Conflict of Interest

Q. The City of Tucson is an FTA Grantee. The City has a Transportation Department that is responsible for FTA-funded projects. The City has a Facilities Management Department that oversees/is responsible for the progression of capital projects. I am with the City's Procurement Department. As per FTA requirements, we do not have a commercial venture prepare an independent cost estimate for an FTA-funded purchase and then subsequently allow this party to bid on whatever is being purchased. The question I have is, for an FTA-funded construction project, does FTA view the preparation of an ICE by a City employee in our Facilities Management Department who then subsequently oversees/is responsible for the progression of this project, with recovery of his costs coming out of the FTA project funding, as problematical? A. The FTA conflict of interest rules about preparing ICEs go the issue of the consultant having an unfair competitive advantage (access to knowledge that other firms don't have) if that firm also is allowed to bid on the work. There could also be an issue of bias in the estimate when the consultant has a financial interest in the numbers he is giving the agency. Since your case involves a city employee, not a contractor, the traditional FTA concerns about conflict of interest don't apply. However, the city employee's estimated effort for his department would of course be subject to review and negotiation with your agency since you will be paying the bill.

Q. The Executive Director would like to hire an Engineering firm to help us write scopes for upcoming projects such as fuel island building, surveying, planning, project management and so on. Our agency is not big enough to hire a full-time Engineer so what this person is looking for is a company who they could reach who would then help them with the development of the scope or the questions they have e.g. such as our legal firm we contract with. This company could also potentially bid on some of the actual building or construction of the projects. We are unsure of what is the best procurement route to take on this one. A. The type of work described would fall under the Brooks Act requirements (i.e., an A&E qualifications based selection process). A&E procurements are covered in the Best Practices Procurement Manual (BPPM), Section 6.5 - Architect-Engineer Services. The BPPM is available online here. You also note that the firm selected would be allowed to later compete for the work they are helping define for you. This would represent an impermissible organizational conflict of interest that is prohibited by the FTA Procurement Circular 4220.1E, paragraph 8.a. (5). The subject of conflicts of interest is covered in the BPPM, Section 2.4.2.2.2 - Written Standards of Conduct and Conflicts of Interest: Personal and Organizational. You will also find guidance in the BPPM Section 3.3 - Using Consultants to Prepare Specifications. It is very important that you don’t allow a conflict of interest to exist. To avoid this you must tell potential A&E firms up-front, before they submit their qualification statements for the initial project definition work, that they will be precluded from competing for the follow-on work. You should also include a clause in your initial consulting contract that provides for a “limitation of future contracting” that specifies the future work (specific projects) they will not be allowed to do either as prime or subcontractor. This will allow prospective firms to choose whether they want to compete for the initial definition work or the later work, and thus avoid protests from them later or from their peers who will complain of an unfair competitive advantage.

Q. Could an agency allow a clerical employee to work for a potential contractor after work hours or on the weekend? A. The FTA procurement Circular 4220.1E deals with the subject of conflicts of interest, personal and organizational, in paragraph 7.c. This regulation deals with those grantee employees who participate in the selection, award or administration of contracts that are supported by FTA funds. Conflicts of interest would include outside employment of a grantee employee who is involved in the selection, award or administration of contracts by a contractor doing business with the agency. We would also note that a potential conflict would arise if a contractor employed someone whose immediate family includes someone at the agency who is involved in the selection, award or administration of contracts. In other words, the clerical employee may have an immediate family member in a sensitive position in your agency and this would constitute a conflict of interest for the clerical employee to accept part time employment by a contractor that is doing business or seeking to do business with your agency. FTA Circular 4220.1E We would suggest you review the guidance that has been published in the Best Practices Procurement Manual (BPPM) in section 2.4.2.2.2 - Written Standards of Conduct and Conflicts of Interest: Personal and Organizational. This section discusses the issue of "outside employment," and note that the standard to be employed in deciding any given case is not whether an actual conflict of interest exists but whether the appearance of a conflict would exist (paragraph F - The Appearance of Conflict Standard in the "Discussion" section). The BPPM is available online.

