[Federal Register Volume 59, Number 121 (Friday, June 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15103]


[[Page Unknown]]

[Federal Register: June 24, 1994]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 366

RIN 3064-AB39

 

Contractor Conflicts of Interest

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Board of Directors of the Federal Deposit Insurance 
Corporation (FDIC) is proposing to adopt a new regulation which will 
implement provisions of the Resolution Trust Corporation Completion Act 
(the Completion Act). The Completion Act amended section 12 of the 
Federal Deposit Insurance Act (FDI Act) to prohibit certain persons and 
companies from entering into contracts or providing services to the 
FDIC, and directed the Board of Directors of the FDIC to prescribe 
regulations for those who enter into contracts with the FDIC governing 
conflicts of interest, ethical responsibilities, and the use of 
confidential information.

DATES: Written comments must be received on or before August 23, 1994.

ADDRESSES: All comments should be addressed to Robert E. Feldman, 
Acting Executive Secretary, Federal Deposit Insurance Corporation, 550 
17th Street NW., Washington, DC 20429, or delivered to room F-400, 1776 
F Street NW., Washington, DC, between the hours of 8:30 a.m. and 5 p.m. 
on business days [FAX number (202) 898-3838]. Comments will be 
available for inspection and photocopying in the FDIC's reading room, 
room 7118, 550 17th Street NW., Washington, DC 20429, between 9:00 a.m. 
and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Joanna Lyckberg, Senior Policy 
Analyst, Office of Corporate Services, (202) 942-3217; or Debra Slater, 
Counsel, Regional Affairs Section, Legal Division, (202) 736-0738, 
FDIC, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: Pursuant to section 12(f)(3) of the FDI Act 
the FDIC is required to obtain the concurrence of the Office of 
Government Ethics (OGE) in prescribing regulations pertaining to 
conflicts of interest, ethical responsibilities and the use of 
confidential information. The proposed regulation addresses, among 
other things, conflicts of interest and use of confidential 
information, and, as to these portions of the regulation, OGE's 
concurrence is required prior to the regulation becoming final. In 
order that the proposed regulation be published for comment 
expeditiously, OGE consents to the publishing of this proposed 
regulation without having provided its formal concurrence as to the 
substance of those sections requiring OGE concurrence. Prior to the 
publication of the regulation as a final rule, the FDIC will obtain 
OGE's concurrence, as necessary, to those portions of the regulation 
requiring OGE's concurrence pursuant to section 12(f)(3) of the FDI 
Act.

I. Paperwork Reduction Act

    The FDIC's contract and procurement information requirements 
constitute a collection of information under the Paperwork Reduction 
Act (44 U.S.C. 3501 et seq.). This collection has been reviewed and 
approved by the Office of Management and Budget (OMB) under control 
number 3064-0072. After reviewing the comments received in response to 
this proposed rule, the FDIC may change the Representations and 
Certifications forms that are part of that collection. If such a change 
is needed, it will be submitted to OMB for review and approval pursuant 
to the Paperwork Reduction Act.

II. Regulatory Flexibility Act

    The Board hereby certifies that the proposed rule would not have a 
significant economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.). Therefore, the provisions of that Act relating to an initial and 
final regulatory analysis (5 U.S.C. 603 and 604) do not apply.

III. Background

    The Resolution Trust Corporation Completion Act (Pub. L. 103-204, 
enacted on December 17, 1993), amended section 12 of the Federal 
Deposit Insurance Act, 12 U.S.C. 1822, to prohibit certain persons and 
companies from entering into contracts or providing services to the 
FDIC. In addition, the Completion Act required the Board of Directors 
of the FDIC to prescribe regulations governing conflicts of interest, 
ethical responsibilities and the use of confidential information by 
contractors. Congress required that contractors doing business with the 
FDIC must meet certain minimum standards of fitness and integrity.
    The statute prohibits certain contractors from entering into 
contracts with the FDIC or performing services on behalf of the FDIC. 
These mandatory disqualifications apply to any person who: has been 
convicted of any felony; has been removed from, or prohibited from 
participating in the affairs of any insured depository institution 
pursuant to a final enforcement action by any appropriate Federal 
banking agency; has demonstrated a pattern or practice of defalcation 
regarding obligations to insured depository institutions; or has caused 
a substantial loss to the Federal deposit insurance funds. In addition, 
the statute requires the collection of certain information from 
prospective contractors concerning any instances of default on material 
obligations to insured depository institutions during the preceding 
five (5) years. The FDIC will use that information to determine if the 
contractor is statutorily or otherwise barred from contracting. The 
statute also gives the FDIC the authority to abrogate contracts with 
any contractor who fails to disclose a material fact to the FDIC, would 
be statutorily prohibited from providing services to the FDIC, or has 
been subject to a final enforcement action by any Federal banking 
agency. Finally, the statute requires the FDIC to promulgate 
regulations governing conflicts of interest, ethical responsibilities, 
and the use of confidential information consistent with the goals and 
purposes of titles 18 and 41 of the U.S. Code.

