[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Rules and Regulations]
[Pages 68017-68026]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27780]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 3, 12, and 52

[FAC 2005-54; FAR Case 2008-025; Item II; Docket 2009-0039, Sequence 1]
RIN 9000-AL46


Federal Acquisition Regulation; Preventing Personal Conflicts of 
Interest for Contractor Employees Performing Acquisition Functions

AGENCIES:  Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to address personal conflicts of 
interest by employees of Government contractors as required by statute.

DATES: Effective Date: December 2, 2011.
    Applicability Date: Except for contracts, including task or 
delivery orders, for the acquisition of commercial items, this rule 
applies to--
     Contracts issued on or after the effective date of this 
rule; and
     Task or delivery orders awarded on or after the effective 
date of the rule, regardless of whether the contracts, pursuant to 
which such task or delivery orders are awarded, were awarded before, 
on, or after the effective date of this rule.
    Contracting officers shall modify, on a bilateral basis, in 
accordance with FAR 1.108(d)(3), existing task- or delivery-order 
contracts to include the FAR clause for future orders. In the event 
that a contractor refuses to accept such a modification, the contractor 
will not be eligible to receive further orders under such contract.

FOR FURTHER INFORMATION CONTACT: Mr. Anthony Robinson, Procurement 
Analyst, at (202) 501-2658, for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-54, FAR 
Case 2008-025.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Discussion and Analysis of the Public Comments
    A. General
    B. Definitions
    C. Applicability
    D. Contractor Procedures
    E. Mitigation or Waiver
    F. Violations/Remedies
    G. Clause Flowdown
    H. Cost and Administrative Burden
    I. Miscellaneous Comments
III. Executive Orders 12866 and 13563
IV. Regulatory Flexibility Act
V. Paperwork Reduction Act

I. Background

    Section 841(a) of the Duncan Hunter National Defense Authorization 
Act (NDAA) for Fiscal Year 2009 (Pub. L. 110-417), now codified at 41 
U.S.C. 2303, requires that the Office of Federal Procurement Policy 
(OFPP) develop policy to prevent personal conflicts of interest by 
contractor employees performing acquisition functions closely 
associated with inherently governmental functions for, or on behalf of, 
a Federal agency or department. The NDAA also requires OFPP to develop 
a personal conflicts-of-interest clause for inclusion in solicitations, 
contracts, task orders, and delivery orders. To address the 
requirements of section 841(a) in the most effective manner possible, 
OFPP collaborated with DoD, GSA, and NASA on this case to develop 
regulatory guidance, including a new subpart under FAR part 3, and a 
new clause for contracting officers to use in contracts to prevent 
personal conflicts of interest for contractor employees performing 
acquisition functions for, or on behalf of, a Federal agency or 
department.
    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 74 FR 58584 on November 13, 2009. OFPP and DoD, GSA, and 
NASA proposed a policy that would require each contractor that has 
employees performing acquisition functions closely associated with 
inherently governmental functions to identify and prevent personal 
conflicts of interest for such employees. In addition, such contractors 
would be required to prohibit covered employees with access to non-
public Government information from using it for personal gain. The 
proposed rule also made contractors responsible for--
     Having procedures to screen for potential personal 
conflicts of interest;
     Informing covered employees of their obligations with 
regard to these policies;
     Maintaining effective oversight to verify compliance;
     Reporting any personal conflicts-of-interest violations to 
the contracting officer; and
     Taking appropriate disciplinary action with employees who 
fail to comply with these policies.
    Comments were received from 19 respondents; these are analyzed in 
the following sections.

II. Discussion and Analysis of the Public Comments

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) have reviewed the public comments in 
development of the final rule. As a result of this review, the Councils 
have incorporated some changes in the final rule, including the 
following more significant changes:
     Revised the definition of ``covered employee'' to clarify 
applicability to subcontracts.
     Revised the contracting officer procedures at FAR 
3.1103(a)(1) and (a)(3), and (b)(3).
     Revised the discussion of violations at FAR 3.1105.
     Added a new paragraph FAR 3.1106(c) to provide additional 
clarification on use of FAR clause 52.203-16 when contracting with a 
self-employed individual.
     Amended 12.503(a) to clarify that the statute does not 
apply to contracts for the acquisition of commercial items.
     Revised the clause at FAR 52.203-16 by--
    [cir] Clarifying the financial disclosure requirements in paragraph 
(b)(1), including deletion of the requirement for an annual update of 
the disclosure statement;
    [cir] Adding to the list of possible personal conflicts-of-interest 
violations in (b)(6);
    [cir] Removing the list of remedies in paragraph (d); and
    [cir] Clarifying the clause flowdown.

A. General

    Comments: Several respondents commented on general elements of the 
proposed coverage. Some supported implementing the proposed coverage, 
while others stated that the proposed

[[Page 68018]]

rule is not necessary, is duplicative, or should not apply to certain 
organizations, such as DoD-sponsored Federally Funded Research and 
Development Centers (FFRDCs).
    Response: The Councils concur with those respondents who support 
the rule. In addition to implementing a statutory requirement, 
contained in section 841(a) of the NDAA for FY 2009, the proposed 
coverage fills a current gap in the FAR, which contains very little 
coverage on preventing personal conflicts of interest for contractor 
employees. The proposed coverage is not duplicative of current 
organizational conflicts-of-interest coverage, or the current coverage 
in FAR subpart 3.10 regarding the contractor Code of Business Ethics, 
and should not be limited to exclude FFRDCs.
    Comments: Several respondents addressed the issue of whether 
personal conflicts-of-interest coverage for contractor employees should 
mirror the ethics rules that apply to Government employees.
    Response: The Councils recognize that most of the ethics statutes 
that apply to Government employees are not applicable to contractor 
employees. The differences between the coverage here and the ethics 
standard applicable to Federal employees reflect those differences in 
the underlying statutes.

