RULES FOR THE AVOIDANCE OF ORGANIZATIONAL CONFLICTS OF INTEREST

• Document Type: CREST
• Collection: NGA Records (Formerly NIMA)
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78B04747A000100010012-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 9
• Document Creation Date: December 28, 2016
• Document Release Date: April 10, 2001
• Sequence Number: 12
• Publication Date: June 1, 1963
• Content Type: REPORT

pwr oo For R*e a 2001/07/16: CIA-RDP78BO4747A 100010012-7
7une 1i 1963,
SUBJECT
Department of Defense Directive
-Rules -for the Avoidance of Organizational Conflict'
of Interest
The attached Rules for the Avoidance of Organizational
Conflicts of interest are hereby promulgated, effective immedi-
ately,- for the guidance of personnel of the Department of Defense
and its contractors.
i ~.
Inclosure
. As stated
Deputy' Sect?etary of Defense
-RQP 78 B O47 41, A64 b.10
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June 1, 63
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"(2)' Avoiding assignments of work which would
create inherent conflicts of interest. "
oints out that while there are advantages and
ort
R
p
ep
The
the various types of organizations within the
t
o
disadvantages
private sector (universities, private nonprofit organizations and
these types of organizations should not
f
...,,_._.~_
"be given areas o
permitted to developa privileged 'relationship to the Department
of Defense. .
the second criterion, the Report proposes.
nt
t
. --
me
that each depar
These rules have
t field
.
tions in the research and developmen
been developed in- accordance with'that. instruction.
borne in mind that the pragmatic test for the
b
e
it should
tractor for a particular
f
a con
the selection o
and nonprofit ?ganiza-
__~..
t covers both U
c
tion.s, including those creates largely o W.....--, ,-?_---
ion
creation
fo
a
e
he the
~
rT
funds. But the rules do not deal with the cr{t
in
t
c
flt
.of additional uovCrnme
"r- - -
olicy of the Department of Defense that
the
i
I
p
s
t
this category.
_. a ??i.. ,,,-,vier extraordinary circum
such organizations al u - t
resources are not available to accomplish
o
f i
n-.av a -r-
a necessary objective beyond the scope o
statutes of the
gan c
by the or
d
e
^
.
.
Their termination i s; gove rn
ke it even less
.individual organizaLLoiLS. - ?-..-- _ __
likely that any additional Gobp t1 senorzanizatonsnaref in existence..:.
they will be treated By t'he..uepartmenb v&A
the rules prescrtoe.-;: :.:.
 5500.10 (Teel 1)
Approved For Rele
We 2001107/16: CIA-RDP78BO4747A
? It. RULES
+t g r>jev btate general prohibitions Which ase
o7lav
Th
,
e ~
then explained and illustrated by specific examples. There will
s
l
.
undoubtedly occur cases which are not resolved by these rue
As the Bell Report said, "[Conflict of Interest] arises in several
ot all of which are by any means yet fully under stood. "
-
f
n
orms -
r to assist in deciding what, if any, prohibitions should be
d
I
e
n or
applied in such instances, the two basic principles of this code--.
(1) preventing conflicting roles which might bias a contractor's
judgment, and (2) preventing unfair competitive advantage- -should
not all
l
es are
be paramount. The following rules and examp
but merely attempt to achieve these two goals in a
i
l
us
ve
inc
f t ations The ultimate test should always be: Is the
project. c.ri ---- -_ I --- -
combination of substantially all the following activities: f etesmina
ce
t
contract tot e ep
in each .rule, and its affiliates; "system" means system, subsystem,
As use n
h D artment of Defense to perform the work described
t
contrac or p
or where he has an unfair competitive advantage? If so, corrective
action must be taken in accordance with the rules below.
d i these rules' "contractor" means the person under
variety o s1
laced in a position where his judgment may be biased,
er a
tion of specifications, identification and solution u. en
development of test requirements or
f the system
t
a
,
s o
r
between p
plans and evaluation of test data, and supervision of design work.
