The Dreaded OCI Clause – Organizational Conflict of Interest

In federal contracting, the government has regulations in place that try to prohibit unfair advantages between companies competing for the same bid. This is a good thing, but can reduce your opportunities as a subcontractor if you don’t know your customer (the prime contractor) well enough.

If you find yourself missing out on contracts because your prime won’t bid on them, there might be an OCI problem at play.

When it comes to doing business with the federal government, there are several types of work. The first is “building stuff,” anything from a computer system to a tank to a ship. At the end of these contracts, the government is procuring something physical. Large businesses (your typical prime contractors) will often have their eye on contracts like these.

Another type of work is operations and maintenance, to keep those physical items functioning. For example, the Pentagon has probably more than 100,000 computers, so there’s somebody who is employed by the Washington Headquarters Service (an arm of the Secretary of Defense), who makes sure those computers are running, connected and secure. Sure, if a computer breaks, you have to go and buy a replacement, but you’re not actually building anything.

Then there are services, which are probably more up your alley as a small business. There are many kinds of services, such as janitorial/sanitation (Jan/San), electrical, building maintenance, driving trucks, etc. Let’s look now at three particular services that are most likely to get into OCI issues:

  1. Acquisitions/Support work, which includes helping with bids, RFPs and evaluation. If you’re involved with creating and collecting bids and RFPs, you would have an unfair advantage so you’re not allowed to put in a bid yourself.
  2. A & AS (Advisory and Assistance Services), where you work with the government customer to define the policy and processes they’re using throughout the organization. In A & AS, you can see right away how you would have privileged information (unavailable to the public) about how big an opportunity for a “building things” contract will be, which you could use to beat out your competition. You have an OCI – organizational conflict of interest – and so does your prime contractor if you’re a sub in this type of work.
  3. SETA (Systems Engineering Technical Assistance) work also creates an OCI, because as the engineer you could design something that only your staff know how to build. That’s why you’re prohibited to bid on building or even maintaining something that your company designed. Another type of SETA work is PMO (Project Management Office) support – after all the upfront design work is done, the Government still needs someone to help them run the contract. Are the contractors making the right tanks (inspection), are they doing it for the right cost (cost build-up issues), are they on schedule? Some of these PMO contracts can get quite substantial, but still not as big as the building contracts.

If you’re subcontracted to someone with designs in their business strategy about actually building the stuff, they’re not going to want to bid on the PMO work and risk an OCI. So if you’re a PMO contractor, this kind of prime isn’t going to bid on anything you want to do. They’re also probably not going to give you their own PMO work or you’ll know too much about their stuff as well.

In some cases companies can set up “firewalls,” designed to ensure that the people doing the SETA work never talk to the people doing the building work. However, that’s not always enough to satisfy the government. The current administration has been very harsh on the OCI issue and as a result there have been some major divestitures, where companies have actually sold off their services groups so they can focus only on the building-type contracts. (Northrop Grumman is one well-known example, as explained in this article by the Civitas Group.)

We ran into an OCI obstacle at TAPE, with an MA-IDIQ contract at a large civilian agency. TAPE had subbed to a large business on that contract, but the large business only wanted to do the building stuff on that contract – the big business items. We were looking for the project management jobs, but they didn’t want to bid on any of those. They knew that would destroy their opportunity of winning the bigger, more lucrative bids.

Today we’re on a different team that’s bidding on a lot of the stuff that we want to work on. Now we have an opportunity for revenue, where we really didn’t have an opportunity for revenue when we were subcontracting to the large company.

This is why as a subcontractor you really have to know your customer – the prime contractor. It doesn’t mean there isn’t work for the small business to do in building a tank, but if your core capabilities are going to be in OCI conflict with the work your prime contractor is going after, things aren’t going to work out well for you.


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