[Federal Register Volume 59, Number 121 (Friday, June 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15103]
[[Page Unknown]]
[Federal Register: June 24, 1994]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 366
RIN 3064-AB39
Contractor Conflicts of Interest
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Directors of the Federal Deposit Insurance
Corporation (FDIC) is proposing to adopt a new regulation which will
implement provisions of the Resolution Trust Corporation Completion Act
(the Completion Act). The Completion Act amended section 12 of the
Federal Deposit Insurance Act (FDI Act) to prohibit certain persons and
companies from entering into contracts or providing services to the
FDIC, and directed the Board of Directors of the FDIC to prescribe
regulations for those who enter into contracts with the FDIC governing
conflicts of interest, ethical responsibilities, and the use of
confidential information.
DATES: Written comments must be received on or before August 23, 1994.
ADDRESSES: All comments should be addressed to Robert E. Feldman,
Acting Executive Secretary, Federal Deposit Insurance Corporation, 550
17th Street NW., Washington, DC 20429, or delivered to room F-400, 1776
F Street NW., Washington, DC, between the hours of 8:30 a.m. and 5 p.m.
on business days [FAX number (202) 898-3838]. Comments will be
available for inspection and photocopying in the FDIC's reading room,
room 7118, 550 17th Street NW., Washington, DC 20429, between 9:00 a.m.
and 4:30 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: Joanna Lyckberg, Senior Policy
Analyst, Office of Corporate Services, (202) 942-3217; or Debra Slater,
Counsel, Regional Affairs Section, Legal Division, (202) 736-0738,
FDIC, 550 17th Street NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION: Pursuant to section 12(f)(3) of the FDI Act
the FDIC is required to obtain the concurrence of the Office of
Government Ethics (OGE) in prescribing regulations pertaining to
conflicts of interest, ethical responsibilities and the use of
confidential information. The proposed regulation addresses, among
other things, conflicts of interest and use of confidential
information, and, as to these portions of the regulation, OGE's
concurrence is required prior to the regulation becoming final. In
order that the proposed regulation be published for comment
expeditiously, OGE consents to the publishing of this proposed
regulation without having provided its formal concurrence as to the
substance of those sections requiring OGE concurrence. Prior to the
publication of the regulation as a final rule, the FDIC will obtain
OGE's concurrence, as necessary, to those portions of the regulation
requiring OGE's concurrence pursuant to section 12(f)(3) of the FDI
Act.
I. Paperwork Reduction Act
The FDIC's contract and procurement information requirements
constitute a collection of information under the Paperwork Reduction
Act (44 U.S.C. 3501 et seq.). This collection has been reviewed and
approved by the Office of Management and Budget (OMB) under control
number 3064-0072. After reviewing the comments received in response to
this proposed rule, the FDIC may change the Representations and
Certifications forms that are part of that collection. If such a change
is needed, it will be submitted to OMB for review and approval pursuant
to the Paperwork Reduction Act.
II. Regulatory Flexibility Act
The Board hereby certifies that the proposed rule would not have a
significant economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.). Therefore, the provisions of that Act relating to an initial and
final regulatory analysis (5 U.S.C. 603 and 604) do not apply.
III. Background
The Resolution Trust Corporation Completion Act (Pub. L. 103-204,
enacted on December 17, 1993), amended section 12 of the Federal
Deposit Insurance Act, 12 U.S.C. 1822, to prohibit certain persons and
companies from entering into contracts or providing services to the
FDIC. In addition, the Completion Act required the Board of Directors
of the FDIC to prescribe regulations governing conflicts of interest,
ethical responsibilities and the use of confidential information by
contractors. Congress required that contractors doing business with the
FDIC must meet certain minimum standards of fitness and integrity.
The statute prohibits certain contractors from entering into
contracts with the FDIC or performing services on behalf of the FDIC.
