[Federal Register Volume 61, Number 48 (Monday, March 11, 1996)]
[Rules and Regulations]
[Pages 9590-9599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5254]



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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: Interim final rule.

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SUMMARY: The Board of Directors of the Federal Deposit Insurance 
Corporation (FDIC or Corporation), with the concurrence of the Office 
of Government Ethics (OGE), is adopting an interim final rule 
implementing certain provisions of section 19 of the Resolution Trust 
Corporation Completion Act (the Completion Act) and soliciting 
comments. Section 19 of the Completion Act amended section 12 of the 
Federal Deposit Insurance Act (FDI Act) and requires the Board of 
Directors to prescribe regulations to ensure that contractors meet 
minimum standards of competence, experience, integrity and fitness, and 
requires that these regulations establish prohibitions on the 
Corporation's ability to contract with or have certain entities provide 
services to the FDIC. Section 19 of the Completion Act also requires 
that the Board of Directors prescribe regulations governing conflicts 
of interest, ethical responsibilities, and the use of confidential 
information for those independent contractors who are not deemed under 
the FDI Act, as amended, to be employees of the Corporation for 
purposes of Title 18 of the United States Code. Pursuant to the 
authority granted to it under the Completion Act, the Board of 
Directors is making the regulations required under section 19 of the 
Completion Act applicable to any FDIC contracts for services and has 
combined the required regulations in the interim final rule.
    The Board determined that combining the prescribed regulations into 
one rule would provide the most consistent treatment of contractors and 
reduce confusion in the application of the regulations.

DATES: Effective date. April 10, 1996.
    Comment period date. Comments must be received on or before May 10, 
1996.

ADDRESSES: Send comments to Jerry L. Langley, Executive Secretary, 
FDIC, 550 17th Street, NW, Washington, DC 20429. Comments may be hand-
delivered to room 400, 1776 F Street, NW, Washington, DC 20429 on 
business days between 8:30 a.m. and 5:00 p.m. [FAX number: (202) 898-
3604; Internet: [email protected]]. Comments will be available for 
inspection and photocopying at 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: James T. Lantelme, Assistant General 
Counsel, Regional Affairs Section, Legal Division, (202) 736-0120; or 
Richard M. Handy, Ethics Program Manager, Office of the Executive 
Secretary, (202) 898-7271, both at the FDIC.

SUPPLEMENTARY INFORMATION:

I. Background

    On June 24, 1994, the Corporation published for comment a proposed 
rule applicable to independent contractors designed to establish 
standards governing conflicts of interest, ethical responsibilities, 
and the use of confidential information and procedures for ensuring 
that independent contractors meet minimum standards of competence, 
experience, integrity, and fitness (59 FR 32661-32668). The proposed 
rule was published in response to the requirements of Section 19(a) of 
the Resolution Trust Corporation Completion Act, codified at 12 U.S.C. 
1822(f), which requires that the Board of Directors prescribe 
regulations establishing procedures for ensuring that any individual 
who is performing any function or service on behalf of the Corporation 
meets minimum standards of competence, experience, integrity, and 
fitness and prohibiting any person who does not meet such standards 
from entering into contracts for services with or performing services 
on behalf of the Corporation. The Completion Act also requires the 
Board of Directors, with the concurrence of OGE, to prescribe 
regulations governing conflicts of interest, ethical responsibilities, 
and the use of confidential information. The proposed rule prescribed a 
60-day comment period and invited comments from all interested parties. 
The Corporation received six comment letters and, after careful 
consideration of each comment, has made appropriate modifications to 
the rule. In addition, OGE requested numerous changes which resulted in 
the reorganization and modification of some provisions. The Board 
determined that an interim final rule would be appropriate in order to 
allow interested parties to comment on the revised rule while providing 
for the prompt implementation of the rule to satisfy concerns relating 
to the merger of the RTC into the FDIC. The Corporation, with the 
concurrence of OGE, is now publishing, as an interim final rule, the 
Contractor Conflicts of Interest rule, to be codified in new part 366 
of 12 CFR chapter III.
    Pursuant to the Completion Act, OGE is providing its concurrence to 
those provisions of the interim final rule which govern conflicts of 
interest, ethical responsibilities, and the use of confidential 
information as applicable to independent contractors which are not 
deemed under 12 U.S.C. 1822(f)(1)(B) to be employees of the Corporation 
for purposes of Title 18 of the United States Code. Contractors who are 
deemed under 12 U.S.C. 1822(f)(1)(B) to be employees of the 
Corporation, are subject, in addition to the interim final rule, to 
Title 18 of the United States Code; the Standards of Ethical Conduct 
for Employees of the Executive Branch (5 CFR part 2635); the 
Supplemental Standards of Ethical Conduct for Employees of the Federal 
Deposit Insurance Corporation (5 CFR part 3201); the Executive Branch 
Financial Disclosure, Qualified Trusts, and Certificates of Divestiture 
regulations (5 CFR part 2634); and the Supplemental Financial 
Disclosure Requirements for Employees of the Federal Deposit Insurance 
Corporation (5 CFR part 3202).

II. Summary of the Comments

    The Corporation received comments from four law firms and two 
corporations. The comments from the two corporations involved concerns 
over the administrative burden that might be imposed through compliance 
with the reporting requirements under Sec. 366.6 of the proposed rule. 
The comments from the law firms raised a variety of issues including 
the potential effects of state privacy laws, changes in the treatment 
of law firms, concerns over threshold amount in the definition of 
default on a material obligation, the impact of the rule on the use of 

[[Page 9591]]
subsidiaries, and the potential for former insiders of failed 
institutions to be involved in the liquidation of other failed 
institutions.

III. Analysis of the Comments and Changes to the Rule

Section 366.1  Authority, Purpose and Scope

    Authority. Section 366.1(a) of the proposed rule was modified by 
adding section 12(f)(4) of the Federal Deposit Insurance Act to the 
list of authorities.
    Purpose. Section 366.1(b) of the proposed rule was simplified by 
dividing the provision into its component parts and changing its 
language to be consistent with language used elsewhere in the rule.
    Scope. One of the law firm commenters suggested that the scope of 
the rule be limited by adding a provision which would provide that the 
existing policies concerning outside counsel conflicts of interest 
remain unchanged after adoption of the rule. The Board declined to 
modify the scope of the rule with regard to law firms. Section 19(a) of 
the Completion Act, codified at 12 U.S.C. 1822(f), does not provide an 
exception to its application for legal services contracts. To date, the 
FDIC's Legal Division has applied the Resolution Trust Corporation's 
(RTC) rule, 12 CFR part 1606, entitled Qualification of, Ethical 
Standards for, and Restrictions on the Use of Confidential Information 
by Independent Contractors (part 1606), in its contract relationships 
with law firms. Part 1606 was promulgated by the RTC in response to 
requirements imposed upon it by the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (FIRREA). The FDIC has 
substantially identical restrictions on the use of contractors imposed 
by the Completion Act. Thus, it is not expected that the FDIC's 
relationships with the law firms with which it contracts will 
substantially change after the promulgation of the interim final rule. 
However, in order to better clarify the scope of the rule, 
Sec. 366.1(c)(1) of the proposed rule was reorganized and revised in 
order to (1) eliminate unnecessary language and simplify the provision, 
(2) clearly set forth that the rule is applicable to law firms, (3) 
clarify the application of the rule to subcontractors of FDIC 
contractors, and (4) at the request of the Board, remove Corporate 
leases of real property from coverage under the rule.
    Section 366.1(c)(2) was not changed.
    Resolution Trust Corporation. Section 366.1(d) was simplified by 
eliminating unnecessary language.
    Previous policies. Section 366.1(e) was eliminated as being 
unnecessary. Effective on April 10, 1996, 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, 
at 58 FR 28866.

