Defense Contracting: Additional Personal Conflict of Interest	 
Safeguards Needed for Certain DOD Contractor Employees		 
(07-MAR-08, GAO-08-169).					 
                                                                 
Many defense contractor employees work side-by-side with federal 
employees in Department of Defense (DOD) facilities performing	 
substantially the same tasks affecting billions in DOD spending. 
Given concerns with protecting the integrity of DOD operations,  
GAO was asked to assess (1) how many contractor employees work in
DOD offices and what type of mission-critical contracted services
they perform, (2) what safeguards there are to prevent personal  
conflicts of interest for contractor employees when performing	 
DOD's tasks, and (3) whether government and defense contractor	 
officials believe additional safeguards are necessary. GAO	 
reviewed conflicts of interest laws and policies and interviewed 
ethics officials and senior leaders regarding applicability to	 
DOD federal and contractor employees. GAO judgmentally selected  
and interviewed officials at 21 DOD offices with large contractor
workforces, and 23 of their contractors.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-169 					        
    ACCNO:   A81265						        
  TITLE:     Defense Contracting: Additional Personal Conflict of     
Interest Safeguards Needed for Certain DOD Contractor Employees  
     DATE:   03/07/2008 
  SUBJECT:   Conflict of interests				 
	     Contract administration				 
	     Contract costs					 
	     Contract oversight 				 
	     Contractors					 
	     Defense cost control				 
	     Department of Defense contractors			 
	     Federal employees					 
	     Program management 				 
	     Reporting requirements				 
	     Risk assessment					 
	     Risk management					 
	     Source selection					 

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GAO-08-169

   

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Report to the Committee on Armed Services, U. S. Senate: 

United States Government Accountability Office: 
GAO: 

March 2008: 

Defense Contracting: 

Additional Personal Conflict of Interest Safeguards Needed for Certain 
DOD Contractor Employees: 

GAO-08-169: 

GAO Highlights: 

Highlights of GAO-08-169, a report to the Committee on Armed Services, 
U.S. Senate. 

Why GAO Did This Study: 

Many defense contractor employees work side-by-side with federal 
employees in Department of Defense (DOD) facilities performing 
substantially the same tasks affecting billions in DOD spending. Given 
concerns with protecting the integrity of DOD operations, GAO was asked 
to assess (1) how many contractor employees work in DOD offices and 
what type of mission-critical contracted services they perform, (2) 
what safeguards there are to prevent personal conflicts of interest for 
contractor employees when performing DODï¿½s tasks, and (3) whether 
government and defense contractor officials believe additional 
safeguards are necessary. 

GAO reviewed conflicts of interest laws and policies and interviewed 
ethics officials and senior leaders regarding applicability to DOD 
federal and contractor employees. GAO judgmentally selected and 
interviewed officials at 21 DOD offices with large contractor 
workforces, and 23 of their contractors. 

What GAO Found: 

Indications are that significant numbers of defense contractor 
employees work alongside DOD employees in the 21 DOD offices GAO 
reviewed. At 15 offices, contractor employees outnumbered DOD employees 
and comprised up to 88 percent of the workforce. Contractor employees 
perform key tasks, including developing contract requirements and 
advising on award fees for other contractors. 

In contrast to federal employees, few government ethics laws and DOD-
wide policies are in place to prevent personal conflicts of interest 
for defense contractor employees. Several laws and regulations address 
personal conflicts of interest, but just one applies to both federal 
and contractor employees. 

Selected Laws and Regulations That Address Personal Conflicts of 
Interest: 

Prohibition, restriction, or requirement: Bribery, kickback, other 
graft; Applicable to federal employees? Yes; Applicable to DOD 
contractor employees? Yes. 

Prohibition, restriction, or requirement: Participating in matter 
affecting personal financial interest; Applicable to federal employees? 
Yes; Applicable to DOD contractor employees? No[A]. 

Prohibition, restriction, or requirement: Avoiding appearance of 
partiality when performing duties; Applicable to federal employees? 
Yes; Applicable to DOD contractor employees? No[A]. 

Prohibition, restriction, or requirement: Disclosing financial 
interests; Applicable to federal employees? Yes; Applicable to DOD 
contractor employees? No[A]. 

Prohibition, restriction, or requirement: Accepting travel and gifts; 
Applicable to federal employees? Yes; Applicable to DOD contractor 
employees? No[A]. 

Prohibition, restriction, or requirement: Using nonpublic information 
for personal gain; Applicable to federal employees? Yes; Applicable to 
DOD contractor employees? No[A]. 

Prohibition, restriction, or requirement: Future employment contact; 
Applicable to federal employees? Yes; Applicable to DOD contractor 
employees? No[A]. 

Prohibition, restriction, or requirement: Misusing position to provide 
preferential treatment to a private interest; Applicable to federal 
employees? Yes; Applicable to DOD contractor employees? No[A]. 

Source: GAO analysis of selected laws and regulations. 

[A] There may be other laws and regulations that may apply to DOD 
contractor employees depending on the facts and circumstances of a 
particular case. 

[End of table] 

Some DOD offices and defense contractor companies are voluntarily 
adopting safeguards. For example, realizing the risk from personal 
conflicts of interest for particularly sensitive areas, the 19 DOD 
offices GAO reviewed that used contractor employees in the source 
selection process all use safeguards such as contract clauses that 
prohibit contractor employeesï¿½ participation in a DOD procurement 
affecting a personal financial interest. In certain other tasks, only 3 
of the 23 defense contractors GAO reviewed had safeguards requiring 
employees to identify potential conflicts of interest so they can be 
mitigated. 

In general, government officials believed that current requirements are 
inadequate to prevent conflicts from arising for certain contractor 
employees influencing DOD decisions, especially financial conflicts of 
interest and impaired impartiality. Some program managers and defense 
contractor officials expressed concern that adding new safeguards will 
increase costs. But ethics officials and senior leaders countered that, 
given the risk associated with personal conflicts of interest and the 
expanding roles that contractor employees play, such safeguards are 
necessary. 

What GAO Recommends: 

GAO recommends that DOD develop personal conflict of interest 
safeguards for contractor employees similar to those required of DODï¿½s 
federal employees, which may require defense contractors to screen 
financial disclosures from certain employees. DOD commented it has 
established a contracting integrity subcommittee to review the 
recommendations. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-169]. For more information, contact 
Cristina T. Chaplain at (202) 512-4841 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Contractor Employees Outnumber DOD Employees at Many Offices That GAO 
Reviewed: 

Few Laws or DOD-Wide Policies Address Personal Conflicts of Interests 
among Contractor Employees: 

Range of Views Indicate Additional Conflict of Interest Safeguards Are 
Necessary for Contractor Employees: 

Conclusions: 

Recommendations: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: Comments from the Office of Government Ethics: 

Appendix IV: Contractor Employees Are Key in DOD Offices GAO Reviewed: 

Appendix V: Contract Clauses Used by DOD Organizations to Address 
Contractor Employees Personal Conflicts of Interest: 

Tables: 

Table 1: Number and Percent of Defense Contractor versus DOD Employees 
in DOD Offices That GAO Reviewed: 

Table 2: Selected Laws and Regulations That Apply to Personal Conflict 
of Interest Situations: 

Table 3: FAR Procedures Modeled on DFARS Requirements for Contractor 
Ethics Program: 

Table 4: DOD Offices Reviewed That Have Conflict of Interest Safeguards 
for Contractor Employees: 

Table 5: Highlights of Selected Air Force and Army Contract Clauses 
Addressing Personal Conflict of Interest Safeguards: 

Table 6: DOD Offices Selected for GAO's Review: 

Table 7: Information on Contractor Employees and Conflicts of Interest 
Safeguards Obtained from Selected DOD Offices: 

Table 8: Defense Contractors and FFRDCs Selected for GAO's Review: 

Table 9: Information on Contractor Employees and Conflicts of Interest 
Safeguards Generally Requested and Obtained from Selected Defense 
Contractors and FFRDCs: 

Table 10: Services and Support Tasks Provided by Contractor Employees 
Closely Supporting Inherently Governmental Functions in DOD 
Organizations Reviewed: 

Table 11: Financial Conflict of Interest Clause Used by the Air Force's 
Electronic Systems Center for Advisory and Assistance Services 
Contracts: 

Table 12: Organizational Conflict of Interest Clause Used by the Army's 
Communications Electronics Lifecycle Management Command for Support 
Services Contracts: 

Abbreviations: 

DFARS: Defense Federal Acquisition Regulation Supplement: 

DOD: Department of Defense: 

DPAP: Defense Procurement and Acquisition Policy: 

FAR: Federal Acquisition Regulation: 

FFRDC: federally funded research and development center: 

GAO: Government Accountability Office: 

OFPP: Office of Federal Procurement Policy: 

OGE: Office of Government Ethics: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

March 7, 2008: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
The Honorable John Warner: 
Committee on Armed Services: 
United States Senate: 

Contractors have long played an integral role in the development of 
equipment and systems that fit the Department of Defense's (DOD) unique 
needs and in the delivery of certain support services, such as building 
maintenance, food service, and information technology services. 
Increasingly, however, contractors are also being hired to perform 
tasks affecting billions of dollars in DOD spending to oversee and 
execute high-risk programs, such as the acquisition of major weapon 
systems, and to assist in some of DOD's most sensitive and restricted 
operations. In DOD facilities, certain contractor employees work side- 
by-side with federal employees on substantially the same mission- 
critical tasks. 

Given concerns with protecting the integrity of DOD's operations and 
federal spending, you asked us to review existing safeguards intended 
to prevent contractor employees from having personal conflicts of 
interest when performing tasks for DOD. In response, because DOD does 
not maintain departmentwide data on the numbers of contractor employees 
working side-by-side with federal employees, this report assesses (1) 
the roles being played by certain contractor employees by identifying 
how many of them are working at the DOD offices we reviewed as well as 
what responsibilities they have. This report also assesses (2) what 
safeguards there are to prevent conflict of interests for contractor 
employees and (3) whether government and defense contractor officials 
believe additional safeguards are necessary. 

To address our objectives, we reviewed the conflicts of interest and 
ethics laws and regulations applicable to DOD government employees and 
defense contractor employees and DOD and federal policies on 
contracting. To assess the mission-critical roles being played by 
certain employees across a representative cross-section of DOD, we 
obtained information from five major organizations judgmentally 
selected for having large DOD contractor workforces: Air Force, Army, 
Navy, Missile Defense Agency, Tricare Management Activity, and DOD 
organizational sponsors for four federally funded research and 
development centers (FFRDC), which are nonprofit organizations 
established under long-term contracts with the federal government to 
meet some special long-term research or development need. To describe 
the types of mission-critical services that certain defense contractor 
employees are providing to those five DOD organizations, we 
judgmentally selected 21 DOD offices for review which were identified 
by DOD officials as having large contractor workforce and representing 
a cross-section of DOD organizations.[Footnote 1] We obtained 
information from these offices to document how many DOD and contractor 
employees worked there and the types of mission-critical contracted 
services performed by contractor employees and interviewed program 
managers, ethics and contracting officials about personal conflict of 
interest safeguards. We obtained information about ethics programs from 
23 contractor and 4 FFRDC organizations judgmentally selected because 
their employees are performing contracted services at the 21 DOD 
offices we reviewed. We also interviewed officials from those 
contractor and FFRDC organizations to obtain information on conflict of 
interest safeguards and met with the Office of Government Ethics (OGE) 
to obtain views and information about conflict of interest safeguards 
appropriate for contractor employees. We conducted this performance 
audit from November 2006 through March 2008 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient and 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. Appendix I provides additional details 
of our scope and methodology. 

This report focuses specifically on individual, or personal, conflicts 
of interest among DOD contractor employees as opposed to organizational 
conflicts of interest. For this report, we defined a "personal conflict 
of interest" as a situation where an individual is employed by an FFRDC 
or a defense contractor company and is in a position to materially 
influence DOD's recommendations and/or decisions and, because of his/ 
her personal activities, relationships, or financial interests, may 
lack or appear to lack objectivity or appear to be unduly influenced by 
personal financial interest. By contrast, an organizational conflict of 
interest occurs when a defense contractor has present or currently 
planned interests that either directly or indirectly (including 
business or relationships with other contractors) relate to the work to 
be performed under a DOD contract and (1) may diminish its capacity to 
give impartial, technically sound, objective assistance or advice, or 
(2) may result in it having an unfair competitive advantage. 

Results in Brief: 

Indications are that a significant number of defense contractor 
employees are working side-by-side with government employees in DOD. 
DOD has not compiled departmentwide data. However, at 15 of the 21 
offices we reviewed, contractor employees outnumbered DOD employees and 
comprised as much as 88 percent of the workforce. At the other offices, 
contractors comprised between 19 and 46 percent of the workforce. 
Contractor employees are responsible for carrying out a range of tasks, 
including studying alternative ways to acquire desired capabilities, 
developing contract requirements, and advising or assisting on source 
selection, budget planning, and award-fee determinations. 

Defense contractor employees are not subject to the same laws and 
regulations that are designed to prevent personal conflicts of 
interests among federal employees. While the Department of Defense FAR 
Supplement (DFARS) and the Federal Acquisition Regulation (FAR) require 
that the companies that provide contractor employees to DOD have 
written ethics policies, no departmentwide or FAR policy obliges DOD 
offices using contractor employees to require that they be free from 
personal conflicts of interest. There are some safeguards being adopted 
voluntarily at the program office level, however. For example, 
realizing the risk from personal conflicts of interest for particularly 
sensitive areas, 19 offices we reviewed that used contractor employees 
in the source selection process all use safeguards such as contract 
clauses to prevent personal conflicts of interest. In addition, most of 
the contractor firms have policies requiring their employees to avoid a 
range of potential interests--such as owning stock in competitors--that 
conflict with the firms' interests. However, only three of those 
contractors' policies directly require their employees to disclose 
potential personal conflicts of interest with respect to their work at 
DOD so they can be screened and mitigated by the firms. 