Airartinn" includes a combination of sub-
or consultant to a supplier of the system or any J
or. (b) integration, assem y supply
the system, then that contractor shall not later be allowed to the system or any major components thereof, or ? to be a subcontractor
aor components
zor con4racL,-. _
tractors' operations, and resolution of technical controversies.
1. If a contractor agrees to provide systems engineering and
technical direction (SE/TD) for a system, without at the same time
.as.suming over-all contractual responsibility for:, (a) development,
bl and checkout (IAC), or (c) production of
stantially all the following activities: preparation ul wVSn
.._ c direction of.con-
thereof.
SE/TD contractor occupies a highly in-
Th
e
Explanation:
fluential and responsible position as an agent of the ';Department of
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 5500.10 (Incl 1)
June 1, 63
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Defense both in determining basic concepts of a system and in super-
vising their execution by other contractors. To assure the objectivity
the SE/TD
em
d
,
syst
of its services.and hence a more soundly planne
ot in
_ ----
contractor -Lunt n
favor its own products. Furthermore, it would be inconsistent with
actor for it to be
t
/TD
r
con
the managerial responsibility of an SE
concurrently one of the component suppliers.
Example A: Company A agrees to provide SE/TD for the Navy
on the power plant for 'a group of su'?~ 1 not be lallow'edrtol su~pplY anY,
A sh
an
Com
y
p
shafts, props, etc. ).
-It components. Company A can, however, supply components:.:.:
lan
fire control,
.
t.
of the submarine unrelated to the power p
plant,
the
navigation, etc. ). In this example, the sys power
not the submarine, and the ban on.the supply of components is
coterminous with the system only.
A is the SE/ TD contractor for system X.
an
Com
B
p
:
Example
y
After some progress, but prior to completion, the system is canceled.
hieve the same purposes as system
Later, system Y is developed .to ac
X, but in a fundamentally different fashion. Company B is the SE/TD..
roduce system Y
bid to
p
contractor for system Y. Company A. may
or its components.
2.' If a contractor agrees to prepare and furnish complete.
nondevelopmental items to be used in com-
i
o
ng
ver
specifications c
rement, that contractor. shall not be allowed to furnish
petitive procu
for 'a reasonable
tractor
b
,
con
such items, either as a prime or su
%
period of time including, at least, the. initial procurement. This
rule shall not apply to:
specifica-
a. Contractors who furnish the hr duct they furnished9 even though
product
tions or data with respect to
the specifications or datao may have" been paid for separately or in the
price of the product.
b. Situations where one. or more contractors acting as industry
..;vQ in nre?oarina,
representatives assist iGya~ ~???~??~ "' - ardless of source, which
ref;
ifications
,
refining or 'coordinating spec
oll.:d by Government representatives..
t
r
assistance is supervised and:con
as
 5500.10 (Inci 1)
0, , ne 1, 63
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%V TM-f
c. Contracts for developmental or prototype items.
lanations If a single contractor is engaged by the Govern-
Ex
p
ment to draft complete specifications for nonkl? VgjOpto.nta1 equipment?
he should be eliminated for a reasonable time from competition for
production based on the specifications. . This should be done in order
ld
h wo
hi
i
f
u
ons w
c
icat
to avoid.a situation where he could draft speci
ent
h
G
overnm
e
favor his own products or capabilities. In this way t
can be assured of getting unbiased' advice as to the content of its
specifications and can avoid allegations of favoritism in the award
of production contracts.
In development work it is normal to select firms which have
dune the, most advanced. work, .n the field. It is to be expected that
these firms will design and develop around their own prior knowledge.
.Development contractors can frequently start production earlier and
.more knowledgeably than firms which did not participate in the
development, and this affects the time and quality of production,
both of which.are important to the Department of Defense.? In many.
'instances the Government may have financed such development.
Th? _ the development contractor may have an unavoidable com-
petitive advantage which is not considered unfair and no prohibition
should be imposed.