Section 366.2  Definitions

    Affiliated business entity. Section 366.2(a), the definition of 
affiliated business entity, was modified at the request of OGE. The 
Office of Government Ethics believed that the discretionary aspect of 
the definition set forth in the proposed rule was too subjective and 
that FDIC concerns as to whether various types of relationships 
constitute affiliations are adequately addressed through the use of the 
defined term control in the affiliated business entity definition. 
Under the definition of control, the FDIC is able to determine that an 
entity is an affiliated business entity when such entity has the 
ability to exercise a controlling influence over a company's management 
and policies. Additionally, OGE suggested the deletion of the statement 
concerning when a subfranchiser would not be considered to be an 
affiliated business entity of its master franchiser on the basis that 
the remaining definition adequately addresses that issue.
    Company. The definition of company, as set forth in Sec. 366.2(b) 
of the proposed rule, was modified through the elimination of the term 
individual from such definition. The Office of Government Ethics 
disagreed with the proposed inclusion of the term individual since such 
term was not consistent with the remaining business enterprises listed 
under the definition and was contrary to the common meaning of such 
term. In making such change, it was determined to be unnecessary to 
separately define the term individual since its meaning is commonly 
understood. Revision of the definition of company also necessitated 
revision of the definitions of contractor, management official, and  
person.
    Contractor. The definition of contractor was changed due to the 
impact of changes to other definitions. In Sec. 366.2(e) of the 
proposed rule, a two-part definition was provided. Section 366.2(e)(1) 
provided that a contractor was a company which had submitted an offer 
to, or had a contractual arrangement with, the FDIC to perform 
services. Since the definition of company has been modified to exclude 
the term individual, the proposed rule was further modified by 
replacing the term company with person at Sec. 366.2(d) of the interim 
final rule in order to include individuals in the coverage of the 
definition of contractor. The second part of the definition of 
contractor, found at Sec. 366.2(e)(2) of the proposed rule, involved 
subcontracting relationships. Section 366.2(o) of the interim final 
rule provides a separate definition of the term subcontractor.
    Management official. The definition of the term management 
official, as set forth in Sec. 366.2(m) of the proposed rule, was 
modified at OGE's request to provide greater guidance in the use of 
such term. In the proposed rule, management official was defined to 
mean an individual who controls a company. In Sec. 366.2(i) of the 
interim final rule, management official is more specifically defined as 
a shareholder, employee, or partner who controls a company and any 
individual who directs the day-to-day operations of a company. For 
partnerships, all general partners are considered management officials, 
except when a partnership has a management or executive committee, in 
which case the members of such committees are considered management 
officials.
    Person. The definition of person, found at Sec. 366.2(q) of the 
proposed rule, was changed to be more compatible with its common 
meaning. One of the law firm commenters objected to the scope of the 
information that was required to be submitted by law firm employees 
under Sec. 366.6(a) of the proposed rule due to the mistaken belief 
that a more common definition of the word person was applicable. Since 
the definition set forth in the proposed rule is inconsistent with the 
common meaning of person and would likely cause confusion among 
contractors and those FDIC employees charged with enforcement of the 
rule, its definition was changed in the interim final rule to include 
an individual or company. Such change satisfied similar concerns which 
had been raised by OGE.
    Confidential information. The definition of confidential 
information, found at Sec. 366.2(c) of the proposed rule, was moved to 
Sec. 366.8(c) in the interim final rule and simplified by eliminating 
unnecessary language.
    Conflict of interest. The definition of conflict of interest, found 
at Sec. 366.2(d) of the proposed rule, was changed at the request of 
OGE and one of the corporate commenters in order to provide a more 
narrow definition and eliminate redundant language.
    Section 366.2(d)(1) of the proposed rule had two subparts. The 
first subpart, concerning actual adverse impact on a contractor's 
ability to impartially provide services, was determined to be 