In discussions with program managers on whether safeguards are needed, 
many agreed, citing this was the reason why they put in safeguards at 
their offices for the contractor employees involved in the source 
selection process and sometimes for contractor employees involved in 
other advisory and assistance tasks. In addition, DOD oversight 
officials as well as OGE officials believed that current requirements 
are inadequate to prevent certain conflicts from arising, especially 
financial conflicts of interest, impaired impartiality, and misuse of 
information and authority. These concerns have grown as contractor 
employees have more influence on government operations and spending 
decisions. An expert panel charged with examining ways to improve 
acquisitions in government recently expressed similar concerns. At the 
same time, however, a number of program managers and defense contractor 
company officials expressed concern that adding safeguards will 
increase costs and may be unnecessary since government officials--not 
contractor employees--are the ones ultimately making the decisions. But 
ethics officials, senior leaders, and panel experts countered that, 
given the risk associated with personal conflicts of interest and the 
expanding role that contractor employees play, such safeguards are 
necessary. 

Given the magnitude of DOD's contractor employee use, our analyses of 
the range of key roles that contractor employees have across DOD, and 
the need to ensure the integrity of federal spending, we believe that 
DOD needs departmentwide personal conflict of interest safeguards for 
certain contractor employees who are providing the type of services 
affecting governmental decisions, similar to those required of DOD's 
federal employees. As such, this report makes recommendations to DOD to 
strengthen its personal conflict of interest policies for such 
contractor employees. 

We provided a draft of this report to DOD and OGE for comment. In its 
written comments, DOD partially concurred with the recommendations, 
stating it agreed with their intent and has tasked a contracting 
integrity subcommittee to carefully review each recommendation. In its 
written comments, OGE offered information that should help DOD as it 
begins its efforts to address how best to implement our 
recommendations. See appendixes II and III for DOD's and OGE's comments 
in their entirety. 

Background: 

DOD hires contractors to provide a wide range of services that may 
include basic services (custodial and landscaping); administrative 
types of services (travel and management support); and complex 
professional and management (i.e., advisory and assistance) services 
that closely support inherently governmental functions, decisions, and 
spending, (acquisition support, budget preparation, developing or 
interpreting regulations, engineering and technical services, and 
policy development).[Footnote 2] Contractor employees often work inside 
DOD facilities, alongside DOD employees, to provide these services. 

DOD's increased spending on services in recent years indicates there 
are a large number of contractor employees working side-by-side with 
federal employees. In fiscal year 2006, DOD obligated more than $151 
billion on services contracts, a 78 percent real increase since fiscal 
year 1996. Overall, according to DOD, the amount obligated on services 
contracts in fiscal year 2005 exceeded the amount the department spent 
on supplies and equipment, including major weapon systems. Some 
categories of spending on services have grown significantly in recent 
years. For example, obligations for professional, management, and 
administrative support has grown about 161 percent from 1996 to 2005; 
obligations for medical services grew by more than 400 percent during 
the same time period. 

Several reasons are behind DOD's increased reliance on contractors for 
services. In addition to the belief that it is more cost-effective to 
hire contractor employees instead of government employees, reasons 
include the need for skills and expertise not currently found in DOD; 
the flexibility and the relative ease in obtaining necessary support 
from contractor employees instead of hiring more government employees; 
and ceilings on the authorized number of government employees. 

Contractor Employees Outnumber DOD Employees at Many Offices That GAO 
Reviewed: 

DOD has not compiled departmentwide data on the numbers of contractor 
employees working at its facilities. Indications are, however, that 
significant numbers of contractor employees are working side-by-side 
with government employees in certain segments of the department, based 
in part on information we obtained from 21 DOD offices we reviewed. As 
shown in table 1, at 15 of these offices, contractor employees 
outnumber DOD employees and the percentage of contractor employees in 
the remaining offices ranges from 19 to 46 percent. 

Table 1: Number and Percent of Defense Contractor versus DOD Employees 
in DOD Offices That GAO Reviewed: 

Army: Army Materiel Command (Communications Electronics Command): 
Acquisition Business Process Systems, Enhancements and Industrial 
Analyses Sector; 
DOD employees: 12; 
Defense contractor employees: 14; 
Total number of personnel: 26; 
Percent comprising contractor employees: 54%. 

Army: Army Materiel Command (Communications Electronics Command): 
Logistics and Readiness Center; 
DOD employees: 41; 
Defense contractor employees: 35; 
Total number of personnel: 76; 
Percent comprising contractor employees: 46%. 

Army: Army Materiel Command (Communications Electronics Command): 
Project Management Office, Tactical Radio Communications Systems; 
DOD employees: Army: 101; 
Defense contractor employees: 345; 
Total number of personnel: 446; 
Percent comprising contractor employees: 77%. 

Army: Office of the Deputy Under Secretary of the Army for Business 
Transformation: HR (Human Resources) Solutions Program Office; 
DOD employees: 3; 
Defense contractor employees: 15; 
Total number of personnel: 18; 
Percent comprising contractor employees: 83%. 

Army: Army Contracting Agency; DOD employees: Contracting Center of 
Excellence; 
DOD employees: 106; 
Defense contractor employees: 25; 
Total number of personnel: 131; 
Percent comprising contractor employees: 19%. 

Air Force: Air Force Space Command: Deterrence and Strike Division 
(A5MF); 
DOD employees: 14; 
Defense contractor employees: 24; 
Total number of personnel: 38; 
Percent comprising contractor employees: 63%. 

Air Force: Air Force Space Command: Surveillance, Reconnaissance and 
Spacelift Division (A5F); 
DOD employees: Army: 21; 
Defense contractor employees: 39; 
Total number of personnel: 60; 
Percent comprising contractor employees: 65%. 

Air Force: Air Force Materiel Command: Aeronautical Systems Center 
(303rd Air Wing); 
DOD employees: 500; 
Defense contractor employees: 400; 
Total number of personnel: 900; 
Percent comprising contractor employees: 44%. 

Air Force: Air Force Materiel Command: Aeronautical Systems Center 
(516th Air Wing); 
DOD employees: 332; 
Defense contractor employees: 202; 
Total number of personnel: 534; 
Percent comprising contractor employees: 38%. 

Air Force: Air Force Materiel Command: Electronic Systems Center; 
DOD employees: 2,891; 
Defense contractor employees: 1,691; 
Total number of personnel: Army: 4,582; 
Percent comprising contractor employees: 37%. 

Navy: Naval Sea Systems Command: Program Executive Office for Aircraft 
Carriers; 
DOD employees: 67; 
Defense contractor employees: 102; 
Total number of personnel: 169; 
Percent comprising contractor employees: 60%. 

Navy: Naval Sea Systems Command: Program Executive Office for 
Integrated Warfare Systems; 
DOD employees: Army: 36; 
Defense contractor employees: 80; 
Total number of personnel: 116; 
Percent comprising contractor employees: 69%. 

Missile Defense Agency: Ground-Based Midcourse Defense Program Office; 
DOD employees: 282; 
Defense contractor employees: 464; 
Total number of personnel: 746; 
Percent comprising contractor employees: 62%. 

Missile Defense Agency: Terminal High Altitude Area Defense Program 
Office; 
DOD employees: 222; 
Defense contractor employees: 191; 
Total number of personnel: 413; 
Percent comprising contractor employees: 46%. 

Missile Defense Agency: Agency Operations Office[A]; 
DOD employees: 200; 
Defense contractor employees: 1,089; 
Total number of personnel: 1,289; 
Percent comprising contractor employees: 84%. 

Missile Defense Agency: Aegis Ballistic Missile Defense Program Office; 
DOD employees: 82; 
Defense contractor employees: 201; 
Total number of personnel: 283; 
Percent comprising contractor employees: 71%. 

Missile Defense Agency: Engineering; 
DOD employees: Army: 41; 
Defense contractor employees: 246; 
Total number of personnel: 287; 
Percent comprising contractor employees: 86%. 

Missile Defense Agency: Sensors; 
DOD employees: 21; 
Defense contractor employees: 90; 
Total number of personnel: 111; 
Percent comprising contractor employees: 81%. 

Tricare Management Activity: Acquisition Management and Support Office; 
DOD employees: 43; 
Defense contractor employees: 57; 
Total number of personnel: 100; 
Percent comprising contractor employees: 57%. 

Tricare Management Activity: Clinical Information Technology Program 
Office; 
DOD employees: 24; 
Defense contractor employees: 112; 
Total number of personnel: 136; 
Percent comprising contractor employees: 82%. 

Tricare Management Activity: Resources Information Technology Program 
Office; 
DOD employees: 14; 
Defense contractor employees: 100; 
Total number of personnel: 114; 
Percent comprising contractor employees: 88%. 

Sources: DOD (data); GAO (analysis and presentation). 

[A] The number of DOD and contractor employees identified represent 
three out of the five directorates that comprise the Agency Operations 
Office. The three directorates include Business Operation; 
Infrastructure and Environment; and Security/Intelligence Operations. 

[End of table] 

For the offices we reviewed, contractors are supporting key mission- 
critical tasks that have the potential to influence DOD decisions. Some 
of these tasks are similar to functions performed by federal employees. 
For example, at the front end of the acquisition process, contractor 
employees who work in various DOD program offices study alternative 
ways to acquire desired capabilities, help develop requirements, and 
help design and evaluate requests for proposals as well as responses to 
those proposals and provide advice on the past performance of external 
contractors competing for that work. In the course of an acquisition, 
contractor employees recommend actions to program offices to correct 
other contractors' performance problems, they analyze other 
contractors' cost, schedule and performance data, and they assist in 
award-fee determinations for other contractors. In addition, contractor 
employees help DOD program offices develop long-range financial plans 
as well as yearly budgets. They also assist in administrative tasks to 
support program offices by tracking travel budgets and researching and 
reconciling payment discrepancies. 

Although we view the types of roles being played by contractor 
employees as closely supporting inherently governmental functions, some 
DOD officials had a different perspective. That is, when discussing 
contractor employees' roles in the decision-making process, program 
managers we spoke with characterize contractor employee involvement as 
"technical" input into the decision-making process versus direct 
involvement in the decisions themselves. It should be noted, the 
Federal Acquisition Regulation (FAR) defines contractor participation 
in the evaluation of contract proposals as one of those functions that 
may approach being in the inherently governmental function 
category.[Footnote 3] 

Appendix IV provides more details on the key services contractor 
employees are performing in the DOD offices we reviewed. 

Few Laws or DOD-Wide Policies Address Personal Conflicts of Interests 
among Contractor Employees: 

Contractor employees are not subject to the same laws and regulations 
that are designed to prevent conflicts of interests among federal 
employees.[Footnote 4] While the DFARS and the FAR require that the 
companies that provide contractor employees to DOD have written ethics 
policies, no departmentwide or FAR policy obliges DOD offices using 
contractor employees to require that they be free from personal 
conflicts of interest. On the other hand, some program managers, 
realizing the risk from potential personal conflicts of interest, have 
established their own safeguards for particularly sensitive areas where 
contractor employees provide support to decision processes. For 
example, all DOD offices we reviewed that used contractor employees in 
the source selection process use additional safeguard controls such as 
contract clauses designed to prevent personal conflicts of interests. 
The same offices, however, assessed risk differently when it came to 
other types of activities that contractors perform--with only 6 of 21 
offices using similar conflict of interest contract clauses for 
activities such as requirements development, cost estimating, and test 
and evaluation. 

Most of the firms we visited have ethics policies that address personal 
conflicts of interests, but only three directly require their employees 
to identify potential personal conflicts of interest with respect to 
their work at DOD so they can be screened and mitigated by the firms. 
Lastly, because of recent public scrutiny regarding a conflict of 
interest issue with a high-level FFRDC official, in January 2007 DOD 
revised its policy for employees of FFRDCs. 

Most Laws and Regulations Designed to Prevent Conflicts for Federal 
Employees Do Not Apply to Contractor Employees: 

Several laws and regulations exist that address situations where 
individuals performing service to the government are, or might appear 
to be, unduly influenced by a personal financial interest. These 
include prohibition on bribery and kickbacks; bans on participating in 
matters affecting personal financial interest; and requirements 
relating to private employment contacts between certain procurement 
officials and potential bidders on government contracts. For federal 
employees, misconduct in some of these areas also violates criminal 
statutes with potentially serious consequences, including dismissal, 
prosecution, fines, and incarceration. As shown in table 2, there are 
very limited prohibitions--relating to public corruption involving 
criminal bribery activity--that apply to both DOD and defense 
contractor employees. 

Table 2: Selected Laws and Regulations That Apply to Personal Conflict 
of Interest Situations: 

Law or regulation[A]: Public corruption; Prohibition on bribery, 
kickback, or other graft (18 U.S.C. ï¿½ 201);
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Check]. 

Law or regulation[A]: Financial conflicts of interest: Prohibition on 
participation in a particular matter affecting personal financial 
interests (18 U.S.C. ï¿½ 208 and 5 C.F.R. ï¿½ 2635, subpart D); 
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Empty]. 

Law or regulation[A]: Financial conflicts of interest: Requirement to 
be and appear to be impartial in performing official duties (5 C.F.R. 
ï¿½ï¿½ 2635.101(b)(8) and 2635.501-503); 
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Empty]. 

Law or regulation[A]: Financial conflicts of interest: Requirements for 
certain federal employees to disclose financial interests (Title I of 
the Ethics in Government Act, 5 U.S.C. app. ï¿½ï¿½ 101-107); 
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Empty]. 

Law or regulation[A]: Financial conflicts of interest: Prohibition on 
using nonpublic information for personal gain and engaging in a 
financial transaction using nonpublic information (5 C.F.R. ï¿½ 
2635.703); 
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Empty]. 

Law or regulation[A]: Seeking other employment conflicts of interest: 
Prohibition on discussing future employment with a prospective bidder 
or competing contractor while participating in the source 
selection/procurement process (41 U.S.C. ï¿½ 423 and FAR 3.104; 18 U.S.C. 
208 and 5 C.F.R. ï¿½ 2635.601-606); 
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Empty]. 

Law or regulation[A]: Gifts and travel: Limitations on accepting gifts, 
including travel, from outside, non-federal sources (5 U.S.C. ï¿½ 7353 
and 5 C.F.R. ï¿½ï¿½ 2635.201 and 2635.202[C]); 
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Empty]. 

Law or regulation[A]: Misuse of position/endorsement: Prohibition on 
misuse of position for private gain (5 C.F.R. ï¿½ï¿½ 2635.101(b)(7) and 
2635.702);
Applies to federal employees: [Check]; 
Applies to defense contractor employees[B]: [Empty]. 