These mandatory disqualifications apply to any person who: has been
convicted of any felony; has been removed from, or prohibited from
participating in the affairs of any insured depository institution
pursuant to a final enforcement action by any appropriate Federal
banking agency; has demonstrated a pattern or practice of defalcation
regarding obligations to insured depository institutions; or has caused
a substantial loss to the Federal deposit insurance funds. In addition,
the statute requires the collection of certain information from
prospective contractors concerning any instances of default on material
obligations to insured depository institutions during the preceding
five (5) years. The FDIC will use that information to determine if the
contractor is statutorily or otherwise barred from contracting. The
statute also gives the FDIC the authority to abrogate contracts with
any contractor who fails to disclose a material fact to the FDIC, would
be statutorily prohibited from providing services to the FDIC, or has
been subject to a final enforcement action by any Federal banking
agency. Finally, the statute requires the FDIC to promulgate
regulations governing conflicts of interest, ethical responsibilities,
and the use of confidential information consistent with the goals and
purposes of titles 18 and 41 of the U.S. Code.
A. Scope of the Proposed Regulation
Section 366.1 discusses the scope of the proposed regulation. The
FDIC will apply this part to all contracts for services which it awards
in its receivership and corporate capacities. This will include
situations where the FDIC is acting as manager of the Federal Savings
and Loan Insurance Corporation (FSLIC) Resolution Fund. The FDIC,
however, when acting as a conservator of a financial institution, or
under its bridge bank authority, will not be subject to this
regulation. In order to comply with its statutory obligation to resolve
failed institutions at the least possible cost to the Federal deposit
insurance funds, the FDIC oversees the operation of bridge banks and
conservatorships in a manner designed to minimize costs and preserve
franchise value. As such, bridge banks and conservatorships are
typically controlled by the FDIC for a short period of time and, to the
extent possible, are operated as private sector entities. The
contracting activities of these entities, which, to a large extent
involve contracts that pre-date FDIC control, are conducted as part of
the day-to-day operations of these open and operating financial
institutions rather than by the FDIC itself. Thus, bridge banks and
conservatorships will not be subject to this regulation.
The FDIC wishes to make it clear that the regulation applies to all
of its activities with independent contractors who are providing
services to the FDIC in its receivership and corporate capacities. This
includes contracts with law firms to provide outside counsel services
to the FDIC's Legal Division as well as leases of real property,
including office space for FDIC facilities. Contracts which are purely
for the acquisition of goods will not be covered by the proposed
regulation. Contracts which provide for the acquisition of both goods
and services, however, will be covered by the regulation. For example,
a procurement of computer equipment would not be subject to the
regulation, but a contract for the purchase and installation of
computer equipment would be subject to the regulation.
The regulation does not apply to contractors who are deemed under
12 U.S.C. 1822(f)(1)(B), to be employees of the FDIC for purposes of 18
U.S.C. 202. These contractors are subject to other requirements set out
at 5 CFR part 2635, regarding standards of ethical conduct for
employees of the Executive Branch.
This regulation is applicable to the activities of subcontractors;
that is, companies which have entered into contracts with FDIC
contractors. Only the first tier of subcontractors is subject to the
regulation. The information which is required from the subcontractor
will be submitted to the FDIC's prime contractor, and the FDIC will
hold its prime contractors responsible for ensuring that first tier
subcontractors are in compliance with the regulation.
The FDIC will apply the regulation to all contracts subject to this
regulation which are executed after the effective date of this part. In
addition, the FDIC will apply the regulation to any contract subject to
this part which is already in existence on the effective date of the
regulation for which contractual activity, such as a modification,
extension or exercise of an option, takes place after the effective
date of the regulation. Such contractual activities are tantamount to
creating new contracts and therefore these existing contractors should
be subject to the same ethical standards which will be applied to new
contractors.
