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It’s an old issue: Conflict of interest in the awarding of contracts. In one recent protest, a Navy employee involved in developing specifications ended up in a job with one of the bidders. For how the case turned out, Federal Drive with Tom Temin talked with Smith Pachter McWhorter procurement attorney Joe Petrillo.

Interview transcript:

Joseph Petrillo: The Navy has a program to develop the next generation of its low frequency radar jamming devices — these are pods that are on aircraft — and they already awarded and had performed R&D contracts to demonstrate existing technologies and see how they work and try some prototype pods. Two contracts were awarded to Northrop Grumman and L3 Technologies — both large defense contractors — they performed the contracts. Now we’re on to the next phase. The Navy’s holding a competition to determine which of those two contractors will actually develop an operational prototype and will start the process of fielding the jammers. So the protest that concern the follow-on competition, which the Navy awarded to L3. It was a very classic Part 15 competition..

Tom Temin: Almost a fly off, if you will..

Joseph Petrillo: Exactly. Competition and cost factors, technical factors were evaluated. The Northrop Grumman proposal was rated unacceptable, and the Navy awarded the contract L3. And Northrop Grumman protested. And one of the issues raised was an apparent conflict of interest. One of the Navy engineers worked on and evaluated the R&D contract, and had participated in writing and revising specifications for the follow-on competition, had accepted a job with another division of L3.

Tom Temin: Hmmmm, yeah, that comes very close then, doesn’t it?

Joseph Petrillo: Yes, that raised a red flag. The Navy said, Oh, we’ll take corrective action, we’ll do an investigation. And they did. They investigated, they determined that there was no appearance of impropriety, L3 did not gain a competitive advantage, and they affirmed the award. Well, as you might expect, Northrop Grumman went ahead and protested again, and the issue then went to GAO.

Tom Temin: Alright, so GAOis looking at this, and they’re also therefore able to see the Navy investigation outcome, which as he’s pointed out, said there was no appearance of a conflict of interest. But did the GAO agree?

Joseph Petrillo: No, they decided the Navy had not done a good investigation. And their decision illustrates some important features about conflict of interest, how it works, what kind of an investigation an agency needs to perform. What is necessary to raise a conflict of interest is not merely some suspicion or some apparent issues that raise conflicting interests. What is necessary is hard facts. And here, there were what GAO refers to as hard facts. This employee — Navy employee — referred to in the decision as ‘X’ negotiated employment with L3 while actively engaged in the R&D contract.

Tom Temin: Yeah, so that seems to obviate the fact that he went to a different division. Because he was still negotiating, personally, on the corporate entity, regardless of what division was bidding, or the division he was going to go to.

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Joseph Petrillo: That factor was of no interest at all to GAO. It’s the same entity, the fact that you’re going to a different part of it really doesn’t matter. So ‘X’ is actively engaged in the R&D contract, and also developing specifications for the solicitation for the follow-on, answering vendor questions and deciding on whether or not to change the specifications. So. GAO said this beats the test of having hard facts. What happens now? Well, prejudice at that point is presumed. So, the burden’s shifting now from the person objecting to an alleged conflict of interest to the agency saying, now there isn’t any. And the Navy did a number of things in its investigation that turned out not to work for them. As you mentioned, the fact that it was a different L3 entity — a different division — no consequence to that whatsoever. It doesn’t matter. It’s the same overall family. The Navy also said, Well, the changes to the specifications during the follow-on competition were approved two levels above ‘X’. So it wasn’t just ‘X’s’ is doing. And GAO looked at the investigation and said, Well, that’s true, but your investigation doesn’t show the extent to which this approval process relied on ‘X’s’ input.

Tom Temin: Well, beyond that, the approver may not have known that ‘X’ was negotiating with L3 at the time, so then wouldn’t have known whether the specs in the instructions to L3 were biased in some way.

Joseph Petrillo: Well, I think reading between the lines is pretty clear that ‘X’s’ negotiations are something that were not widely known in the Navy and perhaps not known to anyone except to ‘X’. So that also, I think, is an interesting feature of this — the fact that ‘X’ was keeping those confidential.

Tom Temin: Right. I think there’s probably a rule somewhere that says you should notify a supervisor if you’re negotiating with an outside entity that’s also a contractor, and recuse yourself from further work-on contracts with them.

Joseph Petrillo: Well, that was the simple solution to this problem, had ‘X’ notified his or her superiors and taken off the competition, there wouldn’t be a problem at all. We’re here because that didn’t happen.

Tom Temin: Therefore, GAO upheld the protest. But then there’s the issue that in the first place, unbeknownst of what was going on, the Navy said that the Northrop Grumman proposal was unacceptable. So now they have one they can’t use because of the conflict of interest. That doesn’t mean it goes to Northrop Grumman, necessarily, because that was unacceptable anyway, on the merits, so how do they cut this baby up?

Joseph Petrillo: Well, before we get to the solution here, there’s one other feature of the Navy’s investigation I think it’s very important to consider. The Navy said, Well, ‘X’ had the most impact on a specific area of the evaluation — the systems performance specification. And in that area, Northrop Grumman had no technical findings — there was nothing negative about their evaluation. But L3 did have a significant weakness. So it looks like ‘X’s’ activities didn’t hurt Northrop Grumman or help L3. And there GAO said, Well, now that we’ve established that there is a conflict of interest, the lack of a direct connection between ‘X’s’ activities and Northrop Grumman’s disqualification doesn’t negate the lack of a conflict or any bias in the process. Because this is very hard to prove. And here’s where it’s important to keep in mind that appearances counting conflict of interest..

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Tom Temin: Sure..

Joseph Petrillo: We’re trying to avoid things that even look bad whether or not they actually are. The Navy should have concentrated in its evaluation and its investigation on the integrity of the specifications and the potential for bias.

Tom Temin: Yeah, so basically what GAO is saying is once somebody spit in the coffee, you can’t get it out in any way that you can trust that coffee.

Joseph Petrillo: So, we now have, as you pointed out, a real dilemma. We’ve got a company that’s judged unacceptable, other company that in the ordinary course of events would be disqualified from the competition. So in this instance, GAO says, Well, that won’t work. So, the Navy’s gonna have unconflicted individuals review the specifications that were tainted by ‘X’s’ conflict of interest and independently review them. As a result of that review, they’re either going to affirm the specifications and say, That’s fine, we can go forward with the competition and make the award, or update those specifications — Alright, we’re going to change them and request revised proposals. So that’s the upshot of this. It’s going to at least delay the competition, may even change the outcome.

Tom Temin: Right. And at the bottom of this is an important piece of technology that the Navy needs. Radar jamming pods on an airplane I imagine are a pretty strategic piece of that airplane.

Joseph Petrillo: I would tend to think so, yes. [Laughing] To put it mildly.

Tom Temin: Yeah. So one kind of dummy really can wreck a whole program or delay it by a very long time and at significant cost.

Joseph Petrillo: Well, as you pointed out, ‘X’ should have disclosed the discussions and should have been removed from the competition. That would have led to a very different outcome.

Jared Serbu: Joseph Petrillo is a procurement attorney with Smith Pachter McWhorter.

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