A. Scope of the Proposed Regulation

    Section 366.1 discusses the scope of the proposed regulation. The 
FDIC will apply this part to all contracts for services which it awards 
in its receivership and corporate capacities. This will include 
situations where the FDIC is acting as manager of the Federal Savings 
and Loan Insurance Corporation (FSLIC) Resolution Fund. The FDIC, 
however, when acting as a conservator of a financial institution, or 
under its bridge bank authority, will not be subject to this 
regulation. In order to comply with its statutory obligation to resolve 
failed institutions at the least possible cost to the Federal deposit 
insurance funds, the FDIC oversees the operation of bridge banks and 
conservatorships in a manner designed to minimize costs and preserve 
franchise value. As such, bridge banks and conservatorships are 
typically controlled by the FDIC for a short period of time and, to the 
extent possible, are operated as private sector entities. The 
contracting activities of these entities, which, to a large extent 
involve contracts that pre-date FDIC control, are conducted as part of 
the day-to-day operations of these open and operating financial 
institutions rather than by the FDIC itself. Thus, bridge banks and 
conservatorships will not be subject to this regulation.
    The FDIC wishes to make it clear that the regulation applies to all 
of its activities with independent contractors who are providing 
services to the FDIC in its receivership and corporate capacities. This 
includes contracts with law firms to provide outside counsel services 
to the FDIC's Legal Division as well as leases of real property, 
including office space for FDIC facilities. Contracts which are purely 
for the acquisition of goods will not be covered by the proposed 
regulation. Contracts which provide for the acquisition of both goods 
and services, however, will be covered by the regulation. For example, 
a procurement of computer equipment would not be subject to the 
regulation, but a contract for the purchase and installation of 
computer equipment would be subject to the regulation.
    The regulation does not apply to contractors who are deemed under 
12 U.S.C. 1822(f)(1)(B), to be employees of the FDIC for purposes of 18 
U.S.C. 202. These contractors are subject to other requirements set out 
at 5 CFR part 2635, regarding standards of ethical conduct for 
employees of the Executive Branch.
    This regulation is applicable to the activities of subcontractors; 
that is, companies which have entered into contracts with FDIC 
contractors. Only the first tier of subcontractors is subject to the 
regulation. The information which is required from the subcontractor 
will be submitted to the FDIC's prime contractor, and the FDIC will 
hold its prime contractors responsible for ensuring that first tier 
subcontractors are in compliance with the regulation.
    The FDIC will apply the regulation to all contracts subject to this 
regulation which are executed after the effective date of this part. In 
addition, the FDIC will apply the regulation to any contract subject to 
this part which is already in existence on the effective date of the 
regulation for which contractual activity, such as a modification, 
extension or exercise of an option, takes place after the effective 
date of the regulation. Such contractual activities are tantamount to 
creating new contracts and therefore these existing contractors should 
be subject to the same ethical standards which will be applied to new 
contractors.

B. Resolution Trust Corporation Transition

    Section 366.1(d) of the proposed regulation addresses the 
termination of the Resolution Trust Corporation (RTC) and the 
transition of RTC contracts to the FDIC. The RTC is expected to 
terminate, by statute, no later than December 31, 1995. At that time, 
RTC functions and responsibilities will be assumed by the FDIC. The 
FDIC may choose to continue some of the contracts which the RTC entered 
into with private sector contractors. Some of these RTC contracts will 
have a duration which extends beyond the RTC's termination date, and 
the FDIC may assume these contracts. In other cases, the FDIC may enter 
into modifications of RTC contracts in order to continue them beyond 
the RTC termination date. In either case, the regulation will apply to 
any RTC contracts to which the FDIC succeeds. This should present 
little hardship to RTC contractors, as the RTC's statutorily mandated 
bars are identical to those contained in the Completion Act.

C. Previous Policies

    Section 366.1(e) of the proposed regulation discusses the FDIC's 
previous policies on contractor conflicts of interest. The FDIC issued 
a statement of policy on contracting with outside firms, which was 
published in the Federal Register on May 17, 1993 (58 FR 28866). This 
policy statement, which was applicable to all FDIC acquisitions of 
goods and services, with the exception of legal services, limited the 
ability of the FDIC to contract with firms in litigation with the FDIC, 
the RTC, FSLIC and any successors to FSLIC, and firms in default on 
financial obligations to the FDIC, the RTC, FSLIC or any successors to 
FSLIC, as well as the affiliated business entities of those firms.
    The policy statement did not apply to the acquisition of outside 
counsel services for the FDIC's Legal Division because the Legal 
Division has been following the RTC's regulation, 12 CFR part 1606, 
entitled Qualification of, Ethical Standards of Conduct for, and 
Restrictions on the Use of Confidential Information by Independent 
Contractors. Because the statutorily mandated bars in the proposed 
regulation are identical to those in the RTC's regulation, the Legal 
Division will follow the proposed regulation. Applicability of the 
proposed regulation to the acquisition of outside counsel services for 
the Legal Division should provide the FDIC with increased uniformity in 
its contractual relationships.
    The proposed regulation will supersede and replace the May 17, 
1993, policy statement on contracting with outside firms. In general, 
the regulation tracks the statutory bars which prohibit certain 
contractors from performing services on behalf of the FDIC. In 
addition, contractors which have conflicts of interest are prohibited 
from performing under FDIC contracts. The FDIC recognizes, however, 
that in certain cases it may be in the FDIC's best interest to waive 
certain conflicts of interest. Therefore, the regulation sets forth 
procedures which contractors must follow if they seek a waiver or 
resolution of a conflict of interest in order to enter into a new 
contract with the FDIC or be permitted to continue performance under an 
existing contract.