Source: GAO analysis of federal personal conflicts of interest laws and 
regulations. 

[A] This table represents a selection of the federal personal conflict 
of interest laws and regulations that are generally applicable to a 
conflict of interest situation. It should be noted, that there may be 
other laws and regulations that may apply depending on the facts and 
circumstances of a particular situation. 

[B] Includes FFRDC contractor employees. 

[C] The Standards of Ethical Conduct for Executive Branch Employees at 
5 C.F.R. part 2635 provide that an employee may not solicit or accept 
any gift that is given because of the employee's official position or 
that is given by a prohibited source. As defined in the standards of 
conduct, a gift is almost anything of monetary value, such as cash, 
meals, trips, or services. 5 C.F.R. ï¿½ï¿½ 2635.202 and 2635.203(b). 

[End of table] 

The type of public corruption addressed by laws for both federal and 
contractor employees concern bribes, kickbacks, or other forms of 
graft. The anti-bribery law seeks to prevent the type of "quid pro quo" 
where an official action was taken in return for money, favors, travel, 
gifts, or other things of value.[Footnote 5] Examples of this law being 
applied to bribery cases involving contractor employees working on 
government contracting matters are as follows: 

A Navy contractor employee at the Space and Naval Warfare Systems 
Center plead guilty in 2006 to accepting bribes from a freight 
forwarding company. In exchange for awarding freight transportation 
contracts to the company, this contractor employee received items 
valued at more than $10,000, including extravagant dinners, concert and 
NASCAR tickets, weekends at a bed-and-breakfast inn, jewelry, and "spa 
days" at a department store. Investigators discovered that 
coincidentally, the freight company's business was virtually 
nonexistent before this contractor employee began awarding the company 
contracts that eventually totaled over $700,000. The contractor 
employee was sentenced to a year in prison and ordered to help repay 
the government $84,000. 

An Army contractor employee working for the Coalition Provisional 
Authority in Iraq was put in charge of over $82 million in funding for 
an area south of Baghdad. The contractor employee quickly began 
accepting bribes in the form of cash, cars, jewelry, and sexual favors 
provided by a U.S. citizen who owned and operated several companies in 
Iraq and Romania in exchange for steering lucrative contracts in the 
business owner's direction. Investigators recovered incriminating e- 
mail traffic, including one e-mail from the contractor employee to the 
business owner exclaiming, "I love to give you money!" The contractor 
employee plead guilty in 2006 to bribery, conspiracy, and money- 
laundering and was sentenced to 9 years in prison, 3 years of 
supervised release, and ordered to forfeit $3.6 million. 

DOD Lacks a Departmentwide Policy Requiring Safeguards for Personal 
Conflicts of Interest with Contractor Employees: 

DOD lacks a departmentwide policy requiring safeguards against personal 
conflicts of interest for contractor employees. For example, although 
DOD contracting policy in DFARS encourages companies providing 
contractor employees to DOD to have written ethics policies,[Footnote 
6] it fails to require that contractor employees be free from conflicts 
of interest or to deploy other safeguards to help assure that the 
advice and assistance received from contractor employees is not tainted 
by personal conflicts of interest. This policy also fails to address 
procurement integrity-related issues involving contractor employees 
contacting prospective bidders to DOD contracts about future 
employment. 

Since December 2007, the FAR has required certain contractors to set 
and follow written codes of business ethics and conduct.[Footnote 7] 
However as shown in table 3, this new FAR requirement for contractors' 
ethics programs--which were modeled on some of the DFARS requirements-
-will be insufficient in addressing DOD's lack of a departmentwide 
policy requiring safeguards for personal conflicts of interest with 
contractor employees. This is because, like DOD's policy, the new FAR 
requirements also lack specific provisions to prohibit conflicts of 
interest or employ other safeguards to assure that the advice and 
assistance received from contractor employees is not tainted by 
personal conflicts of interest. 

Table 3: FAR Procedures Modeled on DFARS Requirements for Contractor 
Ethics Program: 

1. Written code of business ethics and conduct and an ethics training 
program for all employees. 

2. Periodic reviews of company business practices, procedures, 
policies, and internal controls for compliance with standards of 
conduct and the special requirements of government contracting. 

3. Mechanism, such as a hot line, for employees to report suspected 
instances of improper conduct and instructions that encourage employees 
to make such reports. 

4. Internal and/or external audits. 

5. Disciplinary action for improper conduct. 

Sources: FAR Subpart 3.10 and DFARS ï¿½ 203.7001 (information); GAO 
(analysis and presentation). 

Note: The new FAR procedures (FAR Subpart 3.10) exempt small businesses 
from suggested DFARS contractor ethics program procedures for a formal 
training program and an internal control system. In addition, although 
DFARS procedures for contractor ethics program included (1) timely 
reporting to appropriate government officials of any suspected or 
possible violation of law in connection with government contracts or 
any other irregularities in connection with such contracts and (2) full 
cooperation with any government agencies responsible for either 
investigation of corrective actions, mandatory disclosure and full 
cooperation are now being considered under a separate FAR proposal. 72 
Fed. Reg. 64019-23 (Nov. 14, 2007). 

[End of table] 

Some DOD Offices Have Safeguards Addressing Contractor Employees' 
Conflict of Interest in Particularly Sensitive Areas: 

While DOD does not have a policy regarding contractor employee 
conflicts of interest, many DOD offices believe there is a risk of 
personal conflicts of interest when contractor employees participate in 
source selection activities. All of the 19 DOD offices we reviewed had 
established safeguard procedures such as contract clauses or self- 
certifications to prevent conflict of interests for contractor 
employees for the source selection process, as shown in table 4. By 
contrast, program offices assessed risk differently when it came to 
other types of contractor employees' participation in decision making. 
Only 6 of the 21 offices had personal conflict of interest safeguards, 
such as contract clauses for other types of contractor employee 
services that involve advice and assistance on governmental decisions-
-which, for example, could include services related to requirements 
development, test and evaluation, and cost estimation. 

Table 4: DOD Offices Reviewed That Have Conflict of Interest Safeguards 
for Contractor Employees: 

Army: Army Materiel Command (Communications Electronics Command): 
Acquisition Business Process Systems, Enhancement and Industrial 
Analyses Sector; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Check][A]. 

Army: Army Materiel Command (Communications Electronics Command): 
Logistics and Readiness Center; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Check][A]. 

Army: Army Materiel Command (Communications Electronics Command): 
Project Management Office, Tactical Radio Communications Systems; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Check][A]. 

Army: Office of the Deputy Under Secretary of the Army for Business 
Transformation: HR Solutions Program Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Check]. 

Army: Army Contracting Agency: Contracting Center of Excellence; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Check]. 

Air Force: Air Force Space Command: Deterrence and Strike Division 
(A5MF); 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Air Force: Air Force Space Command: Surveillance, Reconnaissance and 
Spacelift Division (A5F); 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Air Force: Air Force Materiel Command; Aeronautical Systems Center 
(303rd Air Wing); 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Air Force: Air Force Materiel Command; Aeronautical Systems Center 
(516th Air Wing); 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Air Force: Air Force Materiel Command; Electronic Systems Center; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Navy: Naval Sea Systems Command: Program Executive Office for Aircraft 
Carriers; 
Personal conflict of interest safeguards by task category: Source 
selection support: [B]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Navy: Naval Sea Systems Command: Program Executive Office for 
Integrated Warfare Systems; 
Personal conflict of interest safeguards by task category: Source 
selection support: [B]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Missile Defense Agency: Ground-Based Midcourse Defense Program Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [C]. 

Missile Defense Agency: Terminal High Altitude Area Defense Program 
Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [C]. 

Missile Defense Agency: Agency Operations Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [C]. 

Missile Defense Agency: Aegis Ballistic Missile Defense Program Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [C]. 

Missile Defense Agency: Engineering; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [C]. 

Missile Defense Agency: Sensors; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [C]. 

Tricare Management Activity: Acquisition Management and Support Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Tricare Management Activity: Clinical Information Technology Program 
Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Tricare Management Activity: Resources Information Technology Program 
Office; 
Personal conflict of interest safeguards by task category: Source 
selection support: [Check]; 
Personal conflict of interest safeguards by task category: Other 
advisory & assistance services: [Empty]. 

Sources: DOD offices (information); GAO (analysis and presentation). 

[A] Policy revised in August 2007 and, as of September 2007, has yet to 
be used in any solicitation. 

[B] Command policy is to not use contractor employees to support source 
selection tasks. However in excepted cases where contractor employees 
are being used, Naval Sea Systems Command requires each individual to 
sign agreement to not disclose procurement-related information. 

[C] In a number of situations involving other advisory and assistance 
services support, Missile Defense Agency policy may require each 
individual to sign an agreement to not disclose any government 
information and also to refrain from activities that would create an 
actual or apparent conflict of interest during the course of their work 
on a task and to promptly notify their employer and the contract 
officer representative should this agreement be violated. For example, 
under this policy, contractor employees involved in acquisition 
planning or who have access to procurement sensitive, proprietary, or 
source selection information may be required to sign the agreement. In 
addition, the agency requires all contractor employees supporting 
budget planning to individually sign a non-disclosure agreement that 
forbids them from divulging budget data to outside parties. 

[End of table] 

The Air Force's Electronic Systems Center uses a contract clause as a 
safeguard to prevent conflicts of interest for contractors involved in 
source selection and other activities critical to mission-support and 
government decision making.[Footnote 8] According to an Air Force 
contracting official, this contract clause, highlighted in greater 
detail in table 5, affects 38 prime contractor companies, with an 
estimated value of $280,000,000 in task orders in 2007. An Air Force 
official told us that this clause has been used for at least 10 years 
in recognition of the close relationship between decision makers and 
federal employee advisors--who are both required to identify and avoid 
financial conflicts--and contractor employees directly advising them in 
these roles. Thus, the clause provides a mechanism to address potential 
and actual contractor financial conflicts that could affect the 
integrity of the procurement system. 

Also, the Army's Communications Electronics Lifecycle Management 
Command developed a personal conflict of interest policy and 
contractual procedural safeguards for its contractor employees after 
our June 2007 visit to three of its offices where Army officials told 
us they had not previously considered the need to do so.[Footnote 9] 
According to a policy alert sent out in August 2007 to the command's 
contracting activities, an underlying principle behind the policy is 
preventing the existence of conflicting roles that might bias a 
contractor employee's judgment. According to the new policy, conflicts 
of interest are more likely to occur in support services contracts, 
such as management support; consultants; preparing statements of work; 
and performance of technical evaluations. Table 5 also highlights the 
command's new safeguards in greater detail. 

Table 5: Highlights of Selected Air Force and Army Contract Clauses 
Addressing Personal Conflict of Interest Safeguards: 

DOD offices using contract clauses: Air Force Electronic Systems 
Center; 
Highlights of contract clauses: Defines financial interest as any 
interest in, or affiliation with, a prime contractor, a subcontractor 
to a prime contractor, any offeror, or any prospective subcontractor to 
any offeror for the program, contract, or other matter for which the 
employee is performing the support task under a contract. According to 
an Air Force program official, the financial conflict of interest 
contract clause has been included in all advisory and assistance 
services contracts for at least 10 years. The clause does the 
following: 
* Prohibits the prime contractor from assigning or allowing one of 
their employees or subcontractors to perform any task under the 
contract if that employee or employee's spouse, minor child, or 
household member has a financial interest that poses a conflict; 
* Directs the prime contractor to obtain and maintain a financial 
disclosure statement from each employee assigned to perform support 
tasks for the government when an employee is initially assigned to a 
support task under the contract and to update the disclosure statement 
at least on an annual basis; 
* Directs the prime contractor, upon written request by the government 
contracting officer, and at no increase in contract price, to make 
financial disclosure statement available to the government for 
inspection and review; 
* Directs the prime contractor to obtain a written waiver from the 
government contracting officer if the prime contractor wishes to assign 
an employee to perform a task for which the employee has a financial 
interest and conflict exists. 

DOD offices using contract clauses: Army Communications Electronics 
Lifecycle Management Command; 
Highlights of contract clauses: Defines financial interest as 
compensation for employment in the form of wages, salaries, 
commissions, professional fees, or fees for business referrals, or any 
financial investments in another contractor in the form of direct 
stocks or bond ownership, or partnership interest (excluding non-
directed retirement or other mutual fund investments). The clause 
establishes the following requirements: 
* At the government contracting officer's discretion, contractor 
employees are required to sign a "Contractor-Employee Personal 
Financial Interest/Protection of Sensitive Information" agreement with 
the command regarding personal financial interest; 
* In this agreement, the contractor employee certifies that they have a 
continuing obligation to inform their employer if their assigned duties 
could affect the interests of a company or business entity in which the 
employee, or spouse, minor children, or immediate family member has a 
personal financial interest and thus could result in a conflict of 
interest; 
* The contractor employees are required to be trained and informed of 
this contract provision. 

Sources: Air Force and Army (information); GAO (analysis and 
presentation). 

[End of table] 

Appendix V includes the full text of both contract clauses. 

We obtained information from one defense contractor about how this 
company--a large business--has implemented the clause required under 
the company's subcontract with an Electronic Systems Center prime 
contractor. According to the contractor's senior vice president, the 
company developed policy and procedure for annual financial conflict of 
interest employee certifications. According to the senior vice 
president, this conflict of interest safeguard applies to every 
employee working on this subcontract. The company's safeguard is 
similar to the financial disclosure process used for DOD employees 
covered by federal conflict of interest safeguards. For example, the 
company's instructions to employees state that the annual financial 
disclosure and certification process is done to assure that each 
employee is "free from any actual, potential, or apparent financial 
conflicts of interest with work he or she may perform on this 
[sub]contract." 

In 2006, a conflict of interest for one of this company's employees was 
disclosed on the annual certification. According to the company's 
senior vice president, after the employee disclosed that his wife had 
taken a job with one of the center's prime contractors, the company 
removed him from performing service under the subcontract. That was 
because the company's annual review revealed not only that the employee 
might have a financial conflict of interest that could not reasonably 
be mitigated with the subcontracted work he was performing at the 
Electronic Systems Center,[Footnote 10] but he had not complied with 
the company's ongoing requirement for employees to avoid prohibited 
financial interests and to immediately notify the company when 
financial interests change from what was certified in an employee's 
last disclosure. 

