New Regulations Are Likely on Organizational Conflicts of Interest

December 15, 2009

The Weapon Systems Acquisition Reform Act of 2009 (WSARA) was signed into law by President Obama on May 22, 2009. Section 207 of WSARA requires the Secretary of Defense to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to "provide uniform guidance and tighten existing requirements for organizational conflicts of interest by contractors in major defense acquisition programs." The Department of Defense (DoD) will likely issue a proposed rule on organizational conflicts of interest (OCI) sometime during the coming months. Although the substance of the proposed rule is unknown at this time, it is likely to significantly expand upon the OCI provisions currently applicable to DoD contractors.

The organizational conflict of interest rule, depending on its final form, may impose significant burdens on contractors doing business with DoD. Contractors who currently hold, or anticipate receiving DoD contracts should closely follow the development of the rule. These entities should review their current internal compliance mechanisms to ensure they are targeted to proactively detect and mitigate possible OCIs. Companies such as private equity funds and other investment firms that have acquired businesses with DoD contracts are also likely to be affected. Contractors performing scientific, engineering and technical assistance (SETA) contracts should carefully evaluate whether such work may present a real or apparent OCI when analyzed in the context of the contractor’s other business lines. By taking these actions now, federal government contractors will place themselves in the best possible position to respond as necessary to the requirements of any OCI rule that emerges in the near future.

DoD held an initial public meeting with industry and agency representatives to solicit comments regarding the form and substance of the OCI rule on December 8, 2009. DoD representatives have tentatively indicated that a proposed rule will be issued sometime in the next six months. However, DoD did not expressly eliminate the possibility of issuing an interim rule rather than a proposed rule. An interim rule would likely become effective without providing for revision following a public comment period. We will continue to monitor the situation and keep you up to date on any major developments involving OCI regulations. 

Gibson, Dunn & Crutcher LLP   

Gibson, Dunn & Crutcher’s lawyers are available to assist clients in addressing any questions they may have regarding this issue. Please contact the Gibson Dunn attorney with whom you work, or government contracts partners Joseph D. West (202-955-8658, [email protected]), Karen L. Manos (202-955-8536, [email protected]), or Diana G. Richard (202-877-3572, [email protected]). 

© 2009 Gibson, Dunn & Crutcher LLP

Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.