D. Definitions

    Section 366.2 contains definitions of terms used throughout the 
regulation.
    Company: The proposed definition of company has been expanded from 
that used in section 2(b) of the Bank Holding Company Act of 1956 (12 
U.S.C. 1841(b)) to include individuals, partners, and joint ventures. 
These entities were included because the FDIC believes that it can best 
meet the congressional intent contained in the Completion Act by 
including all possible business organizations and ventures.
    Conflict of Interest: In arriving at this proposed definition, the 
FDIC considered separate definitions of organizational conflicts of 
interest, personal conflicts of interest, and unfair competitive 
advantage. The umbrella definition included in the regulation is 
intended to cover all three aspects of a conflict of interest. Further, 
it allows for flexibility and, with regard to a particular offer, 
allows the FDIC to identify with more specificity the conditions that 
might create a conflict of interest or an appearance thereof.
    Contractor: This proposed definition includes companies which enter 
into contracts with the FDIC as well as those which enter into 
contractual and other relationships with an FDIC contractor in order to 
fulfill the contractor's obligation under an FDIC contract. Thus, this 
definition includes first tier subcontractors. The FDIC has elected to 
adopt a broad definition of ``contractor'' in order to have the 
latitude to review the fitness and integrity of those who actually 
perform services under FDIC contracts. For example, under this 
definition, if an FDIC contractor obtained temporary employees from a 
temporary agency, those individuals would fall within the definition of 
contractor.
    Default on a Material Obligation: The FDIC proposes to define this 
term to mean a delinquency of 90 or more days as to payment of 
principal or interest, or a combination thereof, on a loan or advance 
from an insured depository institution in an amount in excess of 
$50,000. As required by the statute, the regulation requires that all 
offerors submit a list and description of defaults on material 
obligations incurred by their company or by any persons proposed to 
work on the contract. It should be noted that such defaults are to be 
listed regardless of whether or not they have been cured.
    Insider: The definition of insider in the proposed regulation is 
based on the definition of the term as set forth in Sec. 215.2 of 
Regulation O, 12 CFR 215.2, but has been extended to include the 
insider's affiliated business entities. The FDIC believes that 
insiders, acting alone or with others, who received nonrecourse loans 
which constitute unsafe and unsound lending practices should be 
specifically addressed in the regulations, even if the insider loans 
did not result in a loss to a federally insured depository institution. 
The FDIC concluded that it was important, in order to effectuate 
congressional intent, that these individuals not benefit, through FDIC 
contracts, from their practices and their positions.
    Pattern or Practice of Defalcation: This proposed definition 
addresses two situations: two or more instances of loans or advances 
from an insured depository institution that are or have been delinquent 
for 90 or more days as to payment of principal, interest, or a 
combination thereof, on which there remains a legal obligation to pay 
an amount in excess of $50,000; and loans or advances from an insured 
depository institution where there has been a failure to comply with 
the terms to such an extent that the collateral securing the loan or 
advance was foreclosed upon resulting in a loss in excess of $50,000. 
The last part of the definition is based on section 11(p) of the 
Federal Deposit Insurance Act, 12 U.S.C. 1821.
    Person: This proposed definition comprises both a company's 
management officials and any partners or employees of a company who are 
performing or are proposed to perform services pursuant to an FDIC 
contract. The proposed regulation requires that the FDIC obtain, with 
every offer, a list and description of every instance during the 
preceding ten (10) years in which persons in the company defaulted on 
material obligations to an insured depository institution. The FDIC 
considered limiting the definition of person to include only a 
company's management officials and the key personnel who would work on 
the FDIC contract, but determined that it can best carry out the intent 
of Congress by gathering this information on all individuals employed 
by the company who would work on the FDIC contract.
    Substantial Loss to Federal Deposit Insurance Funds: This proposed 
definition incorporates $50,000 as the threshold for establishing a 
substantial loss. This loss must have inured to one of the Federal 
deposit insurance funds, or the FDIC, the RTC, FSLIC, or their 
successors. Four types of losses are addressed: those resulting from 
delinquent loans, outstanding unsatisfied final judgments, nonrecourse 
loans obtained by insiders, and secured loans where the collateral has 
been foreclosed. In contrast to a pattern or practice of defalcation, 
which requires two or more occurrences in order to invoke the statutory 
prohibition on contracting with the FDIC, a substantial loss requires 
only a single occurrence of loss in excess of the $50,000 threshold.

E. Prohibited Contracting Activities

    Section 366.3(b) of the proposed regulation reflects the statutory 
mandates which have been imposed on the FDIC in its contracting 
activities. These include the statutory bars which restrict with whom 
the FDIC may enter into contracts: those who have been convicted of 
felonies; those who have been removed from or prohibited from 
participating in the affairs of any insured depository institution 
pursuant to any final enforcement action by any appropriate Federal 
banking agency; those who have demonstrated a pattern or practice of 
defalcation; and those who have caused a substantial loss to Federal 
deposit insurance funds. While the statute only applies these mandatory 
bars to actions of persons, the FDIC has concluded that companies 
should also be prohibited from contracting with the FDIC if they meet 
the described criteria. The FDIC recognizes, for example, that a 
company cannot be removed from participating in the affairs of an 
insured financial institution. However, companies which employ persons 
to perform work on FDIC contracts who were so removed may therefore be 
barred themselves from contracting with the FDIC. Of particular note is 
the fact that companies that have been convicted of felonies are not 
qualified to enter into contracts with the FDIC. This is in contrast to 
the RTC regulation, which only bars individuals who have been convicted 
of a felony. In addition to those prohibitions mandated by statute, the 
FDIC will not contract with those who have a conflict of interest which 
has not been resolved or waived by the FDIC.
    Section 366.4, entitled ``Disqualification of Contractors'', 
requires a) that offerors notify the FDIC of any disqualifying events 
which occur between the time that they submit their offers and contract 
award, and b) that contractors notify the FDIC of any disqualifying 
events which occur during their performance of an FDIC contract. The 
Contractor Fitness and Integrity Compliance Officer, or a designee or 
the General Counsel, or a designee, shall then notify the contractor in 
writing of his or her finding as to whether or not the contractor is 
still qualified to continue performing under the contract, the basis 
for such determination, and, when applicable, a description of the 
actions, if any, which the contractor must take in order to eliminate 
the disqualifying factor. The contractor must complete such corrective 
actions not later than 30 days after notification, unless the 
Contractor Fitness and Integrity Compliance Officer or the General 
Counsel, at his or her sole discretion, determines that it will be in 
the best interest of the FDIC to grant the contractor a longer period.