Firms Policies and Practices Vary: 

We analyzed the ethics program documents available for 22 of the 23 
contractors we reviewed and found that 18 have written policies and 
procedures that address avoidance of personal conflicts of interest by 
their employees.[Footnote 11] However, the policies require their 
employees to avoid a range of interests--such as owning substantial 
stock in competitors or suppliers--that conflict with the firms' 
interests. Except in three cases, the policies did not require written 
disclosure forms identifying potential conflicts of interest with the 
employees' work at DOD. 

More specifically, our review of the documents showed that: 

* policies for 4 of the contractor firms did not address avoidance of 
personal conflicts of interests at all; 

* policies for 18 of the firms did address avoidance of personal 
conflicts of interest, but just 3 specifically required written 
disclosures identifying potential conflicts of interest with respect to 
their work for customers, including DOD, so they can be screened and 
mitigated by the firms; and: 

* 16 of the firms extended their conflicts policies to the employees' 
family members. 

Our analysis of contractors' ethics documents found variation in how 
the contractors' policy and procedural safeguards address how 
employees' financial interests that could conflict or create the 
appearance of a conflict in the work they do for clients such as DOD. 
For example, several companies have conflict of interest policies 
addressing business ethics and standards of conduct requiring all 
employees to avoid having a range of financial or personal interests 
that would interfere in any way with their work for the company and 
could make others question the company's integrity, or give the 
appearance of impropriety. These contractors' conflicts of interest 
policies generally describe a range of potential activities that 
include employees' financial or other interests, arrangements, and 
outside business interests and personal relationships that could pose 
an actual or the appearance of a conflict to be avoided. 

In three cases, however, the policies required written disclosure forms 
identifying potential conflicts of interest related to work carried out 
for DOD. That is, three contractor firms we reviewed require their 
employees to disclose potential conflicts related to their work at DOD 
and have employees working at the Air Force, Navy, and Army advising 
and assisting on engineering development and operation of aircraft and 
missile programs and acquisition management support on a communications 
program. For example as presented below, two firms have measures for 
ensuring that their employees do not have personal interests that would 
conflict with their work at DOD. According to the firms' ethics 
documentation, these measures are part of the corporate mission and 
values statements so that all levels of their employees are aware that 
their services to clients as well as individual and company decisions 
are based on core business values such as honesty and the highest 
standards of ethics and integrity. For example: 

* One small business contractor has employees who work on a range of 
aeronautical systems programs of the Air Force Materiel Command. Their 
responsibilities for one of the offices we visited in the area of 
acquisition management include tasks in various phases of the 
acquisition cycle, such as development, award, management, and contract 
closeout.[Footnote 12] The company has a 3-page Financial Conflict of 
Interest Reporting Form--and according to company officials, it is 
modeled on the federal financial disclosure form--that each of its 
professional employees must submit when initially hired and annually 
thereafter. The contractor's reporting form asks each employee if there 
are any personal or household financial interests in the matters dealt 
with under the Air Force contract, such as stock ownership in any of 
the contractors who are involved in the aeronautical systems programs 
that the employee works on as part of his or her tasks. The company's 
vice-president stated that, as the employee's supervisor, he evaluates 
reported interests on the financial conflict of interest form and 
reviews the circumstances in light of present and prospective duties of 
the individual to ensure that both actual and apparent conflicts of 
interest are avoided. According to the vice-president, he also decides 
on how any conflict or apparent conflict will be resolved, such as 
reassignment, divestiture, or disqualification. 

* A large business defense contractor has employees who work on missile 
programs under the Naval Sea Systems Command. Their responsibilities 
for the Navy include systems engineering and program office support, 
including contract management input for award fee deliberations and 
contract modifications. The company has a 1-page Certificate on 
Conflict of Interest, Relationships with Suppliers, and Standards of 
Business Conduct that, according to contractor officials, employees are 
required to submit annually by e-mail, fax, or on-line. The 
certification form requires yes or no answers to seven questions that 
serve to prompt each employee to disclose certain interests in the 
company's suppliers or prospective suppliers, such as whether they or a 
member of their family has a substantial financial interest. The form 
also asks each employee if they or their family members have any other 
interest or agreement which may violate the Standards of Business 
Conduct or may otherwise result in an actual or perceived conflict of 
interest. According to the company's ethics and Navy contracting 
managers, the annual conflict-of-interest certification process 
receives a fair amount of supervisory review and screening by corporate 
business ethics offices in order to prevent or mitigate actual or even 
the appearance of an employee being in a position with a personal 
conflict of interest. 

Stricter Conflict of Interest Safeguards Recently Developed for DOD 
FFRDC Employees: 

DOD's FFRDCs are private nonprofit organizations established to meet 
specialized or long-term research or development needs that cannot be 
met by existing government or contractor resources.[Footnote 13] For 
example, employees from FFRDCs may provide design and systems 
engineering expertise to major space or weapon acquisition programs, 
and even work along side DOD employees. They may be involved with 
conducting independent assessments of technical risk, management, cost, 
and schedule for particular programs or in broader research on 
international security and defense strategy, acquisition and technology 
policy, force management, and logistics. 

In 2006, prompted by the aftermath of public and congressional scrutiny 
regarding a conflict of interest with the president of one DOD- 
sponsored FFRDC,[Footnote 14] DOD's Deputy General Counsel (Acquisition 
and Logistics) reviewed the conflict of interest policies and 
procedures in place at each of DOD's 10 FFRDCs. DOD's review addressed 
FFRDC sponsoring agreements, contracts, and internal policies and 
procedures. DOD concluded that some of these documents failed to meet 
minimum FAR requirements and others needed revision to better protect 
DOD from conflicts of interest by FFRDC employees.[Footnote 15] 

As a result, in January 2007, the Undersecretary of Defense 
(Acquisition, Technology, and Logistics) revised DOD's policy adding 
stricter contracting safeguards for FFRDC contractors requiring them to 
have procedures that address personal conflicts of interest for FFRDC 
employees. DOD revised the policy to ensure that FFRDC employees 
operate in the public interest with objectivity and independence. DOD's 
revised policy requires in part that each administrator of its FFRDCs 
do the following: 

* maintain written, corporatewide conflict of interest policies for 
their employees; report any personal conflicts of interest to 
contracting officers or their representatives; provide annual 
compilations of personal conflicts of interest and their dispositions; 
maintain audit programs to verify compliance; 

* establish policies for their employees that address all major areas 
of personal conflicts of interest including, but not necessarily 
limited to gifts, outside activities, and financial interest; 

* set procedures to screen for potential conflicts of interest for all 
employees in a position to make or materially influence research 
findings and/or recommendations to DOD; 

* provide initial and annual training to address ethics and conflicts 
of interest for affected employees; and: 

* designate an office responsible for ethics compliance and training. 

All four FFRDC administrators that we contacted for this report had 
written corporatewide ethics policies and training for their employees 
prior to DOD's new policy. According to FFRDC administrator officials, 
three of the FFRDCs have updated their ethics compliance program and 
policies, which include their training programs, and are in compliance 
with the new requirements. As of October 2007, a fourth FFRDC we 
contacted has yet to reach agreement with its Air Force sponsor 
organization on whether additional safeguards are necessary.[Footnote 
16] Of the three FFRDCs that have already changed practices to 
implement the revised DOD-wide policy, there were some differences in 
how they changed their procedures to screen for potential conflicts of 
interest for all employees in a position to make or materially 
influence research findings and/or recommendations to DOD. For example, 
according to FFRDC administrator officials: 

* New requirements are being implemented by two of the FFRDCs for their 
employees to complete an on-line personal conflict-of-interest 
screening questionnaire as part of their initial assignment to a DOD- 
sponsored task. The on-line screening tool will prompt these FFRDC 
employees, on a task-by-task basis, to disclose and list any financial 
interests they, their spouse, or family members have in specific DOD 
prime and subcontractors pre-loaded in the FFRDC database for each 
defense weapon system or DOD program being researched or advised on 
under the FFRDC project. According to ethics officials for these two 
FFRDCs, any disclosure of financial interests from the on-line tool is 
reviewed by the employee's project manager or supervisor as well as the 
ethics office to identity actual or potential conflicts of interest, 
which would then be mitigated in ways similar to practices for federal 
employees.[Footnote 17] 

* Instead of task-by-task screening, a third FFRDC's procedures require 
all employees (except project directors) working on DOD tasks to submit 
annual disclosures identifying personal and family financial interests 
for review by supervisors and ethics offices to screen for actual or 
potential conflicts of interest in the employees' tasks for DOD. 
Project directors are now required to submit financial disclosures task-
by-task. 

Range of Views Indicate Additional Conflict of Interest Safeguards Are 
Necessary for Contractor Employees: 

A majority of government officials we spoke with indicated support for 
changes in contracting policy to address risks from contractor 
employees having personal conflicts of interest when participating in 
matters affecting DOD's decisions. Those closest to the situation--DOD 
program managers--all agreed that safeguards are needed for contractor 
employees participating in the source selection process. Moreover, some 
of these managers had also put in safeguards for contractor employees 
involved in other types of advisory and assistance tasks. However, a 
number of program managers as well as defense contractor company 
officials expressed concern that adding new safeguards will increase 
costs for the government and are unnecessary since government 
officials--not contractors--are the ones ultimately making the 
decisions. DOD oversight officials as well as OGE officials, however, 
believed additional safeguards are necessary to maintain public 
confidence, particularly since contractors are increasingly being 
involved in spending decisions, though this could be achieved through 
changes in policy and practice and changes in regulations rather than 
changes in the law. A congressionally mandated Acquisition Advisory 
Panel recently concluded that there is a need to assure that the 
increase in contractor employees' involvement in agency activities does 
not undermine the integrity of the government's decision-making process 
and that changes in the FAR should be considered to establish 
additional conflict of interest safeguards across agencies through 
contract clauses. 

Program Managers' Viewpoints: 

All of the 19 offices we reviewed established safeguard procedures such 
as contract clause or self-certifications to prevent conflict of 
interest for contractor employees when involved in the source selection 
process. At the same time, six offices had safeguards for contractors 
performing other types of advisory and assistance tasks. For example, 
the Army's Communications Electronics Lifecycle Management Command and 
the Air Force's Electronics Systems Center have recognized the need to 
prevent the existence of conflicting interests that might bias a 
contractor employee's judgment and have developed contract clauses for 
other types of contractor employees who directly advise and assist 
federal decision-makers in those organizations. In addition, some of 
DOD's program managers said they should require certain contractor 
employees to file financial disclosures with their companies so that 
they can screen for potential personal conflicts of interest in the 
work they do at DOD. 

However, when it comes to using contractor employees to perform tasks 
other than source selection, some program managers believed that 
additional safeguards are unnecessary. In fact, some believed it could 
create a cost and oversight burden. For example, these managers also 
stressed that government officials are ultimately responsible for 
decision-making, not contractor employees. When we asked DOD officials 
to tell us about cases of improper conduct involving contractor 
employees, some officials also pointed out that very few cases of 
actual conflicts of interest or other ethics problems involving 
contractor employees have been publicly identified and in most of these 
cases, the situations were handled informally. They were also concerned 
that requiring contractor employees to abide by certain safeguards, 
such as submitting financial disclosure forms for government or 
contractor ethics review processes, could chase away qualified 
contractors from federal work. 

Contractor Officials' Viewpoints: 

We spoke to various company representatives responsible for managing 
their companies contracting business and/or employee ethics matters at 
the 21 DOD offices where we conducted our review. Some of the 
contractor company officials told us that they believed additional 
safeguards are not needed because their employees were aware that 
personal conflicts of interest are prohibited under their corporate 
ethics programs. Moreover, they pointed out that their employees would 
know to advise their supervisors of any potential conflicts, consistent 
with the companies' ethics program procedures. Contractor officials 
also contended that the creation of new safeguards could drive up costs 
for the government because of contractor administrative costs for 
collecting and maintaining employee financial conflict of interest 
paperwork. 

Company officials cited other reasons for not establishing additional 
conflict of interest safeguards for contractor employees, but we found 
evidence that contradicted these positions. For example, one reason was 
that defense contractor companies' business ethics and standards of 
conduct for their employees are already consistent with the 
government's ethics requirements for federal employees. Our review of 
22 contractors' ethics program documents found that they did not 
address the same issues that the government ethics programs are 
required to address.[Footnote 18] Also, in some cases, they were 
designed to protect the contractor's interests, not the government's. 

Another reason was that the risk of conflicts of interest for 
contractor employees was low because it would be obvious if these 
employees tried to steer decision making to favor a personal interest 
or bias. Some contractor officials also stressed that the role that 
their employees were playing in decisions was minimal. Some government 
officials we spoke with, however, indicated that these types of inputs 
into decisions are not trivial and that it may not always be obvious 
when employees are providing biased information. 

On the other hand, many company officials told us that if the federal 
government were to require contractor employees to submit financial 
conflict of interest certifications or disclosures, then the companies 
would comply in the interest of maintaining the public's confidence in 
the integrity of government operations supported by contractor 
employees. In addition, a manager of one small business defense 
contractor said that the company's personal conflicts of interest and 
ethical conduct policy already requires all employees to submit annual 
financial conflict of interest reporting forms when assigned to perform 
government work. He added that most support contractor employees are 
retired military and have been accustomed to abiding by government 
rules for 30 years. 

Viewpoints of Ethics Officials and Senior Leaders: 

Senior officials within DOD responsible for ensuring integrity in 
employee conduct and in the contracting function as well as the OGE 
told us that they believed that there are risks associated with 
personal conflicts of interests not just in program offices that 
involve contractors in source selection, but those that use contractors 
in other ways to support spending decisions. In fact, during our 
review, DOD undertook steps to begin assessing the need for 
departmentwide policies for preventing personal conflicts of interests 
for its contractor employees. 

OGE: OGE, which promulgates ethics guidance for the executive branch, 
has expressed concerns that current federal requirements and policies 
are inadequate to prevent certain kinds of ethical violations on the 
part of contractor employees. The office is specifically concerned with 
potential financial conflicts of interest, impaired impartiality, and 
misuse of information and authority. As such, additional conflict of 
interest safeguards should be targeted at contractor employees engaged 
in the types of services that influence governmental spending, 
contracting, and mission delivery decisions and concern the type of 
processes and operations upon which considerations of management and 
delegation must turn. OGE has also observed that federal and contractor 
employees work so closely on a day-to-day basis, it is difficult to 
distinguish whether employees are government or contracted and they see 
greater risks to the integrity of decisions given the growing influence 
that contractors appear to be having on government operations and 
expenditure of funds. 

