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In 1991 the General Accounting Office found that service contracts with private companies were “essential for carrying out functions of the government.” In the years since, service contracts have become, if possible, even more essential — and the money has followed. Federal spending on services has nearly doubled, from 33 percent of total procurement dollars in 1991 to 60 percent in 2005. With the wider use of service contracts, more questions are being raised about the potential conflicts presented by private workers working side by side with federal employees. Of particular concern are contracts for services that affect the acquisition process. Under the Services Acquisition and Reform Act of 2003, the Acquisition Advisory Panel (which I chair) was established with a broad mandate to review federal contracting laws, regulations, and policies, with an emphasis on commercial practices, performance-based contracting, and interagency contracts. The panel was directed to protect the best interests of the government; ensure the integrity of the acquisition process; and amend or eliminate any provisions unnecessary for the effective, efficient, and fair award and administration of contracts. The panel’s final report will be sent to Congress and the Office of Federal Procurement Policy. The Acquisition Advisory Panel has adopted and released, through its public meetings, recommendations on how to improve the government’s use of service contracts. SEEKING SUPPORT A good starting point is the recognition that the pressures on the federal acquisition work force have increased in recent years. Since the mid-1990s the size of that work force has declined by nearly 50 percent. There is an acute shortage of federal procurement professionals with between five and 15 years of experience. Since about half of current employees are eligible to retire in the next four years, the shortage will soon become even more pronounced. At the same time, changes to acquisition practices and procedures have placed more demands on contracting officers. While the procurement reforms of the 1990s made low-dollar procurements less complex, they have tended to make larger procurements more complex. As a result, federal agencies have increased their use of contractors to support activities that once were handled by government employees alone. Contractors now perform various procurement functions. They offer technical expertise, function as subject-matter experts, provide analysis of cost/price proposals and determine whether proposals are realistic and reasonable, administer the procurement process, interface with offerors, and even provide expert advice with regard to the procurement process. As the numbers of contractor personnel in the acquisition process have increased, so have the questions about what roles contractors should perform and whether the “blended” work force creates a new potential for conflicts. Bearing in mind that any new rules will have costs and benefits, the Acquisition Advisory Panel has undertaken the first effort to systematically identify and address the issues associated with the blended work force. BLURRED BOUNDARIES First, the panel found that the existence of the blended work force, where contractors work daily with government managers in government offices, has raised questions regarding the boundaries between functions that are governmental and those that are commercial. The term “inherently governmental” is well-understood in the A-76 outsourcing arena. Outside that context, however, there is no common understanding or guidance regarding what types of services private contractors should or should not be asked to perform. The challenge for each agency is how to determine when the level of contractor involvement in the government’s decision-making process becomes so substantial that it may affect the integrity of that process. The Acquisition Advisory Panel has recommended that the Office of Federal Procurement Policy provide updated principles for agencies to use in determining which functions must be performed by civil servants and what the boundaries are for contractor participation. The panel also has looked into whether the prohibition on contracting for “personal services” makes sense anymore. Personal-services contracts place the contractor’s personnel in essentially an employee-employer relationship with government officials such that the latter exercise relatively continuous supervision and control. Under the Federal Acquisition Regulation, the government is prohibited from procuring personal services by contract, except as otherwise authorized by statute. Currently, agencies struggle to observe the restrictions on personal services. Where a team of government and contractor employees are working together to solve complex technological issues, close and specific direction may be necessary. Officials who are scrupulous can craft awkward and inefficient workarounds. But there is still a perception that the restriction is widely ignored. The panel has recommended that the prohibition on personal services be eliminated and replaced with guidance from the Office of Federal Procurement Policy regarding the appropriate use of such services. THE CONFLICTED CONTRACTOR Beyond the general restrictions on what private workers can do, the number of contractors supporting the acquisition process has raised questions regarding conflicts of interest, both organizational and personal. FAR provides general guidance for handling organizational conflicts of interest. Basically, an organizational conflict arises where a contractor, because of its work activities, may unfairly influence the ground rules for competitions, may have impaired objectivity when assisting an agency, or may have an unfair competitive advantage. According to FAR, contracting officers must “identify and evaluate potential organizational conflicts of interest as early in the acquisition process as possible” and “avoid, neutralize, or mitigate significant potential conflicts before contract award.” However, FAR does not provide guidance on how contracting officials should accomplish these tasks. Given the strains on the acquisition work force, it is little surprise that contracting officers have encountered difficulty applying the mitigation principles for organizational conflicts. In recent years, the Government Accountability Office has sustained more protests for failures to identify, evaluate, and mitigate organizational conflicts. The potential for such conflicts will only increase as more experienced personnel retire and the government relies increasingly on contractors. The Acquisition Advisory Panel has recommended that the FAR Council, which oversees development and maintenance of FAR, create a uniform, government wide policy to assist agencies in properly identifying organizational conflicts. In particular, agencies need better analytical tools for addressing conflicts that arise in developing requirements for contract work (in order to avoid biased ground rules) and for handling the evaluation process (in order to avoid claims of impaired objectivity and unfair competitive advantage). THE CONFLICTED INDIVIDUAL Besides organizational conflicts, the presence of contractors within the acquisition process also creates more opportunities for personal conflicts of interest. A collection of civil and criminal statutes contain the personal-conflicts rules that apply to government employees. These rules address such issues as the employees’ finances, their relationships with contractors, their ability to accept gifts and engage in lobbying activities, and their post-federal-employment options. The rules exist because federal employees maintain a “responsibility to the United States Government and its citizens to place loyalty to the Constitution, laws and ethical principles above private gain.” Some observers have suggested that the increasing prevalence of contractor personnel should raise concerns about the ability of these private workers to carry out government functions in an impartial fashion. Since contractor support is so integral to the functions of many government offices, observers have raised the possibility that contractor personnel be subject to the same restrictions as government employees. Questions exist whether contractor employees have adequate financial disclosure obligations and whether those obligations should change as they perform functions once performed by federal employees. The Acquisition Advisory Panel has been sensitive to these ethical concerns. However, the panel also has recognized that many contractors already have comprehensive ethics and compliance programs. In addition, relatively recent laws and regulations have imposed further ethics requirements on publicly traded companies. For example, the Sarbanes-Oxley Act of 2002 requires a corporate board’s audit committee to establish procedures for receiving, examining, and resolving complaints relating to financial controls. Sarbanes-Oxley also places significant responsibility on lawyers representing public companies to report directly to the chief legal counsel or chief executive officer any evidence of breach of fiduciary duty by a company employee. The law also enhances protections for whistle-blowers who report perceived fraud and conflicts of interest. Rather than propose additions to these already myriad regulations, the panel has recommended that the FAR Council review the types of issues that arise in the procurement process and analyze where personal conflicts need to be further addressed. The council would then consider the best means for addressing them — greater disclosure, specific prohibitions, reliance on specific principles, or tailored contract clauses, among other options. For their part, contractors should be attentive to ethical concerns that arise when private employees perform the functions of federal employees. Contractors should be aware of where their employees are working, what tasks they are performing, who is giving them direction, and whether the particular organization or task presents a potential for ethical challenges. Contractors also should analyze whether their existing ethics programs are sufficient to address blended work-force issues. The use of service contracts to augment the federal acquisition work force is expected to grow. The work of the Acquisition Advisory Panel is a critical step in identifying the specific issues that, potentially, risk the integrity of federal contracting. The panel’s recommendations must not be left on a shelf lest future ethical breaches inspire harsher measures.
Marcia G. Madsen is a partner in the D.C. office of Mayer, Brown, Rowe & Maw. She is also chair of the Acquisition Advisory Panel.

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