B. Definitions

1. Acquisition Function Closely Associated With Inherently Governmental 
Functions
    Comments: Some respondents suggested that the definition be 
limited, either by explicitly restricting it to actions performed on 
behalf of the Government or by removing the term ``supporting'' from 
the definition. Some respondents argued that the proposed definition 
was problematic because it was inconsistent with current FAR coverage 
or the statutory language in the NDAA. Two respondents suggested 
waiting to issue a final rule until the Office of Management and 
Budget's (OMB) review of inherently governmental functions was 
complete, to ensure compatibility with any definitions issued as a 
result of that review. One of these respondents recommended publication 
of a revised proposed rule rather than a final rule.
    Response: Contextual text and applicability already limit the 
definition to an appropriate class of actions, and striking the word 
``supporting'' would imply that contractors were performing inherently 
governmental tasks, which is prohibited by law and regulation. While 
the definition provided is not identical to that provided in FAR 
7.503(c)(12) or to the summary definition provided in the NDAA, it 
builds on both of those definitions and is not inconsistent with them, 
and no changes were made to the final rule that would require that it 
be delayed or published as a revised proposed rule. Finally, if changes 
will be required as a result of future OMB guidance regarding work 
closely associated with inherently governmental functions, a separate 
case will be opened to implement them.
2. Covered Employee
a. Prime Contractor Should Not Be Responsible for Employees Other Than 
Own Employees
    Comments: Several respondents were concerned that the definition of 
``covered employee'' could be interpreted to include employees of 
contractors, subcontractors, consultants, and partners. Respondents 
were concerned that assuming responsibility for all of these employees 
would create an unreasonable burden because the prime contractor could 
not impose disciplinary actions against other companies' employees or 
adequately identify or address personal conflicts of interest with 
respect to such employees.
    Response: The Councils have modified the definition to clarify that 
the contractor is not directly responsible for the employees of 
subcontractors. The subcontract flowdown portion of the clause at FAR 
52.203-16(e) will ensure that subcontractor employees are adequately 
covered while making sure that the subcontractor bears responsibility 
for its employees.
b. Self-Employed Individual
    Comment: One respondent stated that in the case of a self-employed 
individual, the disclosure forms would be submitted to the same person 
filling out the form.
    Response: The Councils have addressed this issue in the final rule. 
When a self-employed individual is a subcontractor and that individual 
is personally performing the acquisition function closely associated 
with inherently governmental functions, rather than having an employee 
of the subcontractor perform the function, then the self-employed 
individual will be treated as a covered employee of the prime 
contractor for purposes of this rule and the clause will not flow down. 
In such case, the clause could not meaningfully flow down to the 
subcontractor, because there is no employer/employee relationship 
involved at the subcontract level of performance. The individual 
completing the disclosure form and the individual accepting and 
reviewing those forms cannot be one and the same. The definition of 
``covered employee'' was modified to reflect this.
    Similarly, the clause cannot meaningfully apply at the prime level 
if the functions are to be performed by a self-employed individual, 
rather than a contractor employee. Since a self-employed individual is 
a legal entity, conflicts of interest relating to a prime contract with 
an entity (whatever its composition) are covered under the 
organizational conflicts of interest coverage at FAR subpart 9.5.
c. Limit Covered Employee to Those Specifically Performing the 
Acquisition Functions Under the Contract
    Comment: One respondent raised the concern that agencies might 
interpret ``covered employee'' to mean all employees who work for a 
Government contractor, and suggested that the definition should be 
revised to clarify that a covered employee is an employee that is 
remunerated specifically to perform acquisition functions closely 
associated with inherently governmental functions.
    Response: The definition, as amended, is clear that an employee is 
only covered under the rule if the employee performs acquisition 
functions closely associated with inherently governmental functions. 
Further, ``acquisition function closely associated with governmental 
functions'' is defined to tie directly to support of the activities of 
a Federal agency.
3. Non-Public Government Information
    Comments: One respondent suggested that the definition of ``non-
public Government information'' be limited by providing more specific 
guidance. One specific approach that was suggested involved requiring 
that any protected information be explicitly designated as such in 
writing by the Government. Another respondent suggested that the rule 
should be broadened to prohibit contractor employees from using any 
information related to the contract on which they work. This respondent 
stated that anything less would ``open the floodgates'' for mitigation 
or waivers, and debates over timelines of when information was publicly 
available.
    Response: It would be overly burdensome to require that all such 
information be explicitly marked by the Government. The definition of 
``non-public Government information'' was intended to have a broad 
meaning, including proprietary data belonging to another contractor as 
well as

[[Page 68019]]

information that could confer an unfair competitive advantage to a 
contractor for whom the employees work. This proposed definition 
requires the use of judgment on the part of contractors. A contractor 
employee should presume that all information given to a contractor has 
not been made public unless facts clearly indicate the contrary.
    Further, the definition of ``non-public Government information'' is 
similar to the standard Government employees use executing their jobs--
a standard that is particularly appropriate when tasks involve 
acquisition functions closely associated with inherently governmental 
functions.
    This topic is relevant to other pending and forthcoming FAR cases, 
and for that reason, some structural changes have been made to the 
definition to harmonize this case with potential future usage. 
Specifically, the qualification that the information be accessed 
through performance on a Government contract has been removed from the 
definition, but has been applied in the rule text in appropriate 
places.
4. Personal Conflict of Interest
    Comments: Many respondents commented on the definition of 
``personal conflict of interest'' in proposed FAR 3.1101 and also in 
the clause at FAR 52.203-16(a).
    One cautioned against defining the term ``personal conflict of 
interest'' by relying solely on terminology used in the Government's 
Standards of Conduct for Employees of the Executive Branch (Standards), 
at 5 CFR part 2635, urging the Councils to take differences between the 
Government and contractor workforce into account.
    Several other respondents considered the proposed definition of 
``personal conflict of interest'' to be imprecise. Each of these 
respondents identified terms in the definition that are undefined or 
that they deemed ambiguous or overly broad, including ``personal 
activity,'' ``relationship,'' ``close family members,'' ``other members 
of the household,'' other employment or financial relationships,'' 
``gifts,'' ``compensation,'' and ``consulting relationships.'' Although 
one of these organizations counseled against relying too heavily on 
language in the Government's standards, as discussed above, four others 
recommended that the Councils borrow from comparable definitions in 
existing Government regulations.
    One respondent suggested an alternative definition of the term 
``personal conflict of interest'' that it considered an amalgam of the 
proposed definition and definitions in the ethics regulations and the 
Troubled Asset Relief Program regulations at 31 CFR 31.201, while 
another respondent urged that the definition of ``personal conflict of 
interest'' not rely on a listing of examples that is incomplete, yet 
not specifically designated as non-exclusive.
    One respondent urged that the rule ``incorporate some element of 
contemporaneous `knowledge' on the part of the covered employee before 
the PCI requirements are triggered,'' and that coverage be included to 
exclude de minimis ownership or partnership interests. On the other 
hand, another respondent recommended that the definition of ``personal 
conflict of interest'' be expanded in scope to capture personal 
conflicts of interest that can arise from prior work or employment 
undertaken in support of Government acquisition functions.
    Response: As explained in the preamble to the proposed rule, the 
Councils considered various sources of guidance when developing the 
definition of ``personal conflict of interest.'' The definition of 
``personal conflict of interest'' provided by the rule clearly borrowed 
from the Government ethics provisions. On the other hand, the Councils 
intentionally did not create a mirror image of either 18 U.S.C. 208 or 
the Government's impartiality provision. The Government's impartiality 
standard judges a public servant's circumstances from the perspective 
of a ``reasonable person,'' whereas the FAR standard focuses on the 
contractor's obligation to the Government and defines a ``personal 
conflict of interest'' as a situation ``that could impair the 
employee's ability to act impartially and in the best interest of the 
Government when performing under the contract.'' (A verb other than 
``impair'' was inadvertently used in the proposed contract clause. The 
Councils have corrected this error to make the clause consistent with 
the rule text.)
    Similar to the Government's approach in its ethics regulations, the 
proposed definition of ``personal conflict of interest'' listed 
``sources'' of conflicts, including the financial interests of an 
employee and other members of his or her household, and then listed 
types of financial interests in subparagraphs (2)(i) through (2)(viii). 
In response to several comments, the Councils have decided to revise 
the wording of paragraph (2) of the definition to make it clear that 
this listing is intended to amplify the term ``financial interest'' as 
used earlier in the definition. The Councils have also inserted the 
words ``[f]or example'' at the beginning of paragraph (2) to clearly 
indicate that the listing in subparagraphs (2)(i) through (2)(viii) is 
not exhaustive.
    The Councils have not attempted to further define other terms or 
phrases used within the definition of ``personal conflict of 
interest.'' The Councils consider the proposed terminology adequate to 
enable a contractor to develop screening procedures that will elicit 
relevant information from its covered employees. In the definition of 
``personal conflict of interest'', the regulation affords flexibility 
regarding de minimis interest, since it may be determined that a de 
minimis interest would not ``impair the employee's ability to act'' 
with the required objectivity. Separately, although no ``knowledge'' 
element has been added, the Councils acknowledge that neither a 
contractor nor its employees can apply the impartiality standard if it 
cannot yet be known what interests may be affected by a particular 
acquisition.

