[Senate Report 113-257]
[From the U.S. Government Publishing Office]


113th Congress                                                   Report
                                 SENATE
 2d Session                                                     113-257
_______________________________________________________________________

                                     

                                                       Calendar No. 565

 
         PREVENTING CONFLICTS OF INTEREST WITH CONTRACTORS ACT

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 2061

  TO PREVENT CONFLICTS OF INTEREST RELATING TO CONTRACTORS PROVIDING 
 BACKGROUND INVESTIGATION FIELDWORK SERVICES AND INVESTIGATIVE SUPPORT 
                                SERVICES




               September 16, 2014.--Ordered to be printed
        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                  THOMAS R. CARPER, Delaware Chairman
CARL LEVIN, Michigan                 TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  MICHAEL B. ENZI, Wyoming
TAMMY BALDWIN, Wisconsin             KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota

                  Gabrielle A. Batkin, Staff Director
               John P. Kilvington, Deputy Staff Director
                    Mary Beth Schultz, Chief Counsel
         Troy H. Cribb, Chief Counsel for Governmental Affairs
               Keith B. Ashdown, Minority Staff Director
         Christopher J. Barkley, Minority Deputy Staff Director
               Andrew C. Dockham, Minority Chief Counsel
           Mark K. Harris, Minority U.S. Coast Guard Detailee
                     Laura W. Kilbride, Chief Clerk


                                                       Calendar No. 565
113th Congress                                                   Report
                                 SENATE
 2d Session                                                     113-257

======================================================================




         PREVENTING CONFLICTS OF INTEREST WITH CONTRACTORS ACT

                                _______
                                

               September 16, 2014.--Ordered to be printed

                                _______
                                

 Mr. Carper, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 2061]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 2061), to prevent 
conflicts of interest relating to contractors providing 
background investigation fieldwork services and investigative 
support services, having considered the same, reports favorably 
thereon with an amendment in the nature of a substitute and 
recommends that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................2
III. Legislative History..............................................5
 IV. Section-by-Section Analysis of the Bill, as Reported.............5
  V. Evaluation of Regulatory Impact..................................7
 VI. Congressional Budget Office Estimate.............................7
VII. Changes in Existing Law Made by the Bill, as Reported............7

                         I. PURPOSE AND SUMMARY

    The United States government performs background 
investigations of individuals to determine an individual's 
suitability to work as a federal employee or fitness to serve 
as an employee of a federal contractor, to assess whether to 
allow an individual to have access to classified information or 
to hold a national security sensitive position in the 
government, and to assess whether to allow an individual to 
have access to sensitive government facilities or information 
systems. Often the government employs contractors to compile 
the information required for the background checks. Final 
quality reviews of the contractor's work product ensure that 
the background investigation is complete and meets all 
applicable standards.
    S. 2061 would prohibit agencies, when they employ a 
contractor to perform background investigations, from hiring 
the same contractor to perform the final quality review of the 
contractor's own work. This simple rule will prevent a conflict 
of interest that may otherwise undermine the impartiality and 
objectivity of the quality review, or give a contractor an 
unfair competitive advantage over other contractors.