Q. If a transit agency issues an RFQ for the design and project management of a hydrogen refueling facility, subsequently issues a contract for that phase of the project, and then issues a separate contract package for the construction phase of the project, upon selection of a firm to perform the design/project management, is the selected firm precluded from submitting a proposal for the construction phase the project? A. FTA Circular 4220.1E, Paragraph 8(a)(5) states the broad principle that organizational conflicts of interest are considered situations that are restrictive of competition and therefore impermissible. The situation you are describing has traditionally been interpreted as one that can create an organizational conflict of interest.  There are two aspects of this scenario that are problematic. One concerns the objectivity of the design consultant and the other concerns access to information that other competitors may not have when the construction phase is put out for bids. The objectivity issue deals with the possibility that the design firm may incorporate features into the design to enhance the competitive position of the firm for the construction phase contract. For example, the designer may have financial interests, corporate strengths or expertise in certain technological areas or concerning products in those areas that it would choose to incorporate into the final design so as to enhance its competitive position or otherwise profit from the design specifications. As the owner you are entitled to a completely objective analysis and decision making process for the final design and you may not be getting that objectivity under this approach. The other problem concerns the possibility of the design firm having information (by virtue of its design phase work) that its competitors will not have in the construction phase bidding, and this leads to an unfair competitive advantage for the design firm, undermining the integrity of the procurement. Another obvious problem with your case is the firm selected for the design work also appears to be responsible for project management services, and we would assume this would include surveillance of the construction phase contract. The company selected for the design/management role could not possibly be an objective consultant to you in the construction phase if it was being asked to monitor itself. In light of these problems we believe your solicitation for the design phase work should contain a clear notice to the offerors that the selected firm will not be allowed to compete either as a prime or subcontractor for the construction contract, and this limitation on future contracting clause should also be included in the design contract.  The Best Practices Procurement Manual (BPPM) discusses these issues in Sections 3.2, "Using Consultants to Prepare Specifications," and 2.4.2.2.2, "Organizational Conflicts of Interest ." We would also note that FTA is soon preparing to issue a Federal Register Notice with detailed guidance, and many specific examples, for grantees on both organizational and personal conflicts of interest. The situation you have presented here will be one of the examples cited in the guidance as one to be avoided.

Q. We have a Section 5309 subrecipient that is currently compiling an RFP to bid out for Energy Efficiency Improvements to their transit facility. They're calling it a "Performance Contract" with the definition being: A Performance Contract is a self-funded service package presented to a local unit of government by a qualified provider. The qualified provider conducts an initial evaluation of a facility's energy consumption, its operational costs and its compliance with state and local building codes." The subrecipient claims that there are providers that are set up to evaluate facilities to assess their energy efficiency and to proceed with implementing any modifications that need to be done to make their facility efficient! Is a Performance Contract one and the same as an A & E Project? I would think for someone to come into a facility to make changes, they would need to be an engineer or architect! In order to compile an RFP for this type of service, would it need to be completed in 2 parts; an assessment and then purchasing parts and equipment? A. The evaluation of a facility with respect to its energy efficiency and the design of facility modifications required as a result of the evaluation, are typically tasks that are given to an A & E firm. The A & E firm would not be allowed to both evaluate the need for improvements and to perform the improvement work itself. This separation of duties is crucial in order to avoid a conflict of interest where the firm doing the assessment for the agency is motivated to recommend work that may not be in the best interests of the agency. FTA has recently published in the Federal Register for public comment a section for its Best Practices Procurement Manual (BPPM) entitled "Conflicts of Interest: Personal and Organizational." You can access this Federal Register Notice at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2001_register&docid=01-269-filed. The specific FR notice is dated Jan. 5, 2001 - "Best Practices Procurement Manual, Conflicts of Interest." As you review this guidance you will see that one of the major concerns is that of putting a contractor in a position where it cannot be completely impartial in its advice to you. When the contractor has a financial interest in the outcome of its study, it cannot always be impartial and unbiased in its evaluations. By separating the work of studying and evaluating needs from the actual performance of the work to fulfill those needs, you remove the potential for bias and receive the best advice with respect to your needs. We believe you should consider an A&E procurement for the facility assessment and a separate competitive procurement for the facility modifications (parts and equipment) identified in the assessment. The A&E procurement would follow Brooks Act procedures (qualifications-based award without price competition), and the parts and equipment procurement (facility modifications) would be a competitive solicitation with price proposals. The firm selected to do the assessment would not be allowed to compete for the follow-on contract for the facility modifications.

Q. Is the following scenario acceptable? A transit organization works along with a citizens committee in the fulfillment of its responsibilities. Can the committee review RFP recommendations before the recommendations are approved by a City Council? A. Your question of releasing information to select sources before it becomes public would normally raise the issue of unfair competitive advantage, i.e. if one of the offerors gained access to information before it became public or to information, like the project budget, that was not intended for public release. But your situation comes at the end of the process when a winner has been determined, at least for recommendation to the City Council. The one question that immediately arises is whether the CTC has a need to know what you are going to recommend. If your management would like to involve them in the process at this point there is no prohibition against that. But there might be a risk if information is leaked out prematurely so that one of the offerors files a complaint and delays the award. The other danger that you need to avoid is disclosing the confidential business information of the offerors. You should protect any such information from people that are not part of your agency management. Your agency is free to use any "consultants" (like this citizens group) it chooses in its planning and even in the evaluation of offers, but these individuals need to be aware (and they should agree in writing by signing a statement) that they will not disclose any information to anyone outside the agency. All information intended for public knowledge should come from your agency.