F. Conflicts of Interest

    Section 366.5 of the proposed regulation, entitled ``Conflicts of 
Interest'', states that it is the FDIC's preference to avoid awarding 
contracts which have associated conflicts of interest. For that reason, 
the FDIC generally will not actively solicit offers from companies 
which the FDIC knows have one or more conflicts of interest associated 
with a proposed contract. This section contains several examples of 
conflicts of interest.
    Section 366.5 also contains the procedure which companies must 
follow if they have conflicts of interest regarding a proposed contract 
which they are requesting the FDIC to waive or resolve. In the case of 
contracts for legal services, the requests for waivers or resolutions 
will be considered by the General Counsel or his or her designee. 
Requests for waivers or resolutions of conflicts of interest in all 
other cases will be considered by the Contractor Fitness and Integrity 
Compliance Officer or his or her designee.
    Section 366.5 requires: (1) That offerors notify the FDIC if they 
learn, after submission of an offer, that their company, or any person 
in the company, has a conflict of interest; and (2) that contractors 
notify the FDIC of any conflicts of interest arising during their 
performance of an FDIC contract. The Contractor Fitness and Integrity 
Compliance Officer, or a designee or the General Counsel, or a 
designee, shall then notify the contractor in writing of his or her 
finding as to whether or not the contractor is still qualified to 
continue performing under the contract, the basis for such 
determination, and, when applicable, a description of the actions which 
the contractor must take in order to resolve a conflict of interest. 
The contractor must complete such corrective actions not later than 30 
days after notification, unless the Contractor Fitness and Integrity 
Compliance Officer or the General Counsel, at his or her sole 
discretion, determines that it will be in the best interest of the FDIC 
to grant the contractor a longer period.
    Lawyers and law firms providing legal services to the FDIC are 
required to follow, in addition to the conflicts of interest 
requirements proposed by this regulation, the applicable Code(s) of 
Professional Responsibility and the contractual conflict of interest 
provisions set out in the FDIC Legal Division's Guide for Outside 
Counsel and its Statement of Policies Concerning Outside Counsel 
Conflicts of Interest. These additional requirements are provided to 
legal services contractors as part of the Legal Division's solicitation 
process.
    If the FDIC determines that the contractor is no longer able to 
meet the minimum standards, as a result of a disqualifying factor or a 
conflict of interest, the FDIC may rescind or terminate the contract 
pursuant to Sec. 366.8 of the regulation.

G. Information Required To Be Submitted

    Section 366.6(a) of the proposed regulation requires that offerors 
submit with their offers: (1) Certifications regarding the statutory 
bars as well as any conflicts of interest the offeror may have which 
relate to the proposed contract; and (2) a list and description of any 
instances during the ten (10) years preceding the submission of the 
offer that the offeror, or anyone that the offeror plans to assign to 
work on the FDIC contract, defaulted on a material obligation to an 
insured depository institution in an amount in excess of $50,000. While 
the statute required that the latter information be collected only for 
the five (5) years preceding submission of the offer, the FDIC decided 
that ten (10) years was a more appropriate time period. Ten years will, 
in many cases, encompass the last several years that a closed 
institution was open prior to the FDIC's intervention. The FDIC's 
experience has been that a significant number of loan defaults occurred 
during this time period. The FDIC also concluded that because the 
required time period would be calculated from the present rather than 
from a fixed date in the past, the ten year time period was necessary 
in order to capture the period when defaults likely would have 
occurred.
    Section 366.6(b) requires that contractors submit the information 
required in Sec. 366.6(a) regarding anyone they employ, directly or 
indirectly, after receiving the award, to work on the FDIC contract, 
and gives the FDIC the right to disapprove the direct or indirect 
employment of such persons to work on the contract.

H. Confidential Information

    Section 366.7 of the proposed regulation prohibits contractors from 
disclosing confidential information to which they may become privy as a 
result of their FDIC contracts.

I. Abrogation of Contracts

    Section 366.8 of the proposed regulation states that the FDIC may 
rescind or terminate any contract with a contractor which: (1) Fails to 
disclose a material fact to the FDIC; (2) would not be qualified under 
the proposed regulation to provide services to, receive fees from, or 
contract with the FDIC; (3) has been subject to a final enforcement 
action by any Federal banking agency; or (4) fails to take the actions 
required by the FDIC to resolve a conflict of interest.

J. Finality of Determination

    Section 366.9 of the proposed regulation tracks the language of the 
Federal Deposit Insurance Act, 12 U.S.C. 1822(f)(4)(D)(ii).

List of Subjects in 12 CFR Part 366

    Conflict of interests, Government contracts, Reporting and 
recordkeeping requirements, Resolution Trust Corporation.

    For the reasons set forth in the preamble, pursuant to its 
authority under section 19 of the Resolution Trust Corporation 
Completion Act, the Board of Directors of the FDIC hereby proposes to 
amend title 12, Chapter III of the Code of Federal Regulations by 
adding part 366 as follows:

PART 366--CONTRACTOR CONFLICTS OF INTEREST

Sec.
366.1 Authority, purpose, and scope.
366.2 Definitions.
366.3 Qualification of contractors.
366.4 Disqualification of contractors.
366.5 Contractor conflicts of interest and ethical responsibilities.
366.6 Information required to be submitted.
366.7 Confidentiality of information.
366.8 Abrogation of contracts.
366.9 Finality of determination.

