"Unfair Competitive Advantage" in Procurement Matters

A November audit by Tennessee's Comptroller applies the Federal Acquisition Regulation (FAR) to a state procurement situation, since there are no relevant state rules. The particular provision involves "unfair competitive advantage." This is a useful concept to keep in mind with respect to local procurement matters, as well.

The procurement situation involved a real estate management contract awarded by the Department for General Services for $1 million that, through two amendments, increased to $7.65 million. A second contract, for an even larger amount, was then awarded to the same contractor (JLL).

Here is the relevant part of the comptroller's audit:

We believe the first and second amendments [to the contract] placed JLL in a position to offer the state advice and then reap the benefits of its own recommendations, creating an organizational conflict of interest. Although Tennessee law, rules, and regulations are silent on the matter, it is presumed that a vendor who offers the state advice should not be permitted to bid and be awarded a contract which would allow the vendor to act on the advice it originally provided.

[S]ubpart 2.101 [of the FAR] defines “organizational conflict of interest” as when

a[n entity] is unable or potentially unable to render impartial assistance or advice to the Government, or the [entity]’s objectivity in performing the contract work is or might be otherwise impaired, or a[n entity] has an unfair competitive advantage.

Furthermore, subpart 9.505 [of the FAR] states that the two principles of resolving an organizational conflict of interest are

[1] preventing the existence of conflicting roles that might bias a contractor’s judgment; and [2] preventing unfair competitive advantage…[which] exists where a contractor competing for award of any Federal contract possesses proprietary information that was obtained from a Government official without proper authorization; or source selection information that is relevant to the contract but is not available to all competitors, and such information would assist that contractor in obtaining the contract.

I like the terminology here, referring to the conflict situation as an "organizational conflict of interest." Too often, the focus is on an individual's conflict situation, even when the agency itself was equally responsible, as in this matter. In many procurement-related conflict situations, agency and contractor should work together to deal responsibly with the situation, seeking independent ethics advice whenever there is any question about what to do.

The state agency insisted, and continues to insist, that it could not consider other contractors, because the project would be delayed, causing additional costs to the state. But the cost determination is not so simple. When asked for advice about another plan, JLL was paid for the advice and then for administering the plan. This might have cost the state substantially more than bringing in an independent adviser who could not profit from the advice it gave.

Robert Wechsler
Director of Research-Retired, City Ethics

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