C. Applicability

    Comments: One respondent recommended that specific language be 
added to the proposed rule limiting its application to those contractor 
employees who directly support Government buying offices.
    Response: Section 841(a) of the NDAA for FY 2009 required that 
policy be developed to prevent personal conflicts of interest by all 
contractor employees performing acquisition functions closely 
associated with inherently governmental functions for, or on behalf of, 
a Federal agency or department, and not all such work occurs in direct 
support of a buying office.
    Comment: One respondent stated that the statutory requirement that 
the clause be included in task or delivery orders is not recognized in 
the rule.
    Response: The applicability to task or delivery orders against 
existing contracts is addressed under the applicability date in this 
preamble. Such transitional issues are not included as part of the 
regulation, because they are only temporary, until the clause is 
included in most existing contracts.

D. Contractor Procedures

1. Screening of Covered Employees (Including Financial Disclosure)
    Comments: More than half the respondents commented on this issue, 
and provided a variety of concerns and suggestions, which are addressed 
more specifically in the following response.
    Response: In response to these comments, the Councils have narrowed 
the scope of the required disclosures in

[[Page 68020]]

a number of ways. First, in response to concern that the word 
``including'' in FAR 3.1103(a) created ambiguity, the Councils have 
substituted the word ``by,'' to indicate that disclosure is the 
mandated screening mechanism. Next, in response to a wide variety of 
comments regarding the breadth of required disclosures, the Councils 
have made several revisions to FAR 3.1103(a)(1) to make it clear that 
contractors are afforded some flexibility in determining how to 
implement the screening requirement (i.e., one method of effective 
screening might require each covered employee to review a list of 
entities affected by the upcoming work and either disclose any conflict 
or confirm that he or she has none), and to allow that disclosures be 
limited to financial interests ``that might be affected by the task to 
which the employee has been assigned.'' Finally, the Councils 
recognized that other potential sources of conflicts, including 
employment or gifts, should be covered by these procedures as well.
    The Councils have also made changes in response to a number of 
respondents that noted inconsistencies and other concerns regarding 
updates to employee financial disclosures. These changes include 
ensuring that the language in FAR part 3 is consistent with the 
language in the clause, and that both require an update only when ``an 
employee's personal or financial circumstances change in such a way 
that a new personal conflict of interest might occur because of the 
task the covered employee is performing.'' If it is the task that 
changes, rather than the financial circumstances, the situation will be 
covered by the requirement to obtain information from a covered 
employee ``when the employee is initially assigned to the task under 
the contract.'' Implementing ``as needed'' disclosure addresses one 
respondent's concern about selling and repurchasing assets to avoid 
personal conflict of interest requirements, and also eliminates the 
need for disclosure on an annual basis.
    Comments: In addition, several respondents addressed other areas 
related to the financial disclosure requirement. Several respondents 
were generally critical of the burden involved in the requirement to 
screen employees for conflicts of interest, arguing that it is short-
sighted and ``has an element of impossibility,'' or that it would be 
``onerous and unproductive'' to require disclosure, for example, every 
time a covered employee's retirement portfolio, or that of his or her 
spouse, might include potential contractors. Other respondents stated 
that the financial disclosure requirement is intrusive, and would 
provide employers with ``unprecedented insight into employee private 
financial data'' that would give the employer leverage during 
negotiations about salary, benefits, and work conditions.
    Response: The Councils carefully considered the comments that were 
critical of the burdensome or intrusive nature of the screening process 
involving financial disclosure, but have determined that the concerns 
expressed are outweighed by the importance of assuring the integrity of 
the Government's acquisition process.
    Comments: Finally, two respondents recommended clarification of 
roles and responsibilities concerning the review of financial 
disclosure statements. One recommended that the rule should specify 
that contractors acting in good faith may rely on the information 
submitted by their employees or that the rule specify that review by 
the employee's supervisor and legal counsel or ethics officer is 
sufficient. The other recommended that the contractor should be 
required to designate an official to solicit and review financial 
disclosure statements, but also suggested that the Government's 
contracting officer should review the statements and be able to access 
the services of subject matter experts to assist with the review. The 
same respondent also suggested that the rule should require that the 
covered employee's submission ``be accompanied by a certification as to 
the accuracy, completeness and truthfulness of the submission.''
    Response: The Councils consider that it is the contractor's 
responsibility to decide how to review employee disclosures. Government 
contracting officers have not been assigned the responsibility to 
review disclosures of financial interests. Further, there is a 
statutory prohibition on adding non-statutory certification 
requirements to the FAR without express written approval by the 
Administrator for Federal Procurement Policy (see FAR 1.107).
2. Prevent Personal Conflicts of Interest (Including Nondisclosure 
Agreements)
a. Preventing Personal Conflicts of Interest
    Comments: Some respondents provided comments in this area 
concerning the role of the Government in contractor processes. For 
example, one respondent pointed out that the requirement to reassign 
tasks does not oblige the contractor to report known or reported 
conflicts of interest to the contracting officer in order for 
reassignment to occur. Others suggested that the required non-
disclosure agreements be submitted to the contracting officer for 
review and approval.
    Response: It is up to the contractor to manage its employees, and 
to assign them in a way that prevents personal conflicts of interest. 
The Government only needs to be informed if violations occur, or if the 
contractor needs approval for a mitigation plan or requests a waiver. 
Similarly, while employer/employee non-disclosure agreements will be 
available for Government inspection for recordkeeping compliance 
purposes, it is the contractor's responsibility to ensure that such 
agreements are enacted and enforced.
b. Non-Disclosure Agreements (NDAs)
    Comments: One respondent stated that the proposed rule did not 
provide any specific guidance concerning the NDA requirement. This 
respondent requested that the Councils address--
     Which parties are required to sign an NDA;
     Whether the contractor and/or the contractor employee are 
required to execute the NDA for each entity that provides information 
to which it will have access;
     Whether an entity that submitted non-public information is 
entitled to know who has signed an NDA relating to that information; 
and
     Whether there is a required duration for the NDA. If an 
NDA is not indefinite, how should a contractor address protection of 
non-public information when the NDA expires?
    Response: The rule requires that each employee sign an NDA with 
respect to information obtained during the course of the work being 
performed under the contract. The agreements should be structured to 
protect the interests of the information owner(s), the contractor, and 
the contractor employee, including protection of appropriate length 
(often indefinitely or until the information is otherwise made public). 
Since these agreements will be executed between each individual 
contractor and that contractor's employees, and contractors are not 
required to provide any notice of those agreements, there will be no 
means of providing an entity with a listing of those who have signed 
NDAs which cover their information.
3. Appearance of a Conflict
    Comments: Several respondents expressed concern about the 
difficulty contractors face in identifying circumstances that suggest 
``even the

