MEMORANDUM FOR MEMBERS OF THE DoD ETHICS COMMUNITY
SUBJECT: Guidance on Application of the Procurement Integrity Law and Regulation
This memorandum provides guidance on applying
the Procurement Integrity restrictions to issues that may arise as you
provide advice to your clients. The purpose of this guidance is to foster
uniformity of interpretation and application. Remember, however, that even
though a procurement integrity restriction may not apply to a given situation,
18 U.S.C. §§ 207 and 208 may apply. The Procurement Integrity
Act (the Act), 41 U.S.C. § 423, was revised by Section 4304 of the
National Defense Authorization Act for Fiscal Year 1996. Pursuant to implementing
regulations published on January 2, 1997, 61 F.R. 226-233, revisions to
the Act became effective January 1, 1997.
The Act and its amendments regulate the conduct of Federal employees who are involved in procurements and the administration of contracts. Employees involved in procurements over $100,000 must report contacts with bidders or offerors regarding future employment to their supervisors and Ethic Counselors and must disqualify themselves from further participation if they do not immediately reject the contact. Certain employees who are involved in procurements or the administration of contracts, either of which is valued at $10 million or greater, are prohibited from working for the contractor for a period of one year following their involvement.
In early 1997, the Procurement Integrity Tiger Team (PITT) was formed to propose guidance on interpretation and application of the revised Act for dissemination within the Department of Defense (DoD), and to share information and lessons among the DoD ethics community. The Team, chaired by the DoD Standards of Conduct Office (SOCO), has representatives from the Department of Army SOCO (Office of the Judge Advocate General of the Army), the Department of Navy Office of General Counsel, the Department of Air Force Office of General Counsel and Office of the Judge Advocate General, the Defense Logistics Agency Office of General Counsel, and the National Security Agency Office of General Counsel. The Team also had the assistance of various procurement experts from DoD and the Military Departments.
1. What do we do with the term "procurement official?"
The simple answer is to avoid it. The term is not mentioned in the revised statute or new regulation; instead, the Act and regulation focus on other position descriptions, such as Program Manager, Source Selection Authority, and Administrative Contracting Officer.
2. For program managers, deputy program
managers, and administrative contracting officers, to what contractors
does the compensation ban extend?
The compensation ban extends only to the prime contractor.
For example, after leaving DoD, a former Program Manager of ABC program may work for a subcontractor on the ABC program, even though he or she dealt with the subcontractor in the role of program manager. However, if in your opinion, a subcontract is a sham or a vehicle established to provide services by individuals for the prime contractor on the ABC program, compensation would be considered "indirect compensation" from the prime, which is restricted by the regulation. (48 C.F.R. §§ 3.104-4(d) and 3.104-3).
3. Under 48 C.F.R. § 3.104-4(d)(2), a former official is not prohibited from accepting compensation "from any division or affiliate of a contractor that does not produce the same or similar products or services as the entity of the contractor that is responsible for the contract."
A. How do we determine what are the "same or similar products or services?"
The answer to this question is extremely fact dependent. As concrete situations are decided, we will issue guidance to provide examples in this area. In the meantime, we recommend that Ethics Counselors use the following standard: Employees must convince Ethics Counselors that a product or service is "dissimilar enough." For example, the Team recommends that advertising a particular product is the service, not advertising in general. Therefore, advertising for recruitment could be considered "dissimilar enough" from advertising the sale of used cars, so that former employees could accept compensation. It is not enough that a division is on the commercial, as opposed to government, side of the contractor's business.
There is no exception in the Act or regulation regarding the quantity of the service or product. Therefore, the fact that a particular division's workload is only 1% of the "same or similar product or service" is irrelevant. If that division produces any amount of the product, it would be included in the compensation ban.
B. What is a division?
This is also extremely fact-dependent. In the new world of corporate mergers and reorganizations, you will have to examine the facts and circumstances to decide whether the corporate unit may be considered a division. The unit may be called a "local area" or a "Business Component," yet be equivalent to a division and function as one. On the other hand, just because something is called a division does not mean that it is a division for purposes of the regulation. Also, some companies may not have divisions.
C. How do the words "entity of the contractor that is responsible for the contract" influence the determination?
The PITT has not yet reached a consensus. The
issue concerns a division that does not produce a product that is the "same
or similar" to products in the DoD program, but does produce a product
that is also produced by the division "responsible for the contract," even
though it is unrelated to the program. Another part of the question is
the interpretation of "entity of the contractor." If it is interpreted
as something other than "division," the "entity" producing the similar
product that is unrelated to the program may be an important fact. If you
see any of these issues in your practice, please contact one of the organizations
listed in the preamble to this guidance so that the PITT may consider specific,
actual fact situations.
4. When team awards are made, to whom does the compensation ban extend?
It will depend on the legal structure of the team -- for example, whether the team is a prime/sub contractor arrangement or a joint venture. When a team award designates one prime contractor, with the others in the team as subcontractors or not addressed, the employment ban extends only to the named prime contractor. If a joint venture is awarded the contract, every party to the venture is awarded the contract. The compensation ban extends to each party of the joint venture.
5. Do employees need to report employment contacts under the Procurement Integrity Act if the procurement is sole source?
