Government Contractors: Selected Agencies' Efforts to Identify
Organizational Conflicts of Interest (Letter Report, 10/25/95,
GAO/GGD-96-15).

Pursuant to a legislative requirement and a congressional request, GAO
reviewed three federal agencies' implementation of the Office of
Management and Budget's (OMB) policies on conflicts of interest,
focusing on: (1) whether the agencies have complied with existing
requirements to identify and evaluate potential organization conflicts
of interest (OCI); and (2) ways that agencies could improve their
screening for such conflicts.

GAO found that: (1) although the Environmental Protection Agency (EPA)
and the Department of Energy (DOE) obtained contractors' OCI
certifications in almost all of the cases reviewed, the Navy failed to
obtain OCI certifications in most cases, mainly because contracting
officers did not request or require them; (2) the Navy has since
stressed the importance of obtaining OCI certifications; (3) a 1993
Presidential council report showed that only 9 of 19 agencies reviewed
obtained OCI certifications; (4) many agency officials did not believe
the certifications were an effective deterrent; (5) self-certifications
have limitations because differences of opinion or interpretation cause
potential OCI underreporting; (6) the OMB requirement that agencies
evaluate the potential for OCI is an important supplemental control; (7)
DOE and EPA have conducted preaward evaluations for potential OCI; (8)
although the Navy has not routinely conducted required preaward OCI
evaluations, it has tried to prevent future conflicts of interests; and
(9) agencies could improve their screening for OCI by ensuring that all
responsible officials receive OCI training to avoid misinterpretation.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-96-15
     TITLE:  Government Contractors: Selected Agencies' Efforts to 
             Identify Organizational Conflicts of Interest
      DATE:  10/25/95
   SUBJECT:  Conflict of interest
             Reporting requirements
             Procurement regulation
             Compliance
             Preaward evaluation
             Consultants
             Federal procurement
             Federal procurement policies
             Information disclosure

             
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Cover
================================================================ COVER


Report to Congressional Committees

October 1995

GOVERNMENT CONTRACTORS - SELECTED
AGENCIES' EFFORTS TO IDENTIFY
ORGANIZATIONAL CONFLICTS OF
INTEREST

GAO/GGD-96-15

Government Contractors

(966588)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  DOE - Department of Energy
  EPA - Environmental Protection Agency
  FAR - Federal Acquisition Regulation
  IG - Inspector General
  OCI - organizational conflict of interest
  OMB - Office of Management and Budget
  PCIE - President's Council on Integrity and Efficiency

Letter
=============================================================== LETTER


B-260246

October 25, 1995

The Honorable Ted Stevens
Chairman, Committee on
 Governmental Affairs
United States Senate

The Honorable John Glenn
Ranking Minority Member
Committee on Governmental Affairs
United States Senate

The Honorable David H.  Pryor
Ranking Minority Member
Subcommittee on Post Office and Civil Service
Committee on Governmental Affairs
United States Senate

The Honorable William F.  Clinger, Jr.
Chairman, Committee on Government
 Reform and Oversight
House of Representatives

The Honorable Cardiss Collins
Ranking Minority Member
Committee on Government Reform
 and Oversight
House of Representatives

This report responds to a legislative requirement (P.L.  100-463)
that we review agency implementation of the Office of Management and
Budget's (OMB) Policy Letter 89-1, "Conflict of Interest Policies
Applicable to Consultants," dated December 8, 1989.  This report also
responds to a request from the Ranking Minority Member, Subcommittee
on Post Office and Civil Service, Senate Committee on Governmental
Affairs, that we review organizational conflict of interest (OCI)
requirements applicable to advisory and assistance service
contractors, including consultants.  Because the request was similar
to the legislative requirement, we are issuing one report on this
subject.  Our objectives were to (1) determine whether selected
agencies have complied with existing requirements to identify and
evaluate potential OCIs and (2) identify ways, if any, that agencies
might improve their screening for such conflicts.  We selected the
Department of Energy (DOE), the Environmental Protection Agency
(EPA), and the Department of the Navy (Navy) for review because they
were among the largest users of contracted advisory and assistance
services. 


   BACKGROUND
------------------------------------------------------------ Letter :1

OMB Policy Letter 89-1, "Conflict of Interest Policies Applicable to
Consultants," issued by the Office of Federal Procurement Policy,
establishes federal policy relating to OCI standards for persons who
provide consulting services, including advisory and assistance
services, to the government.\1 The federal government obligated about
$14 billion for consulting and advisory and assistance services in
fiscal year 1994.  They included activities such as special studies
and analyses and professional, administrative, and management support
services. 