[[Page 68021]]

appearance of personal conflicts of interest.'' These respondents state 
that the standard is vague and too difficult for contractors and their 
employees to implement. One respondent points out that there are likely 
different standards in the ``healthcare, defense, or transportation 
industries'' and suggests limiting language along the lines of 
``consistent with industry norms.''
    Response: The rule requires that contractors inform covered 
employees of their obligation to avoid even the appearance of personal 
conflicts of interest. That same obligation is imposed on Government 
employees by FAR 3.101-1. Nothing in this rule requires a report of an 
``appearance of conflict.'' Concern about how to deal with an 
``appearance of a conflict,'' where in fact there is actually no 
conflict, is difficult, but once sensitized to the issue of 
appearances, contractors and contracting officers can develop solutions 
to the appearance questions that will protect the public's trust in the 
acquisition system.
    The Councils do not concur with the suggestion that the rule 
incorporate industry norms as a standard. While there very well may be 
different ways of doing business in the healthcare, defense, and 
transportation industries, the threshold provided here is the minimum 
level of coverage required across all industries regarding personal 
conflicts of interest and the appearance of such conflicts.
4. Report Violations to the Contracting Officer
a. Timing of the Report
    Comments: Various respondents raised concerns regarding the report 
to the contracting officer. They pointed out that the proposed rule 
both required a report of a conflict ``as soon as it is identified'' 
and also requires a full description of the violation and the actions 
taken. The respondents suggested that the rule permit some time for 
investigation and consideration of action before reporting the 
conflict. Another suggestion was to allow for a specified number of 
days to report.
    Response: In response to these comments, the Councils have 
clarified that the initial report of immediate actions taken may be 
followed with a report of subsequent corrective action. The respondents 
correctly pointed to the apparent dilemma presented in the proposed 
rule which requires a report, as soon as the conflict is identified, 
and yet requires that the report include a full description and a 
contractor resolution. The rule necessarily requires that the 
contractor notify the contracting officer about a conflict ``as soon as 
it is identified'' so that, if necessary, the contracting officer can 
take immediate steps to protect the Government.
    The violation has not been ``identified'' until the Contractor has 
performed sufficient investigation to confirm that a violation has 
occurred. Practically speaking, we would expect contractors will be 
able to identify the conflict, initially assess its scope, and even 
evaluate potential corrective actions relatively quickly. We would also 
expect that in proposing corrective action, it will be necessary in 
many cases that the contractor takes the time to evaluate the 
seriousness of the matter and develop a solution acceptable to the 
Government, as well as the employee in some circumstances (where the 
violation was inadvertent, for instance). The final rule better 
reflects the requirements of such situations.
b. Report Violations to the Inspector General
    Comments: Several agency respondents recommend that the report be 
made to the Inspector General, as well as the contracting officer.
    Response: Not all employee personal conflict-of- interest 
violations are violations of criminal law or nefarious. The 
contractor's report is treated here as a contractual issue to be 
addressed first by the contractor and then by the contracting officer. 
There is no reason to add a third party, such as the Inspector General, 
unless violation of Federal criminal law has occurred. In those cases, 
a report to the Inspector General will already be required in 
accordance with FAR 52.203-13(b)(3). On the other hand, nothing in this 
rule prevents individual agencies and their Inspector General from 
establishing internal procedures for coordinating contractor reports.
5. Specify Period of Record Retention
    Comments: One respondent recommended that the proposed rule should 
include language requiring that contractors maintain records of 
financial disclosures and all actions taken in response to an alleged 
personal conflict of interest for a certain period of time (perhaps 3 
or 5 years).
    Response: FAR 4.703 provides requirements for retention of 
contractor records (generally 3 years after final payment). Subpart 4.7 
applies to records generated under contracts that contain either of the 
FAR audit and records clauses (FAR 52.214-26 or FAR 52.215-2). Pursuant 
to these clauses, contractors must generally make records available to 
satisfy contract negotiation, administration, and audit requirements of 
the contracting agencies and the Comptroller General.

E. Mitigation or Waiver

    Comments: One respondent recommended removing the requirement that 
any mitigation or waiver be limited to exceptional circumstances. At 
the other end of the spectrum, one respondent suggested that mitigation 
and waiver not be allowed at all.
    Response: While the goal of the rule is to prevent personal 
conflicts of interest, making provision for mitigation or waiver in 
exceptional circumstances is necessary to prevent potential negative 
consequences to the Government. Balancing these goals is achieved by 
requiring that any mitigation or waiver be approved in writing, 
including a description of why such action is in the best interest of 
the Government.
    Regarding the suggestion to allow approval of mitigation at the 
chief of the contracting office level, mitigation and waiver should 
only be employed in exceptional circumstances, and one means of 
ensuring this is requiring the approval of the head of the contracting 
activity.