B. Resolution Trust Corporation Transition
Section 366.1(d) of the proposed regulation addresses the
termination of the Resolution Trust Corporation (RTC) and the
transition of RTC contracts to the FDIC. The RTC is expected to
terminate, by statute, no later than December 31, 1995. At that time,
RTC functions and responsibilities will be assumed by the FDIC. The
FDIC may choose to continue some of the contracts which the RTC entered
into with private sector contractors. Some of these RTC contracts will
have a duration which extends beyond the RTC's termination date, and
the FDIC may assume these contracts. In other cases, the FDIC may enter
into modifications of RTC contracts in order to continue them beyond
the RTC termination date. In either case, the regulation will apply to
any RTC contracts to which the FDIC succeeds. This should present
little hardship to RTC contractors, as the RTC's statutorily mandated
bars are identical to those contained in the Completion Act.
C. Previous Policies
Section 366.1(e) of the proposed regulation discusses the FDIC's
previous policies on contractor conflicts of interest. The FDIC issued
a statement of policy on contracting with outside firms, which was
published in the Federal Register on May 17, 1993 (58 FR 28866). This
policy statement, which was applicable to all FDIC acquisitions of
goods and services, with the exception of legal services, limited the
ability of the FDIC to contract with firms in litigation with the FDIC,
the RTC, FSLIC and any successors to FSLIC, and firms in default on
financial obligations to the FDIC, the RTC, FSLIC or any successors to
FSLIC, as well as the affiliated business entities of those firms.
The policy statement did not apply to the acquisition of outside
counsel services for the FDIC's Legal Division because the Legal
Division has been following the RTC's regulation, 12 CFR part 1606,
entitled Qualification of, Ethical Standards of Conduct for, and
Restrictions on the Use of Confidential Information by Independent
Contractors. Because the statutorily mandated bars in the proposed
regulation are identical to those in the RTC's regulation, the Legal
Division will follow the proposed regulation. Applicability of the
proposed regulation to the acquisition of outside counsel services for
the Legal Division should provide the FDIC with increased uniformity in
its contractual relationships.
The proposed regulation will supersede and replace the May 17,
1993, policy statement on contracting with outside firms. In general,
the regulation tracks the statutory bars which prohibit certain
contractors from performing services on behalf of the FDIC. In
addition, contractors which have conflicts of interest are prohibited
from performing under FDIC contracts. The FDIC recognizes, however,
that in certain cases it may be in the FDIC's best interest to waive
certain conflicts of interest. Therefore, the regulation sets forth
procedures which contractors must follow if they seek a waiver or
resolution of a conflict of interest in order to enter into a new
contract with the FDIC or be permitted to continue performance under an
existing contract.
D. Definitions
Section 366.2 contains definitions of terms used throughout the
regulation.
Company: The proposed definition of company has been expanded from
that used in section 2(b) of the Bank Holding Company Act of 1956 (12
U.S.C. 1841(b)) to include individuals, partners, and joint ventures.
These entities were included because the FDIC believes that it can best
meet the congressional intent contained in the Completion Act by
including all possible business organizations and ventures.
Conflict of Interest: In arriving at this proposed definition, the
FDIC considered separate definitions of organizational conflicts of
interest, personal conflicts of interest, and unfair competitive
advantage. The umbrella definition included in the regulation is
intended to cover all three aspects of a conflict of interest. Further,
it allows for flexibility and, with regard to a particular offer,
allows the FDIC to identify with more specificity the conditions that
might create a conflict of interest or an appearance thereof.
Contractor: This proposed definition includes companies which enter
into contracts with the FDIC as well as those which enter into
contractual and other relationships with an FDIC contractor in order to
fulfill the contractor's obligation under an FDIC contract. Thus, this
definition includes first tier subcontractors. The FDIC has elected to
adopt a broad definition of ``contractor'' in order to have the
latitude to review the fitness and integrity of those who actually
perform services under FDIC contracts. For example, under this
definition, if an FDIC contractor obtained temporary employees from a
temporary agency, those individuals would fall within the definition of
contractor.
