FAR Council Proposes Substantial Changes to OCI Regulations

On January 15, 2025, the Federal Acquisition Regulatory Council issued a Proposed Rule that would implement changes to the Federal Acquisition Regulation (FAR) Organizational Conflict of Interest (OCI) rules as required by the 2022 Preventing Organizational Conflicts of Interest in Federal Acquisition Act (P.L. 117-324).  Comments on the Proposed Rule are due on March 17, 2025.  (Note that pursuant to President Trump’s January 20, 2025 “Regulatory Freeze Pending Review” Executive Order, the Proposed Rule is subject to further review, which may result in revisions and an extension of the 60-day comment period.)

The Proposed Rule would make numerous changes to the current OCI regime, most notably by moving the OCI rules currently housed at FAR Part 9 to a new FAR Subpart 3.12, because “the larger issues that underlie efforts to identify and address OCI are more directly associated with some of the business practice topics discussed at FAR part 3.”  Consistent with the change, FAR Part 3 will be retitled “Business Ethics and Conflicts of Interest.”  The Proposed Rule will also (1) detail contractor and Contracting Officer (CO) responsibilities to identify, analyze, and address OCIs; and (2) establish new solicitation provisions and contract clauses requiring disclosure of potential OCIs and methods to address them.

Proposed New FAR subpart 3.12 

The salient provisions within the new proposed FAR subpart 3.12 are as follows: 

FAR 3.1203, Policy, will (1) identify the two types of harm resulting from an OCI—harm resulting from impaired objectivity and harm to the integrity of the competitive acquisition process—and government avoidance methods; (2) clarify that a “natural” or incumbent advantage from prior government work does not automatically create a conflict and provide guidance to COs on “hard facts” necessary to establish an OCI; and (3) direct COs to address situations in which an offeror holds an unfair competitive advantage due to unequal access to information, while counseling against disqualification. 

FAR 3.1204, Examples, will provide “illustrative examples” of potential OCIs resulting from contractor relationships “broken out by the two sources of OCIs”: (1) impaired objectivity (situations in which a contractor’s relationship with other entities might influence or impair the contractor’s performance); and (2) unfair competitive advantage (where the OCI results from either biased ground rules or unequal access to information).   

FAR 3.1205, Methods of addressing OCIs, requires COs to “address” OCIs through avoidance, limitation on future contracting, mitigation, or a conclusion an OCI poses an acceptable level of risk.  Relevant here, the Proposed Rule contemplates circumstances where a CO identifies an OCI but concludes that it creates “an acceptable performance risk,” with the CO permitted to merely “address” rather than “resolve” the OCI under a “new, risk-based approach.”

FAR 3.1206, Waiver, provides additional guidance (as compared to the existing provisions at FAR 9.503) on OCI waivers, authorizing waivers where other methods of addressing OCIs are not feasible.  At the same time, the Proposed Rule would prohibit waivers for a “class of contracts,” an apparent effort to ensure waivers are applied only on a case-by-case basis. 

FAR 3.1207, Contracting Officer Responsibilities, expands a CO’s responsibilities to identify, analyze, and address OCIs at all stages of the procurement process, while providing COs with the discretion to “address,” rather than “mitigate” or “resolve” them.  The new FAR 3.1207-2 would require COs to review potential OCIs, particularly those involving an unfair competitive advantage, during the acquisition planning stage, including analyzing “specific contractor client and industry relationships” that could present a conflict.  During the evaluation phase, COs would be permitted to consider information from offerors and other sources, including non-governmental sources, as part of their OCI analysis—a significant departure from the OCI analysis currently called for at FAR 9.504. 

Proposed Solicitation Provisions and Contract Clauses

The Proposed Rule would add standard solicitation provisions and contract clauses that do not currently exist at FAR Part 9.  The proposed clauses would apply to solicitations and contracts that exceed the Simplified Acquisition Threshold, except those for commercial products.  Note that the Proposed Rule would not exempt commercial services. 

FAR 52.203-XX, Potential Organizational Conflict of Interest—Disclosure and Representation, applicable to solicitations where the CO “identified the likelihood of an OCI,” will require offerors—either at the time of proposal submission or within five days of discovery of new relevant information after proposal submission and before award—to identify potential OCIs, as well as proposed mitigation plans, for review and approval by the CO. 

FAR 52.203-DD, Postaward Disclosure of Organizational Conflict of Interest, will apply to all solicitations that include FAR 52.203-XX and impose the same disclosure requirements to the post-award period.  The provision identifies and defines “impaired objectivity,” “unfair competitive advantage,” and “biased ground rules” OCIs, and clarifies that a CO may terminate a contract if a newly discovered OCI cannot be addressed in a manner acceptable to the government.

FAR 52.203-MM, Mitigation of Organizational Conflicts of Interest, will apply to contracts that may involve an OCI that can be addressed by an offeror-proposed, government-approved, mitigation plan prior to award.  It will require the awarded contract to incorporate the plan, require mutual agreement to change that plan, and identify circumstances that would require the plan to be updated.  The proposed clause also requires contractor reporting of noncompliance with the mitigation plan regardless of whether it is committed by contractor, government, subcontractor, or other personnel.

FAR 52.203-LL, Limitation on Future Contracting, will apply where a contract may require OCI mitigation by imposing limitations on future contracting.  It will require the CO to specify the duration of the limitation and the types of work subject to it.

FAR 52.203-AA, Unequal Access to Information—Representation, is the only clause that does not have a factual trigger.  It will require an offeror to determine whether it or its affiliates have unequal access to information that could provide an unfair competitive advantage, pre-proposal disclosure of the same, pre-proposal reporting of any actions the offeror plans to address the unequal access, and a representation about the need for firewalls as a mitigation measure, based on the offeror’s determination.  

Expected Impact of the Proposed Rule

While the preamble speaks of enhanced competition from the proposed disclosure requirements, contractors should be aware that the newly required OCI mitigation plan, along with constant monitoring and reporting requirements, will come at a cost.  Further, if the government believes a contract’s effectiveness is compromised, the contractor may be susceptible to price adjustments, delays, litigation, or contract termination.  And, even if contractors are already subject to similar mitigation, monitoring, and reporting requirements through individual agency contracts, the Proposed Rule would increase risks of protest and termination if a contractor falls short of these heightened requirements.