    Authority: 12 U.S.C. 1819, 1822(f)(3).


Sec. 366.1  Authority, purpose, and scope.

    (a) Authority. This part is adopted pursuant to section 12(f)(3) of 
the Federal Deposit Insurance Act, 12 U.S.C. 1822(f)(3), and the rule-
making authority of the Federal Deposit Insurance Corporation (FDIC) 
found at 12 U.S.C. 1819. Pursuant to those sections, the FDIC is 
promulgating the regulations in this part applicable to independent 
contractors governing conflicts of interest, ethical responsibilities, 
and the use of confidential information consistent with the goals and 
purposes of titles 18 and 41 of the U.S. Code. The FDIC will apply this 
part to all contractual activities it undertakes, including situations 
in which it is acting as manager of the Federal Savings and Loan 
Insurance Corporation (FSLIC) Resolution Fund (FRF). This part does not 
apply to the FDIC when acting as a conservator of a failed financial 
institution or when operating a bridge bank. This part is in addition 
to, and not in lieu of, any other statute or regulation which may apply 
to the conduct of such contractors.
    (b) Purpose. This part seeks to govern conflicts of interest, 
ethical responsibilities, and the use of confidential information by 
contractors consistent with the goals and purposes of titles 18 and 41 
of the U.S. Code. Its further purpose is to establish official written 
guidance to contracting personnel who are awarding contracts for 
services and to contractors bidding on such contracts.
    (c) Scope. (1) This part applies to private sector contractors, 
including law firms, which submit offers to provide services to the 
FDIC in response to FDIC solicitations or which enter into contracts 
for services with the FDIC. Further, this part applies to companies 
which enter into contracts or other relationships to provide services 
to FDIC contractors in order to fulfill the contractors' obligations 
under FDIC contracts. In addition, this part applies to lessors who 
seek to lease or who enter into leases of real property for the use of 
the FDIC. Further, this part applies to contractors who are not deemed, 
under 12 U.S.C. 1822(f)(1)(B) to be employees of the FDIC for purposes 
of 18 U.S.C. 202.
    (2) For all contractors subject to this part, FDIC will apply this 
part to contracts which are entered into between the contractors and 
the FDIC after [the effective date of the final regulation]. In 
addition, this part applies to contracts between contractors subject to 
this part and the FDIC which are in existence on [the effective date of 
the final regulation] for which a contractual action, such as a 
modification, extension, or exercise of an option, takes place after 
[the effective date of the final regulation].
    (d) Resolution Trust Corporation transition. After the termination 
of the Resolution Trust Corporation (RTC), which will, by statute, 
occur no later than December 31, 1995, this part shall apply to all RTC 
contracts which have a term which continues beyond the RTC's 
termination and to which the FDIC succeeds.
    (e) Previous policies. This part supersedes and replaces the FDIC's 
``Statement of Policy on Contracting with Outside Firms'', which was 
published in the Federal Register on May 17, 1993 (58 FR 28866), 
effective on [the effective date of the final regulation].


Sec. 366.2  Definitions.

