The Danger of Involving Former Government Employees in Contractor Proposal Preparation

By: Lane F. Kelman

As opportunities in the private sector remain, at best, stagnant, the public sector has become increasingly competitive. The desire to gain a competitive advantage, however, must be tempered by compliance with ethical obligations. When attempting to gain a competitive advantage, it is crucial to avoid the appearance that your advantage is unfair. A recent decision by the GAO, Health Net Federal Services, LLC, highlights the balance that must be had when you seek a competitive advantage and the risk if the balance is not maintained.

On November 9, 2009, the GAO sustained the bid protest of Health Net Federal Services, LLC (HNFS) of the award of a contract to Aetna Government Health Plans, LLC (AGHP). HNFS and AGHP issued offers in response to request for proposals issued by the Department of Defense TRICARE Management Activity (TMA) for T-3 TRICARE managed health care support services. TRICARE is a managed health care program implemented by the Department of Defense (DOD) for active-duty and retired members of the uniformed services, their dependents, and survivors.
HNFS was the incumbent contractor. Its bid protest focused on a number of different issues, the most compelling challenge was that AGHP should be excluded from the competition based on an alleged unfair competitive advantage stemming from AGHP’s hiring of a former TMA employee (the TMA Chief of Staff) to prepare AGHP’s proposal.

In evaluating the possibility of an unfair advantage on behalf of AGHP, the GAO acknowledged that a guiding principle is the obligation of contracting agencies to avoid even the appearance of impropriety in government procurements. Where a firm may have gained an unfair competitive advantage through its hiring of a former government official, the firm can be disqualified from a competition based on the appearance of impropriety - even if no actual impropriety can be shown - if the determination of an unfair competitive advantage is based on facts and not mere innuendo or suspicion.

The GAO went on to conclude that the former TMA Chief of Staff that was hired by AGHP did, in fact, have access to non-public propriety information. As a result of the actual access to this information, a prima facie case was established that an appearance of impropriety existed. Importantly, the access to propriety information and appearance of impropriety did not, in and of themselves, require disqualification. Rather, AGHP, despite a recommendation from TMA's ethics advisor to disclose the Chief of Staff's involvement to the Contracting Officer ("CO"), failed to do so. Since the CO was not provided the opportunity to investigate the issues stemming from the use of a high-level former TMA employee in the preparation of its proposal, the appearance of impropriety was necessarily not assessed by the CO prior to the award and the protest was sustained.

The recent emphasis on ethics on government contracting requires contractors to avoid any conduct that even appears to be unethical. The case highlights the care that must be taken when contractors hire former government employees and involve them in the procurement process. If the employee was involved in the planning of the project or procurement while employed by the government, or if the employee had access to non-public information, a risk exists that the relationship will result in the disqualification of the proposal. Regardless, there should be full disclosure to the Contracting Officer before submitting a proposal.

Lane F. Kelman is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He may be contacted for advice regarding federal construction contracting matters, including issues involving ethics in federal contracting. His e-mail address is lkelman@cohenseglias.com.

House Votes to Close Code of Ethics Loophole on Contracts Performed Outside the United States

The requirement found at FAR 52.203-13 was implemented on December 24, 2007 and requires any contractor who is awarded a contract in excess of $5 million to have a written Code of Business Ethics and Conduct within thirty days after award.  Large business firms must also implement a training and compliance program within ninety days (see our earlier blog article for additional information). The requirements, however, did not apply to contracts that were to be performed outside of the United States. This “exemption” for foreign projects has now received the attention of the U.S. House of representatives.

As reported today by the Associated Press, the House has voted to close a multibillion-dollar loophole in a crackdown on contract fraud, approving plans to force the Bush administration to act within six months. At issue is a Bush administration rule requiring government contractors to report misuse of taxpayer dollars to the Justice Department. The rule, as originally published last November, included a loophole to exempt contracts performed overseas. Administration officials told lawmakers at a House Oversight and Government Reform hearing earlier this month that the loophole was a "drafting error" and likely would be removed. The administration since has stripped the loophole from the proposed rule, which likely will be finalized later this year. At the House hearing, a top official for the White House Office of Management and Budget predicted the exemption would not be included in the final rule. The Justice Department said has charged at least 46 people in investigations over the past several years into kickbacks, bribes and other abuses of government-funded contracts in Iraq, Afghanistan and Kuwait. It opposed the loophole.  (Excerpted from "House moves to close contract fraud loophole" as published by the Associated Press).

We agree that there is no reason to treat projects performed overseas any differently than projects performed in the United States. After all, it was the Justice Department’s concern about the millions of dollars of fraud, waste, and abuse in Iraq, Afghanistan, and Kuwait that give rise to the rule in the first place.

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