[[Page 9592]]
included within the second subpart, which set forth that a conflict of 
interest would exist where a reasonable individual with knowledge of 
the relevant facts would question the contractor's ability to 
impartially provide services to the FDIC. Therefore, the first subpart 
was eliminated in the interim final rule and, with language changes to 
accommodate changes made to other definitions, the second subpart was 
rewritten to simplify the standard.
    Sections 366.2(d)(2) and (4) of the proposed rule were combined in 
Sec. 366.2(c)(4) of the interim final rule and their breadth reduced. 
Under the revised provision, the FDIC is able to determine that facts 
exist which would provide a contractor with an unfair competitive 
advantage which could benefit the contractor or any person with whom 
the contractor has or is likely to have a personal or business 
relationship. Such situations are likely to arise in situations where 
(1) a contractor or a person associated with the contractor intends to 
purchase assets held by the FDIC which were managed by the contractor; 
(2) information could be obtained by a contractor through the 
performance of an FDIC contract which would not be available to other 
bidders to a subsequent contract and which information could provide 
the contractor or a person associated with the contractor with an 
unfair competitive advantage in the preparation of its bid; and (3) 
confidential information could be obtained through the performance of 
an FDIC contract which would provide the contractor, or a person 
associated with the contractor, with information which could be 
utilized to obtain an advantage in the purchase of the securities of an 
insured depository institution. Such situations are not exclusive. OGE 
believed that the unintended advantage standard set forth in the 
original provision was vague and contractors would be unable to provide 
the requisite certifications for such standard. Additionally, the 
discretionary standard set forth in Sec. 366.2(d)(4) of the proposed 
rule was more narrowly tailored, yet, for the most part, is retained in 
Sec. 366.2(c)(4) of the interim final rule and allows the FDIC to 
review the myriad of possible factual scenarios to determine if 
performance under an FDIC contract has created a situation which would 
reduce competition in the marketplace.
    Section 366.2(d)(3) of the proposed rule, which specifically 
provides that a conflict of interest exists where a contractor is an 
adverse party to the FDIC in a lawsuit, was retained in 
Sec. 366.2(c)(2) of the interim final rule and the $50,000 threshold 
was removed. OGE questioned the need for such provision since such 
provision is a subset of the general standard set forth in 
Sec. 366.2(c)(1) of the interim final rule. However, the FDIC has 
experienced situations in which contractors have certified that they 
have no conflicts of interest under current FDIC policies while being 
an adversary to the FDIC in a lawsuit. The rationale most often 
provided by contractors to justify their contention that there was no 
conflict was that the litigation involved matters or insured depository 
institutions which were unrelated to the contracts under consideration. 
In order to avoid such problem, the provision has been retained in the 
interim final rule.
    Section 366.2(c)(3) of the interim final rule was added at the 
request of the Board in order to clearly state that a conflict of 
interest exists where a contractor has been suspended or debarred from 
contracting with other Federal entities. In planning the merger of the 
RTC into the FDIC, it was determined that it was appropriate for the 
FDIC to adopt a debarment program similar to that established by the 
RTC. To aid in properly administering such program, it was important 
that consideration of such program be included in the interim final 
rule.
    Control. Section 366.2(f)(1) of the proposed rule was not changed 
in the interim final rule, but was renumbered as Sec. 366.2(e). The 
Office of Government Ethics believed that Sec. 366.2(f)(2) of the 
proposed rule was redundant and requested that it be deleted. In 
response, the FDIC has dropped that proposed paragraph from this 
interim final rule.
    Default on a material obligation. At the suggestion of OGE, 
Sec. 366.2(g) of the proposed rule was modified in Sec. 366.2(f) of the 
interim final rule by clarifying FDIC's intent that if a qualifying 
default had ever occurred, it would be covered and by specifying that 
the determination of whether the $50,000 threshold amount had been met 
to qualify a default as a default on a material obligation would be 
considered beginning on the 90th day after delinquency and thereafter.
    One of the law firm commenters requested that the $50,000 threshold 
amount be raised due to possible punitive effects of the rule on honest 
and hard working persons who could be precluded from providing services 
to the FDIC as contractors due to circumstances beyond their control. 
The Board does not agree with the commenter's contention. The FDIC, in 
its ``Statement of Policy on Contracting with Outside Firms'', which 
was published in the Federal Register on May 17, 1993 (58 FR 28866), 
utilized a similar $50,000 threshold amount and did not experience a 
lack of contractors willing to perform services for the FDIC. 
Additionally, the scope of the definition is limited to defaults on 
loans or advances from insured depository institutions, the 
institutions for which the FDIC has responsibility for providing 
deposit insurance and resolution in the event of a failure, and it 
would be inappropriate for the FDIC to contract with entities that have 
significantly contributed to losses incurred by such institutions.
    Federal banking agency. The definition of Federal banking agency 
found at Sec. 366.2(h) of the proposed rule was deleted. Other changes 
to the rule made the definition unnecessary.
    The definition of Federal deposit insurance fund, found at 
Sec. 366.2(i) of the proposed rule, was combined with the definition of 
substantial loss to Federal deposit insurance funds, found at 
Sec. 366.2(t) of the proposed rule, and the revised rule set forth as 
the definition of substantial loss to Federal deposit insurance funds, 
found at Sec. 366.2(o) of the interim final rule.
    The definition of FDIC found at Sec. 366.2(j) of the proposed rule 
was modified to include the statutory citations for the authority of 
the Corporation to act as conservator and operator of a bridge bank. 
The revised definition is found at Sec. 366.2(g) of the interim final 
rule.
    The definition of insider found at Sec. 366.2(k) of the proposed 
rule was deleted. Other changes to the rule made the definition 
unnecessary.
    The definition of insured depository institution found at 
Sec. 366.2(l) of the proposed rule was not changed (see Sec. 366.2(h) 
of the interim final rule).
    The definition of management official found at 366.2(m) of the 
proposed rule was not changed (see 366.2(i) of the interim final rule).
    The first sentence in the definition of offer, found at 
Sec. 366.2(n) of the proposed rule, was simplified and an accommodation 
made for the removal of the definition of offeror. In the proposed 
version, an offer was defined to be a response submitted by an offeror 
to an FDIC solicitation. In the interim final rule, an offer is defined 
to be a proposal to provide services to the FDIC.
    The definition of offeror found at Sec. 366.2(o) of the proposed 
rule was deleted due to changes in the rule which made the use of such 
term unnecessary.
    The definition of pattern or practice of defalcation found in 
Sec. 366.2(p) of the proposed rule was not changed but the defined term 
was changed to pattern or practice of defalcation regarding 

[[Page 9593]]
obligations to better track the statutory language. See Sec. 366.2 (k).
    The definition of RTC found in Sec. 366.2(r) of the proposed rule 
was not changed (see Sec. 366.2(m)).
    The definition of solicitation found at Sec. 366.2(s) of the 
proposed rule was deleted due to changes in the rule which made the use 
of such term unnecessary.
    The definition of subcontractor found at Sec. 366.2(n) of the 
interim final rule was added to accommodate the suggestion of one of 
the commenters for greater clarity in the application of the rule to 
subcontractors.
    The definition of substantial loss to Federal deposit insurance 
funds found at 366.2(t) of the proposed rule was changed to delete 
366.2(t)(3), concerning nonrecourse loans made to insiders from an 
insured depository institution. Persons causing a loss due to such 
loans will otherwise be barred under the remaining definitions of 
substantial loss to Federal deposit insurance funds and the other 
disqualifying conditions found at 366.4(a) of the interim final rule. 
The revised definition is found at 366.2(o) of the interim final rule.

Section 366.3  Qualification of Contractors

    Since publication of the proposed rule, the FDIC has designated the 
FDIC Executive Secretary as the appropriate official to handle the 
matters which had been designated for the Contractor Fitness and 
Integrity Compliance Officer as referenced in Sec. 366.3(a)(2) of the 
proposed rule. Additionally, the provisions relating to the officials 
responsible for administration of the rule were simplified and provided 
with their own distinct section. In Sec. 366.3 of the interim final 
rule, entitled appropriate officials, the General Counsel and Executive 
Secretary, or their designees, are assigned responsibility for the 
administration of the rule with regard to law firms and other 
contractors, respectively. Section 366.3(b) of the proposed rule was 
moved to 366.4 of the interim final rule.

Section 366.4  Disqualification of Contractors

    At the request of OGE, Sec. 366.3(b) of the proposed rule, entitled 
Qualification for service on behalf of the FDIC, was moved to 
Sec. 366.4(a) of the interim final rule and Sec. 366.3(b)(5) was 
incorporated in Sec. 366.5 of the interim final rule. Section 366.4 was 
simplified by incorporating only the mandatory prohibitions on the use 
of contractors which were imposed on the FDIC by Section 19(a) of the 
Completion Act, 12 U.S.C. 1822(f)(4)(E). OGE believed separating the 
mandatory provisions from the conflict of interest provisions would 
decrease the possibility of confusion about the variant authority 
pursuant to which the respective provisions were being promulgated and 
the degree of discretion the FDIC may have with respect to issues 
arising under the respective authorities. By distinguishing between the 
mandatory prohibitions imposed by the Completion Act and conflicts of 
interest generally, the certifications required to be made under 
Sec. 366.6(a) of the interim final rule are more easily identified by 
contractors thereby simplifying the certification process. The 
separation of the mandatory bars from the conflict of interest 
provisions facilitates differentiation between those provisions 
requiring OGE concurrence and those not requiring such concurrence.
    Section 366.4(a) and (b) of the proposed rule were consolidated and 
simplified in Sec. 366.4(b) of the interim final rule. The terms 
offeror, person, and company were eliminated and replaced with the term 
contractor and unnecessary language was eliminated. Additionally, in 
order to avoid the significant administrative and contractual burdens 
which would be imposed by awarding a contract to a disqualified 
contractor, the 10 day requirement for reporting undisclosed 
disqualifying conditions was refined to be the earlier of 10 days after 
discovery or prior to award.
    Section 366.4(c) of the proposed rule was simplified in of the 
interim final rule. Additionally, Secs. 366.4(c)(2) and (3) of the 
interim final rule were moved from Sec. 366.8 of the proposed rule in 
order to provide greater clarity in the application of the provision. 
The moved provisions, as revised, provide the FDIC with the option to 
require that corrective action be taken by the contractor, to 
immediately terminate any contracts with the contractor in default and 
order a transfer of duties, or to declare any contracts with such 
contractor in default and temporarily waive such default in order to 
protect the FDIC's interests in the orderly transition of matters to a 
new contractor.
    Section 366.4(d) of the proposed rule was revised to provide for 
the possibility of a secondary review process apart from the 
appropriate official who originally rendered such decision. The 
secondary review would be based upon written application made to the 
Chairman of the FDIC, or the Chairman's designee.