Default on a Material Obligation: The FDIC proposes to define this
term to mean a delinquency of 90 or more days as to payment of
principal or interest, or a combination thereof, on a loan or advance
from an insured depository institution in an amount in excess of
$50,000. As required by the statute, the regulation requires that all
offerors submit a list and description of defaults on material
obligations incurred by their company or by any persons proposed to
work on the contract. It should be noted that such defaults are to be
listed regardless of whether or not they have been cured.
Insider: The definition of insider in the proposed regulation is
based on the definition of the term as set forth in Sec. 215.2 of
Regulation O, 12 CFR 215.2, but has been extended to include the
insider's affiliated business entities. The FDIC believes that
insiders, acting alone or with others, who received nonrecourse loans
which constitute unsafe and unsound lending practices should be
specifically addressed in the regulations, even if the insider loans
did not result in a loss to a federally insured depository institution.
The FDIC concluded that it was important, in order to effectuate
congressional intent, that these individuals not benefit, through FDIC
contracts, from their practices and their positions.
Pattern or Practice of Defalcation: This proposed definition
addresses two situations: two or more instances of loans or advances
from an insured depository institution that are or have been delinquent
for 90 or more days as to payment of principal, interest, or a
combination thereof, on which there remains a legal obligation to pay
an amount in excess of $50,000; and loans or advances from an insured
depository institution where there has been a failure to comply with
the terms to such an extent that the collateral securing the loan or
advance was foreclosed upon resulting in a loss in excess of $50,000.
The last part of the definition is based on section 11(p) of the
Federal Deposit Insurance Act, 12 U.S.C. 1821.
Person: This proposed definition comprises both a company's
management officials and any partners or employees of a company who are
performing or are proposed to perform services pursuant to an FDIC
contract. The proposed regulation requires that the FDIC obtain, with
every offer, a list and description of every instance during the
preceding ten (10) years in which persons in the company defaulted on
material obligations to an insured depository institution. The FDIC
considered limiting the definition of person to include only a
company's management officials and the key personnel who would work on
the FDIC contract, but determined that it can best carry out the intent
of Congress by gathering this information on all individuals employed
by the company who would work on the FDIC contract.
Substantial Loss to Federal Deposit Insurance Funds: This proposed
definition incorporates $50,000 as the threshold for establishing a
substantial loss. This loss must have inured to one of the Federal
deposit insurance funds, or the FDIC, the RTC, FSLIC, or their
successors. Four types of losses are addressed: those resulting from
delinquent loans, outstanding unsatisfied final judgments, nonrecourse
loans obtained by insiders, and secured loans where the collateral has
been foreclosed. In contrast to a pattern or practice of defalcation,
which requires two or more occurrences in order to invoke the statutory
prohibition on contracting with the FDIC, a substantial loss requires
only a single occurrence of loss in excess of the $50,000 threshold.
E. Prohibited Contracting Activities
Section 366.3(b) of the proposed regulation reflects the statutory
mandates which have been imposed on the FDIC in its contracting
activities. These include the statutory bars which restrict with whom
the FDIC may enter into contracts: those who have been convicted of
felonies; those who have been removed from or prohibited from
participating in the affairs of any insured depository institution
pursuant to any final enforcement action by any appropriate Federal
banking agency; those who have demonstrated a pattern or practice of
defalcation; and those who have caused a substantial loss to Federal
deposit insurance funds. While the statute only applies these mandatory
bars to actions of persons, the FDIC has concluded that companies
should also be prohibited from contracting with the FDIC if they meet
the described criteria. The FDIC recognizes, for example, that a
company cannot be removed from participating in the affairs of an
insured financial institution. However, companies which employ persons
to perform work on FDIC contracts who were so removed may therefore be
barred themselves from contracting with the FDIC. Of particular note is
the fact that companies that have been convicted of felonies are not
qualified to enter into contracts with the FDIC. This is in contrast to
the RTC regulation, which only bars individuals who have been convicted
of a felony. In addition to those prohibitions mandated by statute, the
FDIC will not contract with those who have a conflict of interest which
has not been resolved or waived by the FDIC.
