, agencies have contracted out major portions of their information technology and communications functions. Moreover, some agencies have contracted out substantive, mission-critical functions." The AAP also quotes from testimony given by Steve Epstein, former Director of DOD's Standards of Conduct Office, stating, "the more we integrate non-Federal employees, contractors or call them blended workforce, into the actual governing and administration of our agencies, the larger the gap we have and the more difficult it is for us to insure the integrity of Government decision making." The AAP report adds that "[m]uch of the difficulty arises when contractor personnel have substantial responsibilities in selecting systems or contractors for award, sometimes effectively making evaluation and/or award decisions for agencies, even if they do not themselves actually make the formal award."
In short, federal agencies are hiring contractors to effectively make government decisions while failing to implement systemic policies to hold contractors' employees responsible for working in the best interest of the public. The absence of high-level policies does not necessarily mean that contractors' employees are regularly acting unethically or that no conflict of interest or ethics policies exist; the GAO found that many of the DOD offices it surveyed had created some safeguards against personal conflicts of interest. However, the lack of contractor ethics regulations on a departmental level results in a patchwork of low-level actions that leaves gaps. More importantly, current policies have created the public impression that contractors control the government and are in positions to exploit that control for personal and corporate financial gain. The current public lack of faith in the federal government is expressed well in a recent Washington Post editorial by Professor Paul Light of New York University, in which he refers to Alexander Hamilton's phrase of a "government ill-executed" and writes that "as the number of large contractors has increased and competition has declined, it has become nearly impossible to reward or hold contractors accountable for their work." He also adds, "Tinkering will not fix these problems."
Officials must take bold steps to restore public faith in the federal government, and the Councils could make a strong positive statement by implementing and enforcing broad, substantial regulations regarding contractor employees' personal conflicts of interest. The Councils must show that they can and will ensure that anyone, civil servant or contractor employee, playing a role in government decisions acts only to serve the general public.
While the solicitation for comment suggests "reliance on specified principles" as a possible method to reduce the risk of conflicts of interest, such a system should not be the sole approach to eliminating harmful conflicts of interest. The history of the Defense Industry Initiative on Business and Ethics Conduct (DII) provides an informative case study in the effectiveness of contractor ethics programs. According to its website, the DII is "a consortium of U.S. defense industry contractors which subscribes to a set of principles for achieving high standards of business ethics and conduct." Eighteen members of the DII are among the top 50 contractors listed in POGO's Federal Contractor Misconduct Database. Out of these eighteen companies, eleven are above the median number of instances of misconduct, with 8 or more, and all eighteen have at least one listed case. Members of the DII rank 1st, 2nd, 4th, 5th, 6th, and 10th in most cases of misconduct, with Lockheed Martin in first with 42 instances of misconduct since 1995. While DII ethics programs may or may not have prevented additional misconduct, the amount of misconduct that has occurred is unacceptable.
Sole reliance on statements of principles in contract clauses fall short in several ways. The results of the DII show that even if principle-based ethics programs have reduced misconduct, they still leave room for improvement. In addition, simply requiring contractors to have ethics programs based on certain principles results in a confusing array of unique ethics programs within each contractor. Such programs rely completely on self-reporting and self-enforcement, giving the government no means to hold unscrupulous contractor employees accountable for their actions. Any level of misconduct is unacceptable, and the Councils must hold contractor employees accountable when they act improperly. These drawbacks to principle-based ethics programs do not necessarily make them completely ineffective, and the Councils may wish to consider broadening requirements for contractor ethics programs. However, any such requirements should not be the sole means of attempting to eliminate personal conflicts of interest, as the government must have stronger mechanisms for holding contractor employees accountable for wrongdoing.
At the other extreme from simply putting statements of principles in contracts, federal personal conflict of interest regulations should be applied to all contractors' employees. However, such a broad application of these regulations would complicate implementation and would be unnecessary for contractors whose work does not influence government decisions (i.e., the proverbial grass cutting contractor employee).