Section 366.5  Contractor Conflicts of Interest and Ethical 
Responsibilities

    One of the law firm commenters was concerned that the example set 
forth in Sec. 366.5(a)(1) of the proposed rule could be construed as 
suggesting that an insider of an insured depository institution for 
which the FDIC or RTC has been appointed receiver would not have a 
conflict of interest with respect to a contract which involves services 
to an unrelated institution. The issue of whether a conflict of 
interest exists due to a person's former association with a failed 
institution would have to be determined on a case-by-case basis after 
review of the relationship of such person to the failed institution. 
However, in order to avoid inappropriate application of the standard, 
the examples were removed from the rule.
    At the request of OGE, the first sentence in Sec. 366.5(a) of the 
proposed rule was removed since it stated a matter which added no 
substance to the rule. The remainder of the provision was restated more 
succinctly and, as discussed above, the examples removed from the text. 
The rule, as restated, provides that the FDIC will not award contracts 
to contractors that have conflicts of interest associated with a 
particular contract or permit contractors to continue performance under 
existing contracts when such contractors have conflicts of interest, 
unless such conflicts are eliminated by the contractor or are waived by 
the appropriate FDIC official.
    At the request of OGE, the standard of review for waiver requests 
as provided in Sec. 366.5(b) and (c) of the proposed rule was 
consolidated in Sec. 366.5(b) of the interim final rule and revised to 
clearly state that waivers will only be granted when the interests of 
the FDIC in the contractor's participation outweigh the concern that a 
reasonable person may question the integrity of the FDIC's operations. 
The standard set forth in the proposed rule provided that a waiver 
would be granted pursuant to the discretion of the appropriate 
official. The Office of Government Ethics stated that, in the interests 
of fairness to contractors, a discernable standard of review should be 
provided in the rule to be applied to all waiver requests.
    The Office of Government Ethics also requested that Sec. 366.5(b) 
and (c) of the proposed rule, which provided separate procedures for 
pre- and post-offer requests for review of conflicts, be consolidated 
into one time-frame. Section 366.5(c) of the interim final rule 
provides the consolidated provision.

[[Page 9594]]

    The Office of Government Ethics requested that the separate 
treatment of contractors for legal services versus other services as 
provided in proposed Sec. 366.5(b), (c), and (d) be explained in the 
preamble and consolidated in the text of the rule through the use of 
one paragraph covering pre-bid requests for review of conflicts of 
interest for contractors other than law firms and sole practitioner 
lawyers. The interim final rule, in Sec. 366.5(c)(3), provides that 
requests for pre-bid review of conflicts for contractors other than law 
firms and sole practitioner attorneys will only be considered if the 
participation of the contractor in the bidding process is necessary to 
provide adequate competition. It is the FDIC's preference to do 
business only with contractors which do not have conflicts of interest. 
However, it is recognized that there may be situations in which there 
are few qualified contractors and the participation of contractors 
which have conflicts is important to encourage competition.
    With regard to the different treatment accorded law firms and sole 
practitioner lawyers in the conflict review process, the regulation 
recognizes the additional responsibilities that are placed on law firms 
and sole practitioner lawyers providing services to the FDIC and also 
observes the separate contracting processes that exist in the Legal 
Division for the selection and retention of contractors.
    Specifically, in addition to the conflicts of interest requirements 
imposed by this regulation, law firms and sole practitioner lawyers who 
are providing services to the FDIC are required to follow applicable 
provisions of their State Code of Professional Responsibility, the 
Model Rules of Professional Conduct and additional requirements set 
forth in the FDIC Legal Division's Guide for Outside Counsel and its 
Statement of Policies Concerning Outside Counsel Conflicts of Interest. 
Law firms and sole practitioner lawyers are also subject to a separate 
contracting process due to the close fiduciary relationship that a law 
firm or sole practitioner lawyer has when representing the FDIC. Law 
firms and sole practitioner lawyers are required to submit to the Legal 
Division an application to provide services which requires disclosure 
of any conflicts of interest existing under the broader requirements 
imposed upon lawyers. If the information submitted does not indicate 
the existence of any conditions that would bar retention, the law firm 
or sole practitioner lawyer is added to a list of available counsel. 
The list of available counsel provides the primary source for 
identifying lawyers available for engagement on specific legal matters 
and, if so identified, additional disclosure and review are required 
concerning case-specific qualification criteria. Counsel are also 
required to enter into a Legal Services Agreement with the Legal 
Division which governs all engagements with the FDIC. The selection and 
retention process for law firms and sole practitioner lawyers is 
substantially different from the process utilized for other 
contractors, which typically includes the development of a procurement 
requisition, the preparation and issuance of a request for proposals, 
and the subsequent evaluation of bids or proposals received. The 
establishment of a separate procedure under Sec. 366.5 for resolution 
or waiver of conflicts of interest for law firms and sole practitioner 
lawyers is an acknowledgement of relevant differences in type of 
services and the differing relationship that lawyers have with the FDIC 
as their client.
    Proposed Sec. 366.5(d) was also revised in the interim final rule 
to include the remedies available to the FDIC in the event a conflict 
of interest is discovered after contract award as was provided in 
proposed Sec. 366.8(a).
    Section 366.5(e) of the proposed rule was revised to provide for 
the possibility of a secondary review process apart from the 
appropriate official who originally rendered such decision. The 
secondary review would be based upon written application made to the 
Chairman of the FDIC, or the Chairman's designee. It also provides the 
FDIC with the discretion to stay corrective or other actions ordered by 
the appropriate official pending reconsideration of the decision.