                II. BACKGROUND AND NEED FOR LEGISLATION

    Federal agencies conduct background investigations of 
individuals for purposes related to civilian or military 
service with the federal government or employment with a 
federal contractor. The level of detail of the investigation 
depends on the nature of the job or responsibility. General 
background checks help determine whether an individual is 
suitable for employment, and more detailed investigations are 
used to determine whether to allow an individual to have access 
to classified information and hold a security clearance or 
whether to allow an individual to occupy a national security 
sensitive position with the government. Investigations are also 
used to check background information about individuals to 
determine whether to allow them access to sensitive federal 
facilities or federal information technology systems.
    The federal government relies heavily on contractors to 
assist with the process of background investigations. For 
example, contractors are hired to search educational and 
employment records, research criminal and other legal records, 
check credit histories, and interview the individual who is the 
subject of the background check, as well as the family, 
friends, employers and other acquaintances of the individual. 
Final decisions based on records compiled by contractors, 
though, rest with the federal government. For example, the 
final decision of whether to grant a security clearance must be 
made by federal employees and rests with the agency that 
performed the background investigation, or requested that the 
background investigation be performed, for a particular 
individual. Flaws in the background investigation upon which an 
agency relies may result in the agency granting a security 
clearance to an individual who may be a risk to national 
security. The final quality review of an investigation, 
therefore, is a critical step to ensure that documentation is 
complete, interviews have been conducted properly, and the 
investigation complies with all applicable standards.
    Twenty-two agencies (many within the intelligence 
community) are authorized to perform background investigations, 
and these agencies may have background checks performed by 
their own employees or a contractor. The vast majority of 
background investigations (over 90 percent) are performed by 
the Federal Investigative Services (FIS) within the Office of 
Personnel Management (OPM), at the request of other 
agencies.\1\ OPM hires contractors to perform investigative 
services for a majority of the investigations it conducts. A 
company called United States Investigations Services, LLC 
(USIS) has, until very recently, performed almost half of the 
investigative work contracted out by OPM,\2\ and has also 
provided similar investigative services to several other 
agencies.
---------------------------------------------------------------------------
    \1\Suitability and Security Clearance Performance Accountability 
Council, Suitability and Security Process Review Report to the 
President (February 2014), p.2.
    \2\Ibid. Staff of OPM informed Committee staff on September 9, 2014 
that OPM would not exercise its options to extend its contracts with 
USIS, effective September 30, 2014.
---------------------------------------------------------------------------
    On October 30, 2013, the Department of Justice joined a 
civil fraud lawsuit against USIS, alleging that the company 
engaged in a systemic failure to adequately conduct security 
clearance background investigations.\3\ Specifically, the 
Department of Justice has alleged that the senior management of 
USIS ``dumped'' incomplete investigations on OPM in order to 
increase the company's revenue and profit. This began at least 
as early as March 2008, according to the complaint, and 
continued through at least September 2012, and involved 665,000 
background investigations--approximately 40 percent of the 
total investigations conducted by USIS during that time 
frame.\4\
---------------------------------------------------------------------------
    \3\U.S. Department of Justice press release (Oct. 30, 2013), http:/
/www.justice.gov/opa/pr/2013/October/13-civ-1158.html.
    \4\United States complaint (Jan. 22, 2014), United States of 
America ex rel. Blake Percival v. U.S. Investigations Services, M.D. 
Ala. (No. 11-CV-527-WKW).
---------------------------------------------------------------------------
    The day after the Department of Justice announced its 
intervention in the lawsuit against USIS, the Committee held a 
hearing on background checks conducted for security clearances 
and other purposes.\5\ One issue raised by Committee members 
was the appropriate role of contractors in conducting 
background investigations, and whether contractors ever conduct 
the final quality reviews of their own work. This concern was 
heightened by the announcement of the fraud allegations against 
USIS, and the fact that USIS conducted security clearance 
background investigations for both Navy Yard shooter Aaron 
Alexis\6\ and former National Security Agency contractor 
employee Edward Snowden.\7\
---------------------------------------------------------------------------
    \5\``The Navy Yard Tragedy: Examining Government Clearances and 
Background Checks,'' Hearing before the Committee on Homeland Security 
and Governmental Affairs, 113th Cong. (October 31, 2013).
    \6\Ibid.
    \7\See ``Safeguarding Our Nation's Secrets: Examining the Security 
Clearance Process,'' hearing before the Subcommittee on the Efficiency 
and Effectiveness of Federal Programs and the Federal Workforce, 113th 
Cong. (June 20, 2013).
---------------------------------------------------------------------------
    In a letter to Ranking Member Coburn following up on her 
testimony, OPM Acting Director Elaine Kaplan explained that 
some lower-level investigations may be reviewed by contract 
employees, rather than federal employees.\8\ This work, in 
fact, was being performed by USIS under its support contract 
with OPM and had previously been identified by the Inspector 
General (IG) of OPM as raising quality concerns. Specifically, 
the IG reported in 2010 that internal OPM audits showed that in 
March 2009, 28.24 percent of sampled cases closed by USIS were 
unacceptable, and in June 2009, 26.87 percent of sampled cases 
were deficient.\9\
---------------------------------------------------------------------------
    \8\Letter from Acting Director Elaine Kaplan, U.S. Office of 
Personnel Management, to Ranking Member Tom Coburn, Committee on 
Homeland Security and Governmental Affairs, Oct. 31, 2013.
    \9\Final Audit Report: Audit of the Quality Assurance Process Over 
Background Investigations, U.S. Office of Personnel Management, Office 
of the Inspector General, Office of Audits, Report No. 4A-IS-00-09-060 
(June 22, 2010).
---------------------------------------------------------------------------
    OPM reversed its policy on February 6, 2014, when OPM 
Director Katherine Archuleta announced that only federal 
employees would conduct the final quality review before an 
investigative product is sent by OPM to the agency that 
requested the review.\10\ This decision, though, is an 
administrative one and does not preclude a future OPM Director 
from again allowing contractors to review their own work. Nor 
does this decision preclude other agencies from permitting 
contractors to conduct the final quality reviews of their own 
work.
---------------------------------------------------------------------------
    \10\E-mail communication from Office of Congressional and 
Legislative Affairs, U.S. Office of Personnel Management, to Committee 
staff (Feb. 6, 2014).
---------------------------------------------------------------------------
    Federal procurement regulations already lay out general 
principles that are designed to prevent organizational 
conflicts of interest (OCI). Those regulations state that 
agency contracting officers should identify and evaluate 
potential conflicts of interest as early as possible in the 
acquisition process, and to avoid, neutralize or mitigate 
potential conflicts of interest before contract award.\11\ The 
regulations explain:
---------------------------------------------------------------------------
    \11\Federal Acquisition Regulation 9.504(a).