F. Violations/Remedies

1. Description of Violations by Covered Employees (FAR 3.1103(a)(6) and 
FAR 52.203-16(b)(6))
    Comment: One respondent recommended several changes to this 
section, which are addressed more specifically in the following 
response.
    Response: While the Councils do not concur with recommendations to 
create a definitive list of violations to replace the examples, or to 
alter the requirement to report violations to tie specifically to a 
failure to update the required financial disclosure form, the Councils 
do concur with the suggestion to include ``Failure of a covered 
employee to comply with the terms of a non-disclosure agreement,'' in 
the list of violations. This covers situations where the inappropriate 
disclosure of information might not be due to a personal conflict of 
interest or for personal gain, but instead results from thoughtless or 
careless action. Furthermore, this is parallel to the construction of 
the requirements in FAR 3.1103(a)(2)(iii).
2. Violations by the Contractor
a. Clarification of Contractor Liability
    Comments: Two respondents expressed concern about the imposition of 
liability upon contractors, and suggested that an employer should only 
be sanctioned when it fails to address

[[Page 68022]]

issues within its control, not as a guarantor of flawless performance 
by its employees in the area of personal conflicts of interest.
    Response: A contractor should only be held liable for a violation 
if the contractor fails to comply with paragraphs (b), (c)(3), or (d) 
of the clause at FAR 52.203-16. There is nothing in the clause that 
establishes contractor liability for a violation by an employee, as 
long as the contractor followed the appropriate steps to uncover and 
report the violation.
    Because the rule addresses both violations by a covered employee 
and violations by the contractor, the Councils have clarified in each 
instance what type of violation is being addressed (FAR 3.1103(a)(6) 
and (b); FAR 3.1105(a) and (b); and FAR 52.203-16(b)(6)). This should 
help the concern of the respondent that the contractor may be subject 
to remedies for violations by covered employees, rather than compliance 
with the clause requirements.
    In addition, the Councils have adopted two suggested changes to the 
text of FAR 3.1105(b). ``Pursue'' has been changed to ``consider,'' to 
more accurately reflect the contracting officer's obligation. The 
Councils also deleted the term ``sufficient'' before the word 
``evidence'' in describing the conditions for considering appropriate 
remedies. If the contracting officer finds evidence of a violation, the 
contracting officer should consider appropriate remedies. The term 
``evidence'' on its own presents the requirement for a level of 
certainty beyond a mere rumor or suspicion.
3. Remedies for Violations by the Contractor
    Comment: One respondent objected to inclusion of the list of 
remedies in the clause at FAR 52.203-16(d), stating that the FAR 
contains adequate remedies to address non-compliance with any material 
requirement of a contract, which includes the proposed FAR clause 
52.203-16.
    Response: While the list of remedies included within FAR 52.203-16 
specifically identified those remedies available for violations 
involving potential conflicts, it was not intended to create new 
remedies. For this reason, the Councils have removed the paragraph 
regarding remedies from the clause. Removal of this section also 
addresses comments from several respondents related to individual 
remedies included in the list.
    Comment: One respondent recommended adding a provision stating that 
certain violations should immediately be entered into the new Federal 
Awardee Performance and Integrity Information System (FAPIIS).
    Response: Inclusion in the FAPIIS database is already adequately 
covered. For violations that result in suspension, debarment, or 
termination of the contract for default or cause, such actions will be 
entered into FAPIIS in accordance with the requirements published in 
the Federal Register at 75 FR 14059 on March 23, 2010. The other 
violations are of a type that would be entered in FAPIIS through the 
contracting officer performance evaluation of the contractor.

G. Clause Flowdown

1. Flowdown Requirements Should Mirror Clause
    Comments: Respondents were concerned that the proposed rule 
requires the prime contractor to be responsible for subcontractor 
personnel, and that the requirements for inclusion in a subcontract are 
broader than the requirements for including the clause in a prime 
contract.
    Response: The Councils have made changes to clarify the flowdown 
requirements. First, the definition of ``covered employee'' has been 
clarified to indicate that the prime contractor is not responsible for 
screening subcontractor employees. See also the response to comment 
B.2., definition of ``covered employee.'' Additionally, the flowdown 
provision, which stated that the clause should be included in 
subcontracts that ``may'' involve performance of certain work in the 
proposed rule, has been revised to only apply to subcontracts that 
``will'' involve such work, for consistency with the requirements for 
inclusion in prime contracts.
2. Subcontract Threshold
    Comment: The flowdown of the clause should be conditioned on 
subcontracts that exceed the simplified acquisition threshold, rather 
than specifying $150,000.
    Response: The threshold for application to subcontracts will not be 
subject to change during the performance of the contract, if the 
simplified acquisition threshold changes, so stating a dollar amount is 
preferable. When the simplified acquisition threshold changes, the 
clause will be changed for future contracts, but those changes will not 
be imposed on existing contracts.

H. Cost and Administrative Burden

1. Costs of Ethics Compliance Program
    Comment: Several respondents expressed concerns about the costs 
involved with establishing a comprehensive compliance program to comply 
with the requirements of this rule.
    Response: While the Councils recognize that there will be some 
administrative costs associated with implementation of this program, 
the Government anticipates that when preparing proposals for Government 
contracts vendors will account for these costs appropriately and 
through their normal procedures. Subcontractors also are expected to 
include their anticipated costs in their offered price to the prime 
contractor. The anticipated costs, therefore, are likely to be passed 
on to the Government.
2. Information Collection Requirements
    Comments: One respondent stated that the estimates of the Paperwork 
Reduction Act burdens (information collection requirements) appear to 
be significantly underestimated, and do not take into account the many 
levels of internal reviews that would be required as well as efforts 
associated with coordinating with legal counsel, program staff, etc., 
as necessary.
    Another respondent, in response to the notice published in the 
Federal Register at 76 FR 27648 on May 12, 2011, questioned the 
accuracy and currency of the supporting statement for the information 
collection requirement for the subject rule.
    Response: In response, the Councils updated the data used in the 
supporting statement, including current Federal Procurement Data System 
data. This resulted in minor or non-material changes in the estimated 
number of responses. For example, the estimate for the ratio of 
violations reported to the Department of Justice compared to the base 
of estimated number of Federal employees was doubled, due to correcting 
the base to include only Federal civilian employees. However, this 
approach only increased the estimated number of annual contractor 
employee violations from 10 to 22.
    In addition, the Councils considered the comment that the hours per 
response are underestimated, due to the many levels of internal reviews 
that would be required as well as efforts associated with coordinating 
with legal counsel or program staff, as necessary. Although the 
Councils did not have specific data as to how much increase these 
reviews would require, the Councils doubled the previous estimates

[[Page 68023]]

of 2 hours for reporting a violation and 4 hours for requesting 
mitigation, resulting in an estimate of 4 hours per violation report 
and 8 hours per mitigation request. As with any estimate of an average 
number, there will be a large range between the high end (as in a large 
corporation) and the low end where only a few people may be involved.
    These revisions result in an increase of the estimated response 
burden hours from 1,820 hours in the proposed rule to 3,688 hours. The 
estimated recordkeeping hours remain unchanged at 61,200 hours.