Section 366.6  Information Required to be Submitted

    At the request of OGE, in order to provide greater specificity to 
contractors with respect to the scope of required certifications, 
proposed Sec. 366.6(a) was modified to specifically identify the 
Representations and Certifications Form to be submitted by all 
contractors with every offer. Also, the provision was altered to assure 
that FDIC would obtain the information the FDIC deems appropriate to 
make a determination with respect to disqualifying conditions and 
conflicts of interest. Additionally, the information to be included in 
the Representations and Certifications Form was tailored in 
Sec. 366.6(a)(1) to accommodate the changes in the structure of 
Secs. 366.4 and 366.5 of the interim final rule and reduced, at the 
request of one of the Corporate and law firm commenters to include only 
the contractor; proposed Sec. 366.6(a)(2) was reworked to accommodate 
the changes to the definitions and the required certifications reduced 
to include only the contractor or any company under the contractor's 
control; to accommodate the reductions in the certifications required 
under Sec. 366.6(a)(1) and (2) of the proposed rule while not imposing 
a significant paperwork collection on the contractor and the FDIC, 
Sec. 366.6(a)(3) in the interim final rule was added which requires 
that the contractor provide an agreement that it will not allow any 
employee, agent, or subcontractor to work on an FDIC contract unless it 
has first verified that such employee, agent, or subcontractor is not 
subject to disqualifying conditions or otherwise has a conflict of 
interest; and proposed Sec. 366.6(a)(3) was moved to Sec. 366.6(a)(4) 
of the interim final rule and the scope of the other information which 
can be requested narrowed to be dependent on the contract under 
consideration.
    One of the law firm commenters stated that the FDIC had acted 
outside the scope of its authority in imposing the requirement in 
proposed Sec. 366.6(a)(2) that a contractor provide a list and 
description of any defaults to insured depository institutions for the 
10-year period preceding the submission of an offer. The Board 
disagrees with the commenter's contention. The Completion Act, at 12 
U.S.C. 1822(f)(4)(C), requires the FDIC to obtain a list and 
description of any default to an insured depository institution for the 
5-year period preceding the submission of an offer to the FDIC and any 
other information as the Board may prescribe by regulation. The Board 
determined that since the Completion Act provisions were extracted from 
FIRREA, which was promulgated in 1989, it was important that the FDIC 
be informed as to whether a contractor or any company under the 
contractor's control defaulted on a material obligation for the 10 year 
period preceding the offer.
    A law firm commenter expressed concern that the information 
disclosure requirements contained in Sec. 366.6(a) of the proposed rule 
might conflict with California state laws involving privacy rights. 
However, the Completion Act, at 12 U.S.C. 1822(f)(4)(D), requires 
certain information be collected by the contractor for persons to be 
employed by a contractor to perform services under an FDIC contract.
    One of the law firm commenters objected to the scope of the 
disclosures to be made and was concerned that outside contractors of 
law firms would be required to make significant 

[[Page 9595]]
disclosures to the law firm in order for the law firm to continue to 
use such entities and enter into contracts with the FDIC. Additionally, 
both of the corporate commenter's objected to the scope of the 
certifications to be obtained under the proposed rule as applied to 
large diversified corporations and their employees since certifications 
would need to be obtained from all affiliated business entities and the 
employees of the contractor. Consideration to the commenters' concerns 
was given in the revision of Sec. 366.6 of the proposed rule. In 
Sec. 366.6(a) of the interim final rule, certifications regarding 
disqualifying factors and conflicts of interest must be provided for 
the contractor; a list of defaults must be provided for the contractor 
and any company under the contractor's control; and the contractor must 
agree that it will not allow any employee, agent, or subcontractor to 
perform services under the FDIC contract unless it verifies that such 
employee, agent, or subcontractor does not have a disqualifying 
condition or a conflict of interest and has not defaulted on a material 
obligation. The scope of the required certifications and disclosures 
was thus limited to those entities which would be directly involved in 
the performance of the FDIC contract or which are under the 
contractor's control.
    Section 366.6(b)(1) of the proposed rule was revised to reduce the 
reporting and review burden placed upon contractors and the FDIC. In 
the proposed rule, a contractor was required to obtain and submit 
certifications for all employees who were to provide services on any 
FDIC contract. Additionally, in Sec. 366.6(b)(2), the FDIC could 
request the submission of such information at any time. In 
Sec. 366.6(b) of the interim final rule, a contractor is required to 
obtain verification of the lack of disqualifying conditions and 
conflicts of interest for employees who will provide services on an 
FDIC contract and to provide the FDIC with immediate notification if 
the certifications provided in Sec. 366.6(a) were incorrect at the time 
of submission or subsequently became incorrect.
    At the request of OGE, Sec. 366.6(c) of the proposed rule was 
simplified in the interim final rule and provides that a contractor 
which fails to provide information may be determined by the FDIC to be 
ineligible for the award of an FDIC contract or in default under an 
existing contract with the FDIC.
    The Board was concerned that the reduction in the disclosures 
required to be submitted under the rule might provide an opportunity 
for abuse by contractors. In order to aid the FDIC in obtaining 
compliance with the rule, the proposed rule was modified through the 
addition of Sec. 366.6(d) which requires contractors to retain the 
records relied upon in making the requisite disclosures for three years 
after the expiration or termination of the relevant contract and to 
make such information available to the FDIC upon request.
    The Board was also concerned unforeseeable circumstances might 
require immediate contracting in order to protect the assets or 
interests of the FDIC. In order to provide reasonable protection and 
allow the FDIC to act promptly in order to protect its interests, 
Sec. 366.6(e) was added which provides that, in the event of an 
emergency, the FDIC may authorize delayed compliance with the rule. 
Delayed compliance is allowed only when it is necessary to protect FDIC 
personnel or property.
    To clarify that, on a contract-by-contract basis, the FDIC may add 
additional contractual conditions or limitations on a contractor, 
Sec. 366.6(f) was added. Part 366 establishes the minimum standards as 
required by the Completion Act and additional standards may be required 
as the FDIC deems appropriate.

Section 366.7  Minimum Ethical Standards for Independent Contractors

    Section 366.7 was added to the interim final rule to comply with 
the portion of the Completion Act that requires the FDIC to establish 
minimum ethical standards for contractors. Section 366.7(a) provides 
that a contractor shall not improperly solicit favors, gifts, or other 
items of monetary value; improperly use FDIC property; use its status 
as an FDIC contractor for its benefit except as contemplated by the 
contract; or make unauthorized promises or commitments on behalf of the 
FDIC.
    Section 366.7(b) and (c) identify potentially applicable criminal 
provisions to contractors that solicit or accept bribes or make false 
statements to the Government.
    The penalties for violating the provisions of Sec. 366.7 are 
provided in Sec. 366.7(d).

Section 366.8  Confidentiality of Information

    Section 366.7 of the proposed rule was modified at Sec. 366.8 of 
the interim final rule. Section 366.8(a) was added to provide a general 
duty to be adhered to by contractors in protection of confidential 
information.
    Section 366.8(b) sets forth the penalties for the failure to 
properly protect confidential information as required under 
Sec. 366.8(a).
    Section 366.8(c) defines confidential information as information 
obtained from the FDIC or a third party in connection with an FDIC 
contract but does not include information generally available to the 
public provided such information was not made publicly available by the 
contractor without appropriate authorization.

Section 366.9  Liability for Rescission or Termination

    Section 366.8(a) of the proposed rule set forth that the FDIC could 
rescind or terminate a contract with a contractor who violated the 
requirements of part 366. The termination provision has been set forth 
in each appropriate section of the interim final rule.
    Section 366.8(b) of the proposed rule was revised to accommodate 
the revised structure of the interim final rule and is now set forth in 
Sec. 366.9.

Section 366.10  Finality of Determination

    Section 366.9 of the proposed rule is now set forth at Sec. 366.10 
of the interim final rule.