Although employees do not have to report these employment contacts under the Act (because reports are required only if employees are personally and substantially involved in competitive procurements, and sole source procurements are not competitive), they nevertheless may be disqualified from any further participation under 18 U.S.C. § 208 and 5 C.F.R. § 2635.604. Under section 2-204.c. of the Joint Ethics Regulation (JER), DoD 5500.7-R, employees must submit a written notice of disqualification. Further, employees are advised to inform their supervisor and seek the guidance of their Ethics Counselor as soon as possible. If a decision on the acquisition strategy hasn't been made, assume that a procurement is competitive and that a report would be required.
6. Does the right of first refusal granted to A-76 government employees constitute seeking employment?
In procurements conducted under OMB Circular A-76, the Federal Acquisition Regulation requires a clause in the solicitation and the contract that gives government employees who are adversely affected by the award of the contract a right of first refusal for employment under the contract. This right of first refusal, standing alone, is not an employment contact for the purposes of 48 C.F.R. § 3-104-4(c).
7. What is the date of selection?
Section 48 C.F.R. § 3.104-8 calculates the period of prohibition from receiving compensation. For employees who serve in a covered position on the date of selection, but not the date of award of the contract, the prohibition begins on the date of selection. At some point after the source selection panel's recommendation to the Source Selection Authority (SSA), a decision-maker awards the contract. In some cases, especially where the Procuring Contracting Officer (PCO) and the SSA are the same person, the award decision may also be the selection decision. Where it is anticipated that the selection and award decisions will coincide, we recommend that evaluation board member appointment documents state that members serve until the date of award, thus eliminating the difficulty of trying to determine a separate date of selection for those employees who are still in Federal service on the date of award, but are no longer working in a covered position.
In other cases, there is a clear demarcation between the selection and award decisions -- for example, when the SSA records the selection decision in a decision memorandum and award is made later by the PCO. In addition, there may be a gap of several days or weeks between the selection and award decisions -- e.g., due to the PCO waiting for receipt of funding for the contract or waiting for authorization from the Milestone Decision Authority for the overall program to proceed into the next program phase. In these cases, there should be no difficulty in determining the dates of the selection and award decisions. Moreover, in these cases, it may be considered unfair to extend the evaluation board members' service until the date of award and thereby delay the start of the 1 year compensation ban for them.
8. What is a contact regarding possible non-Federal employment for agency officials participating personally and substantially in an agency procurement, defined at 48 C.F.R. § 3-104-3?
Under 48 C.F.R. § 3.104-4(c), when a contact is made, 2 actions must be taken: prompt reporting of the contact in writing and either rejection of the offer or disqualification from participation. To determine when a contact is made, the regulations at 5 C.F.R. § 2635.601, et seq., should be consulted. There is no contact under the Procurement Integrity provisions if the employee is not "seeking employment" under 5 C.F.R. § 2635.601, et seq. For example, under those regulations, requesting a job application is not considered "seeking employment," so there would be no contact with the recipient of the request for purposes of the Procurement Integrity Act. However, if the employee then submits the application, he or she must then report the contact and disqualify himself from further participation, even if he is a "key" employee.
9. How should government employees on transition or annual leave prior to retirement be handled?
The prohibitions in 48 C.F.R. § 3.104-4(d) apply to former officials. Technically, military members on transition leave, or civilian employees on annual leave prior to retirement, could accept compensation from an entity from which they could not accept compensation after retirement. Under the JER, sections 2-303 and 3-306.e., employees and military members who file a financial disclosure report, which should include everyone described in 48 C.F.R. § 3.104-4(d), must obtain prior written approval from their Agency Designees before accepting compensated employment with a prohibited source while serving with the Department. We recommend that such designees withhold approval in this circumstance, as it would potentially detract from readiness. It is possible that bid protests or performance delays could result. This situation illustrates the need for employees to ask for advice prior to their seeking employment.
10. What action may be taken against employees who disqualify themselves so that they may seek employment with DoD contractors?
If a civilian employee or military service member is ordered to perform duties consistent with his or her position, such as perform the duties of Source Selection Authority, and that individual takes actions that require disqualification from those duties, that individual may be subject to administrative action. Actions taken by an employee that result in disqualification may be construed as a refusal to perform assigned duties. This could result in disciplinary or adverse action. For example, if a contracting officer has special expertise that results in working almost exclusively on the contracts of a certain contractor or on contracts in a certain specialized area, and that individual is disqualified from acting with regard to that contractor or to contractors in the specialized area, he or she may be disciplined.
Under 5 C.F.R. § 2635.604(d), where an agency determines that a civilian employee's or military officer's action in seeking employment will require disqualification from matters that are so central or critical to the performance of official duties that his or her ability to perform those duties would be "materially impaired," the agency may allow the individual to take annual leave or leave without pay while seeking employment. Where this is not possible or feasible, the agency may take appropriate administrative action, which may include disciplinary or adverse action. Under section 1-300.b. of the JER, this regulation is made applicable to enlisted members of the uniformed services.
Depending on the circumstances, while individuals may seek employment and disqualify themselves, by doing so, they also may subject themselves inadvertently to administrative or adverse action. The disqualification could also bring a procurement action under a cloud of suspicion. This is why we recommend that Ethics Counselors frequently and strongly encourage their civilian employees and military service members to discuss their job seeking plans with their supervisors and Ethics Counselors prior to the start of their job hunting. If, however, an individual does take action that requires disqualification from the majority of his or her duties, that person may be the subject of administrative action, which may include reassignment, or disciplinary action, which may include removal from the position.
David W. Ream
DoD Standards of Conduct Office