I. Miscellaneous Comments

    The Councils considered, but did not implement, a variety of 
additional comments. These included suggestions that the rule require 
the following:
     Use of a standard non-disclosure agreement form, to be 
published by the Government.
     Use of a standards financial disclosure form, to be 
published by the Government.
     Placement of responsibility for compliance at a ``high 
level'' within the contractor organization.
     Use of established structures required for implementation 
of the Contractor Code of Business Ethics for implementation of these 
requirements.
     Certification from the contractor that no personnel have a 
personal conflict of interest.
     Establishment of training programs for contractor 
personnel.
    In each of these cases, implementation of the recommendation is 
neither necessary nor desirable, because establishing additional 
structural requirements would eliminate the flexibilities provided to 
contractors. The proposed rule sets out the requirements with which 
each contractor must comply, but allows latitude for the application of 
business judgment in structuring internal programs to achieve that 
compliance.
    Comment: Finally, one respondent suggested that the proposed rule 
should require ``that a contractor certify that * * * no covered 
personnel have a personal conflict of interest.''
    Response: A certification requirement would not add any substantial 
protections not already present in the rule.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of Executive Order 12866, Regulatory Planning 
and Review, dated September 30, 1993. This rule is not a major rule 
under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., because the requirements of the 
clause are not significantly burdensome. The requirement to obtain and 
retain information on employees' potential conflicts of interest is 
limited to service contractors whose employees are performing 
acquisition functions closely associated with inherently governmental 
functions for, or on behalf of, Federal agencies. This class is a 
minority of Government contractors and is becoming smaller as 
Government agencies bring more such functions back in house. Further, 
there is no requirement to report the information collected to the 
Government. It is not a significant economic burden to report to the 
contracting officer personal conflict-of-interest violations by covered 
employees and the corrective actions taken. The final rule has also 
reduced potential burden by--
    1. Not including a certification requirement;
    2. Not requiring a formal training program;
    3. Clarifying that the rule does not apply to commercial items;
    4. Removing the requirement for an annual update of the financial 
disclosure statement; and
    5. Allowing mitigation under exceptional circumstances.
    Comments on impact on small business: Three respondents expressed 
concern about the potential impact this rule could have on small 
businesses and specifically that the reporting, prevention, and 
oversight requirement could be a burden for small businesses such that 
they might reconsider pursuing Federal contracts. One respondent 
believed that small businesses will be most affected by this rule 
because it could force divestitures.
    Response: The Councils agree that the reporting, prevention and 
oversight requirements may cause some burden for small businesses. The 
rule requires that prime contractors have procedures in place to screen 
covered employees and requires avoidance or mitigation of any potential 
conflicts. It may be difficult for smaller companies to avoid or 
mitigate the conflict (e.g., remove the employee from that position on 
the contract when the business only has a few employees). However, the 
burden on small business is reduced because the rule--
     Provides the contractor with discretion on how best to 
implement its procedures;
     Does not hold the prime contractor liable for violations 
by employees, as long as the contractor has procedures in place and 
deals appropriately with the violations;
     Clarifies the meaning of ``covered employee'' and requires 
a flowdown to all subcontracts involving performance of acquisition 
related functions by employees, so that the prime contractor is not 
directly responsible for assessing the subcontractor employee personal 
conflicts of interest, as many respondents feared; and
     Provides the contracting officer with discretion on the 
handling of personal conflicts of interest violations.
    Further, the public law did not create an exception for small 
businesses with respect to implementation and it would be inconsistent 
with the purpose and intent of the public law to not apply the rules 
relating to personal conflicts of interest to any particular group of 
contracts where personnel are performing acquisition functions closely 
associated with inherently governmental functions.

V. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) applies. The 
final rule contains information collection requirements. OMB has 
cleared this information collection requirement under OMB Control 
Number 9000-0181, titled: Preventing Personal Conflicts of Interest for 
Contractor Employees Performing Acquisition Functions.

List of Subjects in 48 CFR Parts 1, 3, 12, and 52

    Government procurement.


[[Page 68024]]


    Dated: October 21, 2011.
Laura Auletta,
Acting Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 1, 3, 12, and 52 
as set forth below:

0
1. The authority citation for 48 CFR parts 1, 3, 12, and 52 continues 
to read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 1--FEDERAL ACQUISITION REGULATORY SYSTEM


1.106  [Amended]

0
2. Amend section 1.106, in the table following the introductory text, 
by adding FAR segments ``3.11'' and ``52.203-16'' and the corresponding 
OMB Control Number ``9000-0181.''

PART 3--IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF 
INTEREST

0
3. Add Subpart 3.11 to read as follows:
Subpart 3.11--Preventing Personal Conflicts of Interest for Contractor 
Employees Performing Acquisition Functions
Sec.
3.1100 Scope of subpart.
3.1101 Definitions.
3.1102 Policy.
3.1103 Procedures.
3.1104 Mitigation or waiver.
3.1105 Violations.
3.1106 Contract clause.

Subpart 3.11--Preventing Personal Conflicts of Interest for 
Contractor Employees Performing Acquisition Functions


3.1100  Scope of subpart.

    This subpart implements the policy on personal conflicts of 
interest by employees of Government contractors as required by section 
841(a) of the Duncan Hunter National Defense Authorization Act for 
Fiscal Year 2009 (Pub. L. 110-417) (41 U.S.C. 2303).