    As used in this part:
    (a) Affiliated business entity means a company that is under the 
control of the contractor, is in control of the contractor or is under 
common control with the contractor; or which the FDIC determines, at 
its sole discretion, and after consideration of the appropriate 
factors, is affiliated with a specific contractor. In determining 
whether companies are independently owned and operated and whether or 
not they are affiliated business entities, consideration is given to 
appropriate factors, including but not limited to common ownership, 
common management, and contractual relationships. A subfranchiser shall 
not be considered an affiliated business entity of its master 
franchiser if the subfranchiser is independently owned and operated.
    (b) Company means any individual, corporation, partnership, joint 
venture, business trust, association or similar organization, or any 
other trust unless by its terms it must terminate within twenty-five 
years or not later than twenty-one years and ten months after the death 
of individuals living on the effective date of the trust, but shall not 
include any corporation the majority of the shares of which are owned 
by the United States, any state, or the District of Columbia.
    (c) Confidential information means all information provided by the 
FDIC to the contractor and all information which the contractor obtains 
during and as a result of its performance under an FDIC contract. It 
does not include information:
    (1) Which is generally available to the public;
    (2) Which becomes generally available to the public other than as a 
result of a disclosure by the contractor, its affiliated business 
entities or its management officials;
    (3) Was available to the contractor on a non-confidential basis 
prior to its disclosure to the contractor by the FDIC; or
    (4) Becomes available to the contractor on a non-confidential basis 
from a source other than the FDIC when such source, insofar as is known 
to the contractor after reasonable inquiry, is not prohibited from 
making the disclosure to the contractor.
    (d) Conflict of interest means a situation in which:
    (1) A company, or any of its management officials or affiliated 
business entities, or any management officials of those affiliated 
business entities, has one or more personal, business, or financial 
interests or relationships which:
    (i) Would adversely affect that company's ability to impartially 
fulfill its obligation to provide services to the FDIC under the terms 
of a proposed or existing contract, or to represent the FDIC; or
    (ii) Could cause a reasonable individual with knowledge of the 
relevant facts to question that company's ability to impartially 
fulfill its responsibility to provide services to the FDIC under the 
terms of a proposed or existing contract, or to represent the FDIC; or
    (2) Performance of a proposed or existing contract may provide a 
company with an advantage unintended by the contract which favors the 
interests of the company or any individual or entity presently or 
potentially able to confer a benefit on the company, or can be used for 
the benefit of the company or any individual or entity able to confer a 
benefit on the company; or
    (3) A company, or any of its management officials or affiliated 
business entities, or any management officials of those affiliated 
business entities, is an adverse party to a lawsuit in which the FDIC, 
RTC, FSLIC, or their successors, is seeking recovery in excess of 
$50,000; or
    (4) Any other facts exist which the FDIC determines, at its sole 
discretion, would give rise to an appearance of a conflict of interest, 
a loss of impartiality or divided loyalties if the company were to 
perform under a proposed or existing FDIC contract.
    (e) Contractor means:
    (1) A company which has submitted an offer to perform services for 
the FDIC or has a contractual arrangement with the FDIC to perform 
services, but does not include special government employees as 
described at 18 U.S.C. 202.
    (2) Any company with which a contractor has entered or intends to 
enter into a contractual or other relationship in order to fulfill the 
contractor's obligations under an FDIC contract.
    (f) Control means:
    (1) The power to vote, directly or indirectly, 25 percent or more 
of any class of the voting stock of a company, the ability to direct in 
any manner the election of a majority of a company's directors or 
trustees, or the ability to exercise a controlling influence over the 
company's management and policies. For purposes of this definition, a 
general partner of a limited partnership is presumed to be in control 
of that partnership.
    (2) For purposes of this part, an entity or individual shall be 
presumed to have control of a company if the entity or individual 
directly or indirectly, or acting in concert with one or more entities 
or individuals, or through one or more subsidiaries, owns or controls 
25 percent or more of its equity, or otherwise controls or has power to 
control its management or policies.
    (g) Default on a material obligation means a loan or advance from 
an insured depository institution which is or has been delinquent for 
90 or more days as to payment of principal or interest, or a 
combination thereof, in an amount in excess of $50,000.
    (h) Federal banking agency means the Office of the Comptroller of 
the Currency, the Office of Thrift Supervision, the Board of Governors 
of the Federal Reserve System, or the Federal Deposit Insurance 
Corporation, or their successors.
    (i) Federal deposit insurance fund means the Bank Insurance Fund, 
the Savings Association Insurance Fund, the FRF, or the funds 
maintained by the RTC for the benefit of insured depositors.
    (j) FDIC means the Federal Deposit Insurance Corporation in its 
receivership and corporate capacities. It does not mean the FDIC in its 
conservatorship capacity or when operating a bridge bank.
    (k) Insider means an officer, director or principal shareholder and 
includes affiliated business entities of such individuals.
    (l) Insured depository institution means any bank or savings 
association the deposits of which are insured by the FDIC.
    (m) Management official means an individual who controls a company. 
With respect to partnerships whose management committee or executive 
committee has responsibility for control, this means only a member of 
such committee but, if no such committee exists, this means each of the 
general partners.
    (n) Offer means a response submitted by an offeror to an FDIC 
solicitation. For outside counsel services, ``offer'' means the 
application submitted by the law firm to the FDIC.
    (o) Offeror means a company which submits an offer in response to a 
solicitation.
    (p) Pattern or practice of defalcation means two or more instances 
in which:
    (1) A loan or advance from an insured depository institution is or 
has been delinquent for ninety (90) or more days as to payment of 
principal, interest, or a combination thereof and there remains a legal 
obligation to pay an amount in excess of $50,000; or
    (2) A loan or advance from an insured depository institution where 
there has been a failure to comply with the terms to such an extent 
that the collateral securing the loan or advance was foreclosed upon, 
resulting in a loss in excess of $50,000 to the insured depository 
institution.
    (q) Person means a management official of a company, or any partner 
or employee of the company who is performing or is proposed to perform 
services pursuant to an FDIC contract.
    (r) RTC means the Resolution Trust Corporation in any of its 
capacities.
    (s) Solicitation means a document sent to prospective offerors that 
requests either quotations or offers to provide the services specified 
therein.
    (t) Substantial loss to Federal deposit insurance funds means:
    (1) A loan or advance from an insured depository institution, which 
is now owed to the FDIC, RTC, FSLIC or their successors, or any Federal 
deposit insurance fund, that is or has been delinquent for ninety (90) 
or more days as to payment of principal, interest, or a combination 
thereof and on which there remains a legal obligation to pay an amount 
in excess of $50,000; or
    (2) An obligation to pay an outstanding, unsatisfied, final 
judgment in excess of $50,000 in favor of any Federal deposit insurance 
fund, the FDIC, RTC, FSLIC, or their successors; or
    (3) A nonrecourse loan, advance, or extension of credit in excess 
of $50,000 made to an insider from an insured depository institution 
that the insider, acting alone or in concert with others, knew or 
should have known was an unsafe and unsound action of the insured 
depository institution or its management; or
    (4) A loan or advance from an insured depository institution which 
is now owed to the FDIC, RTC, FSLIC or their successors, or any Federal 
deposit insurance fund, where there has been a failure to comply with 
the terms to such an extent that the collateral securing the loan or 
advance was foreclosed upon, resulting in a loss in excess of $50,000.


Sec. 366.3  Qualification of contractors.

    (a) Responsibility. (1) The General Counsel of the FDIC shall 
address conflicts of interest relating to contractors for outside 
counsel services engaged by the FDIC's Legal Division. The General 
Counsel may delegate authority to one or more individuals to address 
conflicts of interest which arise under this part. Such delegations 
must be in writing and may not be redelegated.
    (2) The Chairman of the Board of Directors of the FDIC will appoint 
a Contractor Fitness and Integrity Compliance Officer, who shall 
address conflicts of interest involving contractors other than those 
providing outside counsel services for the Legal Division. The 
Contractor Fitness and Integrity Compliance Officer may delegate 
authority to one or more individuals to address conflicts of interest 
which arise under this part. Such delegations must be in writing and 
may not be redelegated.
    (b) Qualification for service on behalf of the FDIC. The FDIC shall 
not permit any person or company to enter into any contract with the 
FDIC or to perform any service on behalf of the FDIC pursuant to any 
such contract if that person or company:
    (1) Has been convicted of any felony;
    (2) Has been removed from, or prohibited from participating in the 
affairs of, any insured depository institution pursuant to any final 
enforcement action by any appropriate Federal banking agency;
    (3) Has demonstrated a pattern or practice of defalcation;
    (4) Has caused a substantial loss to Federal deposit insurance 
funds; or
    (5) Has a conflict of interest which has not been resolved or 
waived by the FDIC.