OGE has advocated policy changes to apply conflicts of interest 
requirements to contractors. In considering additional contract-based 
safeguards to ensure that the government's interests are not 
compromised by contractor employees' conflicts of interest, OGE's 
acting director has expressed concerns in several areas, such as: 

* advisory and assistance services support,[Footnote 19] especially 
those where contractor personnel regularly perform in the government 
workplace and participate in deliberative and decision-making processes 
along with government employees; 

* management and operations contracts involving large research 
facilities and laboratories, military bases, and other major programs; 
and: 

* large indefinite delivery or umbrella contracts that involve 
decentralized ordering and delivery of services at multiple agencies or 
offices. 

DOD ethics and general counsel officials: Defense ethics and other 
general counsel officials we spoke to from several DOD offices 
responsible for DOD-wide standards of conduct and ethics compliance had 
generally the same concerns raised by OGE. For example, according to 
the director of DOD's Standards of Conduct Office in 2006,[Footnote 20] 
as DOD increases its integration of contractor employees into the 
actual administration of its organizations and offices, the larger the 
gap between employees in its blended workforce in terms of the conflict 
of interest requirements that apply only to federal employees, and the 
more difficult it becomes to ensure the integrity of government 
decision making. DOD ethics and general counsel officials also 
expressed concerns about risks associated with reliance on contractor 
employees, particularly when they perform many of the same advisory and 
management functions as federal employees. An Army general counsel 
official observed that contractor employees are exerting greater 
influence over Army operations given that the Army has lost expertise 
and leadership over the years. 

Further, DOD ethics and general counsel officials stated that those 
contractor employees participating in and supporting the government's 
decision-making processes should be subject to stricter conflict of 
interest rules so that agencies can better judge the objectivity of 
their advice to the government. An Air Force ethics official said his 
office has come across situations in which contractor employees would 
have been in violation of the government ethics rules had they been 
government employees. An Army general counsel official told us that not 
requiring financial disclosure statements from contractor employees 
poses the greatest risk to the integrity and impartiality of the work 
they perform under contract for the government. Unlike for federal 
employees who are prohibited under conflict of interest law from 
participating in a particular matter involving specific parties in 
which they have a financial interest, there is no way to know whether 
contractor employees are doing so. 

In 2006, an approach to apply conflict of interest laws to contractor 
employees was identified by DOD's Standards of Conduct Office director, 
who offered his personal views at one public policy discussion on the 
issue of contractor ethics that the FAR Council[Footnote 21] should 
consider some model language, or instruction to government agencies to 
include conflict of interest provisions within contracts. 

DOD's Directorate of Defense Procurement and Acquisition Policy (DPAP): 
The DPAP director concurred with the views of ethics officials across 
the department and recently directed a DOD panel examining various 
aspects of contracting integrity to specifically examine the need for 
departmentwide policies to prevent conflicts of interest with its 
contractor employees. The Panel on Contracting Integrity is comprised 
of senior leaders representing a cross section of DOD.[Footnote 22] The 
director told us that existing policy may be inadequate given the 
growing reliance on contractor employees across DOD program offices. He 
was specifically concerned with contractors who are involved in source 
selection and contract management. 

Acquisition Advisory Panel: This panel, comprised of recognized experts 
in government acquisition law and policy, was established by a 
congressional mandate to examine and report on ways to improve federal 
acquisition practices.[Footnote 23] According to the panel, the trend 
toward more reliance on contractors in the federal workplace raises the 
possibility that the government's decision making could be undermined 
as a result of personal conflicts of interest on the part of contractor 
employees. The panel concluded that, in view of the tremendous amount 
of federal contracting for services, and particularly in the context of 
the blended workforce, additional safeguards to protect against 
personal conflicts of interest by contractor employees are needed. The 
panel believed that conflict of interest safeguards are more critical 
for certain types of contracts (primarily services contracts) and that 
further study was needed to identify those types of contracts where the 
potential for contractor employee conflicts of interest raises a 
concern. 

The panel believed that achieving greater governmentwide consistency in 
safeguarding against contractor employees conflicts of interest would 
be beneficial, in that it would allow agencies to implement best 
practices and it would also help to assure that all bidders on federal 
contracts--whether successful or not--are aware of their 
responsibilities and that they structure their operations knowing what 
was expected of them. The panel concluded that it was not necessary to 
adopt any new federal statutes to impose additional conflict of 
interest safeguards on contractors or their employees. Rather, the 
additional safeguard requirements should be imposed--where appropriate--
through contract clauses.[Footnote 24] 

As a result, the panel recommended to the Office of Federal Procurement 
Policy (OFPP) that the FAR Council should determine when contractor 
employee personal conflicts of interest need to be addressed, and 
whether greater disclosures, specific prohibitions, or reliance on 
specified principles are needed to maintain public confidence in the 

integrity of government operations reliant on contractors. The panel 
recommended that the FAR Council's efforts should consider whether 
development of a standard ethics clause or a set of standard clauses 
that establish the contractor's responsibility to perform the contract 
with a high level of integrity needs to be included in solicitations 
and contracts. 

According to OFPP officials, the FAR council was asked to initiate a 
case review process to consider changes to the FAR to include new 
conflict of interest safeguards for contractor employees. This 
anticipated action would be separate from the November 2007 amendment 
to the FAR requiring certain contractors to have written codes of 
ethics and business conduct, employee ethics and compliance training 
programs, and internal control systems to guard against violation of 
these codes.[Footnote 25] The final rule does not speak to development 
of a standard ethics clause concerning when contractor employee 
personal conflicts of interest need to be addressed. 

Conclusions: 

The environment in which DOD makes its most significant spending 
decisions is changing. As programs grow more complex and costly, DOD 
has increasingly become reliant on technical, business, and procurement 
expertise supplied by contractors--sometimes to a point where the 
foundation on which decisions are based may be largely crafted by 
individuals who are not employed by the government, who are not bound 
by the same rules governing their conduct, and who are not required to 
disclose whether they have financial or other personal interests that 
conflict with the responsibilities they have performing contract tasks 
for DOD. To its credit, DOD has recognized that this condition and its 
risks needs to be studied and addressed by adding personal conflicts of 
interest among contractor employees as a tasking for its Panel on 
Contracting Integrity and adopting stricter safeguards for FFRDC 
employees early in 2007. Such attention is important. 

While few cases of improper conduct have been publicly identified, 
there are also few safeguards in place to identify whether personal 
conflicts of interest even exist. The new FAR requirements making it 
mandatory for certain contractors to set and follow written codes of 
business ethics and conduct will not assure that the advice and 
assistance received from contractor employees is not tainted by 
personal conflicts of interest. The officials in most offices we 
reviewed that operate within this environment believe that the risk to 
the government is considerable enough to warrant safeguards when 
contractors are involved in source selection; at least some believe 
that risk extends to contractors that are involved in other activities 
that feed into spending decisions. Arguments that no change is needed 
focus on costs, which may be calculable. Yet, costs of contractor 
employees constructing options for their personal gain--an outcome 
increasingly likely based on sheer numbers--would likely never be 
known, let alone calculable as long as there is no transparency. 
Changes to current policy and practices that are targeted, tailored and 
implemented at the lowest practicable level are a way to minimize the 
cost of addressing personal conflicts of interest among contractor 
employees and to maximize the value of any additional safeguards. 
Several program offices have already demonstrated this is possible 
through the use of contract clauses and processes to identify potential 
conflicts and at least one small company has adopted similar safeguards 
on its own. 

Recommendations: 

We recommend that the Secretary of Defense direct the Under Secretary 
of Defense (Acquisitions, Technology, and Logistics), to develop and 
implement policy that requires personal conflict of interest contract 
clause safeguards for defense contractor employees that are similar to 
those required of DOD's federal employees. In developing its policy, 
DOD should include requirements for contractor companies to identify 
and prevent personal conflicts of interest for certain of their 
contractor employees who are performing contracted services that 
provide inputs to DOD's decision-making in such mission-critical areas 
as the development, award, and administration of government contracts 
and other advisory and assistance functions. 

In developing its policy, DOD should include the following requirements 
for defense contractor companies: 

* require a written code of business ethics and conduct applicable to 
contractor personnel working on certain DOD mission-critical advisory 
and assistance type services to: 

- prohibit contractor personnel from participating in a government 
contract in which they have a personal conflict of interest; 

- require contractor personnel to avoid the appearance of loss of 
impartiality in performing contracted duties for DOD; 

- require contractor personnel to disclose personal conflicts of 
interest to their employer prior to beginning work on these contracts; 

- require the contractor to review and address any personal conflicts 
of interest its employees might have before assigning them to deliver 
contracted services; 

- prohibit contractor personnel from using non-public government 
information obtained while performing work under the contract for 
personal gain; 

- prohibit contractor employees providing procurement support services 
from having future employment contact involving a bidder in an ongoing 
procurement; 

- impose limits on the ability of contractors and their employees on 
accepting gifts (defined as almost anything of monetary value, such as 
cash, meals, trips, or services) in connection with contracted duties; 
and: 

- prohibit misuse of DOD contract duties to provide preferential 
treatment to a private interest. 

In developing its policy, DOD should include requirements for 
contractor companies to: 

* Report any contractor personnel conflict of interest violations to 
the applicable contracting officer or contracting officer's 
representative as soon they are identified. 

* Maintain effective oversight to verify compliance with personal 
conflict of interest safeguards, and have procedures in place to screen 
for potential conflicts of interest for all employees in a position to 
make or materially influence findings, recommendations, and decisions 
regarding DOD contracts and other advisory and assistance functions. 
This screening can be done on a task-by-task basis or on an annual 
basis, such as a financial disclosure statement. 

Agency Comments: 

We provided a draft of this report to DOD and OGE for comment. The DPAP 
director wrote that DOD partially concurred with the recommendations. 
Specifically, he wrote that he agrees with their intent and that each 
of our recommendations will be carefully reviewed by the Panel on 
Contracting Integrity's subcommittee, Contractor Employee Conflicts of 
Interest. According to the DPAP director, this subcommittee was 
established in order to respond to the concerns and recommendations 
voiced in the exit conference for our work. DOD's comments are 
reproduced in appendix II. 

In providing comments, OGE's Director commended the draft report for 
breaking important new ground by providing data regarding the ethical 
implications of contractors in the federal workplace. OGE offered a few 
comments on our recommendations that should help DOD as it begins its 
efforts to address how best to implement them. Also, OGE offered its 
expertise to assist DOD in developing its policy in response to our 
recommendations regarding the scope of personal conflicts of interest 
and other ethics requirements that would be appropriate for contractor 
employees in comparison to federal employees. OGE's comments are 
reproduced in appendix III. 

We are sending copies of this report to the Secretary of Defense, the 
Director of the Office of Management and Budget, the Director of the 
OGE, and other interested parties. We will make this report available 
to the public on the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you have any questions about this report or need additional 
information, please contact me at (202) 512-4841 or [email protected]. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. Key contributors 
to this report were Carolyn Kirby, Assistant Director; Russ Reiter; 
Martene Bryan; Lily Chin; John Krump; Meredith Moore; Lillian 
Slodkowski; and Suzanne Sterling. 

Signed by: 

Cristina T. Chaplain: 
Director, Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

Our overall objective was to review existing safeguards to prevent 
contractor employees from having personal conflicts of interest that 
could affect the integrity of their service while performing tasks to 
their employer under contract with DOD. Because DOD does not maintain 
departmentwide data on the numbers of contractor employees working side-
by-side with federal employees, a specific objective was to (1) assess 
the roles being played by certain contractor employees by identifying 
how many of them were working at DOD offices included in this review as 
well as what responsibilities they were undertaking. Other specific 
objectives were to assess (2) what safeguards there are to prevent 
conflict of interests for contractor employees and (3) whether 
government and contractor officials believe additional safeguards are 
necessary. 

We reviewed federal statutes and government ethics and federal 
acquisition regulations concerning personal conflicts of interest to 
assess their scope and applicability, focusing our analysis on conflict 
of interest laws and regulations that safeguard or promote the 
integrity of the government's decisions, approvals, disapprovals, and 
recommendations. In addition, we reviewed information on personal 
conflict of interest requirements for federal employees versus 
contractor employees and interviewed officials from the Office of 
Government Ethics (OGE); several offices that administer the defense 
ethics program including the Standards of Conduct Office in DOD's 
General Counsel (Office of the Secretary of Defense) and the Army, 
Navy, and Air Force general counsels for ethics. 

To determine what conflict of interest safeguards for contractor 
employees that DOD has of its own for contractor employees, we reviewed 
DOD offices who used contractor employees to perform the type of tasks 
closely associated with inherently governmental functions and that 
influence government decision making. To obtain an understanding on the 
scope of DOD-wide safeguards, we reviewed the Defense Federal 
Acquisition Regulation Supplement (DFARS) to identify relevant 
contracting policies or contract clauses restricting contractor 
employees participation in DOD matters regarding personal conflicts of 
interest. To gain an understanding of the extent to which DOD offices 
use any DFARS policies or have augmented DFARS to establish local 
conflict of interest safeguards for contractor employees supporting 
their mission and operations, we visited and/or obtained information 
from 21 DOD offices in the Air Force, Army, Navy, Missile Defense 
Agency, and Tricare Management Activity. We judgmentally selected these 
DOD organizations and offices for review because they were cited by 
various DOD officials as having large contractor workforces and 
representing a cross-section of DOD organizations growing trend of 
reliance on support contractors. Table 6 lists the specific DOD offices 
selected for our review. 

Table 6: DOD Offices Selected for GAO's Review: 

Army: Army Materiel Command (Communications Electronics Lifecycle 
Management Command): 
* Acquisition Business Process Systems, Enhancements and Industrial 
Analyses Sector. 
* Logistics and Readiness Center; 
* Project Management Office: Tactical Radio Communications Systems. 

Army: Office of the Deputy Under Secretary of the Army for Business 
Transformation: 
*HR Solutions Program Office. 

Army: Army Contracting Agency: 
* Contracting Center of Excellence. 