The policy letter defines a conflict as a condition or circumstance
in which a person is unable or potentially unable to render impartial
assistance or advice to the government because of other activities or
relationships with other persons or organizations, or where a person
has an unfair advantage in competing for a federal contract.  The
policy letter also provides examples of potential OCI situations. 
One could include a situation where a contractor is providing advice
and assistance to an agency where such advice and assistance could
benefit the contractor's other clients.  Another situation could
include a contractor hired to evaluate a third party's products or
services when the contractor is or was substantially involved in the
development or marketing of those products or services. 

To help avoid conflicts of interest, the policy letter states that
for contracts over $25,000, contractors must submit to the agency a
certificate describing the nature of the services to be rendered and
a statement that (1) no actual or potential organizational conflict
of interest exists, or (2) any actual or potential conflict has been
communicated in writing to the contracting officer.  In addition, the
policy letter requires agency officials to evaluate the potential for
a conflict of interest and to determine whether an actual conflict
exists before a contract is awarded.  In carrying out this
responsibility, information from the contractor's certificate and any
other available information may be used. 

The provisions of the OMB policy letter are implemented by the
Federal Acquisition Regulation (FAR).  The FAR sets forth
governmentwide regulations and requirements, including requirements
for avoiding and mitigating organizational conflicts, for all types
of procurement by contract.  For example, the FAR requires agencies
to determine whether an OCI exists before awarding a contract for all
types of services, including advisory and assistance services as well
as others not covered by the policy letter.  The FAR lists certain
sources of information that may be used to help identify conflicts. 
These include sources within the government, such as personnel within
the contracting office and other contracting offices, and
nongovernment sources, such as publications and credit rating
services. 


--------------------
\1 Certain services, such as routine engineering and technical
services, routine legal and accounting services, and training
services are excluded from the coverage of Policy Letter 89-1. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Agency compliance with the requirement to obtain contractors' OCI
certifications has varied.  At DOE and EPA--two of the three agencies
we reviewed--the certificates were being obtained in almost all cases
that we reviewed.  To evaluate Navy compliance with the certification
requirements, we relied on a 1994 study made by the Department of
Defense (DOD) Inspector General (IG).  The IG determined that in
almost all cases it reviewed, the Navy had not obtained contractors'
OCI certifications.  The IG concluded that the certificates were not
being submitted by contractors because they were not being requested
or required by contracting offices.  In response to recommendations
made by the IG, the Navy reemphasized to contracting officials the
importance of obtaining OCI certificates. 

In addition, the President's Council on Integrity and Efficiency
(PCIE) reviewed agency compliance with the certification requirement. 
In April 1993, PCIE reported that only 9 of 19 agencies it reviewed
had obtained the required certificates.  EPA was included in the
study but was unable to respond at the time because needed
information was not available from agency records.  EPA later
concluded that it was complying.  DOE and Navy were not included in
the PCIE study.  The PCIE report did not cite a reason for the
noncompliance, but indicated that agency officials generally believed
that OCI self-certification would do little to deter dishonest
contractors.  In our view, the perceptions of agencies' officials
that contractor self-certifications have limitations have merit.  For
example, even in situations where a potential contractor made a good
faith effort to identify potential conflicts, differences of opinion
or interpretation could cause a potential conflict not to be
reported.  Accordingly, the policy letter requirement that agency
officials evaluate the potential for conflicts is an important
supplementary control.  Our review of DOE and EPA contracts showed
that both made the required evaluations to detect conflicts of
interest. 

Our review showed that the Navy did not routinely conduct OCI
evaluations prior to award as required by the FAR.  Instead, the Navy
generally concentrated on the possibility that future benefits may
accrue to the contractor, and used contract clauses to prevent such
situations.  However, corrective action was taken during our review
to reemphasize the need for contracting officials to comply with the
FAR's requirements on conflict of interest evaluations. 

We identified two opportunities to help agencies improve their
screening for OCI situations.  The first involves ensuring that
responsible agency officials receive OCI training.  Twenty-two of the
66 contracting officials that we spoke with had not received such
training.  Nineteen of the 66 officials (29 percent) thought that
more training would be helpful.  The second opportunity involves
taking steps to avoid interpreting the FAR to imply that if OCI
certifications have been obtained from contractors, agencies should
not obtain other information in conducting an evaluation of the
potential for conflicts of interest.  In evaluating the potential for
conflicts of interest, contracting officers may use any substantive
information that is available, whether or not the certificates have
been obtained. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

We reviewed instructions for identifying organizational conflicts of
interest contained in the FAR and in OMB Policy Letter 89-1.  We also
reviewed agency-specific procurement regulations at the agencies
selected for review--DOE, EPA, and Navy. 