Sec. 366.4  Disqualification of contractors.

    (a) Disqualifying factors in existence prior to submission of an 
offer. Offerors who have any of the factors identified in Sec. 366.3(b) 
(1) through (4) in existence prior to submission of an offer are 
disqualified. Such offerors are prohibited from entering into contracts 
with the FDIC or performing services on behalf of the FDIC.
    (b) Addressing disqualifying factors that arise after submission of 
an offer but prior to award. (1) If, after submitting its offer, but 
prior to contract award, an offeror discovers that its company, or any 
person in the company, has a disqualifying factor identified in 
Sec. 366.3(b) (1) through (4), the offeror must so notify the FDIC in 
writing within ten (10) days of discovery of the disqualifying factor.
    (2) Offerors that are disqualified from providing services to the 
FDIC because of the existence of factors identified in Sec. 366.3(b) 
(1) through (4) are prohibited from entering into contracts with the 
FDIC or performing services on behalf of the FDIC.
    (c) Addressing disqualifying factors that arise after contract 
award. All contractors are required to notify the FDIC in writing 
within 10 days after discovering that their company has a disqualifying 
factor, as listed at Sec. 366.3(b) (1) through (4). Such notification 
shall contain a detailed description of the specific condition and 
state how the contractor intends to resolve such condition. The 
Contractor Fitness and Integrity Compliance Officer, or a designee, or 
the General Counsel, or a designee, shall notify the contractor in 
writing of the actions, if any, which the contractor must take in order 
to eliminate the disqualifying factor. Such corrective actions must be 
completed by the contractor not later than 30 days after notification 
by the FDIC unless the Contractor Fitness and Integrity Compliance 
Officer or the General Counsel, at his or her sole discretion, 
determines that it will be in the best interest of the FDIC to grant 
the contractor a longer period in which to complete such action.
    (d) Reconsideration of determination. Decisions issued by the 
Contractor Fitness and Integrity Compliance Officer, or a designee or 
the General Counsel, or a designee, may be reconsidered upon 
application by the affected party(ies) to the deciding official. Such 
requests must be in writing and contain the bases for the request.


Sec. 366.5  Contractor conflicts of interest and ethical 
responsibilities.

    (a) General. The FDIC's preference is to award contracts which do 
not have associated conflicts of interest. Therefore, as a general 
rule, in order to minimize the administrative burden of reviewing all 
potential conflicts of interest, the FDIC will not actively solicit 
offers from companies which the FDIC knows have one or more conflicts 
of interest associated with the proposed contract. Neither a person nor 
a company which has a conflict of interest will be permitted to enter 
into any contract with the FDIC or to perform any service on behalf of 
the FDIC pursuant to any such contract unless that conflict of interest 
is resolved or waived by the FDIC. The following are examples of 
conflicts of interest:
    (1) A company, or any of its management officials or affiliated 
business entities, or any management officials of those affiliated 
business entities are, or have been insiders of an insured depository 
institution for which the FDIC or the RTC has been appointed as 
receiver, and the proposed contract contemplates services related to 
the assets of that institution.
    (2) A company was awarded a contract to review assets acquired by 
the FDIC and to develop a plan of action for disposing of those assets. 
To allow the contractor to bid on the subsequent solicitation 
concerning the disposition of those assets, or to assist another 
company in the preparation of a bid, would provide the contractor or 
such other company with an unfair competitive advantage and would 
constitute a conflict of interest.
    (3) A company's affiliated business entity, or any management 
official of that affiliated business entity, has caused a substantial 
loss to Federal deposit insurance funds.
    (b) Addressing conflicts of interest in existence prior to 
submission of an offer--(1) Offerors of legal services. An offeror of 
legal services that has a conflict of interest may, with its offer, 
request resolution or waiver of such conflict of interest. The General 
Counsel, or a designee, at his or her sole discretion, may waive the 
conflict of interest or enter into a written agreement with the offeror 
which will resolve the conflict of interest for purposes of the 
specific contract.
    (2) Offerors of all other types of services. (i) In all other 
cases, an offeror that has a conflict of interest may, with its offer, 
request resolution or waiver of such conflict of interest. The 
Contractor Fitness and Integrity Compliance Officer, or a designee, at 
his or her sole discretion, may waive the conflict of interest or enter 
into a written agreement with the offeror which will resolve the 
conflict of interest for purposes of the specific contract.
    (ii) Waivers or resolutions of conflicts of interest will only be 
considered when the FDIC determines, at its sole discretion, that the 
offer is the most advantageous of all received.
    (iii) In very limited circumstances a company may request a pre-bid 
review of a conflict of interest. The request shall be in writing, and 
shall describe in detail the conflict of interest and a recommended 
resolution. The FDIC will perform a pre-bid review when it determines, 
at its sole discretion, that the participation of that company in the 
bidding process is necessary to ensure adequate competition.
    (c) Addressing conflicts of interest arising after submission of an 
offer but prior to award--(1) Offerors of legal services. If, after 
submitting its offer, but prior to contract award, an offeror of legal 
services discovers that its company, or any person in the company has a 
conflict of interest, it must so notify the FDIC in writing within ten 
(10) days of discovery of the conflict of interest. The offeror may 
include with such notification a request for resolution or waiver of 
such conflict of interest. The General Counsel, or a designee, at his 
or her sole discretion, may waive the conflict of interest or enter 
into a written agreement with the offeror which will resolve the 
conflict of interest for purposes of the specific contract.
    (2) Offerors of all other types of services. (i) If, after 
submitting its offer, but prior to contract award, an offeror discovers 
that its company, or any person in the company has a conflict of 
interest, it must so notify the FDIC in writing within ten (10) days of 
discovery of the conflict of interest. The offeror may include with 
such notification a request for resolution or waiver of such conflict 
of interest. The Contractor Fitness and Integrity Compliance Officer, 
or a designee, at his or her sole discretion, may waive the conflict of 
interest or enter into a written agreement with the offeror which will 
resolve the conflict of interest for purposes of the specific contract.
    (ii) Waivers of conflicts of interest will only be considered if 
the FDIC, at its sole discretion, determines that the offer is the most 
advantageous of all received.
    (d) Addressing conflicts of interest that arise after contract 
award. All contractors are required to notify the FDIC in writing 
within 10 days after discovering that their company has a conflict of 
interest. Such notification shall contain a detailed description of the 
conflict of interest and state how the contractor intends to resolve 
such condition. The Contractor Fitness and Integrity Compliance 
Officer, or a designee or the General Counsel, or a designee, shall 
notify the contractor in writing of his or her finding as to whether 
the contractor is still qualified to continue performing under the 
contract with the FDIC, the basis for such determination, and, when 
applicable, a description of the actions which the contractor must take 
in order to resolve the conflict of interest. Such corrective actions 
must be completed by the contractor not later than 30 days after 
notification by the FDIC unless the Contractor Fitness and Integrity 
Compliance Officer or the General Counsel, at his or her sole 
discretion, determines that it will be in the best interest of the FDIC 
to grant the contractor a longer period in which to complete such 
action.
    (e) Reconsideration of determination. Decisions issued by the 
Contractor Fitness and Integrity Compliance Officer, or a designee or 
the General Counsel, or a designee, may be reconsidered upon 
application by the affected party(ies) to the deciding official. Such 
requests must be in writing and contain the bases for the request.


