Case Puts Focus on Conflicts of Interest in Contracts
Outcome of Alion Case Could Signal a More Aggressive Approach by Federal Government

By Charles R. Babcock
Washington Post Staff Writer
Monday, January 23, 2006

In August, local defense contractor Alion Science and Technology Corp. faced the imminent loss of one of its largest contracts, a $275 million deal helping manage the Pentagon's military communications network. The government had just announced that Advanced Engineering & Sciences of Reston, a division of contracting giant ITT Industries Inc., would take over the work.

But today Alion, which has helped run the Pentagon's Joint Spectrum Center in Annapolis for decades, is back in contention for the job.

In a case that could signal a more aggressive federal approach toward potential conflicts of interest in contracting, Alion convinced government reviewers that a division of ITT should not be allowed to manage a program that potentially would be evaluating products made by the defense conglomerate -- or at least not without much more analysis then the Pentagon initially performed.

This month, the Government Accountability Office agreed, indicating that it was going to begin looking more closely at "organizational conflicts of interest" -- the potential for a company to end up in a situation in which it is essentially evaluating itself or its competitors -- and would make sure contracting agencies begin paying more attention as well.

The spectrum center oversees the military's expanding demand for radio frequencies, and it evaluates communications equipment for the armed services. Because ITT makes radio equipment, the GAO said that before the company could be awarded the contract, the military had to more carefully study its potentially "impaired objectivity" in carrying out the work.

The decision was "a bit of a shocker," said Christopher R. Yukins, who follows the issue as an associate professor of government contract law at the George Washington University Law School. The GAO sustains only about one of every five bid protests. While it had made a similar decision last year, Yukins said this case goes further and is a "clear statement [the GAO] is going to be second-guessing agencies, not deferring to them," if their analysis of possible conflicts is not thorough or well documented.

The potential for organizational conflicts is a growing concern as the government outsources more technical work to private companies and the defense industry continues to consolidate. In a recent paper, Daniel I. Gordon, who runs the GAO's bid protest operation, called organizational conflicts "a significant part" of the federal procurement landscape that "present an integrity challenge and merit attention."

Yukins added that Congress also has expressed concern about possible conflicts among "lead systems integrators," the contractors who in effect run large defense programs and pick other contractors to provide goods and services for the job. The defense authorization bill President Bush just signed includes a provision requiring the Defense Department to report on actions it is taking to prevent or mitigate such problems.

The contracting industry recognizes the potential problem but cautions agencies not to go too far. Chris Jahn, president of the Contract Services Association, a trade group representing more than 200 companies that perform $40 billion in government services contracts, said: "Where conflicts of interest do exist, contractors should disclose them and take necessary precautions to limit them, but they should still be allowed to fairly compete for those contracts. The government needs to then make an informed decision as to whether those conflicts are a significant issue."

Alion and ITT declined to comment on the substance of the recent GAO decision because the final contract winner hasn't been determined.

The new contract for managing the spectrum office is worth up to $500 million over 10 years. Officials at the Defense Information Systems Agency (DISA), which issued the award, said the agency would be "carefully reviewing GAO's decision and determining how best to proceed." In the meantime, the agency said Alion's current contract would be extended.

Alion, an employee-owned company that does almost all of its business with the Pentagon, has held contracts to help manage the Annapolis spectrum center since the 1960s.

The context for the dispute over the new contract is described in a U.S. Court of Federal Claims decision last fall. In ruling against an Alion effort to postpone the ITT award, Judge Lawrence J. Block noted that technology is changing how the military operates.

He described special forces troops in Afghanistan using space age communications while riding mules to call in precision airstrikes against Taliban targets. Such reliance has given the military "a nearly insatiable appetite" for new communications technology, Block wrote, and a crucial need for a range of electromagnetic spectrum.

Block's ruling said the Pentagon spectrum office experienced "a sea change" in the way it approached its job and sought a new contractor to supply more technical expertise. DISA concluded that only the ITT division could supply the personnel needed for the new work, which included preparing for important international meetings on use of the spectrum.

When the defense agency picked Advanced Engineering and Sciences in August, Alion filed a protest raising the conflict issue. That led the Pentagon to take "corrective action," the GAO decision said. It asked the bidders to submit revised plans for dealing with conflicts. ITT raised the idea of using subcontractors protected by a firewall to perform any functions it could not. DISA concluded the maximum potential for "impaired objectivity" would be 15 percent of the contract's projects and reconfirmed its award to the ITT division.

In sustaining a second Alion protest, the GAO noted that it was clear that ITT sold many radio and radar systems to the Defense Department and foreign governments.

It said DISA had "failed to reasonably identify and evaluate" ITT's possible conflicts.