To determine whether agencies were complying with the requirements,
we reviewed a sample of advisory and assistance service contracts
from a fiscal year 1992 contract universe provided by the Federal
Procurement Data Center for DOE, EPA, and Navy.  Fiscal year 1992 was
the most recent year for which data were available when we began our
work. 

We generated a random list of contracts identified by the Federal
Procurement Data Center as being for advisory and assistance services
and selected 102 contracts for review from the above agencies
(DOE-36, EPA-26, Navy-40).  Our sample included DOE contracts
administered by the agency's Washington, D.C., headquarters and field
locations in Colorado.  Navy contracts included contracts from that
agency's headquarters as well as field locations in California.  EPA
contracts included contracts administered at its Washington, D.C.,
headquarters and at a Pennsylvania field location.  Because of travel
costs and other considerations, our sample was of a limited size and
was not designed to be projectable. 

We reviewed contract files to determine compliance with contractor
certification requirements and to obtain documentation on the nature
and extent of agency OCI reviews.  The Navy did not consider the
contracts selected to be for advisory and assistance services, but to
be for routine technical and engineering services which are not
subject to contractor certification requirements in the policy
letter.  Rather than resample Navy contracts to test compliance with
the certification requirements, we relied on a DOD IG report,
Organizational and Consultant Conflicts of Interest (Report No. 
94-174, August 10, 1994).  We discussed the report with DOD IG
officials and reviewed the supporting working papers.  We reviewed
the 40 Navy contracts we had selected, however, to test compliance
with the OCI evaluation requirements set forth in the FAR. 

We discussed OCI review procedures with agency officials.  To do
this, we judgmentally selected 32 contracts from our sample and
identified a total of 66 procurement, program, and General Counsel
officials who were responsible for them.  We interviewed these
officials to obtain an understanding of the steps followed as well as
the types of external sources of information such as contractor
annual reports and marketing brochures used in making OCI
determinations.  We also discussed OCI training with these 66
officials to, among other things, obtain (1) information on the
extent that they had received OCI training and (2) their views on the
value of additional training.  We reviewed available training
material at DOE and EPA to determine the content and nature of
training provided. 

We reviewed an April 1993 survey report prepared by the PCIE on the
implementation of OMB Policy Letter 89-1.  We also discussed the
report with PCIE officials and reviewed PCIE workpapers. 

We did our work at the agencies' headquarters in the Washington,
D.C., area and selected field locations between April 1993 and July
1995 in accordance with generally accepted government auditing
standards.  We requested oral comments on a draft of this report from
the Secretaries of DOD, Navy, and DOE, the Administrator of EPA, and
the Director of OMB or their designees.  Their comments are discussed
on pages 15 to 17.. 


   COMPLIANCE WITH THE
   CERTIFICATION REQUIREMENT HAS
   VARIED
------------------------------------------------------------ Letter :4

Agency compliance with the requirement for obtaining contractors' OCI
certifications or advisory and assistance service contracts has
varied.  At two of the three agencies we reviewed--EPA and DOE--we
found certificates in contract files in almost all cases in which
they were required.  For example, 19 of the 26 EPA contracts we
selected were subject to the certification requirement because they
had been awarded after the issuance of OMB Policy Letter 89-1.  We
found certificates for 18 of them.  Of 36 DOE contracts, 26 were
subject to the certification requirement.  Certificates had been
filed for 25 of them.  Officials at both agencies believed that the
two missing certifications had been received but had not been
included in the contract file. 

To check Navy's compliance with the certification requirement, we
relied on the 1994 DOD IG study.  This study was done to determine
whether DOD contracting offices had effectively implemented FAR OCI
policies and procedures when planning procurements and awarding
contracts.  The IG study included 46 contracting activities in the
Army, Navy, Air Force, the Defense Supply Service - Washington, the
Advanced Research Projects Agency, and the Defense Nuclear Agency. 