Section 366.4, entitled ``Disqualification of Contractors'',
requires a) that offerors notify the FDIC of any disqualifying events
which occur between the time that they submit their offers and contract
award, and b) that contractors notify the FDIC of any disqualifying
events which occur during their performance of an FDIC contract. The
Contractor Fitness and Integrity Compliance Officer, or a designee or
the General Counsel, or a designee, shall then notify the contractor in
writing of his or her finding as to whether or not the contractor is
still qualified to continue performing under the contract, the basis
for such determination, and, when applicable, a description of the
actions, if any, which the contractor must take in order to eliminate
the disqualifying factor. The contractor must complete such corrective
actions not later than 30 days after notification, unless the
Contractor Fitness and Integrity Compliance Officer or the General
Counsel, at his or her sole discretion, determines that it will be in
the best interest of the FDIC to grant the contractor a longer period.
F. Conflicts of Interest
Section 366.5 of the proposed regulation, entitled ``Conflicts of
Interest'', states that it is the FDIC's preference to avoid awarding
contracts which have associated conflicts of interest. For that reason,
the FDIC generally will not actively solicit offers from companies
which the FDIC knows have one or more conflicts of interest associated
with a proposed contract. This section contains several examples of
conflicts of interest.
Section 366.5 also contains the procedure which companies must
follow if they have conflicts of interest regarding a proposed contract
which they are requesting the FDIC to waive or resolve. In the case of
contracts for legal services, the requests for waivers or resolutions
will be considered by the General Counsel or his or her designee.
Requests for waivers or resolutions of conflicts of interest in all
other cases will be considered by the Contractor Fitness and Integrity
Compliance Officer or his or her designee.
Section 366.5 requires: (1) That offerors notify the FDIC if they
learn, after submission of an offer, that their company, or any person
in the company, has a conflict of interest; and (2) that contractors
notify the FDIC of any conflicts of interest arising during their
performance of an FDIC contract. The Contractor Fitness and Integrity
Compliance Officer, or a designee or the General Counsel, or a
designee, shall then notify the contractor in writing of his or her
finding as to whether or not the contractor is still qualified to
continue performing under the contract, the basis for such
determination, and, when applicable, a description of the actions which
the contractor must take in order to resolve a conflict of interest.
The contractor must complete such corrective actions not later than 30
days after notification, unless the Contractor Fitness and Integrity
Compliance Officer or the General Counsel, at his or her sole
discretion, determines that it will be in the best interest of the FDIC
to grant the contractor a longer period.
Lawyers and law firms providing legal services to the FDIC are
required to follow, in addition to the conflicts of interest
requirements proposed by this regulation, the applicable Code(s) of
Professional Responsibility and the contractual conflict of interest
provisions set out in the FDIC Legal Division's Guide for Outside
Counsel and its Statement of Policies Concerning Outside Counsel
Conflicts of Interest. These additional requirements are provided to
legal services contractors as part of the Legal Division's solicitation
process.
If the FDIC determines that the contractor is no longer able to
meet the minimum standards, as a result of a disqualifying factor or a
conflict of interest, the FDIC may rescind or terminate the contract
pursuant to Sec. 366.8 of the regulation.
G. Information Required To Be Submitted
Section 366.6(a) of the proposed regulation requires that offerors
submit with their offers: (1) Certifications regarding the statutory
bars as well as any conflicts of interest the offeror may have which
relate to the proposed contract; and (2) a list and description of any
instances during the ten (10) years preceding the submission of the
offer that the offeror, or anyone that the offeror plans to assign to
work on the FDIC contract, defaulted on a material obligation to an
insured depository institution in an amount in excess of $50,000. While
the statute required that the latter information be collected only for
the five (5) years preceding submission of the offer, the FDIC decided
that ten (10) years was a more appropriate time period. Ten years will,
in many cases, encompass the last several years that a closed
institution was open prior to the FDIC's intervention. The FDIC's
experience has been that a significant number of loan defaults occurred
during this time period. The FDIC also concluded that because the
required time period would be calculated from the present rather than
from a fixed date in the past, the ten year time period was necessary
in order to capture the period when defaults likely would have
occurred.