          An OCI arises when, because of other relationships or 
        circumstances, a contractor may be unable, or 
        potentially unable, to render impartial advice or 
        assistance to the government, the contractor's 
        objectivity in performing the contract work is or might 
        be impaired, and/or the contractor would have an unfair 
        advantage.\12\
---------------------------------------------------------------------------
    \12\Federal Acquisition Regulation 2.101.

    Despite these admonitions in the regulations, OPM, until 
February, did in some circumstances rely on USIS to conduct the 
final quality review of its own work. This conflict of interest 
raised a risk that the contractor could show favorable bias 
toward its own work, or use its position to gain an unfair 
advantage over competitors. Additionally, the Department of 
Justice has alleged that this conflict of interest facilitated 
the scheme by USIS to ``dump'' incomplete investigations on 
OPM, because USIS personnel working on the quality reviews used 
information gained through this work to identify cases that 
were likely to be selected by OPM for review by federal 
employees, as opposed to USIS employees. According to the 
complaint filed by the Department of Justice, this information 
was then improperly given to the investigative branch of USIS, 
which avoided ``dumping'' cases likely to be reviewed by 
federal employees in order to minimize the risk of raising 
concerns at OPM about the quality of the review process.\13\
---------------------------------------------------------------------------
    \13\United States complaint (Jan. 22, 2014), United States of 
America ex rel. Blake Percival v. U.S. Investigations Services, M.D. 
Ala. (No. 11-CV-527-WKW), p. 22.
---------------------------------------------------------------------------
    S. 2061 would prohibit this type of conflict of interest. 
As reported by the Committee, S. 2061 would prohibit OPM, or 
any other agency that hires a contractor to perform background 
investigation work, from hiring the same contractor to do the 
final quality review of the contractor's own work. The bill in 
no way discourages a contractor performing background 
investigations from conducting internal quality reviews to 
ensure that the product meets requisite standards before the 
product is presented to OPM (or to any other agency that hired 
the contractor). However, the bill will ensure that the final 
quality review is not performed by the same contractor. This 
conflict of interest rule will increase the overall quality of 
background investigations by removing the risk that the final 
quality review would be conducted with the best interests of 
the contractor in mind, rather than the best interests of the 
government.

                        III. LEGISLATIVE HISTORY

    On February 27, 2014, Senators Tester, McCaskill and Begich 
introduced the Preventing Conflicts of Interest with 
Contractors Act (S. 2061). S. 2061 was referred to the Senate 
Committee on Homeland Security and Governmental Affairs.
    The Committee considered S. 2061 at a business meeting on 
June 25, 2014. Senators Tester and McCaskill offered a 
substitute amendment. The substitute contains a number of 
changes based on staff discussions with agencies that 
participate in the Suitability and Security Performance 
Accountability Council (PAC), which is the inter-agency 
committee responsible for promoting reforms related to 
background investigations and the decisions that are based on 
those investigations.\14\ The substitute provides that the 
bill's conflict of interest rule, in addition to applying to 
background investigations for security clearances, will also 
apply to investigations related to eligibility to occupy a 
national security sensitive position, eligibility for logical 
and physical access to federal-controlled facilities or 
information systems, suitability or fitness for federal 
employment, and fitness to preform work for or on behalf of the 
federal government as a contractor or employee. The substitute 
also ensures that the conflict of interest rule will apply to 
any federal agency that contracts for background investigation 
fieldwork or support services, not just OPM, and that the rule 
applies to both original contracts and extensions or options 
exercised on those contracts. Finally, the substitute ensures 
that the definitions of key terms used in the bill are 
consistent with those terms as used by the PAC.
---------------------------------------------------------------------------
    \14\The PAC was established by Executive Order 13467, Reforming 
Processes Related to Suitability for Government Employment, Fitness for 
Contractor Employees and Eligibility for Access to Classified National 
Security Information (June 30, 2008). The PAC is chaired by the Deputy 
Director for Management of the Office of Management and Budget and also 
includes the Office of the Director of National Intelligence and the 
Office of Personnel Management.
---------------------------------------------------------------------------
    The Committee adopted the Tester-McCaskill substitute 
amendment by unanimous consent and ordered S. 2061 reported 
favorably by voice vote as amended by the Tester-McCaskill 
substitute amendment. Senators present for the vote were 
Carper, Levin, McCaskill, Tester, Heitkamp, Coburn, McCain, 
Johnson and Portman. Senators Coburn and McCain asked to be 
recorded as voting no.