The IG reported that, in most cases, DOD contracting officers failed
to obtain the OCI certificates required by the FAR.  Of 101 contracts
reviewed, the IG determined certificates were required for 28
contracts.  Certificates were not, however, obtained for 25 of the 28
contracts.  Twelve of the 28 contracts requiring certificates were
Navy contracts.  Certificates were only obtained for two of them. 
Contracting officers at five contracting activities told the IG that
contractors probably ignored the applicable FAR provisions.  The IG
concluded that certificates were not being submitted because they
were not requested or required by contracting offices.  The IG
recommended that service procurement officials take steps to ensure
compliance with the FAR requirements concerning OCI contractor
certificates.  In July 1994, the Director of Defense Procurement
requested defense agencies to remind contracting officers to obtain
the certificates.  In addition, in September 1994, the Navy
reemphasized to Navy contracting offices the importance of obtaining
the required contractor certificates. 

The PCIE had also reviewed agency compliance with the certification
requirements.  Its April 1993 report stated that of 19 agencies
reviewed, contractors' certifications were obtained only at 9 of
them.  EPA, one of the agencies we reviewed, did not provide
information on the number of certificates because it was not
available from agency records.  EPA conducted its own sample and
found that the certificates had been filed.  DOE and DOD did not
participate in the PCIE study.  The PCIE report did not cite a reason
for the noncompliance, but indicated that agency officials generally
believed contractors' self-certification would do little to deter
dishonest contractors. 

While contractor certifications are important controls required by
the FAR and the OMB policy letter, the perceptions of agency
contracting officials that contractors' self-certifications have
limitations appear to have merit.  For example, it is possible that
even if a contractor made a good faith effort to identify and report
potential conflicts of interest, some might be missed or go
unreported because of different interpretations of the policy letter
and what constitutes a conflict.  Consequently, independent efforts
by agencies to obtain additional information to use in identifying
and evaluating potential conflicts are, in our view, particularly
important supplementary controls. 


   AGENCY ORGANIZATIONAL CONFLICT
   OF INTEREST EVALUATIONS
------------------------------------------------------------ Letter :5

Policy Letter 89-1 and the FAR require that contracting officers,
prior to contract award, evaluate and identify the potential for such
conflicts that could be prejudicial to the interest of the federal
government with regard to persons who provide advisory and assistance
services and take steps to avoid or mitigate any conflicts believed
to exist.  We reviewed 62 advisory and assistance service contracts
at DOE and EPA.  Our review showed that contracting officials had
conducted the required evaluations before awarding the contracts. 

We also reviewed case files for the 40 Navy contracts we had
selected.  As discussed on page 5, these contracts were identified by
Navy officials as involving routine engineering and technical
services rather than advisory and assistance services, and were
consequently not subject to Policy Letter 89-1.  However, the FAR
still requires agencies to evaluate such acquisitions for potential
conflicts of interest prior to contract award.  Our contract file
review found little documentation of such evaluations and contracting
officials whom we spoke with said they were not frequently done. 
However, during our review, corrective action was taken in the form
of various directive memorandums to reemphasize the need for
contracting officials to comply with the FAR's requirements on
conflict of interest evaluations. 


      EVALUATIONS OF DOE AND EPA
      ADVISORY AND ASSISTANCE
      CONTRACTS
---------------------------------------------------------- Letter :5.1

The DOE and EPA contracts we reviewed included such advisory and
assistance services as health and safety assessments, environmental
studies and audits, assistance in developing regulations, and
analyses of the impact of regulations.  The nature of potential
conflicts involved contractors performing work that could benefit the
contractor or other clients of the contractor, or evaluating products
or services in which the contractor had a financial interest. 

Both DOE and EPA have agency-specific instructions and guidance that
supplement Policy Letter 89-1 and the FAR.  For example, a DOE order
outlines the responsibilities of contracting personnel and describes
OCI procedures.  DOE procedures include controls such as (1)
requiring the technical representative or contract specialist to
complete an OCI abstract that focuses on specific questions to be
asked for each procurement and (2) requiring contractors to complete
an OCI questionnaire.  EPA has a procurement policy notice that
describes similar procedures. 

Our review of 36 advisory and assistance service contract files at
DOE and 26 contract files at EPA indicated that evaluations aimed at
identifying potential conflicts of interest, as called for by the
policy letter and the FAR, had been made.  The files generally
included the types of documentation called for by agency-specific
procedures.  In addition, the files often included other sources of
information for use by contracting officials in making OCI
determinations.  These included contractor marketing brochures,
resumes of contractor personnel, and lists of a contractor's other
contracts.  Such sources can provide important information to
contracting officials in making OCI determinations. 

The following two examples--both at EPA--illustrate the importance of
agencies' reviews to identify and evaluate potential conflicts of
interest. 