Sec. 366.6  Information required to be submitted.

    (a) Initial submission. Every offer submitted to the FDIC by any 
company shall include the following, in a format to be provided by the 
FDIC in the solicitation:
    (1) Certifications that the company or any person in the company, 
is not disqualified from service on behalf of the FDIC because of the 
existence of any of the factors identified in Sec. 366.3(b) (1) through 
(4), or conflicts of interest as defined in Sec. 366.2(d) (1) through 
(3), subject to the contractor's request for resolution or waiver of a 
conflict of interest as described in Sec. 366.5;
    (2) A list and description of any instance during the ten (10) 
years preceding the submission of the offer in which the company, or 
any person in the company, or any company under such person's control 
defaulted on a material obligation to any insured depository 
institution; and
    (3) Any other information which the FDIC may deem appropriate.
    (b) Subsequent submissions. (1) No offer submitted to the FDIC may 
be accepted unless the offeror agrees that no person will be employed, 
directly or indirectly, by the offeror to work on any contract with the 
FDIC unless the information required in paragraph (a) of this section 
regarding such person is submitted to the FDIC and the FDIC does not 
disapprove of the direct or indirect employment of that person.
    (2) During the term of any contract, contractors shall submit the 
information described in paragraph (a) of this section at any time that 
the FDIC so requests.
    (c) Failure to provide information. Any contractor who fails to 
provide any information described in this part will not be eligible for 
the award of an FDIC contract or be qualified to contract with the 
FDIC.


Sec. 366.7  Confidentiality of information.

    (a) Contractors are prohibited from:
    (1) Disclosing confidential information to anyone except as 
required to perform the contractor's obligations pursuant to the 
contract; or
    (2) Using or allowing the use of any confidential information to 
further any private interest other than as contemplated by the 
contract.
    (b) Contractors shall take appropriate measures to ensure the 
confidentiality of confidential information and to prevent its 
disclosure and inappropriate use.


Sec. 366.8  Abrogation of contracts.

    (a) Circumstances permitting abrogation of contracts. The FDIC may 
rescind or terminate any contract with a contractor who:
    (1) Fails to disclose a material fact to the FDIC;
    (2) Would not be qualified under this regulation to provide 
services to, receive fees from, or contract with the FDIC;
    (3) Has been subject to a final enforcement action by any Federal 
banking agency; or
    (4) Fails to take the actions required by the FDIC to resolve a 
conflict of interest.
    (b) Liability for rescission or termination. The FDIC may seek its 
actual, direct, and consequential damages from a contractor whose 
actions were the basis for rescission or termination of a contract 
between the FDIC and the contractor. This right to terminate or rescind 
and these remedies are cumulative and in addition to any other remedies 
or rights the FDIC may have under the terms of the contract, at law, or 
otherwise.


Sec. 366.9  Finality of determination.

    Any determination made by the FDIC pursuant to this part shall be 
at the FDIC's sole discretion and shall not be subject to further 
review.

    By Order of the Board of Directors.

    Dated at Washington, D.C. this 14th day of June, 1994.

Federal Deposit Insurance Corporation
Leneta G. Gregorie,
Acting Assistant Executive Secretary.
[FR Doc. 94-15103 Filed 6-23-94; 8:45 am]
BILLING CODE 6714-01-P