Section 366.6(b) requires that contractors submit the information
required in Sec. 366.6(a) regarding anyone they employ, directly or
indirectly, after receiving the award, to work on the FDIC contract,
and gives the FDIC the right to disapprove the direct or indirect
employment of such persons to work on the contract.
H. Confidential Information
Section 366.7 of the proposed regulation prohibits contractors from
disclosing confidential information to which they may become privy as a
result of their FDIC contracts.
I. Abrogation of Contracts
Section 366.8 of the proposed regulation states that the FDIC may
rescind or terminate any contract with a contractor which: (1) Fails to
disclose a material fact to the FDIC; (2) would not be qualified under
the proposed regulation to provide services to, receive fees from, or
contract with the FDIC; (3) has been subject to a final enforcement
action by any Federal banking agency; or (4) fails to take the actions
required by the FDIC to resolve a conflict of interest.
J. Finality of Determination
Section 366.9 of the proposed regulation tracks the language of the
Federal Deposit Insurance Act, 12 U.S.C. 1822(f)(4)(D)(ii).
List of Subjects in 12 CFR Part 366
Conflict of interests, Government contracts, Reporting and
recordkeeping requirements, Resolution Trust Corporation.
For the reasons set forth in the preamble, pursuant to its
authority under section 19 of the Resolution Trust Corporation
Completion Act, the Board of Directors of the FDIC hereby proposes to
amend title 12, Chapter III of the Code of Federal Regulations by
adding part 366 as follows:
PART 366--CONTRACTOR CONFLICTS OF INTEREST
Sec.
366.1 Authority, purpose, and scope.
366.2 Definitions.
366.3 Qualification of contractors.
366.4 Disqualification of contractors.
366.5 Contractor conflicts of interest and ethical responsibilities.
366.6 Information required to be submitted.
366.7 Confidentiality of information.
366.8 Abrogation of contracts.
366.9 Finality of determination.
Authority: 12 U.S.C. 1819, 1822(f)(3).
Sec. 366.1 Authority, purpose, and scope.
(a) Authority. This part is adopted pursuant to section 12(f)(3) of
the Federal Deposit Insurance Act, 12 U.S.C. 1822(f)(3), and the rule-
making authority of the Federal Deposit Insurance Corporation (FDIC)
found at 12 U.S.C. 1819. Pursuant to those sections, the FDIC is
promulgating the regulations in this part applicable to independent
contractors governing conflicts of interest, ethical responsibilities,
and the use of confidential information consistent with the goals and
purposes of titles 18 and 41 of the U.S. Code. The FDIC will apply this
part to all contractual activities it undertakes, including situations
in which it is acting as manager of the Federal Savings and Loan
Insurance Corporation (FSLIC) Resolution Fund (FRF). This part does not
apply to the FDIC when acting as a conservator of a failed financial
institution or when operating a bridge bank. This part is in addition
to, and not in lieu of, any other statute or regulation which may apply
to the conduct of such contractors.
(b) Purpose. This part seeks to govern conflicts of interest,
ethical responsibilities, and the use of confidential information by
contractors consistent with the goals and purposes of titles 18 and 41
of the U.S. Code. Its further purpose is to establish official written
guidance to contracting personnel who are awarding contracts for
services and to contractors bidding on such contracts.
(c) Scope. (1) This part applies to private sector contractors,
including law firms, which submit offers to provide services to the
FDIC in response to FDIC solicitations or which enter into contracts
for services with the FDIC. Further, this part applies to companies
which enter into contracts or other relationships to provide services
to FDIC contractors in order to fulfill the contractors' obligations
under FDIC contracts. In addition, this part applies to lessors who
seek to lease or who enter into leases of real property for the use of
the FDIC. Further, this part applies to contractors who are not deemed,
under 12 U.S.C. 1822(f)(1)(B) to be employees of the FDIC for purposes
of 18 U.S.C. 202.