Case 1.  In this case, EPA awarded a $23 million contract in February
1993 for the study of the economic and environmental impacts of the
Clean Air Act's provisions regulating acid rain.  In August 1992,
before the contract award, program officials who reviewed the
contractor's proposal discovered the potential for a conflict and
expressed their concern.  The contractor had several contracts with
electric utilities and a coal company.  These industries have been
identified as prime contributors to acid rain.  The officials
believed that such industry ties could possibly impair the
contractor's objectivity in evaluating the Clean Air Act's provisions
regulating acid rain. 

Also, two of the contractor's subsidiaries had contracts with third
parties that could cause potential conflicts of interest.  One
subsidiary had contracts of its own with electric utilities.  The
other subsidiary owned the licensing rights of various technologies
that the contractor was to evaluate under the EPA contract. 

The contractor acknowledged in a September 1992 letter to the
pre-award contracting officer that the appearance of a conflict
existed.  The contractor pointed out that "the electric utility
industry is the principal constituent of the acid rain program's
regulated community, and the mere fact of providing professional
services under contract both to the regulated community and to the
community of regulators can create the appearance of potential
conflict of interest."

After examining the potential conflicts of interest, EPA had the
contractor prepare a conflict avoidance plan and awarded the
contract.  Among other things, the plan prohibited the employees of
the contractor who had worked on other projects that could cause a
conflict situation from taking part in the EPA work.  We did not
evaluate the reasonableness of the avoidance plan. 

Case 2.  This case involved the award by EPA of a $50 million
contract in March 1994 for the identification of parties responsible
for pollution at Superfund sites in one of EPA's regions.  Under the
Superfund law, parties responsible for contaminated sites may be
required to clean them up or to reimburse EPA for the cleanup it
performs. 

As instructed by EPA, the contractor searched EPA's list of potential
polluters in the region to identify any party on the list with which
the contractor could have a conflict of interest.  The contractor
reported that it had business relationships with approximately 40
parties on EPA's list of potential polluters, but did not believe
they would constitute a conflict of interest.  The contractor
certified to EPA that it was unaware of any potential conflict of
interest. 

According to the pre-award contract officer, he and the technical
evaluation panel reviewed the identified relationships and found no
apparent conflict.  He pointed out, however, that it was difficult to
determine whether the business relationships constituted a conflict
because actual work assignments and pollution sites had not been
identified.  He said that the subject contract was essentially
considered a contract vehicle with no specific requirements.  After
the contract was entered into, work assignments were issued with
specific requirements to be performed under the contract at
specifically identified pollution sites. 

Another contracting officer was responsible for the post-award
contract.  He identified 410 potential polluters for a site in a work
assignment he issued.  Out of the 410, the contractor had identified
approximately 40 with which it had 500 to 1,000 contractual
relations.  The contracting officer reviewed the contractual
relationship with each of the potential polluters and determined that
four would be in conflict with the efforts to be performed under the
work assignment.  The work assignment was issued after the
investigative activities to be performed by the contractor, which
were considered most susceptible to conflicts of interest, were
deleted. 


      NAVY DID NOT ROUTINELY
      PERFORM PRE-AWARD OCI
      EVALUATIONS
---------------------------------------------------------- Letter :5.2

The 40 Navy contracts that we selected primarily involved routine
engineering and technical services.  They did not fall into the
category of advisory and assistance services that were subject to the
contractor certification requirement.  According to section 9.504 (a)
of the FAR, however, all contracts are to be reviewed for potential
conflicts of interest prior to award.  Our review of the contract
files showed that with the exception of 10 contractor officials'
resumes and 5 lists of other contracts in which the contractors were
involved, the 40 contract files we reviewed included no documentation
to indicate that any type of pre-award evaluation had been made to
disclose the possibility of an OCI or a situation of an unfair
advantage and contracting officials told us that evaluations were not
frequently done.  Some of their comments are summarized below. 

  Officials at the Naval Air Weapons Station, China Lake, California,
     agreed that pre-award analysis to help detect potential
     conflicts of interest would be helpful. 

  An official at the Naval Regional Contracting Center, San Diego,
     California, acknowledged that contract personnel do not
     generally examine past contracts held by a prospective
     contractor, or other financial relationships in which the
     contractor may be involved.  The official said that he
     sporadically examines industry financial reports or corporate
     credit ratings, but not on a routine basis. 

