Successful Awardee Suffered an Organizational Conflict of Interest; Agency Directed to Redo Its Conflict Determination

The GAO upheld a protest that the awardee had organizational conflicts of interest and, therefore, should not have received the contract.

In this procurement, the agency was soliciting offers for contractors to perform “program integrity functions” for Medicare and Medicaid.  This work was to include, for example, finding and stopping Medicare and Medicaid fraud, waste, and abuses, and referring such inappropriate activity to law enforcement agencies.  During the submission and evaluation process, the awardee admitted to an organizational conflict of interest, but it proposed a mitigation plan to reduce the conflict.  The oranizational conflict of interest arose because the awardee’s ultimate parent company performed some of the Medicare and Medicaid services that the awardee would review for potential fraud problems.  Initially, the contracting officer found that this conflict precluded an award to that offeror, but later, after receiving more information, the contracting officer found that the conflicts had been mitigated and the contracting officer awarded a contract to the awardee.  This protest followed.

In reviewing this protest, the GAO noted that FAR 9.505 and FAR 9.508 require that contracting officers identify potential conflicts of interest as early as possible.  Potential conflicts of interest can arise when a firm’s work under a government contract entails evaluating itself.  Such “impaired objectivity” is a concern because a firm’s ability to render impartial advice to the government is undermined by its relationship to the product or service being evaluated.  If a contracting officer has given “meaningful consideration” to a potential conflict of interest, then the GAO will not sustain such a protest unless the contracting officer’s determination is unreasonable or unsupported by the record.

In this protest, the GAO questioned that the agency’s conclusion immediately before the contract award that the conflict of interest had been resolved.  The GAO believed the record reflected a seemingly last-minute and hasty acceptance of the awardee’s mitigation strategy.  The GAO believed that the awardee’s mitigation plan lacked the necessary level of detail for the contracting officer to reasonably assess the viability of the awardee’s mitigation approach.  This lack of detail was significant considering  the inherent complex natures of the proposed mitigation strategies, which included potential divestiture of a large corporate entity.  Given the lack of detail in the mitigation plan, the GAO found that it was not surprising that the record did not contain any analysis by the agency.  Because the contracting officer’s determination was unreasonable and not supported by the record, the GAO sustained the protest.

The GAO recommended that the agency go back and make a new determination in regard to the conflict of interest and the awardee’s mitigation plan.  Also, the GAO recommended that the awardee be reimbursed for its costs of filing and pursuing the protest, including reasonable attorney’s fees.

Cahaba Safeguard Administrators, LLC, B-401842.2, January 25, 2010.

EDITOR’S NOTE:   A companion decision was issued the same date as the Cahaba decision with a nearly identical fact pattern and ruling.  For more information, see C2C Solutions, Inc., B-401106.5, January 25, 2010.