Air Force: Air Force Space Command: 
*Deterrence and Strike Division (A5MF); 
*Surveillance, Reconnaissance and Spacelift Division (A5F). 

Air Force: Air Force Materiel Command: 
* Aeronautical Systems Center (303rd Air Wing);
* Aeronautical Systems Center (516th Air Wing);
* Electronic Systems Center. 

Navy: Naval Sea Systems Command: 
* Program Executive Office for Aircraft Carriers;
* Program Executive Office for Integrated Warfare Systems. 

Missile Defense Agency: 
* Ground-Based Midcourse Defense Program Office; 
* Terminal High-Altitude Area Defense Program Office; 
* Agency Operations Office; 
* Aegis Ballistic Missile Defense Program Office;
* Engineering;
* Sensors. 

Tricare Management Activity: 
* Acquisition Management Support Office. 

Tricare Management Activity: Joint Medical Information Systems Office: 
* Resources Information Technology Program Office;
* Clinical Information Technology Program Office. 

[End of table] 

Within these DOD organizations and 21 offices, we obtained information 
from and interviewed contracting officials, program managers, and other 
management officials. We also met with officials from DOD sponsoring 
organizations for federally funded research and development centers 
(FFRDC) within the office of the Undersecretary of Defense 
(Acquisition, Technology, and Logistics), Army, Air Force, and Navy. To 
obtain similar information from each of the 21 DOD offices, we 
interviewed these officials to obtain their views and supporting 
documentation using a structured set of questions covering several 
topics including (1) the types of services being provided by contractor 
employees, (2) their concerns about the integrity of the information 
and advice being provided by the contractor employees with regard to 
personal conflicts of interest, and (3) what safeguards such as 
contract clauses the offices are using to ensure that the assistance 
and advice provided is not impaired due to contractor employees 
conflicts of interest. (See table 7, which summarizes the structured 
topics discussed with the DOD offices selected for this review.) 

Table 7: Information on Contractor Employees and Conflicts of Interest 
Safeguards Obtained from Selected DOD Offices: 

* Number of military and civilian employee positions required to 
disclose their financial interests and outside activities under 
government ethics financial disclosure laws; 

* Specific assets and income in which the employees (or spouse and 
dependent child) are prohibited from having an interest in while 
working in this office; 

* Office reliance on contractor employees--which contractors and/or 
FFRDCs support the office, the number of contractor employees and 
examples of their responsibilities, advice, or assistance; 

* How the office would become aware if a contractor employee had a 
personal conflict of interest; 

* Examples of a contractor employee with an apparent conflict of 
interest that would have been prohibited if they were a federal 
employee; 

* Safeguard mechanisms used by office (i.e., contract clauses requiring 
non-conflict of interest certifications, financial disclosures, 
mitigation plans, etc.) to address contractor employees personal 
conflicts of interest; 

* Awareness if contractor ethics programs include standards to avoid 
personal conflicts of interest; 

* Risks to DOD in not applying personal conflict of interest 
requirements to contractor employees who perform the same types of 
tasks as federal employees; 

* Views on whether contractor employees performing tasks closely 
associated with inherently government functions should be required to 
follow the same conflict of interest standards that federal employees 
are required to follow (i.e., financial, employment, or outside 
activities conflicts of interest, financial disclosure, gifts and 
travel, etc.) 

[End of table] 

In that regard we also obtained and reviewed available contract clauses 
or other documented safeguards to prevent, identify, and mitigate 
contractor employees' personal conflicts problems. We also interviewed 
defense procurement and acquisition policy and general counsel and 
contractor oversight officials from the Office of the Undersecretary of 
Defense (Acquisitions, Technology, and Logistics), Army, Navy, Air 
Force, and Missile Defense Agency, DOD Procurement Fraud Working Group, 
Defense Contract Management Agency, and Defense Contract Audit Agency 
to obtain information and views on their oversight and monitoring of 
defense contractor ethics programs and contractor employees conflict of 
interest issues. 

To identify safeguards that DOD contractors have implemented for their 
employees to avoid conflicts of interest, we met with and obtained 
documentation on ethics programs from 23 defense contractors and four 
FFRDC administrator organizations. We judgmentally selected these 
contractors and FFRDCs for review because they were cited by program 
managers in the 21 DOD offices we reviewed as having contractor 
employees who are performing contracted services for them. According to 
fiscal year 2006 contract award data, DOD obligated $8.0 billion for 
professional, administrative, and management support services contracts 
with the 23 contractors, which accounted for 25 percent of total 
dollars obligated that year for this category of services contracts. 
The contractors and FFRDCs we selected for review are listed in table 
8. 

Table 8: Defense Contractors and FFRDCs Selected for GAO's Review: 

* Aerospace FFRDC; 
* Alion Sciences and Technology Corporation; 
* Axiom Resources Management, Inc.; 
* BAE Systems, Inc.; 
* Booz Allen Hamilton, Inc.; 
* CACI, Inc.; 
* Center for Naval Analyses FFRDC; 
* Computer Sciences Corporation; 
* EG&G Technical Services, Inc.; 
* Engineering and Professional Services, Inc.; 
* General Dynamics Corporation; 
* Global Solutions Network, Inc.; 
* HMR Tech LLC; 
* Institute for Defense Analyses Studies and Analyses Center FFRDC; 
* Irving Burton Associates, Inc.; 
* Jacer International, Inc.; 
* Kennell and Associates, Inc.; 
* L-3 Communications Corporation; 
* Lockheed Martin Corporation; 
* Logtec; 
* Northrop Grumman Corporation; 
* P E Systems, Inc.; 
* Arroyo Center FFRDC; 
* The Ravens Group, Inc.; 
* Sensor Technologies, Inc.; 
* Tecolote Research, Inc.; 
* Viatech, Inc. 

[End of table] 

We reviewed examples of the contractors' statements of work or other 
documentation to identify the types of advice and assistance services 
being provided by their employees to the 21 DOD offices reviewed. To 
obtain similar information for each of the contractors and FFRDCs, we 
interviewed their officials to obtain their views and supporting 
documentation using a structured set of questions covering several 
topics including (1) DOD's reliance on contractor employees in terms of 
their numbers and responsibilities, (2) steps the contractors take to 
identify and mitigate their employees' conflicts of interest, and (3) 
views or concerns about the need for additional safeguards to ensure 
that the assistance and advice provided is not impaired by contractor 
employees conflicts of interest. (See table 9, which summarizes the 
structured topics discussed with the contractors and FFRDCs selected 
for this review.) We also discussed and obtained documentation from the 
FFRDC administrators on changes in their ethics policies and procedures 
to address safeguards for employee conflict of interest problems in 
response to DOD's January 2007 revised policy for FFRDCs. 

Table 9: Information on Contractor Employees and Conflicts of Interest 
Safeguards Generally Requested and Obtained from Selected Defense 
Contractors and FFRDCs: 

* Number of employees at company providing services to the DOD program 
office(s) included in our review; 

* Employees' duties and responsibilities for DOD; 

* Examples of areas of advice or recommendations that the contractor 
employees provide to this DOD program office; 

* Steps taken by contractors to identify and mitigate potential or 
actual problems with contractor employees' ethics and personal 
conflicts of interest, e.g., require employees to report or disclose 
their financial interests and/or outside business activities; 

* Any specific assets and income that the employees (or spouse and 
dependent child) are prohibited from having an interest in while 
working in this company; 

* Examples of a company employee having an actual or potential personal 
conflict of interest and/or engaging in conduct that would have been 
considered unethical and thus prohibited if they were a government 
employee; 

* Documentation of company's ethics program, policy, or guidance; 

* Views on what gaps pose the greatest vulnerability--i.e., of the 
range of ethics rules applicable to government employees but not to 
contractor employees; 

* Views on whether contractor employees, i.e., those performing 
functions closely associated with inherently governmental functions 
should be required to follow the same ethical standards that the 
government employees are required to follow. 

[End of table] 

To determine if government and contractor officials believe additional 
safeguards are necessary for contractor employees, we used the results 
of the above discussions with officials from DOD organizations, 
including program managers and ethics and contracting officials. In 
addition, we used the results from the above discussions with officials 
at the 23 defense contractors and four FFRDCs included in our review. 
We also reviewed the report of the Acquisition Advisory Panel and met 
with OGE and OFPP officials to obtain information on actions being 
considered in response to Panel recommendations related to personal 
conflict of interest safeguards for contractor employees. We also met 
with representatives of industry and other groups, including the 
Defense Industry Initiative on Business Ethics and Conduct, 
Professional Service Council, Ethics Resource Center, and members of 
the American Bar Association's Public Contract Law Section on 
Professional Responsibility and Contracting Ethics. 

We conducted this performance audit from November 2006 through March 
2008 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient and appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives: 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office Of The Under Secretary Of Defense: 
Acquisition, Technology And Logistics: 
3000 Defense Pentagon: 
Washington, DC 20301-3000: 

February 28, 2008: 

Ms. Christina T. Chaplain:
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Chaplain: 

This is the Department of Defense (DoD) response to the GAO Draft 
Report, GAO-08-169, "Defense Contracting: Additional Personal Conflict 
of Interest Safeguards Needed for Certain DoD Contractor Employees," 
dated January 23, 2008 (GAO Code 120592). 

The Department partially concurs with the recommendations. Detail 
comments on the report recommendations are enclosed. 

Sincerely, 

Signed by: Susan M. Hildman: 

For: Shay D. Assad: 
Director, Defense Procurement and Acquisition Policy: 

Enclosure: As stated: 

GAO Draft Report Dated January 23, 2008: 
GAO-08-169 (GAO CODE 120592): 
"Defense Contracting: Additional Personal Conflict Of Interest 
Safeguards Needed For Certain DOD Contractor Employees" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Under Secretary of Defense (Acquisition, Technology and 
Logistics) to develop and implement policy that requires personal 
conflict of interest contract clause safeguards for Defense contractor 
employees that are similar to those required of DoD's Federal 
employees. In developing the policy, DoD should include requirements 
for contractor companies to identify and prevent personal conflicts of 
interest for certain of their contractor employees who are performing 
contracted services that provide inputs to DoD's decision-making in 
such mission-critical areas as the development, award, and 
administration of government contracts and other advisory and 
assistance functions. (p. 32/GAO Draft Report) [On pages 31 and 32 of 
this report]. 

DOD Response: Partially Concur. The Department formed the Panel on 
Contracting Integrity in response to Section 813 of the John Warner 
National Defense Authorization Act of Fiscal Year 2007. The purpose is 
to conduct a Department-wide review to eliminate areas of vulnerability 
of the defense contracting system that allow fraud, waste, and abuse to 
occur. The Panel is required to recommend changes in law, regulations, 
and policy as determined necessary. The first annual report was 
submitted to Congress on December 31, 2007. A subcommittee, Contractor 
Employee Conflicts of Interest, was established in late December to 
respond to the concerns and recommendations voiced in the exit 
conference of the GAO-08-169 report. DoD agrees with the intent of the 
recommendations. The subcommittee will have the opportunity to 
carefully review each recommendation. A plan of action and milestones 
(PO&AM) has not been submitted. We will provide updated information 
regarding timelines. We will issue a policy to implement the 
subcommittee's recommendations upon acceptance by the Panel comprised 
of senior leaders representing a cross section of the Department. 

Recommendation 2: The GAO recommends that in developing its policy, DoD 
should include the following requirements for defense contractor 
companies: 

Require a written code of business ethics and conduct applicable to 
contractor personnel working on certain DoD mission-critical advisory 
and assistance type services to: 

* Prohibit contractor personnel from accepting illegal gratuities in 
connection with contracted duties; 

* Prohibit contractor personnel from participating in a government 
contract in which they have a personal conflict of interest; 

* Require contractor personnel to avoid the appearance of loss of 
impartiality in performing contracted duties for DoD; 

* Require contractor personnel to disclose personal conflicts of 
interest to their employer prior to beginning work on these contracts; 

* Require the contractor to review and address any personal conflicts 
of interest its employees might have before assigning them to deliver 
contracted services; 

* Prohibit contractor personnel from using non-public government 
information obtained while performing work under the contract for 
personal gain; 

* Prohibit contractor employees providing source selection support 
services from having future employment contact involving a bidder in an 
ongoing procurement; 

* Impose limits on the ability of contractors and their employees on 
accepting gifts (defined as almost anything of monetary value, such as 
cash, meals, trips, or services) in connection with contracted duties; 
and; 

* Prohibit misuse of DoD contract duties to provide preferential 
treatment to a private interest. (p. 32/GAO Draft Report)[On page 32 of 
this report] 

DOD Response: Partially Concur. See response to Recommendation 1 above. 

Recommendation 3: The GAO recommends that in developing its policy, DoD 
should include requirements for contractor companies to report any 
contractor personnel conflict of interest violations to the applicable 
contracting officer or contracting officer's representative as soon as 
they are identified. (p. 33/GAO Draft Report)[On page 32 of this 
report] 

DOD Response: Partially Concur. See response to Recommendation 1 above. 

Recommendation 4: The GAO recommends that in developing its policy, DoD 
should include requirements for contractor companies to maintain 
effective oversight to verify compliance with personal conflict of 
interest safeguards, and have procedures in place to screen for 
potential conflicts of interest for all employees in a position to make 
or materially influence findings, recommendations, and decisions 
regarding DoD contracts and other advisory and assistance functions; 
this screening can be done on a task-by-task basis or on an annual 
basis, such as by financial disclosure statement. (p. 33/GAO Draft 
Report)[On pages 32 and 33 of this report] 

DOD Response: Partially Concur. See response to Recommendation 1 above. 

[End of section] 

Appendix III: Comments from the Office of Government Ethics: 

United States Office of Government Ethics: 
1201 New York Avenue, NW, Suite 500: 
Washington, DC 20005-3917: 

February 7, 2008: 

Cristina T. Chaplain: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Chaplain: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO) draft report, Defense Contracting: 
Additional Personal Conflict of Interest Safeguards Needed for Certain 
DoD Contractor Employees (GAO-08-169). 

The Office of Government Ethics (OGE) wishes to commend GAO for the 
work it has done on this project. As you know, and the report 
acknowledges, OGE has sought opportunities in recent years to raise 
awareness about the potential ethical concerns presented by contractor 
employee personal conflicts of interest. In OGE's view, the draft 
report breaks important new ground by providing data for the first time 
regarding the ethical implications of contractors in the federal 
workplace. In particular, the report catalogs the kinds of sensitive 
work contractors are performing for the Federal Government and 
underscores the Government's need for conflict of interest protections 
under those circumstances, just as certain safeguards are in place for 
federal employees. 

