PilieroMazza recently published a client alert regarding a Proposed Rule on Organizational Conflicts of Interest (OCI). On January 15, 2025, DoD, GSA, and NASA (collectively, the Government) issued a Proposed Rule (Proposed Rule) that significantly alters OCI are managed in federal contracting. One of the key changes of the Proposed Rule that should be highlighted is the incorporation of mitigation plans into the awarded contract. The Proposed Rule impacts offerors by enacting more stringent compliance requirements, and by incorporating the mitigation plan into the contract itself, making it contractually binding and thereby enabling significant liability under the False Claims Act (FCA) or other actions against contractors. However, contractors should also remember that, while this proposed update is more stringent, failure to diligently follow current mitigation plans will still subject them to liability.
Current Requirements
The Federal Acquisition Regulation (FAR) currently requires contracting officers (COs) to draft an analysis and recommended course of action for avoiding, neutralizing, or mitigating a significant potential OCI. COs must also draft a solicitation provision, and if necessary, propose a contract clause that includes the nature and duration of any proposed restraint. There may be significant penalties under the FCA for failure to report an OCI in connection with the award and performance of a contract.[1]
The Defense Federal Acquisition Regulation Supplement (DFARS) further requires identification and mitigation of OCI and requires compliance with a submitted mitigation plan as a material requirement of the contract.
Updates in the Proposed Rule
Mitigation is one of four methods by which COs may address OCIs, including:
- avoidance;
- limitations on future contracting;
- mitigation; and
- determination of acceptable risk.
The proposed rule states that, when mitigation is used, COs “shall incorporate into the contract a Government-approved mitigation plan[.]” Additionally, the Proposed Rule also creates a new clause that must be inserted when the resulting contract may involve an OCI that can be addressed by an acceptable offer-submitted mitigation plan prior to contract award. The clause states:
“The Government-approved [mitigation plan] and its obligations are hereby incorporated as an attachment to the contract,”
It also requires the contractor to report any noncompliance and the actions the contract has taken or proposes to take to cure the noncompliance.
Effect on Contractors
In the past, many contractors may have given little thought to an OCI plan, treating it as something that could be accomplished with a standard template, included in a proposal, and then set aside once the contract was awarded. However, under the Proposal Rule, such inattention currently poses risks, but it will pose greater risk if incorporated into contracts as proposed. As discussed, noncompliance will constitute a material breach of the contract. Plus, the proposed rule proposes continuous focus on identifying and mitigating OCI throughout acquisition and performance, so contractors will need to review as circumstances arise that have the potential to cause an OCI.
Mitigation plans should be specifically tailored to each contract and, at times, include specific individuals working on the contract. Plans should clearly address the OCIs that exist or could arise, and how the contractor is mitigating or plans to mitigate them. The following best practices will be crucial:
- Use detailed, contract-specific language: Generic language from a previous mitigation plan, or another contractor’s mitigation plan, will be insufficient.
- Ensure actual execution of mitigation steps. Any action that is included in the plan must be executed.
- Review and update mitigation plans as circumstances change: Any change in circumstances—g., personnel or associations—should prompt a review of the incorporated mitigation plan and an update, if required.
Key Takeaways:
- Check Compliance with Current Mitigation Plans: The DFARS already makes compliance with a mitigation plan a material requirement in some cases. The FAR does not currently incorporate mitigation plans into the contract, but contractors may still face liability for failure to report OCI. Mitigation plans are not simply paper requirements to a contract. Contractors should review and ensure compliance with any current mitigation plans in place and take seriously the development of mitigation plans in contracts awarded prior to the effective date of the Proposed Rule.
- Codified Incorporation into Contracts: The Proposed Rule specifies that approved mitigation plans are incorporated into contracts, thereby opening contractors to FCA liability and other actions. Contractors should:
- Enhance their focus on compliance with mitigation plans.
- Prepare to comply with new disclosure and representation requirements that may or may not be specified in the mitigation plan itself.
- Deadline for Comments: Public comments on the Proposed Rule are due by March 17, 2025 and can be submitted here.
If you have any questions regarding the implications of this Rule or need a deeper understanding of current OCI regulations, please contact Cy Alba, Chris Jannace, or another member of PilieroMazza’s Government Contracts practice group.
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If you’re seeking practical insights to gain a competitive edge by understanding the government’s compliance requirements, tune into PilieroMazza’s podcasts: GovCon Live!, Clocking in with PilieroMazza, and Ex Rel. Radio.
[1] Press Release, U.S. Dep’t of Just., Government Contractor Agrees to Pay $425,000 for Alleged False Claims Related to Conflicts of Interest (May 20, 2022), https://www.justice.gov/archives/opa/pr/government-contractor-agrees-pay-425000-alleged-false-claims-related-conflicts-interest
