Defense Federal Acquisition Regulation Supplement: Preventing Conflicts of Interest for Certain Consulting Services (DFARS Case 2024-D007)

<RULE> DEPARTMENT OF DEFENSE <SUBAGY>Defense Acquisition Regulations System</SUBAGY> <CFR>48 CFR Parts 209, 212, 237, and 252</CFR> <DEPDOC>[Docket DARS-2024-0029]</DEPDOC> <RIN>RIN 0750-AM04</RIN> <SUBJECT>Defense Federal Acquisition Regulation Supplement: Preventing Conflicts of Interest for Certain Consulting Services (DFARS Case 2024-D007)</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Defense Acquisition Regulations System, Department of Defense (DoD). <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement a section of the National Defense Authorization Act for Fiscal Year 2024, which prohibits contracting officers from awarding contracts assigned certain North American Industry Classification System codes to offerors holding contracts that involve consulting services with certain covered foreign entities. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective October 24, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Jon Snyder, telephone 703-945-5341. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> DoD published a proposed rule in the <E T="04">Federal Register</E> at 89 FR 79013 on September 26, 2024, to implement section 812 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2024 (Pub. L. 118-31). Section 812 prohibits the award of contracts assigned a North American Industry Classification System (NAICS) code beginning with 5416 ( <E T="03">e.g.,</E> management, scientific, and technical consulting services) to offerors who hold contracts that involve consulting services with certain covered foreign entities. Four respondents submitted public comments in response to the proposed rule. <HD SOURCE="HD1">II. Discussion and Analysis</HD> DoD reviewed the public comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments is provided, as follows: <HD SOURCE="HD2">A. Summary of Significant Changes From the Proposed Rule</HD> The following significant change from the proposed rule is made in the final rule. The final rule text in paragraph (c)(1)(i) and (ii) of the provision at DFARS 252.209-7012 is amended to clarify that the certification is for contracts or subcontracts that involve consulting services, which is consistent with the prohibition. <HD SOURCE="HD2">B. Analysis of Public Comments</HD> <HD SOURCE="HD3">1. Support for the Rule</HD> <E T="03">Comment:</E> A respondent expressed support for the rule. <E T="03">Response:</E> DoD acknowledges the respondent's support for the rule. <HD SOURCE="HD3">2. Clarifications</HD> <E T="03">Comment:</E> A respondent indicated that it is unclear if the proposed rule definition of “covered foreign entity” applies to a foreign entity's subsidiaries or affiliates. The respondent recommended that the proposed rule specify that “covered foreign entity” only applies to those listed entities, subsidiaries, and/or affiliates of the covered foreign entity. Another respondent recommended DoD establish a single online repository for all covered foreign entities. <E T="03">Response:</E> The text at DFARS 209.572(c) and in paragraph (a) of the provision at DFARS 252.209.7012, Prohibition Relating to Conflicts of Interest in Consulting Services-Certification, addresses the prohibition regarding subsidiaries and affiliates of covered foreign entities; therefore, it is not necessary to amend the definition. Although DoD acknowledges the respondent's concern, it is not possible to establish a single online repository of covered foreign entities, as the lists of such entities are compiled and maintained by different departments and agencies and are subject to change. <E T="03">Comment:</E> A respondent indicated that the definition of “consulting services” is unclear due to the use of the words “the term” in the definition. Specifically, it is ambiguous whether “the term” referenced in the definition is the broader “consulting services” or the more specific “advisory and assistance services”. The respondent also indicated that the definition of “consulting services” is too broad and should include an exception for nonprofit organizations whose primary purpose is to conduct research, indicating that throughout the Federal Acquisition Regulation (FAR) nonprofit research organizations qualify for exceptions and particularized requirements. <E T="03">Response:</E> The definition of “consulting services” at DFARS 209.572(b) and in paragraph (a) of the provision at DFARS 252.209.7012 is revised to replace “the term” with “consulting services”. This rule implements a statutory requirement, which does not provide for an exception for nonprofit research organizations. Therefore, DoD cannot provide such an exception. <E T="03">Comment:</E> A couple of respondents recommended changes to the provision at DFARS 