While the Department of Defense (DoD) was the subject of GAO's inquiry, 
OGE notes that other agencies undoubtedly have issues similar to those 
described in this report. In addition, it is likely that contractor 
employees working outside the procurement area have personal conflicts 
of interest that could impair the integrity of their services to the 
Government. OGE is aware of at least one such instance that was 
documented recently by the Department of Education Inspector General. 
In its final audit report entitled, RMC Research Corporation's 
Administration of the Reading First Program Contracts (ED-OIG/A03F0022, 
March 2007) (EDOIG report), the Education Inspector General's Office 
found that a Department contractor did not adequately screen those it 
hired to provide technical assistance under the Reading First program 
to ensure that those individuals were free of potential bias or 
impaired objectivity. According to the report, several of those hired 
by the contractor to perform work under the contract had significant 
personal conflicts of interest that may have contributed to criticisms 
of the Reading First program, including concerns that "some individuals 
were promoting or pushing reading products they were affiliated with 
and had exerted influence over the products being selected by" the 
state and local education agencies receiving technical assistance. ED-
OIG report at 8. 

OGE would like to offer a few comments on the recommendations contained 
in the draft report. First, the draft report recommends that DoD 
"develop and implement policy that requires personal conflict of 
interest contract clause safeguards for defense contractor employees." 
While OGE does not have expertise in the area of procurement policy, 
OGE's efforts to raise awareness about the potential problems with 
contractor employee personal conflicts of interest have suggested that 
contract clauses are only one possible solution in this area. Others 
could include legislation, and education and training by both the 
Government and contractors. However, OGE is aware of at least one case 
in which a contract clause on personal conflicts of interest was 
successfully enforced. In United States v. President and Fellows of 
Harvard College, 323 F.Supp.2d 151 (D. Mass. 2004), investments in 
Russia by individuals hired by Harvard College to assist Russia in 
developing capital markets and foreign investments under an agreement 
between USAID and Harvard College contravened the terms of the contract 
barring such business activity and resulted in a breach of the 
contract. 

Second, GAO recommends that, as DoD develops its policy, it should 
include several requirements for contractor companies, such as to 
report any personal conflict of interest violations among their 
employees and to maintain effective oversight to verify compliance with 
personal conflict of interest safeguards. GAO may also wish to 
recommend that DoD establish a process to ensure that appropriate 
actions are taken by DoD and/or the contractor if personal conflict of 
interest violations are reported or otherwise come to light. 

Finally, since GAO is recommending that DoD's policy require personal 
conflict of interest safeguards that are "similar to those required of 
DoD's federal employees," OGE would be pleased to offer its expertise 
to assist DoD's development of what the term "personal conflicts of 
interest" means in this context. OGE has often stated, in its comments 
on this issue, that not all of the conflict of interest and other 
ethics requirements that apply to federal employees would be 
appropriate for contractor employees. 

Again, thank you for the opportunity to comment on this report. If you 
have any questions, please contact Marilyn Glynn, OGE's General 
Counsel, at (202) 482-9292. 

Sincerely, 

Signed by: 

Robert I. Cusick: 
Director: 

[End of section] 

Appendix IV: Contractor Employees Are Key in DOD Offices GAO Reviewed: 

For the purposes of understanding how key defense contractor employees 
are used to perform mission-critical tasks that could influence DOD 
decisions similar to functions carried out by federal employees, we 
obtained information from 21 offices across the five DOD organizations 
we reviewed. We also reviewed examples of contracting documents 
including statements of work and task orders.[Footnote 26] 

The contract documents described a range of services that closely 
support inherently governmental functions, such as developing 
briefings, preparing contracts, proposing award fee amounts for 
contractors, conducting systems engineering studies, analyzing 
technical issues, and providing financial management support. Most of 
the documents we reviewed described services requiring contractor 
employees to provide program management oversight duties and entailed 
providing these contractors with classified, business proprietary, and 
otherwise nonpublic information to perform duties closely associated 
with inherently governmental functions. Table 10 lists a range of 
professional and management services and support that contractor 
employees provided to different DOD organizations we reviewed. 

Table 10: Services and Support Tasks Provided by Contractor Employees 
Closely Supporting Inherently Governmental Functions in DOD 
Organizations Reviewed: 

DOD organization: Air Force; 
Types of services provided by defense contractor employees: 
* Source selection: Assist in the evaluation of proposals and provide 
support to past performance and cost evaluation teams; assist in 
developing evaluation criteria, source selection plans, and track award 
fee plans; 
* Cost estimates: Analyze contractor cost, schedule, and performance 
data; conduct financial management and assist in executing program 
funds; administer the Defense Travel System; track travel program 
funds; track budgets through congressional review and appropriation 
process; 
* Support test and evaluations: Recommend, assess, and analyze test and 
evaluation strategies, requirement and objects. Provide assistance in 
recommending and assessing test data requirements necessary to meet 
program test objectives within program cost and schedule constraints; * 
* Security management support: Plan, design, review, analyze, and 
report on tailored security plans for the protection of systems during 
testing and evaluation and make recommendations for changes to security 
test procedures. Analyze adequacy of the weapon system prime 
contractor's and/or subcontractors' program protection planning/efforts 
and report on discrete areas of concern. 

DOD organization: Army; 
Types of services provided by defense contractor employees: 
* Business functions: Responsible for managing, coordinating, tracking, 
and documenting support operations to include financial operations, 
administrative support, payments processing and customer relations 
support. Support controlling and maintaining budget forecasts, and 
travel funds. Research and support reconciliation of billing and 
payment discrepancies; 
* Procurement support: Provides support from pre-procurement planning 
through solicitation, award, administration and closeout. Help with 
cost and pricing and preparation of performance work statement and 
specifications. Provide technical evaluation support to source 
selection panels; 
* Contract management support: Provide support for closeout of 
contracts, delivery and task orders. Identify and support resolution of 
any uncompleted obligations or pending liabilities on the part of 
either the government or the contractor.. 

DOD organization: Missile Defense Agency; 
Types of services provided by defense contractor employees: 
* Technical and engineering support for a weapon system: Analyze system 
requirements, evaluates system engineering trade studies, participate 
in design reviews. Conduct independent analysis to substantiate 
requirements, and requirements traceability developed by the prime 
contractor and subcontractors; 
* Test planning and execution: Plan, execute, and report on testing and 
evaluation events. Assist in the data collection, reviews, 
dissemination and analysis of data products from experiments; 
* Recommendations to DOD management: Recommend solutions for resource 
shortfalls. Develop alternatives and provide recommendations to include 
timelines and benefits; 
* Financial management: Support the development and review of program 
financial execution plans. Assist in drafting, reviewing, and 
coordinating funding modifications, and purchase requests. 

DOD organization: Navy; 
Types of services provided by defense contractor employees: 
* Technical expertise: Perform studies to evaluate alternatives, 
propose design changes, and provide recommendations to address 
potential warfare systems upgrades and modifications. Develop input to 
ship and weapon systems specifications and contracts. Identify and 
provide recommendations to resolve weapon system test and evaluation, 
integration, and specification issues; 
* Award fee evaluations: Act as moderator for award fee board meetings 
and provide recommendations with regard to evaluation proceedings. 
Determine award fee amount the contractor is eligible to earn; 
* Program management: Evaluate issues and provide recommendations 
related to weapons system cost, schedule, performance, and contract 
modifications. Provide recommendations regarding programming, planning, 
and budget management. Analyze contractor proposals. 

DOD organization: Tricare Management Activity; 
Types of services provided by defense contractor employees: 
* Technical and business proposals: Develop criteria to evaluate 
technical and business proposals submitted in response to government 
requests for proposals and prepare analysis of criteria for evaluation 
cost proposals submitted in response to proposals; 
* Project management support: Conduct project planning, develop project 
plans and documentation, define and manage project resources, and 
provide general project support to government project officers; 
* Cost certification: Perform independent analysis of the offerors who 
are awarded future health care and health care-related contracts. 
Develop options and recommendations governing the 
feasibility/advisability of revising current and future contracts. 

Sources: DOD organizations (information); GAO (analysis and 
presentation). 

[End of table] 

[End of section] 

Appendix V: Contract Clauses Used by DOD Organizations to Address 
Contractor Employees Personal Conflicts of Interest: 

Under Air Force Electronic Systems Center and Army Communications 
Electronics Lifecycle Management Command policies affecting 4 of the 21 
DOD offices we reviewed, we identified two examples of local contract 
clauses establishing conflict-of-interest safeguards for contractor 
employees performing advisory and assistance services tasks and other 
support services. To illustrate the scope and breadth of these local 
contract clauses for addressing contractor employees' personal 
conflicts of interest, the clauses are reproduced in their entirety. 

Air Force Electronic Systems Center: 

With its annual budget of about $3 billion, the mission of the 
Electronic Systems Center is to develop, acquire, modernize, and 
integrate command and control, intelligence, surveillance and 
reconnaissance capabilities, as well as combat support information 
technology systems. According to the center, advisory and assistance 
services contractor employees comprise a substantial portion of its 
workforce helping to execute this mission. And, according to the 
center's law division, although these contractor employees cannot 
perform inherently governmental functions, they do provide essential 
technical and business advice and expertise that may be highly 
influential in decision making by government employees. 

Given the close relationship between Air Force decision-makers and 
federal employee advisors at the center--who are both required to 
identify and avoid financial conflicts--and contractor employees 
directly advising them in these roles, the clause (as shown in table 
11), which has been used for advisory and assistance services contracts 
for at least 10 years, provides a mechanism to address potential and 
actual contractor financial conflicts that could affect the integrity 
of the procurement system. According to the center, the clause places 
an obligation on the part of the contractor to monitor for personal 
financial conflicts of interest and maintain its own disclosure 
records. The center does not routinely monitor or review these records, 
but relies on a self-certification model, consistent with its treatment 
of similar requirements in such contracts. 

Table 11: Financial Conflict of Interest Clause Used by the Air Force's 
Electronic Systems Center for Advisory and Assistance Services 
Contracts: 

Part I--The Schedule: 
Section H--Special Contract Requirements: 
Section H Fa8721-07-F-0103: 

ESC.H008: Financial Conflict Of Interest (April 2007); 
Except as provided for under subparagraph (d) hereof, the prime 
contractor shall not assign, nor allow any employee for whom it 
receives payment under this contract to perform any task under this 
contract concerning any program, prime contractor, contract, or other 
matter in which that employee, or that employee's spouse, minor child 
or household member has a financial interest. For each employee who 
performs a task in violation of this prohibition, the price of the 
contract line item number (CLIN) under which the prime contractor 
receives payment for that performance shall be reduced by the product 
of the hourly rate prescribed for that employee in the schedule 
(including wages, indirect costs, general and administrative expenses 
and profit), multiplied by the number of hours in which that employee 
was performing the task in violation of this prohibition, and the prime 
contractor shall forfeit any right to receive said payment. Direct and 
indirect costs allocable to the expended hours for which payment has 
been forfeited shall be accounted for as unallowable costs and shall 
not be charged to this or any other Government contract. 

A financial interest consists of any interest in, or affiliation with, 
a prime contractor, a subcontractor to a prime contractor, any 
offerors, or any prospective subcontractor to any offeror for the 
program, contract, or other matter for which the employee is performing 
the support task under this contract. A financial interest does not 
consist of an interest in, or affiliation with, the prime contractor 
that is the party to this contract. The financial interest can take the 
form of any ownership interest (e.g. stock; ownership of bonds; a loan 
or other financial arrangement that is other than an arm's length 
transaction; employment, or an arrangement concerning prospective 
employment, including negotiations therefore, or, any non-arm's length 
loan, any gift from, or any other non-arm's length financial 
arrangement or interest with, any person who is directly communicating 
with the Government on behalf of any prime contractor, subcontractor 
holder thereto, or any prospective subcontractor or offeror as 
described above). 

The prime contractor shall obtain and maintain, as part of its 
personnel records, a financial disclosure statement from each employee 
assigned to perform support tasks for the Government under any order 
resulting from this program. The financial disclosure statement shall: 
(1) list any financial interests described in subparagraph (b) hereof, 
(2) be obtained not later than each employee's initial assignment to a 
support task under this program, (3) be updated at least annually, and 
(4) be reviewed by the prime contractor with each employee on an annual 
basis during the term of the orders under this program. 

Whenever the prime contractor wishes to assign an employee to perform a 
task on an order under this program concerning any program, contract, 
prime contractor, or other matter in which the employee has a financial 
interest as defined under subparagraph (b) hereof, the prime contractor 
shall, before making the assignment, obtain a written waiver from the 
primary contracting officer (PCO), by submitting to the PCO a written 
request for waiver including all relevant supporting information. The 
PCO shall have the sole discretion to grant or deny the waiver in whole 
or in part. The PCO's determination shall be discretionary, final and 
conclusive and not subject to appeal under the Disputes clause or the 
Contract Disputes Act of 1978. 

The prime contractor shall, upon written request by the PCO, and at no 
increase in contract price, make such financial disclosure statement 
available to the Government for inspection and review. 

Source: Electronic Systems Center. 

[End of table] 

Army Communications Electronics Lifecycle Management Command: 

In August 2007, the chief of the command's Acquisition Process Change 
Group distributed a policy applicable to all of the command's 
contracting activities to establish personal conflict of interest 
safeguards to be addressed for contractor employees as part of current 
contracting procedures for identifying, evaluating, and resolving 
organizational conflicts of interest. The underlying principles behind 
the revised policy are preventing the existence of conflicting roles 
that might bias a contractor's judgment and unfair competitive 
advantage. According to the command's policy, conflicts of interest are 
more likely to occur in support services contracts involving: 

* management support services; 

* consultant or other professional services; 

* contractor performance of or assistance in technical evaluations; 

* preparing specifications or work statements; and: 

* systems engineering and technical direction work performed by a 
contractor that does not have overall contractual responsibility for 
development or production. 

