Correction to This Article
An earlier version of this article misspelled the name of George J. Pedersen.

Some contractors, Congress push Pentagon to toughen conflict-of-interest rules

By Marjorie Censer
Monday, August 23, 2010

As the Defense Department wrestles with new regulations meant to prevent organizational conflicts of interest, some are saying the draft rules simply aren't strict enough.

The critics aren't government watchdogs or auditors; in this case, companies that have taken steps to make sure they're "conflict-free" are leading the charge. Seeing a chance to profit from tighter regulations, these companies are calling on the Defense Department to simply disqualify those with conflicts rather than allow them to work around the issues.

The Pentagon has become increasingly concerned about potential conflicts -- which arise when a company provides multiple services that could have conflicting interests, such as building a system and then testing it to see if it works -- and, spurred by legislation, it has released draft regulations that would set formal requirements.

In public responses solicited by the Pentagon, several industry groups see the proposal as too broad and the requirements for dealing with a potential conflict too murky. But Fairfax-based contractor ManTech International, which focuses on providing services rather than building equipment, is one company voicing its support for stronger regulations with stricter penalties.

"It is essential that [the proposed rules] prevent the opportunity for wrongdoing by contractors, and not blindly assume that contractors would never be tempted to further their own economic interests," argued George J. Pedersen, the company's chairman and chief executive.

The push for tightened rules was seconded by El Segundo, Calif.-based Wyle, which just recently purchased a systems engineering and technical assistance business in ITT-owned CAS.

The $235 million sale allowed ITT, which has its defense business headquarters in McLean, to divest a potential conflict of interest while giving the Huntsville, Ala.-based CAS, which has 1,100 employees, a chance to grow.

In a letter written well before the purchase was announced, James E. Neu, senior vice president for business development at Wyle, wrote that the rules should not favor letting organizations mitigate conflicts of interest.

"Nothing in the way of mitigation can overcome the perception that a support contractor will be aware of, and support, its parent company when evaluating its own or a competitor's product," he said.

Congress, too, is pressuring the Pentagon to take a stricter approach. A report accompanying the Senate's version of the defense authorization bill criticizes the proposed rules as too lax and calls on the defense secretary to make sure the final version complies with a 2009 law requiring tightened requirements.

Meanwhile, CSC of Falls Church became the latest to shed a business in response to the Pentagon's proposed rules, selling its Crystal City-based Mission Solutions Engineering affiliate to Greenbelt-based Arctic Slope Federal. The unit, which has operations in Moorestown, N.J., provides software engineering services for a Navy program.

CSC would not disclose the terms of the deal and would not say whether the company is considering additional divestments.

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