252.209.70XX. A respondent indicates the proposed rule does not provide sufficient information regarding what is to be included in a conflict-of-interest mitigation plan. Another respondent recommends that the text be amended to allow an offeror's administrative contracting officer (ACO) to review and approve the conflict-of-interest mitigation plan. <E T="03">Response:</E> The final rule text in paragraph (d)(1) of the provision at DFARS 252.209-7012 already specifies that the conflict-of-interest mitigation plan shall be auditable by a contract oversight entity and provides a list of what the offeror's conflict-of-interest mitigation plan must include. As such, the contracting officer will review the plan and may conduct discussions or negotiate the contents of the plan with the offeror prior to final acceptance. In accordance with FAR 42.2, contracting officers may assign post-award contract administration functions to an ACO. The review and approval of a conflict-of-interest mitigation plan is a pre-award function; therefore, it cannot be delegated to the ACO. <E T="03">Comment:</E> A respondent recommended adding the word “both” before the items listed at DFARS 209.57X(c) to make it clear that the prohibition only applies to an offeror that has a potential conflict of interest and does not have a conflict-of-interest mitigation plan. <E T="03">Response:</E> DoD concurs with the recommendation. The final rule text at DFARS 209.572(c) and in paragraph (b) of the provision at DFARS 252.209.7012 is revised to add the word “both”. <E T="03">Comment:</E> A couple of respondents recommended the proposed rule be amended to reflect that the certification is based on the best knowledge of the offeror. <E T="03">Response:</E> The wording of the certification is based on section 812, which requires an offeror to certify that neither it nor its subsidiaries or affiliates, holds a contract that involves consulting services with one or more covered foreign entities. Therefore, DoD cannot adopt this recommendation. <E T="03">Comment:</E> A couple of respondents recommended changing the provision at DFARS 252.209-70XX to address the potential for previously undisclosed conflicts of interest that may arise during contract performance. Another respondent recommends the text at DFARS 209.57X(c) and in paragraphs (b) and (c) of the provision at DFARS 252.209-70XX clarify whether or not the prohibition and certification requirements apply to an offeror that is a subcontractor on another contract involving consulting services with a covered foreign entity. <E T="03">Response:</E> Section 812 does not require post-award monitoring of the “covered foreign entity” lists by a contractor that was not required to submit a conflict-of-interest mitigation plan. However, paragraph (d) of the provision at DFARS 252.209-7012 does require that a conflict-of-interest mitigation plan include procedures for addressing unmitigated conflicts of interest. Section 812 does not specify that the prohibition and certification requirements apply to an offeror that is a subcontractor on a contract with a covered foreign entity. However, the purpose of the statute is to prevent DoD contract awardees, and their subsidiaries or affiliates, from holding a contract involving consulting services with one or more covered foreign entities without a conflict-of-interest mitigation plan. As such, to meet the intent of the statute, the final rule text at DFARS 209.572(c)(1) and (d)(1), and paragraphs (b), (c)(1)(i) and (ii) of the provision at DFARS 252.209-7012 is amended to include subcontracts. <E T="03">Comment:</E> A respondent recommended the text in paragraph (d)(1)(i) of the provision at DFARS 252.209-70XX be amended to clarify that the offeror's restriction to identify the name of a covered foreign entity shall not obligate the contracting officer to disapprove the offeror's conflict-of-interest mitigation plan. <E T="03">Response:</E> Paragraph (d)(1)(i) of the provision at DFARS 252.209-7012 requires an offeror to identify an entity as “a covered foreign entity” if the offeror is unable to identify one or more covered foreign entities due to confidentiality obligations. As such, an offeror's compliance with the requirements of the provision would not be a basis for the contracting officer to disapprove an offeror's conflict-of-interest mitigation plan. <E T="03">Comment:</E> A respondent recommended including definitions of avoiding, neutralizing, and mitigating. <E T="03">Response:</E> In accordance with FAR 1.108(a), undefined words retain their common dictionary meaning. Therefore, it is not necessary to define these terms in this rule. <HD SOURCE="HD2">C. Other Changes</HD> The final rule text in paragraph (d) of the provisio ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 32k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━