        IV. SECTION-BY-SECTION ANALYSIS OF THE BILL, AS REPORTED

Section 1. Short title

    This section establishes the title of the legislation as 
the ``Preventing Conflicts of Interest with Contractors Act.''

Section 2. Definitions

    This section establishes that, for purposes of this Act: 
(1) The term ``agency'' means:
          (a) an Executive agency as defined in 5 U.S.C. 105 
        (an Executive department, a government corporation, and 
        an independent establishment);
          (b) a military department as defined in 5 U.S.C. 102 
        (Army, Navy, Air Force);
          (c) an element of the intelligence community as 
        defined in 50 U.S.C. 3003 (the Office of the Director 
        of National Intelligence; the Central Intelligence 
        Agency; the National Security Agency; the Defense 
        Intelligence Agency; the National Geospatial-
        Intelligence Agency; the National Reconnaissance 
        Office; other offices within the Department of Defense 
        for the collection of specialized national intelligence 
        through reconnaissance programs; the intelligence 
        elements of the Army, the Navy, the Air Force, the 
        Marine Corps, the Coast Guard, the Federal Bureau of 
        Investigation, the Drug Enforcement Administration, and 
        the Department of Energy; the Bureau of Intelligence 
        and Research of the Department of State; the Office of 
        Intelligence and Analysis of the Department of the 
        Treasury; the Office of Intelligence and Analysis of 
        the Department of Homeland Security; such other 
        elements of any department or agency as may be 
        designated by the President, or designated jointly by 
        the Director of National Intelligence and the head of 
        the department or agency concerned, as an element of 
        the intelligence community);
          (d) the United States Postal Service; and
          (e) the Postal Regulatory Commission.
    (2) The term ``background investigation fieldwork 
services'' means the investigatory fieldwork conducted to 
determine the eligibility of an individual for logical and 
physical access to federally-controlled facilities or 
information systems, suitability or fitness for federal 
employment, eligibility for access to classified information or 
to hold a national security sensitive position, or fitness to 
perform work for or on behalf of the federal government as a 
contractor or employee. This work includes: interviews of the 
individual, former and current employers, friends, family and 
other sources; and reviews of educational and employment 
records, criminal and other legal records, and credit history.
    (3) The term ``background investigation support services'' 
means the clerical, administrative, and technical support 
services provided to various functions critical to the 
background investigation process, including: the initial 
processing and scheduling of investigative requests; 
information technology and information technology support, file 
maintenance, imaging or copying of investigation documents, and 
mail processing.
    (4) The term ``quality review process'' means performing 
the final review of a background investigation to ensure 
investigative, administrative, and other required standards 
have been met before the completed background investigation is 
delivered to the adjudicating agency (i.e., the agency that 
requested the background check and that has final decision-
making authority).

Section 3. Limitation on contracting to prevent organizational 
        conflicts of interest

    This section provides that, notwithstanding any other 
provision of law, after the date of enactment of this Act, an 
agency may not enter a contract, or extend or exercise an 
option on a contract, with a contractor to conduct a quality 
review process relating to background investigation fieldwork 
services or background investigation support services if the 
contractor is performing the services to be reviewed.

                   V. EVALUATION OF REGULATORY IMPACT

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill and determined 
that the bill will have no regulatory impact within the meaning 
of the rules. The Committee agrees with the Congressional 
Budget Office's statement that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would impose no costs 
on state, local, or tribal governments.

             VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

                                                     July 10, 2014.
Hon. Tom Carper,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2061, the Preventing 
Conflicts of Interest with Contractors Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 2061--Preventing Conflicts of Interest With Contractors Act

    CBO estimates that enacting S. 2061 would have no impact on 
the federal budget. Enacting the bill would not affect direct 
spending or revenues; therefore, pay-as-you-go procedures do 
not apply.
    S. 2061 would amend federal law to prevent security 
clearance contractors from reviewing and approving their own 
background investigations. Because this legislation would put 
into statute the current policy and practice of the Office of 
Personnel Management, CBO estimates that implementing S. 2061 
would have no effect on the budget.
    S. 2061 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments 
budget.
    The CBO staff contact for this estimate is Matthew 
Pickford. The estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

     VII. CHANGES IN EXISTING STATUTE MADE BY THE BILL, AS REPORTED

    Because this legislation would not repeal or amend any 
provision of current law, it would make no changes in existing 
law within the meaning of clauses (a) and (b) of paragraph 12 
of rule XXVI of the Standing Rules of the Senate.

                                  