Q. If a subcontractor designs a landslide detection system for a prime contractor whose task is to design a bluff stabilization system, is that subcontractor precluded from bidding the follow-on installation of the system that was designed? We are currently completing the final design of a bluff stabilization program. One element of the total design is a landslide detection system (other main elements are landscape design and drainage design). Our engineering firm has hired a consultant to recommend the design and hardware (equipment) for the landslide detection system. The sub consultant has proposed the equipment and a design which has been accepted by our engineering firm. Does this preclude the subconsultant from bidding the installation of the hardware, to its design, to a prime contractor at a later date when the construction is solicited through the IFB process? The installation of the landslide detection system hardware, as designed, can be accomplished by any qualified contractor. There is nothing proprietary or restrictive in the design or use of commonly acquired hardware that precludes competition at a later date. A. The classic problem to be avoided in situations like yours involves organizational conflicts of interest. The two aspects of the problem that may arise include bias and unfair competitive advantage. To avoid bias you would not select a consultant that had any financial interest in the outcome of the study/recommendation. You would want a firm that was completely neutral as to the outcome of the study so that it would not be influenced in any way to recommend a product that could benefit that firm but which might not be the best for you. Now that you have completed the study you are beyond the point of a bias problem and hopefully you are comfortable with the fact that the study and the recommendation have been totally unbiased by any corporate interests of the consultant. If you had any doubts about that fact you should not rely on the study results or the recommendation. The other potential concern is unfair competitive advantage that a consultant might have for the follow-on procurement. This commonly occurs because the consultant has information that has been acquired through the consulting contract (that his competitors do not have because it has not been published), and he thus has an unfair advantage in proposing a method or an approach based on this undisclosed information. Or the consultant may have designed the next phase of the project around his own corporate strengths (or products) so as to give him an advantage relative to the competition. If you can assure yourself that neither of these situations exist, and that there are no other factors that would give this firm an unfair advantage in bidding for the follow-on work, then there is no reason to preclude that firm from the follow-on work.

Q. A recently retired city employee who was involved with procurement of transit products and services would like to come back as a vendor (or as a representative of a vendor). The person would like to attend a pre-bid conference that is scheduled for tomorrow. Should this person be prevented from attending? A. The issue raised by your question concerns "conflicts of interest." We would first advise that you review the written standards of conduct for city employees (with your chief counsel's office) to see if those standards contain restrictions on retired or former city employees with respect to their participation on procurements or programs conducted by the city. Guidance on conflicts of interest, both personal and organizational, will be published in the Best Practices Procurement Manual* in Section 2.4.2.2.2 between March and June 2003. You will have to review this former employee's access to information while employed as a city employee and determine if he or she has information that the public may not have. If this is the case, then any firm bidding on this work with such non-public information would have an unfair competitive advantage that FTA Circular 4220.1E would consider "restrictive of competition" in violation of paragraph 8a(5) of the Circular. You may access the FTA Circular 4220.1E. If the former employee does not have information that others do not have, and if you determine that there are no restrictions placed on former employees of the city, then you may have no basis to restrict this individual's participation on the procurements in question. __________ *The BPPM is available on the Internet.

