Defense Contracting:

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

GAO-08-169: Published: Mar 7, 2008. Publicly Released: Mar 7, 2008.

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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.

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. 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 employees' 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.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2008, GAO found that in certain DOD offices, contractor employees outnumbered DOD employees and comprised as much as 88 percent of the workforce. The functions these contractors performed include studying alternative ways to acquire desired capabilities, developing contract requirements, and advising or assisting on source selection, budget planning, and award-fee determinations. GAO also found that the government officials believed that current requirements are inadequate to prevent conflicts of interest from arising for certain contractor employees influencing DOD decision. In response to GAO findings, Section 841 of the 2009 National Defense Authorization enacted in October 2008, required that the Federal Acquisition Regulation (FAR) implement ethics safeguards related to contractor conflicts of interest. GAO had specifically recommended that contractor companies report any contractor personnel conflict of interest violations to the applicable contracting officer or contracting officer's representative as soon they are identified. In response to the 2009 National Defense Authorization Act, the FAR was changed effective December 2, 2011, requiring contractors to report to the contracting officer any personal conflict-of-interest violation(s) by a covered employee as soon as it is identified.

    Recommendation: 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 (1) prohibit contractor personnel from participating in a government contract in which they have a personal conflict of interest; (2) require contractor personnel to avoid the appearance of loss of impartiality in performing contracted duties for DOD; (3) require contractor personnel to disclose personal conflicts of interest to their employer prior to beginning work on these contracts; (4) require the contractor to review and address any personal conflicts of interest its employees might have before assigning them to deliver contracted services; (5) prohibit contractor personnel from using non-public government information obtained while performing work under the contract for personal gain; (6) prohibit contractor employees providing procurement support services from having future employment contact involving a bidder in an ongoing procurement; (7) 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 (8) prohibit misuse of DOD contract duties to provide preferential treatment to a private interest.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2008, GAO found that in certain DOD offices, contractor employees outnumbered DOD employees and comprised as much as 88 percent of the workforce. The functions these contractors performed include studying alternative ways to acquire desired capabilities, developing contract requirements, and advising or assisting on source selection, budget planning, and award-fee determinations. GAO also found that the government officials believed that current requirements are inadequate to prevent conflicts of interest from arising for certain contractor employees influencing DOD decision. In response to GAO findings, Section 841 of the 2009 National Defense Authorization enacted in October 2008, required that the Federal Acquisition Regulation (FAR) implement ethics safeguards related to contractor conflicts of interest. GAO had specifically recommended that in developing its policy, DOD should include certain requirements including requiring contractor companies to have a written code of business ethics and conduct applicable to contractor personnel working on certain DOD mission-critical advisory and assistance type services. In response to the 2009 National Defense Authorization Act, the FAR was changed effective December 2, 2011, to address this recommendation. Even though a Contractor Code of Business Ethics is not required, the FAR requires contractors to have procedures in place that addresses the eight elements identified in GAO's recommendation for certain contractor personnel.

    Recommendation: 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2008, GAO found that in certain DOD offices, contractor employees outnumbered DOD employees and comprised as much as 88 percent of the workforce. The functions these contractors performed include studying alternative ways to acquire desired capabilities, developing contract requirements, and advising or assisting on source selection, budget planning, and award-fee determinations. GAO also found that the government officials believed that current requirements are inadequate to prevent conflicts of interest from arising for certain contractor employees influencing DOD decision. In response to GAO findings, Section 841 of the 2009 National Defense Authorization enacted in October 2008 required that the Federal Acquisition Regulation (FAR) implement ethics safeguards related to contractor conflicts of interest. GAO had specifically recommended that the policy 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 decision-making in such mission-critical areas as the development, award, and administration of government contracts and other advisory and assistance functions. In response to the 2009 National Defense Authorization Act, the FAR was changed effective December 2, 2011, requiring contractors to identify and prevent personal conflicts of interest of their employees.

    Recommendation: The Secretary of Defense should 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.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2008, GAO found that in certain DOD offices, contractor employees outnumbered DOD employees and comprised as much as 88 percent of the workforce. The functions these contractors performed include studying alternative ways to acquire desired capabilities, developing contract requirements, and advising or assisting on source selection, budget planning, and award-fee determinations. GAO also found that the government officials believed that current requirements are inadequate to prevent conflicts of interest from arising for certain contractor employees influencing DOD decision. In response to GAO findings, Section 841 of the 2009 National Defense Authorization enacted in October 2008 required that the Federal Acquisition Regulation (FAR) implement ethics safeguards related to contractor conflicts of interest. GAO had specifically recommended that polices be developed and implemented to require personal conflict of interest contract clause safeguards for defense contractor employees that are similar to those required of DOD's federal employees. In response to the 2009 National Defense Authorization Act, the FAR was changed effective December 2, 2011, requiring personal conflict of interest contract clause.

    Recommendation: 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 a financial disclosure statement.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In March 2008, GAO found that in certain DOD offices, contractor employees outnumbered DOD employees and comprised as much as 88 percent of the workforce. The functions these contractors performed include studying alternative ways to acquire desired capabilities, developing contract requirements, and advising or assisting on source selection, budget planning, and award-fee determinations. GAO also found that the government officials believed that current requirements are inadequate to prevent conflicts of interest from arising for certain contractor employees influencing DOD decision. In response to GAO findings, Section 841 of the 2009 National Defense Authorization enacted in October 2008, required that the Federal Acquisition Regulation (FAR) implement ethics safeguards related to contractor conflicts of interest. GAO had specifically recommended policies requiring that contractor companies 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. In response to the 2009 National Defense Authorization Act, the FAR was changed effective December 2, 2011, requiring contractors to have procedures in place to screen covered employees for potential personal conflicts of interest and maintain effective oversight to verify compliance with personal conflict of interest safeguards.

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