In instances of -cooperation between industry and Department
of Defense agencies to prepare, refine or coordinate specifications,
Government
b
i
i
y
s
on
there is continuous participation and superv
resentatives and, usually, more than one contractor concerned.
re
p
I these circumstances Government supervision prevents the
ctO
s
..
a
establishment of specifications oriented to zavor a given con
products or capabilities.
le A: Company A prepares updated Government speci-
Exam
p
Company A shall not be allowed ,for a reasonable .period of- time to
t
or.
compete for supply of the refrigera
Example B: Company A designs or develops a new electronic.
ares
re
ent
l
d
p
, p
opm
eve
equipment and, as a result of the design or,
ment.
ui
p
specifications. Company.,' A? may supply the electronics eq
~nnrn , rl' nr Rdlaa?a' ?A1A1 /117/1 R Y`Id_Rr1p7RFFf1d7 f7Anr n4 hf}fl..tA 11 k,:7
 ? 5500.10 (Inc1 1)
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Example C: XYZ Tool Company and/or KLM Machinery -
Company representing the American Tool Institute work under the
supervision and control of Government representatives to refine
specifications or to.clarify the requirements of a specific procure-
ment. These companies may supply the item.
3. , If a single contractor, other than a company which has
participated in the development or design of a system, agrees to
assist the Department of Defense or a contractor of the Department
of Defense in the preparation of a statement of work, or agrees- to
provide material leading directly, predictably, and without delay to
a statement of work, to be used in'the competitive procurement of
a system or services, that contractor shall not be allowed to supply
the 'services, or the system or major components thereof, .unless
he is the sole source. The content of a statement of work shall
not be considered predictable if more than one contractor is involved
in the preparation of material leading to it.
Explanation: The various services, related to a statement of
work to be used in a competitive procurement should normally be
. performed by the Department of Defense. However, when it is
necessary to seek the assistance of contractors, they may often,be
come this possibility of bias, such contractors are to be prohibited
from supplying a' system or services procured on the basis of work.;;
statements growing out of their services.
No prohibitions are imposed on development contractors for
?the reasons given in the explanation to rule G.
Example A: Company A receives a contract to define the
detailed performance characteristics the Department of Defense
the particular fuels. At the time the contract is awarded, it is
clear to both parties that the performance characteristics arrives
at will be used by the Department of Defense to choose competitively'
'a contractor to develop or produce the fuels.. Company A? shall not
be permitted to bid on this procurement.
scientific and engineering training of Department of Defense personnel..
Example Bs Company A receives a contract to prepare a.
detailed plan for the procurement of services aimed at the advanced
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ulum which the Department of Defense endorses
i
c
sts a cur r
sugge It sugge
ls to various institutions to
I-
ts for proposa
and incorporates in reques Com
any A shall not be per
i
p
ng.
establish and conduct such train
mitted to bid on this procure sri? nt
any A prepares a feasibility study of ,a
C: Com
l
p
e
Examp
new weapons system without. proposing in detail the characteristics
stem or
the s
y
?'of a possible final device.. It may bid to produce
components thereof.
4., If a contractor agrees to conduct studies or provide advice
y
uires access to proprietar
k
req
hich wor
concerning a system, w
data of other companies, the.contractor must agree with such
companies to protect such data tarxo In unauthorized
the contractor disclosure shall
so long as it remains prop y
not be permitted to utilize, the data in supplying the system, or com
~ advertising or negotia
b
y
ponents znereOA.P --I----
tion, ' as a direct result of that study or advice, or in performing for
the Department of Defense additional studies in the same field which
are obtained competitively.
n: Proprietary data is information considered so
ti
o
Explana
valuable by its owners that it is held secret by them and their
contractor. must obtain such data from others
h
ere a
W
license b s. for pur 'ores of the study, and can. obtain it by the leverage of the
in an advantage over
ill
ga
he w
Department of Defense contract; ,.+.