3.1101  Definitions.

    As used in this subpart--
    Acquisition function closely associated with inherently 
governmental functions means supporting or providing advice or 
recommendations with regard to the following activities of a Federal 
agency:
    (1) Planning acquisitions.
    (2) Determining what supplies or services are to be acquired by the 
Government, including developing statements of work.
    (3) Developing or approving any contractual documents, to include 
documents defining requirements, incentive plans, and evaluation 
criteria.
    (4) Evaluating contract proposals.
    (5) Awarding Government contracts.
    (6) Administering contracts (including ordering changes or giving 
technical direction in contract performance or contract quantities, 
evaluating contractor performance, and accepting or rejecting 
contractor products or services).
    (7) Terminating contracts.
    (8) Determining whether contract costs are reasonable, allocable, 
and allowable.
    Covered employee means an individual who performs an acquisition 
function closely associated with inherently governmental functions and 
is--
    (1) An employee of the contractor; or
    (2) A subcontractor that is a self-employed individual treated as a 
covered employee of the contractor because there is no employer to whom 
such an individual could submit the required disclosures.
    Personal conflict of interest means a situation in which a covered 
employee has a financial interest, personal activity, or relationship 
that could impair the employee's ability to act impartially and in the 
best interest of the Government when performing under the contract. (A 
de minimis interest that would not ``impair the employee's ability to 
act impartially and in the best interest of the Government'' is not 
covered under this definition.)
    (1) Among the sources of personal conflicts of interest are--
    (i) Financial interests of the covered employee, of close family 
members, or of other members of the covered employee's household;
    (ii) Other employment or financial relationships (including seeking 
or negotiating for prospective employment or business); and
    (iii) Gifts, including travel.
    (2) For example, financial interests referred to in paragraph (1) 
of this definition may arise from--
    (i) Compensation, including wages, salaries, commissions, 
professional fees, or fees for business referrals;
    (ii) Consulting relationships (including commercial and 
professional consulting and service arrangements, scientific and 
technical advisory board memberships, or serving as an expert witness 
in litigation);
    (iii) Services provided in exchange for honorariums or travel 
expense reimbursements;
    (iv) Research funding or other forms of research support;
    (v) Investment in the form of stock or bond ownership or 
partnership interest (excluding diversified mutual fund investments);
    (vi) Real estate investments;
    (vii) Patents, copyrights, and other intellectual property 
interests; or
    (viii) Business ownership and investment interests.


3.1102  Policy.

    The Government's policy is to require contractors to--
    (a) Identify and prevent personal conflicts of interest of their 
covered employees; and
    (b) Prohibit covered employees who have access to non-public 
information by reason of performance on a Government contract from 
using such information for personal gain.


3.1103  Procedures.

    (a) By use of the contract clause at 52.203-16, as prescribed at 
3.1106, the contracting officer shall require each contractor whose 
employees perform acquisition functions closely associated with 
inherently Government functions to--
    (1) Have procedures in place to screen covered employees for 
potential personal conflicts of interest by--
    (i) Obtaining and maintaining from each covered employee, when the 
employee is initially assigned to the task under the contract, a 
disclosure of interests that might be affected by the task to which the 
employee has been assigned, as follows:
    (A) Financial interests of the covered employee, of close family 
members, or of other members of the covered employee's household.
    (B) Other employment or financial relationships of the covered 
employee (including seeking or negotiating for prospective employment 
or business).
    (C) Gifts, including travel; and
    (ii) Requiring each covered employee to update the disclosure 
statement whenever the employee's personal or financial circumstances 
change in such a way that a new personal conflict of interest might 
occur because of the task the covered employee is performing.
    (2) For each covered employee--
    (i) Prevent personal conflicts of interest, including not assigning 
or allowing a covered employee to perform any task under the contract 
for which the Contractor has identified a personal conflict of interest 
for the employee that the Contractor or employee cannot satisfactorily 
prevent or mitigate in consultation with the contracting agency;
    (ii) Prohibit use of non-public information accessed through

[[Page 68025]]

performance of a Government contract for personal gain; and
    (iii) Obtain a signed non-disclosure agreement to prohibit 
disclosure of non-public information accessed through performance of a 
Government contract.
    (3) Inform covered employees of their obligation--
    (i) To disclose and prevent personal conflicts of interest;
    (ii) Not to use non-public information accessed through performance 
of a Government contract for personal gain; and
    (iii) To avoid even the appearance of personal conflicts of 
interest;
    (4) Maintain effective oversight to verify compliance with personal 
conflict-of-interest safeguards;
    (5) Take appropriate disciplinary action in the case of covered 
employees who fail to comply with policies established pursuant to this 
section; and
    (6) Report to the contracting officer any personal conflict-of-
interest violation by a covered employee as soon as identified. This 
report shall include a description of the violation and the proposed 
actions to be taken by the contractor in response to the violation, 
with follow-up reports of corrective actions taken, as necessary.
    (b) If a contractor reports a personal conflict-of-interest 
violation by a covered employee to the contracting officer in 
accordance with paragraph (b)(6) of the clause at 52.203-16, Preventing 
Personal Conflicts of Interest, the contracting officer shall--
    (1) Review the actions taken by the contractor;
    (2) Determine whether any action taken by the contractor has 
resolved the violation satisfactorily; and
    (3) If the contracting officer determines that the contractor has 
not resolved the violation satisfactorily, take any appropriate action 
in consultation with agency legal counsel.


3.1104  Mitigation or waiver.

    (a) In exceptional circumstances, if the contractor cannot 
satisfactorily prevent a personal conflict of interest as required by 
paragraph (b)(2)(i) of the clause at 52.203-16, Preventing Personal 
Conflicts of Interest, the contractor may submit a request, through the 
contracting officer, for the head of the contracting activity to--
    (1) Agree to a plan to mitigate the personal conflict of interest; 
or
    (2) Waive the requirement to prevent personal conflicts of 
interest.
    (b) If the head of the contracting activity determines in writing 
that such action is in the best interest of the Government, the head of 
the contracting activity may impose conditions that provide mitigation 
of a personal conflict of interest or grant a waiver.
    (c) This authority shall not be redelegated.


3.1105  Violations.

    If the contracting officer suspects violation by the contractor of 
a requirement of paragraph (b), (c)(3), or (d) of the clause at 52.203-
16, Preventing Personal Conflicts of Interest, the contracting officer 
shall contact the agency legal counsel for advice and/or 
recommendations on a course of action.


3.1106  Contract clause.

    (a) Insert the clause at 52.203-16, Preventing Personal Conflicts 
of Interest, in solicitations and contracts that--
    (1) Exceed the simplified acquisition threshold; and
    (2) Include a requirement for services by contractor employee(s) 
that involve performance of acquisition functions closely associated 
with inherently governmental functions for, or on behalf of, a Federal 
agency or department.
    (b) If only a portion of a contract is for the performance of 
acquisition functions closely associated with inherently governmental 
functions, then the contracting officer shall still insert the clause, 
but shall limit applicability of the clause to that portion of the 
contract that is for the performance of such services.
    (c) Do not insert the clause in solicitations or contracts with a 
self-employed individual if the acquisition functions closely 
associated with inherently governmental functions are to be performed 
entirely by the self-employed individual, rather than an employee of 
the contractor.

PART 12--ACQUISITION OF COMMERCIAL ITEMS

0
4. Amend section 12.503 by adding paragraph (a)(9) to read as follows:


12.503  Applicability of certain laws to Executive agency contracts for 
the acquisition of commercial items.

    (a) * * *
    (9) Public Law 110-417, section 841(a), Policy on Personal 
Conflicts of Interest by Employees of Federal Government Contractors 41 
U.S.C. 2303 (see subpart 3.11).
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Add section 52.203-16 to read as follows:


52.203-16  Preventing Personal Conflicts of Interest.