One approach to implementing regulations about contractor employees' personal conflicts of interest may be to apply conflict of interest regulations only to those individuals whose work is likely to influence government policy or financial decisions. Categories stated and described in the GAO's report are useful for identifying those areas of work to which conflict of interest regulations must apply. The GAO described categories of contractor services for DOD, which apply to other agencies as well, as follows:
- "Basic services (custodial and landscaping)"
- "Administrative types of services (travel and management support)"
- "Complex professional and management (i.e., advisory and assistance) services that closely support inherently governmental functions, decisions, and spending, (acquisition support, budget preparation, developing or interpreting regulations, engineering and technical services, and policy development)".
POGO would expand that list to include contractor employees who oversee or regulate programs, projects, other contractors (i.e., lead systems integrators), in which a real or apparent conflicts of interest might occur.
The Councils should create personal conflict of interest regulations for any individual who is not an employee of the government, including but not limited to contractor employees, independent contractors, and consultants, who provides a government employee or any individual under contract with the government with any service in which an individual has access to proprietary information or provides, directly or indirectly, any information, analysis, review, specification, advice, or recommendation that is to be considered or reviewed by a government official in the performance of any function that may be reasonably argued to be inherently governmental.
These regulations should be based on those portions of 18 U.S.C. §§ 201-211, 216, and 219 relevant to executive branch employees, 41 U.S.C. § 423, 5 C.F.R. Part 2635, and relevant agency supplemental standards of ethical conduct regulations. Any new regulations must include criminal, civil, and administrative liability for contractor employees who violate conflict of interest regulations. Contracts should specify the category of service being provided (basic/administrative or complex professional and management) and require conflict of interest regulations accordingly. The Councils should require appointment of government ethics officers to conduct training of contractor employees in these regulations. The Councils may also wish to consider revising the FAR to remove restrictions on Personal Services Contracts, as recommended by the AAP. Doing so would allow direct oversight of contractor employees by civil servants and would be particularly suitable for the many federal offices in which contractors' employees and civil servants work side by side.
These regulations, possibly implemented along with general ethics programs as discussed earlier, would promote ethical behavior by contractor employees and allow the government to hold contractor employees liable for pursuing personal interests over the public interest. Targeting of conflict of interest regulations to only those contractor employees involved in influencing inherently governmental functions would minimize difficulties with implementation while providing a greater degree of accountability and better results than general ethics programs that have failed to satisfactorily reduce ethics violations in other contexts.
Ensuring that contractor employees are working for the public interest is not a mere matter of bureaucratic technicality, but a vital part of restoring public faith in their government and making clear that the United States holds true to the principle of a government of the people, by the people, and for the people. And that is a principle that must be preserved at any cost.
Thank you for your consideration of this comment. If you have any questions, you may contact us at (202) 347-1122.
1. POGO Investigative Report, "The Politics of Contracting," June 29, 2004.
2. POGO Investigative Report, "Preying on the Taxpayer: The F-22A Raptor," July 25, 2006.
3.The Acquisition Advisory Panel (a.k.a. the "1423 Panel" or the "SARA Panel") made 100 findings and 80 recommendations regarding changes to the government acquisition process, including the acquisition of services, commercial practices, performance-based acquisition (PBA), interagency contracting, small business, the federal acquisition workforce, the appropriate role of contractors supporting government, and federal procurement data. The Panel released its final report in 2007. Available at http://acquisition.gov/comp/aap/24102_GSA.pdf.
4. Available at http://www.gao.gov/new.items/d08169.pdf.
5. DOD's Shay Assad has stated that contractor employees are performing inherently governmental work. Elise Castelli, Federal Times, "DoD redirects contracting support work," June 15, 2008. Available at http://federaltimes.com/index.php?S=3578693.
6. FAR Subpart 3.101-1 (stating "Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none."). See 18 U.S.C. § 208 and 41 U.S.C. § 423.
7. Available at http://www.washingtonpost.com/wp-dyn/content/article/2008/06/24/AR2008062401215.html.