IV. Matters of Regulatory Procedure

Regulatory Flexibility Act

    The Board of Directors has concluded that the interim final rule 
will not impose a significant economic hardship on small institutions. 
Therefore, the Board of Directors hereby certifies pursuant to section 
605 of the Regulatory Flexibility Act (5 U.S.C. 605) that the interim 
final rule will not have a significant economic impact on a substantial 
number of small business entities within the meaning of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.).

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.). The collection pursuant to the proposed 
rule was reviewed and approved by the Office of Management and Budget 
(OMB) under control number 3064-0072. Any changes made to the 
Representations and Certifications forms resulting from the 
promulgation of this interim final rule will be submitted to OMB for 
review and approval pursuant to the Paperwork Reduction Act.

List of Subjects in 12 CFR Part 366

    Conflict of interests, Government contracts, Reporting and 
recordkeeping requirements.


[[Page 9596]]

    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, with the 
concurrence of OGE, amends title 12, Chapter III of the Code of Federal 
Regulations by adding part 366 to read as follows:

PART 366--CONTRACTOR CONFLICTS OF INTEREST

Sec.
366.1  Authority, purpose, and scope.
366.2  Definitions.
366.3  Appropriate officials.
366.4  Disqualification of contractors.
366.5  Contractor conflicts of interest.
366.6  Information required to be submitted.
366.7  Minimum ethical standards for independent contractors.
366.8  Confidentiality of information.
366.9  Liability for rescission or termination.
366.10  Finality of determination.

    Authority: 12 U.S.C. 1819, 1822(f)(3) and (4).


Sec. 366.1  Authority, purpose, and scope.

    (a) Authority. This part is adopted pursuant to section 12(f)(3) 
and (4) of the Federal Deposit Insurance Act, 12 U.S.C. 1822(f)(3) and 
(4), and the rule-making authority of the Federal Deposit Insurance 
Corporation (FDIC) found at 12 U.S.C. 1819. Pursuant to those sections 
and consistent with the goals and purposes of titles 18 and 41 of the 
U.S. Code, the FDIC is promulgating regulations in this part applicable 
to independent contractors governing conflicts of interest, ethical 
responsibilities, and the use of confidential information. The 
regulations in this part also establish procedures for ensuring that 
independent contractors meet minimum standards of competence, 
experience, integrity, and fitness. The FDIC will apply this part to 
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 is in addition to, 
and not in lieu of, any other statute or regulation which may apply to 
such contractual activities. This part does not apply to the FDIC when 
acting as a conservator of a failed financial institution or when 
operating a bridge bank.
    (b) Purpose. Consistent with the goals and purposes of titles 18 
and 41 of the U.S. Code, this part seeks to establish:
    (1) Minimum standards which govern conflicts of interest, ethical 
responsibilities, and the use of confidential information by 
contractors;
    (2) Procedures to ensure that independent contractors meet minimum 
standards of competence, experience, integrity, and fitness; and
    (3) Official written guidance to contracting personnel who award 
contracts for services and to contractors who bid on such contracts.
    (c) Scope. (1) (i) This part applies to:
    (A) Contractors, including law firms and other independent 
contractors, that are not deemed, under 12 U.S.C. 1822(f)(1)(B), to be 
employees of the FDIC, which submit offers to provide services to the 
FDIC or which enter into contracts for services with the FDIC; and
    (B) Subcontractors which enter into contracts to perform services 
under a proposed or existing contract with the FDIC.
    (ii) Contractors that are deemed under 12 U.S.C. 1822(f)(1)(B) to 
be employees of the Corporation are subject, in addition to this part, 
to Title 18 of the United States Code; the Standards of Ethical Conduct 
for Employees of the Executive Branch (5 CFR part 2635); the 
Supplemental Standards of Ethical Conduct for Employees of the Federal 
Deposit Insurance Corporation (5 CFR part 3201); the Executive Branch 
Financial Disclosure, Qualified Trusts, and Certificates of Divestiture 
regulations (5 CFR part 2634); and the Supplemental Financial 
Disclosure Requirements for Employees of the Federal Deposit Insurance 
Corporation (5 CFR part 3202).
    (2) For all contractors subject to this part, the FDIC will apply 
this part to contracts which are entered into between the contractors 
and the FDIC on or after April 10, 1996. In addition, this part applies 
to contracts between contractors subject to this part and the FDIC 
which exist on April 10, 1996 for which a contractual action, such as a 
modification, extension, or exercise of an option, takes place on or 
after April 10, 1996.
    (d) Resolution Trust Corporation transition. This part shall apply 
to all RTC contractors that provide services to the FDIC after the 
RTC's termination which occurred, by statute, December 31, 1995.


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.
    (b) Company means any corporation, firm, partnership, society, 
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, or any 
other organization or institution, 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) Conflict of interest means a situation in which:
    (1) A contractor; any management officials or affiliated business 
entities of a contractor; or any employees, agents, or subcontractors 
of a contractor who will perform services under a proposed or existing 
contract with the FDIC, has one or more personal, business, or 
financial interests or relationships which would cause a reasonable 
individual with knowledge of the relevant facts to question the 
integrity or impartiality of those who are or will be acting under a 
proposed or existing FDIC contract; or
    (2) A contractor; any management officials or affiliated business 
entities of a contractor; or any employees, agents, or subcontractors 
of a contractor who will perform services under a proposed or existing 
contract with the FDIC, is an adverse party to the FDIC, RTC, FSLIC, or 
their successors in a lawsuit; or
    (3) A contractor; any management officials or affiliated business 
entities of a contractor; or any employees, agents, or subcontractors 
of a contractor who will perform services under a proposed or existing 
contract with the FDIC, has ever been suspended, excluded, or debarred 
from contracting with a Federal entity or has ever had a contract with 
the FDIC, RTC, FSLIC or their successors rescinded or terminated prior 
to the contract's completion and which rescission or termination 
involved issues of conflicts of interest or ethical responsibilities; 
or
    (4) Any other facts exist which the FDIC, in its sole discretion, 
determines may, through performance of a proposed or existing FDIC 
contract, provide a contractor with an unfair competitive advantage 
which favors the interests of the contractor or any person with whom 
the contractor has or is likely to have a personal or business 
relationship.
    (d) Contractor means a person which has submitted an offer to 
perform services for the FDIC or has a contractual arrangement with the 
FDIC to perform services.
    (e) Control means 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 