    As prescribed in 3.1106, insert the following clause:

Preventing Personal Conflicts of Interest (DEC 2011)

    (a) Definitions. As used in this clause--
    Acquisition function closely associated with inherently 
governmental functions means supporting or providing advice or 
recommendations with regard to the following activities of a Federal 
agency:
    (1) Planning acquisitions.
    (2) Determining what supplies or services are to be acquired by 
the Government, including developing statements of work.
    (3) Developing or approving any contractual documents, to 
include documents defining requirements, incentive plans, and 
evaluation criteria.
    (4) Evaluating contract proposals.
    (5) Awarding Government contracts.
    (6) Administering contracts (including ordering changes or 
giving technical direction in contract performance or contract 
quantities, evaluating contractor performance, and accepting or 
rejecting contractor products or services).
    (7) Terminating contracts.
    (8) Determining whether contract costs are reasonable, 
allocable, and allowable.
    Covered employee means an individual who performs an acquisition 
function closely associated with inherently governmental functions 
and is--
    (1) An employee of the contractor; or
    (2) A subcontractor that is a self-employed individual treated 
as a covered employee of the contractor because there is no employer 
to whom such an individual could submit the required disclosures.
    Non-public information means any Government or third-party 
information that--
    (1) Is exempt from disclosure under the Freedom of Information 
Act (5 U.S.C. 552) or otherwise protected from disclosure by 
statute, Executive order, or regulation; or
    (2) Has not been disseminated to the general public and the 
Government has not yet determined whether the information can or 
will be made available to the public.
    Personal conflict of interest means a situation in which a 
covered employee has a financial interest, personal activity, or 
relationship that could impair the employee's ability to act 
impartially and in the best interest of the Government when 
performing under the contract. (A de minimis interest that would not 
``impair the employee's ability to act impartially and in the best 
interest of the Government'' is not covered under this definition.)
    (1) Among the sources of personal conflicts of interest are--
    (i) Financial interests of the covered employee, of close family 
members, or of other members of the covered employee's household;
    (ii) Other employment or financial relationships (including 
seeking or negotiating for prospective employment or business); and
    (iii) Gifts, including travel.

[[Page 68026]]

    (2) For example, financial interests referred to in paragraph 
(1) of this definition may arise from--
    (i) Compensation, including wages, salaries, commissions, 
professional fees, or fees for business referrals;
    (ii) Consulting relationships (including commercial and 
professional consulting and service arrangements, scientific and 
technical advisory board memberships, or serving as an expert 
witness in litigation);
    (iii) Services provided in exchange for honorariums or travel 
expense reimbursements;
    (iv) Research funding or other forms of research support;
    (v) Investment in the form of stock or bond ownership or 
partnership interest (excluding diversified mutual fund 
investments);
    (vi) Real estate investments;
    (vii) Patents, copyrights, and other intellectual property 
interests; or
    (viii) Business ownership and investment interests.
    (b) Requirements. The Contractor shall--
    (1) Have procedures in place to screen covered employees for 
potential personal conflicts of interest, by--
    (i) Obtaining and maintaining from each covered employee, when 
the employee is initially assigned to the task under the contract, a 
disclosure of interests that might be affected by the task to which 
the employee has been assigned, as follows:
    (A) Financial interests of the covered employee, of close family 
members, or of other members of the covered employee's household.
    (B) Other employment or financial relationships of the covered 
employee (including seeking or negotiating for prospective 
employment or business).
    (C) Gifts, including travel; and
    (ii) Requiring each covered employee to update the disclosure 
statement whenever the employee's personal or financial 
circumstances change in such a way that a new personal conflict of 
interest might occur because of the task the covered employee is 
performing.
    (2) For each covered employee--
    (i) Prevent personal conflicts of interest, including not 
assigning or allowing a covered employee to perform any task under 
the contract for which the Contractor has identified a personal 
conflict of interest for the employee that the Contractor or 
employee cannot satisfactorily prevent or mitigate in consultation 
with the contracting agency;
    (ii) Prohibit use of non-public information accessed through 
performance of a Government contract for personal gain; and
    (iii) Obtain a signed non-disclosure agreement to prohibit 
disclosure of non-public information accessed through performance of 
a Government contract.
    (3) Inform covered employees of their obligation--
    (i) To disclose and prevent personal conflicts of interest;
    (ii) Not to use non-public information accessed through 
performance of a Government contract for personal gain; and
    (iii) To avoid even the appearance of personal conflicts of 
interest;
    (4) Maintain effective oversight to verify compliance with 
personal conflict-of-interest safeguards;
    (5) Take appropriate disciplinary action in the case of covered 
employees who fail to comply with policies established pursuant to 
this clause; and
    (6) Report to the Contracting Officer any personal conflict-of-
interest violation by a covered employee as soon as it is 
identified. This report shall include a description of the violation 
and the proposed actions to be taken by the Contractor in response 
to the violation. Provide follow-up reports of corrective actions 
taken, as necessary. Personal conflict-of-interest violations 
include--
    (i) Failure by a covered employee to disclose a personal 
conflict of interest;
    (ii) Use by a covered employee of non-public information 
accessed through performance of a Government contract for personal 
gain; and
    (iii) Failure of a covered employee to comply with the terms of 
a non-disclosure agreement.
    (c) Mitigation or waiver. (1) In exceptional circumstances, if 
the Contractor cannot satisfactorily prevent a personal conflict of 
interest as required by paragraph (b)(2)(i) of this clause, the 
Contractor may submit a request through the Contracting Officer to 
the Head of the Contracting Activity for--
    (i) Agreement to a plan to mitigate the personal conflict of 
interest; or
    (ii) A waiver of the requirement.
    (2) The Contractor shall include in the request any proposed 
mitigation of the personal conflict of interest.
    (3) The Contractor shall--
    (i) Comply, and require compliance by the covered employee, with 
any conditions imposed by the Government as necessary to mitigate 
the personal conflict of interest; or
    (ii) Remove the Contractor employee or subcontractor employee 
from performance of the contract or terminate the applicable 
subcontract.
    (d) Subcontract flowdown. The Contractor shall include the 
substance of this clause, including this paragraph (d), in 
subcontracts--
    (1) That exceed $150,000; and
    (2) In which subcontractor employees will perform acquisition 
functions closely associated with inherently governmental functions 
(i.e., instead of performance only by a self-employed individual).


(End of clause)

[FR Doc. 2011-27780 Filed 11-1-11; 8:45 am]
BILLING CODE 6820-EP-P