Sterner OCI Rules Strike At SAIC

One of the recent reforms undertaken by the United States Defense Department is a broader interpenetration and stricter enforcement of Organizational Conflict of Interest (OCI) rules. In these matters the Pentagon tries to make sure that any contractor awarded a hardware development or procurement contract is not also involved in reviewing contract proposals or testing of the system. If they are this means that they could not necessarily act independently or provide an honest opinion of the proposal.

OCI issues have arisen because due to the size and nature of the Government’s acquisition workforce many contractors are involved in working in the offices that develop and procure systems. These are the Scientific, Engineering, Technical and Analytical (SETA) service providers. Historically SETA contractors tend to be smaller and focused in one business area of Government procurement. Cities like Huntsville, AL are full of SETA contractors who provide support to the Army’s two main acquisition offices there: PEO (Aviation) and PEO (Missiles). They also support NASA’s Marshall Space Flight Center who design and control the building of space launch systems.

The SETA workforce has grown substantially over the last thirty years as the size of the Defense Department’s and other Government agencies acquisition workforce have shrank. This business became very profitable as you are selling the services of a person and your costs are limited to salary and benefits. Often times they work in a Government office so that a company does not even need to provide an office, utilities or support services. This became attractive to the large contractors such as Boeing (BA) and Northrop Grumman (NOC) who in the Nineties often established or purchased a SETA contractor capability.

This meant though that without the establishment of careful firewalls and legal boundaries between parts of the companies that OCI could arise. Not only has the Obama Administration begun a process of increasing the Government acquisition workforce and reducing SETA contractors they have also begun to enforce OCI rules more broadly. The issues with the OCI has already led Northrop Grumman to sell TASC their SETA arm. The Air Force had wanted strong agreements signed related to satellite programs that Northrop and TASC might work on.

Now the DoD Inspector General is reporting that SAIC (SAIC) has issues with their work on the former Future Combat Systems (FCS). SAIC along with Boeing was the Lead Systems Integrator (LSI) for the program which meant they controlled the design and development of what was to be the Army’s new integrated system of systems to replace the heavy force designed in the Eighties. The IG report criticizes SAIC as they had the principal support contract to the independent Director of Operational Test & Evaluation (DOTE&E). DOT&E job is to provide Congress and the Office of the Secretary of Defense an independent judgment of a systems test results and suitability for further development, production and deployment.

The DoD IG feels that SAIC by serving as the LSI for FCS as well as supporting DOT&E was a violation of the OCI rules. SAIC could influence the Army towards approving and paying for more work on FCS because of their work in DOT&E. SAIC feels that the regulations and laws are being misapplied. No punishment has yet to be recommended and since the FCS was canceled and re-started as a new program it may yet be that SAIC work with this is done making it hard to actually punish them.

If the push on OCI continues in this way there will be more cases where companies are accused of doing this. With the small number of large contractors who are involved in more then just the traditional development and production of systems it is inevitable. It might be that more situations like TASC arise where they are spun off or separated to avoid problems. Of course the DoD is now on record as saying Northrop’s response may have been a little to early as they did not mean the rules to be interpreted and enforced in such a way as to lead to this result.