[[Page 9597]]
of this definition, a general partner of a limited partnership is 
presumed to be in control of that partnership.
    (f) Default on a material obligation means a loan or advance from 
an insured depository institution which has ever been delinquent for 90 
or more days as to payment of principal or interest, or a combination 
thereof, with a remaining balance of principal and accrued interest on 
the ninetieth day, or any time thereafter, in an amount in excess of 
$50,000.
    (g) 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 it is operating a bridge bank as 
defined, respectively, in 12 U.S.C. 1821(c) and (n).
    (h) Insured depository institution means any bank or savings 
association the deposits of which are insured by the FDIC.
    (i) Management official means any shareholder, employee or partner 
who controls a company and any individual who directs the day-to-day 
operations of a company. With respect to a partnership whose management 
committee or executive committee has responsibility for the day-to-day 
operations of the partnership, management official means only a member 
of such committee but, if no such committee exists, management official 
means each of the general partners.
    (j) Offer means a proposal to provide services to the FDIC. For law 
firms or sole practitioner lawyers, ``offer'' also means the 
application submitted by the law firm to the FDIC.
    (k) Pattern or practice of defalcation regarding obligations means 
two or more instances in which:
    (1) A loan or advance from an insured depository institution is in 
default 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.
    (l) Person means an individual or company.
    (m) RTC means the former Resolution Trust Corporation in any of its 
capacities.
    (n) Subcontractor means a person that enters into a contract with 
an FDIC contractor to perform services under a proposed or existing 
contract with the FDIC.
    (o) Substantial loss to Federal deposit insurance funds means:
    (1) A loan or advance from an insured depository institution, which 
is currently owed to the FDIC, RTC, FSLIC or their successors, or the 
Bank Insurance Fund (BIF), the Savings Association Insurance Fund 
(SAIF), the FRF, or funds maintained by the RTC for the benefit of 
insured depositors, that is or has ever 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;
    (2) An obligation to pay an outstanding, unsatisfied, final 
judgment in excess of $50,000 in favor of the FDIC, RTC, FSLIC, or 
their successors, or the BIF, the SAIF, the FRF or the funds maintained 
by the RTC for the benefit of insured depositors; or
    (3) A loan or advance from an insured depository institution which 
is currently owed to the FDIC, RTC, FSLIC or their successors, or the 
BIF, the SAIF, the FRF or the funds maintained by the RTC for the 
benefit of insured depositors, 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  Appropriate officials.

    (a) The General Counsel of the FDIC, or the designee of the General 
Counsel, shall administer the provisions of this part with respect to 
contracts involving the provision of services by law firms or sole 
practitioner lawyers.
    (b) The FDIC Executive Secretary, or the designee of the Executive 
Secretary, shall administer the provisions of this part with respect to 
all other contracts.


Sec. 366.4  Disqualification of contractors.

    (a) Disqualifying conditions. No person shall perform services 
under an FDIC contract and no contractor shall enter into any contract 
with the FDIC if that person or contractor:
    (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 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;
    (3) Has demonstrated a pattern or practice of defalcation regarding 
obligations; or
    (4) Has caused a substantial loss to Federal deposit insurance 
funds.
    (b) Contractors with disqualifying conditions arising prior to 
contract award. (1) A contractor which has any of the disqualifying 
conditions identified in paragraph (a) of this section prior to the 
award of an FDIC contract is disqualified and is prohibited from 
entering into contracts with the FDIC.
    (2) If after submitting an offer but prior to award, a contractor 
discovers that it has any of the disqualifying conditions identified in 
paragraph (a) of this section, it shall notify the FDIC in writing 
within 10 days or prior to award, whichever is earlier.
    (c) Disqualifying conditions that arise or are discovered after 
contract award. A contractor must notify the FDIC in writing within 10 
days after discovering that it or any person performing services under 
an FDIC contract has any of the disqualifying conditions identified in 
paragraph (a) of this section. Such notification shall contain a 
detailed description of the disqualifying condition and may include a 
statement of how the contractor intends to resolve such condition. The 
FDIC, after receipt of such notification or other discovery of the 
contractor's disqualifying condition, shall take such action as it 
determines is in the FDIC's best interests, including that:
    (1) The FDIC may notify the contractor in writing of the corrective 
actions, if any, which the contractor must take to eliminate the 
disqualifying condition. Corrective actions must be completed by the 
contractor not later than 30 days after notification is mailed by the 
FDIC unless the FDIC, at its sole discretion, determines that it will 
be in the best interests of the FDIC to grant the contractor an 
extension of time in which to complete such corrective action;
    (2) The FDIC may immediately declare any contracts with such 
contractor in default, terminate the contracts, and order an immediate 
transfer of duties and responsibilities under the contracts; or
    (3) The FDIC may declare any contracts with such contractor in 
default and temporarily waive such default in order to allow an orderly 
transfer of duties and responsibilities under the contracts.
    (d) Reconsideration of decisions. Decisions issued by the FDIC may 
be reconsidered upon application by an affected party to the Chairman 
or the Chairman's designee. Such requests 

[[Page 9598]]
shall be in writing and contain the bases for the request. The FDIC, at 
its discretion and after determining that it is in its best interests, 
may stay any corrective or other actions ordered by it pending 
reconsideration of a decision.


Sec. 366.5  Contractor conflicts of interest.

    (a) General. The FDIC will not award contracts to contractors that 
have conflicts of interest associated with a particular contract or 
permit contractors to continue performance under existing contracts 
when such contractors have conflicts of interest, unless such conflicts 
are eliminated by the contractor or are waived by the appropriate FDIC 
official.
    (b) Waivers. Waivers of conflicts of interest will only be granted 
when, in light of all relevant circumstances, the interests of the FDIC 
in the contractor's participation outweigh the concern that a 
reasonable person may question the integrity of the FDIC's operations.
    (c) Conflicts of interest arising prior to contract award (1) 
Requests for review of conflicts of interest. (i) A contractor, with 
its offer, may request a determination as to the existence of a 
conflict of interest, may request that the conflict of interest, if 
any, be waived in accordance with paragraph (b) of this section, or may 
propose how the contractor could eliminate the conflict.
    (ii) If after submitting an offer, but prior to award, a contractor 
discovers that it has a conflict, it shall notify the FDIC in writing 
within 10 days or prior to award, whichever is earlier. The contractor, 
with its notice, may make such requests or proposals regarding the 
conflict or potential conflict as are described in paragraph (c)(1)(i) 
of this section.
    (2) Review by the FDIC. (i) Subject to the restrictions set forth 
in paragraphs (c)(2)(ii) and (c)(3) of this section, the appropriate 
FDIC official, at his or her sole discretion, may determine whether a 
conflict of interest exists, may waive the conflict of interest in 
accordance with paragraph (b) of this section, or may approve in 
writing a contractor's proposal to eliminate a conflict of interest.
    (ii) For contractors other than law firms and sole practitioner 
lawyers, the FDIC may consider a contractor's conflict or potential 
conflict of interest only if the FDIC first determines that the 
contractor's offer is the most advantageous of all received.
    (3) Pre-bid requests and pre-bid review for contractors other than 
law firms and sole practitioner lawyers. A request for pre-bid review 
must be in writing and describe in detail the conflict or potential 
conflict of interest. The request may provide a proposal for 
elimination of the conflict or request a waiver of the conflict. The 
FDIC may perform a pre-bid review of conflicts of interest only if it 
first determines, at its sole discretion, that the participation of the 
contractor in the bidding process is necessary to provide adequate 
competition.
    (d) Conflicts of interest that arise or are discovered after 
contract award. A contractor shall notify the FDIC in writing within 10 
days after discovering that it has a conflict of interest. Such 
notification shall contain a detailed description of the conflict of 
interest and state how the contractor intends to eliminate the 
conflict. The FDIC, after receipt of such notification or other 
discovery of the contractor's conflict or potential conflict of 
interest, shall take such action as it determines is in the FDIC's best 
interests, including that:
    (1) The FDIC may notify the contractor in writing of its finding as 
to whether a conflict of interest exists and the basis for such 
determination; whether or not a waiver will be granted; or whether 
corrective actions may be taken in order to eliminate the conflict of 
interest. Corrective actions must be completed by the contractor not 
later than 30 days after notification is mailed by the FDIC unless the 
FDIC, at its sole discretion, determines that it is in the best 
interests of the FDIC to grant the contractor an extension in which to 
complete such corrective action;
    (2) The FDIC may immediately declare any affected contracts with 
such contractor in default, terminate the contracts, and order an 
immediate transfer of duties and responsibilities under such contracts; 
or
    (3) The FDIC may declare any affected contract with such contractor 
in default and temporarily waive such default in order to allow an 
orderly transfer of duties and responsibilities under such contract.
    (e) Reconsideration of decisions. Decisions issued pursuant to this 
part may be reconsidered by the Chairman or the Chairman's designee 
upon application by the contractor. Such requests shall be in writing 
and shall contain the bases for the request. The FDIC, at its 
discretion and after determining that it is in its best interests, may 
stay any corrective or other actions ordered by the FDIC pending 
reconsideration of a decision.


