Why bidders for federal contracts need to deal with conflicts of interest early on

Conflicts of interest in federal contracting can happen in a lot of ways. In one tangled case, an award winner’s subcontractor turned out to have a conflict of interest. And it may have scuttled the deal. Haynes Boone Procurement Attorney Zach Prince joins the Federal Drive with Tom Temin.

Interview transcript:

Tom Temin
This one’s a little bit convoluted, but you’re always good at sorting them out for us, Zach. This was a [Center for Medicare and Medicaid Services]  award for what to whom?

Zach Prince
So this was the third iteration of a CMS award. This was a protest by a company called the Square Group (ASG) of an award to its competitor Cogent. This award was for health insurance marketplace and financial management analytics. So analyzing data generated from other CMS contracts, among other things.

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Tom Temin
All right. And it didn’t initially go to Cogent, it went to ASG first.

Zach Prince
That’s right. So ASG got this award in 2023. And then Cogent brought a protest at GAO. Before GAO got to a decision there, the agency took corrective action, held exchanges with Cogent and ASG, got revised quotations, and then decided that actually it was going to award to Cogent which had a substantially lower price. So at that point, ASG protested here at GAO.

Tom Temin
Yeah. And they had a lot of grounds. But there was only one that really kind of stuck and took them both through a long process.

Zach Prince
A lot of these protests, especially at GAO, you go in and you argue basically everything. As Judge Thompson said in one of his decisions from the Court of Federal Claims recently, “throw the throw spaghetti at the wall and hope something sticks.” That’s how a lot of protests go. This though, GAO was struck by the organizational conflict of interest (OCI) issue, and that ultimately is what it decided in favor of for ASG.

Tom Temin
Right, so now, nobody has the contract while CMS figures out what to do. But in this case, the organizational conflict of interest wasn’t with the main contractor, Cogent; it was with one of its subcontractors. Explain what was going on there.

Zach Prince
So there are a couple of categories of OCI. Organizational conflicts of interest can be impaired objectivity — which is what happened here — biased ground rules, or unequal access. So some of those are things that can be mitigated, usually impaired objectivity, which means basically, that you’re evaluating your own work from another contract. Can’t be mitigated, unless it’s a subcontractors issue, and then potentially the subcontractor can be firewalled off. That’s what the issue was here. A Cogent subcontractor, that it was having do quite a bit of the work apparently, had been running a separate contract for CMS supporting the federal exchanges, or healthcare.gov, where it was generating the data that it was then going to be validating under this new contract. Classic, classic impaired objectivity OCI; there was a proposed mitigation strategy. But on review, GAO decided that strategy just wasn’t enough.

Tom Temin
In other words, this subcontractor was going to be evaluating data that it itself generated, not in relation to its direct work for CMS, but in its work as a subcontractor to Cogent, which would have ended up in the same place.

Zach Prince
You can’t have a situation where you’re evaluating your own work, or where somebody who’s part of your team is evaluating its own work. It is, at least optically, a major problem where the agency should not be able to trust or can’t trust the independence of that assessment. And so they proposed a mitigation strategy. They said, ‘we’re going to take this up, and we’re going to firewall them off.’ So they’re not reviewing that one type of data, payment data, that was generated from the other contract. And the agency said, ‘okay, that’s good enough.’ But when GAO looked at this during the protests, they said, ‘hold on, there are several categories of data that are at issue here. There’s payment data, there’s enrollment data, there’s potentially other data, all of which are data that were generated by the subcontractor under the other contract. Your proposal for mitigation only dealt with one category, it didn’t deal with these other ones.’ So for the agency to have accepted the mitigation proposal as is, where it only dealt with one category that was irrational. And that was the basis to sustain the protest.

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Tom Temin
We’re speaking with Zach Prince, he’s a partner at the law firm, Haynes Boone. Would the subcontractor have known about what’s going on, because it probably would have, because don’t subcontractors know when they’re part of a team that is bidding by the prime for a new contract?

Zach Prince
They absolutely should have known what’s going on. And the prime, Cogent, really should have known about this issue, too. The issue was brought to their attention during the evaluation also, by the technical evaluation, and that’s when they came up with this mitigation strategy. They didn’t reflect this mitigation strategy in their technical proposal, which by the way, they had a couple rounds of chances to provide a revised proposal. So they’ve got a technical proposal that says nothing about segregating these guys out. And in fact, they call for hundreds of hours of these guys’ time, the subcontractor’s time, doing valuation tasks. That was directly contrary to what they said in the mitigation plan. They just didn’t fix the issue when they had opportunity.

Tom Temin
Yeah, some things simply can’t be mitigated, in other words.

Zach Prince
It could have been mitigated if they did it early enough, if they came up with a way that this sub just wasn’t doing that work. Some things certainly can’t be. If the prime was the one who had generated this data that they’re then evaluating, you can’t mitigate it by firewalling yourself off, it’s too much of the work. Sometimes, if it’s a tiny part of the scope of work, maybe you can subcontract that as the prime, but most cases, you can’t. But in this case, it just wasn’t reflected in their technical proposal, which is another big issue GAO had with the agency’s conduct.

Tom Temin
Even if they could say, well, this subcontractor will continue to evaluate this data. But this particular sliver of data which they generate under this contract with us, they will not be. We’ll find somebody else to evaluate it. Even that doesn’t seem to totally mitigate it, because you still have this business relationship, and it just doesn’t sound clean no matter what you do in some cases.

Zach Prince
And I think it’s rational for the agency to determine that that is something that can’t be mitigated if that’s what they wanted to do. The finger is on the scale heavily for the agency, as long as it’s making a rational decision. The problem is here, they weren’t making a rational decision. It just wasn’t reflected in the technical proposal, which showed that, basically, if they did this mitigation, what they proposed was unworkable. And the mitigation itself just didn’t go far enough. Because it wasn’t just a sliver of data that was the problem. It was this wider set of data.

Tom Temin
And so now nobody has the contract. GAO just, I guess, invalidated it. What happens in these situations when you have too close bidders. One was better on price, but it has a conflict of interest. Can the agency say ‘okay, we’ll go back to the first company, Square Group?’

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Zach Prince
The agency has got a couple of options. And the most outlandish option — this is definitely not happening — is the agency just says ‘we don’t care what GAO says.’ They don’t have to; GAO just makes recommendations. But if you don’t do what GAO says, then you’re going to end up in the Court of Federal Claims. And your agency is going to end up in front of Congress explaining why they chose to ignore GAO.

Tom Temin
Plus it could be two more years till you get any of the work done.

Zach Prince
Right. I mean, if they choose to ignore GAO, then they can just let Cogent keep going. And then they get the work done. And sometimes that happens in really sensitive procurements. But it is really rare. They could also go back now and say, ‘let’s reopen discussions. And we’ll get a new proposal from Cogent, we’ll get a new proposal from ASG. ASG will probably give us a much better price. Cogent will give us a different technical proposal that deals with this issue.’ And then they reevaluate at that point. That’s the more complicated way to do it. I’m not sure right now, how the work’s getting done. Maybe there’s a bridge contract from the incumbent. I think this probably is ASG continuing to perform because I think they were the incumbent, so maybe the agency goes that route.

Tom Temin
All right, so we could call this one be fair or be square. Pun intended.

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