  An official at the Naval Command and Control and Ocean Surveillance
     installation, San Diego, California, said there was no screening
     of historic data about a contractor to detect OCI situations. 

While the Navy did not routinely conduct OCI evaluations before
awarding these contracts, contracting officials pointed out that they
concentrate on the possibility of future benefits that may accrue to
a contractor and use contract clauses to prevent the possibility of
such future conflicts.  Our review of the contract files supported
this.  For example, one contract we reviewed contained a conflict of
interest clause in which the contractor agreed not to supply DOD for
a period of 2 years after completion of the contract with any major
component which the contractor might suggest DOD purchase. 

We also discussed the apparent lack of pre-award evaluations with DOD
and Navy procurement officials.  They agreed that the Navy should
comply with the FAR requirement to evaluate the potential for
conflict of interest situations prior to contract award.  They
provided us with documentation that showed that corrective action had
been taken to reemphasize the need for contracting officials to
comply with the FAR's requirements on conflict of interest
evaluations. 


   POSSIBLE IMPROVEMENTS IN OCI
   CONTROLS
------------------------------------------------------------ Letter :6

During our work we identified two opportunities to help agencies meet
the objective of OMB's policy letter regarding the avoidance of OCI
situations.  These include ensuring that all appropriate agency
officials receive OCI training.  Among other things, such training
could emphasize the availability and usefulness of possible sources
of information--such as annual reports and marketing brochures--that
can assist contracting officials in understanding the business
relationships of potential contractors and identifying possible OCI
situations.  In addition, we identified the potential for the FAR to
be interpreted to imply that if certificates had been obtained from
contractors, agencies should not obtain other information in
conducting an evaluation of the potential for conflicts of interest. 
OMB could provide clarification to avoid such an interpretation. 


      AGENCY OCI TRAINING
---------------------------------------------------------- Letter :6.1

Officials at the three agencies we visited received varying amounts
of OCI awareness and detection training.  DOE and EPA offered formal
in-house OCI training.  The Navy did not have an OCI training course. 
However, some Navy officials received training from other sources. 
In none of the three agencies had all of the officials received
training. 

We asked 66 procurement officers at the three agencies (DOE-27,
EPA-15, and Navy-24) whether they had received 1 day or more of OCI
training, less than 1 day of training, or no training.  We also asked
them how they believed the OCI screening process could be improved. 
Several of the officials said the process could be improved with more
training.  The results of our discussions are shown in Table 1. 



                                Table 1
                
                Extent That Agency Officers Had/Had Not
                Received OCI Training and Their Views on
                Whether More Training Would Improve the
                                Process

                                     DOE       EPA      Navy     Total
------------------------------  --------  --------  --------  ========
Number of officers who had 1          12         1         3        16
 day or more of OCI training
Number of officers who had            10         8        10        28
 less than 1-day of OCI
 training
Number of officers who had no          5         6        11        22
 OCI training
Number of officers who said            2         9         8        19
 the OCI screening process
 could be improved with more
 training
----------------------------------------------------------------------
Source:  GAO interviews with 66 agency procurement officers. 

As shown, 44 of 66 contracting officers reported receiving some OCI
training.  (Sixteen reported receiving more than 1-day of OCI
training and 28 reported receiving less than 1-day of OCI training.)
However, 22 (one-third) of the officers reported receiving no
training.  Nineteen of the 66 officers expressed the belief that more
training would improve the OCI screening process. 

We reviewed EPA's and DOE's OCI training materials.  EPA's material
discussed Policy Letter 89-1 and FAR requirements, procedures to
follow if the existence of an OCI were to be identified, and basic
steps in making an OCI decision.  The training materials also
emphasized basic information in making OCI determinations, including
whether the work to be performed by the contractor was related to
work the contractor was also doing for the industry and how much work
was performed for commercial clients over the last 3 years. 

DOE's training materials covered similar subjects.  In addition,
DOE's training emphasized the availability of a variety of sources of
information such as annual reports that could (1) be used by
contracting officials to understand the business relationships of a
contractor, (2) assist in verifying the information in the
contractor's certificate that no actual or potential conflict of
interest exists, and (3) help identify potential conflicts of
interest. 

To identify the extent that agencies used such independent sources of
information in examining for potential contracts, we asked 57
contract and program personnel at the 3 agencies (DOE-26, EPA-11,
Navy-20) whether they were using selected external sources of
information.  Table 2 shows the results of our discussions. 