Sec. 366.6  Information required to be submitted.

    (a) Initial submission. Every offer submitted to the FDIC by any 
contractor shall include a completed Representations and Certifications 
Form and such other information as the FDIC may deem appropriate to 
permit it to make a determination with respect to disqualifying 
conditions or conflicts of interest. The Representations and 
Certifications Form shall require that the contractor provide the 
following:
    (1) Certifications that, to the best of the contractor's knowledge, 
the contractor is not disqualified from service on behalf of the FDIC 
because of the existence of any of the conditions identified in 
Sec. 366.4(a), or conflicts of interest as defined in Sec. 366.2(c)(1) 
through (3), subject to the contractor's request for waiver of a 
conflict of interest or proposal for elimination 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 contractor or 
any company under the contractor's control defaulted on a material 
obligation to any insured depository institution;
    (3) The contractor's agreement that it will not allow any employee, 
agent, or subcontractor to perform services under the proposed contract 
with the FDIC unless the contractor first verifies with each such 
employee, agent, or subcontractor that, to the best of such person's 
knowledge, such person:
    (i) Is not disqualified from performing services under the FDIC 
contract because of the existence of any of the conditions identified 
in Sec. 366.4(a);
    (ii) Has no conflicts of interest as defined in Sec. 366.2(c)(1) 
through (3), subject to a request by the contractor for a conflict of 
interest waiver or proposal for the elimination of a conflict of 
interest as set forth in Sec. 366.5; and
    (iii) Has not, during the ten (10) years preceding the submission 
of the offer, defaulted on a material obligation to any insured 
depository institution; and
    (4) Any other information which the FDIC may deem appropriate, the 
scope of which will be dependent on the particular contract under 
consideration.
    (b) Subsequent submissions. During the term of the contract, the 
contractor shall:
    (1) Verify the information described in paragraph (a)(3) of this 
section for any employee, agent, or subcontractor who will perform 
services under the contract for whom such information has not been 
previously verified, prior to such employee, agent, or subcontractor 
performing services under the contract; and
    (2) Immediately notify the FDIC if any of the information submitted 
pursuant to paragraph (a) of this section was incorrect at time of 
submission or has subsequently become incorrect. 

[[Page 9599]]

    (c) Failure to provide information. A contractor that fails to 
provide any required information or misstates a material fact may be 
determined by the FDIC to be ineligible for the award of the FDIC 
contract for which such information is required or to be in default 
with respect to any existing contract for which such information is 
required.
    (d) Retention of information. A contractor shall retain the 
information upon which it relied in preparing its certification(s) 
during the term of the contract and for a period of three (3) years 
following the termination or expiration of the contract and shall make 
such information available for review by the FDIC upon request.
    (e) Delayed compliance in emergencies. In emergencies, when 
unforeseeable circumstances make it necessary to contract immediately 
in order to protect FDIC personnel or property, the FDIC may authorize 
delayed compliance with this part.
    (f) Additional contractual requirements. In addition to the 
provisions of this part, the FDIC may include in its contract 
provisions, conditions and limitations, including additional standards 
for contractor fitness and integrity.


Sec. 366.7  Minimum ethical standards for independent contractors.

    (a) In connection with the performance of any contract and during 
the term of such contract, a contractor, shall not:
    (1) Accept or solicit for itself or others favors, gifts, or other 
items of monetary value from any person the contractor knows is seeking 
official action from the FDIC in connection with the contract or has 
interests which may be substantially affected by the contractor's 
performance or nonperformance of duties to the FDIC;
    (2) Use improperly or allow the improper use of FDIC property, or 
property over which the contractor has supervision or charge by reason 
of the contract;
    (3) Use its status as an FDIC contractor for its personal, 
financial or business benefit or for the benefit of a third party, 
except as contemplated by the contract;
    (4) Make any promise or commitment on behalf of the FDIC not 
authorized by the FDIC.
    (b) Pursuant to 18 U.S.C. 201, whoever acts for or on behalf of the 
FDIC is deemed to be a public official and public officials are 
prohibited from soliciting or accepting anything of value in return for 
being influenced in the performance of official actions. Violators are 
subject to criminal sanctions under Title 18 of the United States Code.
    (c) Pursuant to 18 U.S.C. 1001, whoever knowingly and willingly 
falsifies a material fact, makes a false statement, or utilizes a false 
writing in connection with an FDIC contract is subject to criminal 
sanctions under Title 18 of the United States Code.
    (d) A contractor that violates the provisions of this section may 
be determined by the FDIC to be ineligible for the award of an FDIC 
contract and the FDIC may determine that such contractor is in default 
under any existing FDIC contract.


Sec. 366.8  Confidentiality of information.

    (a) A contractor has a duty to protect confidential information and 
shall not use or allow the use of confidential information to further a 
private interest other than as contemplated by the contract.
    (b) If a contractor fails to comply with the provisions of this 
section, the FDIC may:
    (1) Declare the contractor ineligible for the award of any FDIC 
contract not yet awarded; or
    (2) Declare the contractor in default under any existing contract 
with the FDIC.
    (c) As used in this section, ``confidential information'' means 
information that a contractor obtains from the FDIC or a third party in 
connection with an FDIC contract but does not include information 
generally available to the public unless the information becomes 
available to the public as a result of unauthorized disclosure by the 
contractor.


Sec. 366.9  Liability for rescission or termination.

    The FDIC may seek its actual, direct, and consequential damages 
from a contractor whose disqualifying conditions, conflicts of 
interest, failure to comply with information submission or 
confidentiality requirements, or failure to comply with the minimum 
ethical standards for independent contractors 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. 366.10  Finality of determination.

    Any determination made by the FDIC pursuant to this part is 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 6th day of February 1996.

Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
    Concurred in this 27th day of February 1996.
Stephen D. Potts,
Director, Office of Government Ethics.
[FR Doc. 96-5254 Filed 3-8-96; 8:45 am]
BILLING CODE 6714-01-P