Q. Can we allow a private developer to perform the Phase II design work for which we presently have an RFP on the street, inasmuch as the developer is offering to do the work at no cost to our agency? (The cost of this Phase II design is estimated at $100,000.) If we are allowed to do this, we would also like to award a sole source contract to the A&E firm that did the Phase I design for us so that this firm could oversee the Phase II work of the developer and ensure a unified design, consistent with the Phase I work. Can we proceed as intended? A. There are several issues raised by your question, and we lack information to come to a conclusive recommendation, but we can offer some guidance that may be helpful. We agree with you that the Phase I design contract probably cannot be amended as a "change order" since the proposed add-on work was not contemplated within the original contract scope. This would mean the grantee must document its rationale for a sole source modification to the contract (i.e., treat it as "new work") and process the action through the proper grantee management officials to get internal approval as a "sole source" contract award. The grantee has the authority to do this under FTA Circular 4220.1E* and does not need FTA approval or consent beforehand. If the purpose of the add-on modification is to bring the A/E Phase I firm into the Phase II picture in order to interpret Phase I preliminary designs to the Phase II designers, and/or review the Phase II design work in light of Phase I requirements, then it would seem logical that the Phase I firm would be in a unique position to do this follow on work as a sole source add on to the first contract. A deeper concern is the potential for an organizational conflict of interest on the part of the Phase II development team that is proposing to do the Phase II design for free. FTA has been vigilant to avoid situations where design contractors or firms preparing specifications and requirements for follow on competitive bidding are allowed to compete for the follow on work that they are designing or defining. The obvious problems are bias in the design or definition phase work (designing for their corporate interests and competitive advantage instead of the grantee's best interests), and unfair competitive advantage relative to other bidders (where the designers may have unpublished information that would enhance their competitive position in the construction phase bidding). Keep in mind also that the conflict of interest rules prohibit both real and apparent conflicts. See FTA Circular 4220.1E,* paragraph 8(5). Of course if the construction phase does not involve FTA funds, then the grantee will not need FTA "consent" to the procurement strategy being outlined (although the conflict of interest concerns will exist regardless of whose funds are being used, and the grantee should avoid the potential problems regardless of funding source). We would also advise the grantee, that should it decide to proceed with the offer of the developer, to be sure the developer will furnish all the information and data that the grantee would have gotten had it procured the Phase II design with its own contract. It would be unfortunate if the work products delivered to the grantee for a follow on construction solicitation were not adequate to solicit bids. This would basically nullify the intended advantage of obtaining the design for free. __________ *FTA Circular 4220.1E is available on the Internet.

Q. If a consultant is hired to complete preliminary engineering and an environmental impact statement for a project, would that consultant be precluded from competing for the final design consultant contract? A. The answer to your question is addressed in the attached guidance that will soon be published in the Best Practices Procurement Manual (BPPM) as Section 2.4.2.2.2 - Written Standards of Conduct and Conflicts of Interest: Personal and Organizational. See Paragraph G of the "Discussion." This guidance has been drafted by the FTA Chief Counsel's Office. You will note that FTA takes the position that EIS contractors must not hold contracts for follow-on work (e.g., detail design or construction, etc.) concurrently with their EIS work, but they may bid on follow-on work after completion of the EIS work. Q.  We are evaluating proposals for a firm to develop a Three-Year Plan/Report for our Asset Management program. When the report is complete, we will issue a separate RFP for implementation of that plan. The question is: Would the firm that wrote the original report be precluded from proposing on the RFP to implement the recommendations of that report? A.  The FTA Best Practices Procurement Manual (BPPM) discusses organizational conflicts of interest in section 2.4.2.2.2, "Written Standards of Conduct and Conflicts of Interest: Personal and Organizational." The BPPM is available online: http://www.fta.dot.gov/funding/thirdpartyprocurement/bppm/grants_financing_6186.html#C2_4_2_2_2 This section refers to the CFRs that govern grantee third party contracts. The relevant CFR sections are 49 CFR § 18.36(c) (v) and 49 CFR § 19.43, which prohibit organizational conflicts of interest as restrictive of competition. Section 19.43 further states as follows: All procurement transactions shall be conducted in a manner to provide, to the maximum extent practical, open and free competition. The recipient [[Page 167]] shall be alert to organizational conflicts of interest as well as noncompetitive practices among contractors that may restrict or eliminate competition or otherwise restrain trade. In order to ensure objective contractor performance and eliminate unfair competitive advantage, contractors that develop or draft specifications, requirements, statements of work, and invitations for bids and/or requests for proposals shall be excluded from competing for such procurements. Awards shall be made to the bidder or offeror whose bid or offer is responsive to the solicitation and is most advantageous to the recipient, price, quality and other factors considered. Solicitations shall clearly set forth all requirements that the bidder or offeror shall fulfill in order for the bid or offer to be evaluated by the recipient. Any and all bids or offers may be rejected when it is in the recipient's interest to do so. Based on the information you provided we would say that there appears to be a potential conflict of interest because (1) the firm developing the three-year plan (note the term "requirements" in the CFR cited above) may have a potential financial interest in implementing that plan. Thus the objectivity of the Asset Management Plan recommendations would be in question; (2) the consulting firm may also have an unfair competitive advantage relative to other firms since it might have access to detailed information and thus  knowledge that other firms would not have. However, this latter issue could be corrected if your agency took care to publish all data collected or reviewed by the consulting firm. Also keep in mind that the standard for determining an impermissible conflict of interest in the CFRs is one that is either "real" or "apparent."  The standard of "appearance" is there to protect the public confidence in the integrity of the procurement process.