                                Table 2
                
                Number of Agency Officials Who Said They
                  Reviewed Various Information Sources

Information source                   DOE       EPA      Navy     Total
------------------------------  --------  --------  --------  ========
Annual reports                        13         1         1        15
SEC filings (10-Ks)\a                 10         0         1        11
Resumes                               19         7        10        36
Marketing brochures                    5         5         3        13
List of contracts                     19         7         5        31
----------------------------------------------------------------------
\a SEC Form 10-K is a corporate annual report required by the SEC Act
of 1934 and contains financial information and a description of the
general scope and nature of the business of a company and its
subsidiaries. 

Source:  GAO interviews with 57 agency officials. 

As shown, DOE contracting officials most frequently cited using the
full range of information sources.  DOE procurement officials
attributed such widespread use to its training courses. 

Officials at DOE, EPA, Navy, and OMB generally agreed about the
importance of ensuring that contracting officials receive sufficient
conflict of interest training.  EPA officials also pointed out that
subsequent to our interviews with procurement officials additional
training had been provided.  OMB officials said that they believed
agency procurement staff needed to be reminded of the importance of
conflict of interest training and they thought it would be helpful
for OMB to remind agencies to ensure that their staffs are adequately
trained in this area. 


      FAR ORGANIZATIONAL CONFLICT
      OF INTEREST REQUIREMENTS CAN
      BE CLARIFIED TO AVOID
      MISINTERPRETATION
---------------------------------------------------------- Letter :6.2

OMB Policy Letter 89-1 states that, before an award of an advisory
and assistance contract is made, agency officials must take steps to
identify and evaluate the potential for conflicts of interest and
determine whether an actual OCI exists.  The policy letter states
that agency officials may use information (1) from contractor
certificates and (2) from any other substantive information available
to them.  Section 9.505-3 of the FAR entitled "Providing technical
evaluation or advisory and assistance services" implements the OMB
policy letter.  However, the following section of the FAR (9.506)
entitled "Procedures" suggests that various sources of information
that could be helpful in evaluating the potential for conflicts of
interest should be used only in situations where contractors'
certificates have not been obtained: 

     "(a) If information concerning prospective contractors is
     necessary to identify and evaluate potential organizational
     conflicts of interest or to develop recommended actions, and no
     organizational conflicts of interest certificates have been
     filed contracting officers should first seek the information
     from within the Government or from other readily available
     sources.  Government sources include the files and the knowledge
     of personnel within the contracting office, other contracting
     offices, the cognizant contract administration and audit
     activities and offices concerned with contract financing. 
     Non-Government sources include publications and commercial
     services, such as credit rating services, trade and financial
     journals, and business directories and registers." (Underscoring
     added)

In our opinion, this language could be interpreted to indicate that
such external sources of information should not be sought in
instances where contractor certificates have been obtained.  However,
OMB's policy letter provides that in evaluating the potential for
conflicts of interest, contracting officers may use any substantive
information that is available whether or not the certificates have
been provided. 

Officials at DOE, Navy, and OMB generally agreed that there was a
need to clarify the FAR.  EPA officials said they were not sure such
clarification may be needed.  They said that contractors'
certifications should, in most cases, be sufficient to protect the
government's interests. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

OCI situations can be detrimental to the interests of the federal
government and, as a matter of policy, are to be identified, avoided,
and/or mitigated.  As shown by a 1993 PCIE study, however, agencies'
implementation of OCI requirements for advisory and assistance
services has varied.  Although two of the three agencies covered in
our review appeared to be complying, the third agency--Navy--was
reported by the DOD IG as not ensuring that contractor certificates
were received prior to contract award.  Corrective action, however,
was taken during our review that reemphasized the need for
contracting officials to obtain such certificates.  We also noted
that Navy contracting officials were not routinely evaluating
contracts prior to award for potential conflicts of interest. 
However, corrective action was also taken during our review that
reemphasized the need for contracting officials to comply with the
conflict of interest policies and procedures set forth in the FAR. 

One-third of the agency contracting officials we spoke with indicated
that they had received no OCI training.  About 19 (29 percent)
believed that additional training could help improve OCI screening. 
Each of the agencies included in our review agreed on the importance
of OCI training and OMB suggested it would be helpful if OMB reminded
agencies to ensure that training is provided. 

The importance of the OCI requirements of the OMB policy letter are
reflected by their inclusion into the FAR as federal regulation. 
Unfortunately, the FAR could be interpreted to suggest that if OCI
certifications have been obtained from contractors, agencies should
not obtain additional information in conducting an evaluation of the
potential for conflicts of interest.  In actuality, whether or not
OCI certifications have been obtained, contracting officials should
be encouraged to obtain any additional information they believe is
necessary and appropriate in order for them to identify and evaluate
the potential for conflicts of interest. 