In the acquisition planning process for all support services, the 
contracting officer is required to use local clause HS6001, 
Organizational Conflict of Interest, in the solicitation and contract 
(see table 12). As a condition of award, the contractor is required to 
have its employees and subcontractors who will perform work on the task 
execute the Contractor-Employee Personal Financial Interest/Protection 
of Sensitive Information Agreement, to maintain copies of those 
agreements, and provide them to the contracting officer upon request. 

Table 12: Organizational Conflict of Interest Clause Used by the Army's 
Communications Electronics Lifecycle Management Command for Support 
Services Contracts: 

Prescription: 
(a) Insert in solicitations and contracts when (1) the contractor will 
provide support services (e.g., program management support services, 
budgeting or accounting services or advisory and assistance services 
including consultant services, and (2) the contracting officer has 
reason to believe the conditions of FAR 9.505 apply. It is only 
necessary for a potential conflict to exist. The Contracting Officer 
needs to consider input from the requiring activity, legal counsel, and 
even the contractor itself when considering the need for and nature of 
any potential organizational conflict of interest clause. Prior to 
insertion of this clause, the approval of the Chief of the Contracting 
Office (i.e., Director, CECOM LCMC Acquisition Center) must be obtained 
in accordance with FAR 9.506. 

(b) The nature of any potential conflict of interest will vary. 
Therefore, the Contracting Officer may modify the language of paragraph 
(b), to specify the program or acquisition for which the organizational 
conflict of interest applies or may apply. Paragraph (c)(2) may also be 
modified as to the elements to be addressed in a mitigation plan to 
delete overly burdensome or complex elements for small businesses, or 
to add items for more complex programs (e.g., a plan addressing 
subcontractors with potential organizational conflict of interests.) 

HS6001 Organizational Conflict Of Interest (August 2007); 
(a) Definition. Per FAR 2.101, an "organizational conflict of interest 
means that because of other activities or relationships with other 
persons, a person is unable or potentially unable to render impartial 
assistance or advice to the Government, or the person's objectivity in 
performing the contract work is or might be otherwise impaired, or a 
person has an unfair competitive advantage." It does not include the 
normal flow of benefits from incumbency; 

(b) The Contracting Officer has determined that potentially significant 
organizational conflicts of interest may arise due to the nature of the 
work the Contractor will perform under this contract that may preclude 
the Contractor from being awarded future CECOM LCMC Acquisition Center 
contracts in a related area. Whereas the Contractor has agreed to 
undertake this contract to provide ________________________________ 
[Contracting Officer insert the program or acquisition], it is agreed 
that the Contractor shall be ineligible to act as a prime contractor, 
consultant, or subcontractor to any prime contractor or subcontractor 
at any tier who is to supply the services, system or major components 
thereof for any project where the Contractor has provided or is 
providing support as described in FAR 9.505-1 through 9.505-4; 

(c) The Contracting Officer may make a determination to allow a 
Contractor to participate in an acquisition subject to the submission 
of an acceptable mitigation plan in accordance with paragraphs (1) and 
(2) below. This determination may not be appealed; (1) If the 
Contracting Officer requests, and the Contractor submits an 
organizational conflict of interest mitigation plan that, after 
Government review is acceptable to the Government, the Contractor's 
parent corporation, subsidiaries, or other physically separate profit 
and loss centers may not be precluded from acting as a subcontractor or 
consultant on future CECOM LCMC Acquisition Center contracts. The 
Government's determination regarding the adequacy of the mitigation 
plan or the possibility of mitigation are unilateral decisions made 
solely at the discretion of the Government and are not subject to the 
Disputes clause of the contract. The Government may terminate the 
contract for default if the Contractor fails to implement and follow 
the procedures contained in any approved mitigation plan; (2) Any 
mitigation plan shall include, at a minimum, non-disclosure agreements 
to be executed by the Contractor and the Contractor's employees 
supporting the Government per paragraph (c) above. Items for 
consideration in a mitigation plan include the following: 
identification of the organizational conflict(s) of interest; reporting 
and tracking system; an organizational conflict of interest compliance/ 
enforcement plan, to include employee training and sanctions, in the 
event of unauthorized disclosure of sensitive information; a plan for 
organizational segregation (e.g., separate reporting chains); and data 
security measures; 

(d) These restrictions outlined in paragraph (b) shall apply to 
____________________[Contracting Officer insert the company name upon 
award of the contract]. This clause shall remain in effect for 
_________________ [Contracting Officer insert timeframe, which should 
normally be one year after completion of this contract. However, the 
contracting officer may insert a different timeframe, if another 
timeframe is justified]; 

(e) The Contractor shall apply this clause to any subcontractors or 
consultants, who have access to information, participate in the 
development of data, or participate in any other activity related to 
this contract which is subject to terms of this clause at the prime 
contractor level, unless the Contractor includes an acceptable 
alternate subcontractor provision in its mitigation plan. For 
subcontractors or consultants under this contract, if an organizational 
conflict of interest mitigation plan is submitted and acceptable to the 
Government, the subcontractor's parent corporation, subsidiaries, or 
other physically separate profit and loss centers may not be precluded 
from acting as a prime, subcontractor, or consultant on future CECOM 
LCMC Acquisition Center contracts; 

(f) The Contractors employees shall be trained and informed of Subpart 
9.5 of the FAR and this contract provision, and shall execute a 
"Contractor-Employee Personal Financial Interest/Protection of 
Sensitive Information" Agreement as appropriate; 

(g) The Contactor agrees that it will use all reasonable diligence in 
protecting proprietary data received by it. The Contractor further 
agrees it will not willfully disclose proprietary data to unauthorized 
parties without the prior permission of the Government, and that 
proprietary data shall not be duplicated, used or disclosed, in whole 
or part, for any purpose other than to accomplish the contracted 
effort. This restriction does not limit the contractors right to use, 
duplicate or disclose such information if such information was lawfully 
obtained by the contractor from other sources; 

(h) The Contractor agrees to enter into written agreements with all 
companies whose proprietary data it shall have access and to protect 
such data from unauthorized use or disclosure as long as it remains 
proprietary. The Contractor shall furnish to the Contracting Officer 
copies of these written agreements. The Contractor agrees to protect 
the proprietary data and rights of other organizations disclosed to the 
Contractor during performance of this contract with the same caution 
that a reasonably prudent Contractor would use to safeguard highly 
valuable property. The Contractor agrees to refrain from using 
proprietary information for any purpose other than that for which it 
was furnished; 

(i) The Contractor shall not distribute reports, data or information of 
any nature arising from its performance under this contract, except as 
provided by this contract or as may be directed by the Contracting 
Officer; 

(j) Government Representatives shall have access to the Contractors 
premises and the right to inspect all pertinent books and records in 
order to insure that the contractor is in compliance with FAR 9.5; 

(k) The Contractor agrees that if after award it discovers a potential 
organizational conflict of interest, a prompt and full disclosure shall 
be made in writing to the Contracting Officer. This disclosure shall 
include a description of the actions the Contractor has taken or 
proposes to take, to avoid or mitigate such conflicts; 

(l) The Government may waive application of this clause when it is 
determined to be in the best interest of the Government to do so. 

Source: Communications Electronics Lifecycle Management Command. 

[End of table] 

[End of section] 

Footnotes: 

[1] By "contractor employee in the workforce," we mean nongovernment 
employees in various DOD offices, including FFRDC employees and 
subcontractors to DOD contractors. 

[2] A function is inherently governmental if it is "so intimately 
related to the public interest as to mandate performance by government 
employees" either because the function involves the discretionary 
exercise of government authority or monetary transactions and 
entitlements. Federal Acquisition Regulation (FAR) 2.101. Consistent 
with the types of services described above, FAR 2.101 describes a broad 
range of advisory and assistance services that can be provided under 
contract to support and affect government decision-making, for example, 
program management support, systems engineering, technical assistance, 
contract and acquisition support, budgeting, and direct support of a 
weapon system that is essential to the research, development, 
production, operation, or maintenance of the system. 

[3] FAR 7.503 (d)(8). 

[4] Both federal employees and contractor employees involved in source 
selection and related activities supporting award of government 
contracts are subject to laws and regulations to prevent release of 
protected procurement-related information. 41 U.S.C. 423(a) and FAR 
3.104-4. 

[5] 18 U.S.C. ï¿½ 201. 

[6] DFARS ï¿½ 203.70--Contractor Standards of Conduct. 

[7] Contractors receiving awards worth more than $5,000,000 and 
involving work in excess of 120 days are required to have a written 
code of business ethics and conduct. The rule allows for flexibility 
and where appropriate, contractor discretion, by providing certain 
exemptions for small businesses. In addition, it does not apply to 
contracts for commercial items or to contracts performed outside the 
U.S. FAR Subpart 3.10. 

[8] Under Electronic Systems Center policy, this clause is to be used 
for a full range of advisory and assistance services that include 
providing essential technical and business advice that may be highly 
influential in government employees's decision making. These advisory 
and assistance services include preparation of specifications, 
contractor performance monitoring, analysis and evaluation of technical 
performance issues, etc. 

[9] Under the command's policy, its clause is to be used for all 
support services for program management support services, budgetary or 
accounting services, or advisory and assistance services including 
consultant services. 

[10] According to the company, the employee's 2006 conflict of interest 
certification disclosed through the company's process that his wife had 
started working 7 months earlier as a product line manager for a prime 
contractor that is one of the firms whose work was reviewed by this 
employee under the subcontract. Upon further investigation, the 
contractor determined that 85 percent of this employee's tasks 
consisted of review of data from the company where his wife now worked. 
After the company offered to reassign him to another contract to avoid 
the conflict of interest, the employee resigned rather than have a 
longer commute. 

[11] One firm did not respond to our request for documentation of their 
ethics policy, nor did they indicate to us that they have any such 
policy. 

[12] For example, this contractor has employees who assist the Air 
Force in preparing source selection material, development of evaluation 
criteria, assist source selection teams in the evaluation of proposals, 
and provide support to past performance and cost evaluation teams. 

[13] DOD agencies fund FFRDCs that are operated by universities or 
nonprofit organizations under long-term contracts. Provisions of the 
Competition in Contracting Act authorize agencies to award these 
contracts noncompetitively. 10 U.S.C. ï¿½ï¿½ 2304(b)(1)(C) and (c)(3)(B). 

[14] In September 2006, the president and trustee of the Institute for 
Defense Analyses resigned before it was determined by DOD's Inspector 
General that his position on two defense subcontractors' corporate 
boards violated the FFRDC's conflicts of interest policy. In July of 
that year, his dual roles as FFRDC president and as a member of one of 
the defense subcontractor's board of directors drew public and 
congressional scrutiny regarding a business case for the Air Force on 
the multi-year procurement of the F-22 Raptor aircraft. Because this 
subcontractor manufactures a missile launcher for the F-22 aircraft's 
prime contractor, conflict of interest concerns were raised that the 
FFRDC president stood to financially profit from a favorable multi-year 
procurement decision for the F-22. 

[15] The FAR requires an FFRDC to conduct its business in a manner 
befitting its special relationship with the government, to operate in 
the public interest with objectivity and independence, to be free from 
organizational conflicts of interest, and to have full disclosure of 
its affairs to the sponsoring agency. FAR 35.017. 

[16] According to a senior vice president and general counsel with this 
FFRDC, the company had submitted documentation on its robust and long- 
time collection of ethics and conflicts of interest practices and 
programs to demonstrate its commitment to objectivity and freedom from 
conflicts of interest and in its opinion, it has an effective program 
in place and does not need to implement the additional requirements set 
forth in DOD's new FFRDC policy. As of October 2007, the official told 
us that this FFRDC is awaiting a response from its DOD sponsor to its 
February 2007 questions including how best to report potential 
conflicts even if the company determines that the conflict does not 
exist. 

[17] When review of a disclosure reveals the existence of an actual or 
potential conflict, FFRDC ethics officials told us that their ethics 
procedure provides such mitigations as disqualification from being 
assigned to the DOD task, reassignment, or divestiture. 

[18] One contractor firm did not respond to our request for 
documentation of its ethics policy. 

[19] The Federal Acquisition and Streamlining Act of 1994 defines 
advisory and assistance services as management and professional support 
services; studies, analyses, and evaluations; and engineering and 
technical services. As defined in the FAR, these types of contract 
services are to support or improve agency functions, such as program 
management, decision making, and administration. FAR 2.101. 

[20] On behalf of DOD's General Counsel, the Standards of Conduct 
Office, which is part of the Defense Legal Services Agency, is 
responsible for overseeing the ethics and standards of conduct programs 
throughout DOD, including providing guidance to the Army, Navy, Air 
Force, and defense agencies. 

[21] The FAR Council was established to assist in the direction and 
coordination of governmentwide procurement policy and regulatory 
activities in the federal government. The Council manages, coordinates, 
controls, and monitors the maintenance and issuance of changes in the 
FAR. 

[22] In February 2007, the Under Secretary of Defense (Acquisition, 
Technology, and Logistics) established the Panel on Contracting 
Integrity, as required by section 813 of the fiscal year 2007 defense 
authorization act (Pub. Law No. 109-364). The panel's executive 
director is the Director, Defense Procurement and Acquisition Policy, 
and includes more than 20 senior-level procurement executives, 
inspector general, and other representatives from across DOD as 
members. As required by the act, the first annual report to Congress 
was issued in December 2007 on the panel's findings and recommendations 
to foster and monitor contracting integrity across the department. 

[23] Report of the Acquisition Advisory Panel to the Office of Federal 
Procurement Policy and the United States Congress (Washington, D.C.: 
January 2007). 

[24] According to the panel's report, such clauses would not 
necessarily impose specific prohibitions on contractors and or their 
employees. Rather, it might be possible to achieve an appropriate level 
of integrity on the part of contractors and their employees by 
developing general ethical guidelines and principles and/or by 
requiring disclosure of potential conflicts of interest. 

[25] A separate proposed rule was recently published at the request of 
the Justice Department to amend the FAR to require that companies 
holding certain types of contracts disclose suspected violations of 
federal criminal law in connection with the award or performance of 
contracts, or face suspension or debarment. Public comments were due in 
January 2008. 72 Fed. Reg. 64019-23 (Nov. 14, 2007). 

[26] Task orders are placed against a preexisting contract for services 
that does not procure or specify a firm quantity (other than a minimum 
or a maximum quantity) and that provides for the issuance of orders for 
the performance of tasks during the period of the contract. FAR 16.501- 
1. 

[End of section] 

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