Contractors prepare for new Defense Department conflict-of-interest rules

By Marjorie Censer
Monday, May 17, 2010; 10

Divesting the Chantilly-based TASC from parent company Northrop Grumman wasn't a simple amputation.

TASC, which operated as Northrop's advisory services business, depended on the defense contractor for back-office support and personnel services for such programs as benefits, retirement, 401(k) and payroll. Since the December sale, TASC company has had to develop its own such offices.

But Wood Parker, TASC president and chief executive, said the decoupling has eliminated potential conflict-of-interest issues within Northrop Grumman, allowing TASC to work with a broader set of federal agencies.

The company provides high-end government support, including systems engineering, technology analysis, and testing and evaluation, primarily to the intelligence community and the Defense Department. Parker said the company is now looking into additional opportunities at both the Department of Homeland Security and the Federal Aviation Administration.

Northrop Grumman cut TASC loose after the government announced it would be taking a harder stand on potential organizational conflicts of interest -- or cases in which a company provides multiple services that could have conflicting interests, such as building a system and then performing the tests to see if it works.

But whether such divestitures are necessary remains to be seen. The Defense Department recently released its draft rules for governing organizational conflicts of interest. In many cases, the government would allow contractors to take steps to mitigate potential conflicts, such as setting up institutional firewalls to separate groups.

Stan Z. Soloway, president and chief executive of the Professional Services Council, a trade group for contractors, said the proposed regulations still need to spell out more clearly what the industry needs to do to avoid running afoul of the rules, and the draft does not appear to take into account the integrated nature of the information technology industry.

But he said he was pleased the proposed rules leave the door open for companies to propose solutions. "I think the idea that you can never mitigate a potential conflict of interest is not only incorrect but could potentially ... have a truly chilling effect, not only on industry but on government as well and the ability to access the right kinds of solutions and capabilities," he said.

It's still unclear how local companies will ultimately react to the new regulations. Arnold Punaro, executive vice president at Science Applications International Corp. in McLean, called the Pentagon's draft language a positive development.

Punaro said SAIC has already been taking inventory of its own contracts to ensure it is prepared for new guidance.

"We didn't want to be caught flat-footed, and we aren't going to be," he said. "We don't have any serious heartburn about the situation."

The Defense Department's proposed regulations are open for comment through June 21.

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