   RECOMMENDATIONS TO THE
   DIRECTOR, OMB
------------------------------------------------------------ Letter :8

We recommend that the Director, OMB (1) emphasize to heads of
agencies the importance of ensuring that contracting officials
receive sufficient training to help them to identify and to avoid and
mitigate OCI situations and (2) take steps to avoid the possibility
that the FAR might be interpreted to imply that if certificates have
been obtained from contractors, agencies should not obtain other
information in conducting an evaluation of the potential for
conflicts of interest.  One way of accomplishing both recommendations
without going through the formal process of modifying the FAR would
be by issuing a new policy letter or supplement to Policy Letter
89-1. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :9

DOE, EPA, DOD, Navy, and OMB officials reviewed a draft of this
report.  Comments were provided on various dates between September 7
through 20, 1995, by the Deputy Assistant Secretary for Procurement
and Assistance Management and the Acting Director, Office of
Headquarters Procurement Operations, DOE; the Director, Office of
Acquisition Management, EPA; the Director, Defense Procurement, DOD;
the Special Assistant for Management and Administration, Navy; and
the Deputy Administrator and the Deputy Associate Administrator,
Office of Federal Procurement Policy, OMB. 

Each of the agencies agreed with our observations and recommendation
to OMB regarding the need to emphasize the importance of ensuring
that contracting officials receive sufficient conflict of interest
training. 

DOE, DOD, Navy, and OMB agreed with our recommendation to OMB
regarding the need to take steps to avoid the possibility that the
FAR could be misinterpreted.  EPA officials, however, said they
interpreted section 9.506 of the FAR as providing guidance to
contracting officials in those instances when contractors'
certificates are not required.  When a certificate is required by the
FAR, the officials believed that the certificate itself will provide
the primary source of information on potential conflicts.  They said
that the contracting officer may choose to seek additional
information, as he or she sees fit. 

We do not disagree with EPA's view that when a certificate is
required under the FAR, the contracting officer may choose to seek
additional information in order to evaluate the potential for
conflicts of interest.  Our point, however, is that the current
wording in the FAR could be interpreted as indicating that such
information should be sought only in instances when contractor
certificates have not been obtained.  To avoid this possibility, we
believe the FAR should be clarified. 

EPA officials also said they believed that our suggested approach to
accomplishing both recommendations to OMB through issuing a new
policy letter or supplement to Policy Letter 89-1 could lead to
conflicting guidance on the subject since the FAR language would
remain the same.  We provided this suggestion as a possible
alternative to modifying the FAR.  If OMB chooses, the FAR could be
modified.  In its comments, OMB suggested another possible means to
implement the recommendations--sending a memorandum to senior agency
procurement officials.  We believe the manner of implementation
should be up to OMB's discretion. 

OMB officials also suggested that it might be beneficial for us to
address our recommendations to the Administrator, Office of Federal
Procurement Policy, rather than to the OMB Director.  Our usual
practice is to address the recommendations to the agency head.  The
Director, of course, could delegate the responsibility to implement
the recommendations to the Administrator. 

DOD and Navy officials agreed that the Navy should comply with the
FAR requirement to evaluate the potential for conflict of interest
situations prior to contract award.  They pointed out that corrective
action had been taken during the course of our review, in the form of
various directive memorandums, to reemphasize the need for
contracting officials to comply with the FAR's requirements.  Because
of the action taken, we are not making a recommendation on this
issue. 


---------------------------------------------------------- Letter :9.1

As agreed with your office, unless you publicly announce the contents
earlier, we plan no further distribution until 30 days from the date
of this report.  At that time, we will send copies of this report to
the Director of the Office of Management and Budget, the Secretaries
of Energy, Defense, and Navy, and the Administrator of the
Environmental Protection Agency.  We will also provide copies to the
Chairman, Subcommittee on Post Office and Civil Service, Senate
Committee on Governmental Affairs, and other appropriate
congressional committees.  Copies will be made available to other
interested parties upon request. 

Richard Caradine, William Bosher, and Carolyn Samuels of our General
Government Division and Ronald Belak of our Denver Regional Office
were major contributors to this report.  If you have any questions
about this report, please call me on (202) 512-3511. 

Sincerely yours,

Timothy P.  Bowling
Associate Director
Federal Management and Workforce
 Issues