(2) For all contractors subject to this part, FDIC will apply this
part to contracts which are entered into between the contractors and
the FDIC after [the effective date of the final regulation]. In
addition, this part applies to contracts between contractors subject to
this part and the FDIC which are in existence on [the effective date of
the final regulation] for which a contractual action, such as a
modification, extension, or exercise of an option, takes place after
[the effective date of the final regulation].
(d) Resolution Trust Corporation transition. After the termination
of the Resolution Trust Corporation (RTC), which will, by statute,
occur no later than December 31, 1995, this part shall apply to all RTC
contracts which have a term which continues beyond the RTC's
termination and to which the FDIC succeeds.
(e) Previous policies. This part supersedes and replaces the FDIC's
``Statement of Policy on Contracting with Outside Firms'', which was
published in the Federal Register on May 17, 1993 (58 FR 28866),
effective on [the effective date of the final regulation].
Sec. 366.2 Definitions.
As used in this part:
(a) Affiliated business entity means a company that is under the
control of the contractor, is in control of the contractor or is under
common control with the contractor; or which the FDIC determines, at
its sole discretion, and after consideration of the appropriate
factors, is affiliated with a specific contractor. In determining
whether companies are independently owned and operated and whether or
not they are affiliated business entities, consideration is given to
appropriate factors, including but not limited to common ownership,
common management, and contractual relationships. A subfranchiser shall
not be considered an affiliated business entity of its master
franchiser if the subfranchiser is independently owned and operated.
(b) Company means any individual, corporation, partnership, joint
venture, business trust, association or similar organization, or any
other trust unless by its terms it must terminate within twenty-five
years or not later than twenty-one years and ten months after the death
of individuals living on the effective date of the trust, but shall not
include any corporation the majority of the shares of which are owned
by the United States, any state, or the District of Columbia.
(c) Confidential information means all information provided by the
FDIC to the contractor and all information which the contractor obtains
during and as a result of its performance under an FDIC contract. It
does not include information:
(1) Which is generally available to the public;
(2) Which becomes generally available to the public other than as a
result of a disclosure by the contractor, its affiliated business
entities or its management officials;
(3) Was available to the contractor on a non-confidential basis
prior to its disclosure to the contractor by the FDIC; or
(4) Becomes available to the contractor on a non-confidential basis
from a source other than the FDIC when such source, insofar as is known
to the contractor after reasonable inquiry, is not prohibited from
making the disclosure to the contractor.
(d) Conflict of interest means a situation in which:
(1) A company, or any of its management officials or affiliated
business entities, or any management officials of those affiliated
business entities, has one or more personal, business, or financial
interests or relationships which:
(i) Would adversely affect that company's ability to impartially
fulfill its obligation to provide services to the FDIC under the terms
of a proposed or existing contract, or to represent the FDIC; or
(ii) Could cause a reasonable individual with knowledge of the
relevant facts to question that company's ability to impartially
fulfill its responsibility to provide services to the FDIC under the
terms of a proposed or existing contract, or to represent the FDIC; or
(2) Performance of a proposed or existing contract may provide a
company with an advantage unintended by the contract which favors the
interests of the company or any individual or entity presently or
potentially able to confer a benefit on the company, or can be used for
the benefit of the company or any individual or entity able to confer a
benefit on the company; or
(3) A company, or any of its management officials or affiliated
business entities, or any management officials of those affiliated
business entities, is an adverse party to a lawsuit in which the FDIC,
RTC, FSLIC, or their successors, is seeking recovery in excess of
$50,000; or
(4) Any other facts exist which the FDIC determines, at its sole
discretion, would give rise to an appearance of a conflict of interest,
a loss of impartiality or divided loyalties if the company were to
perform under a proposed or existing FDIC contract.
(e) Contractor means:
(1) A company which has submitted an offer to perform services for
the FDIC or has a contractual arrangement with the FDIC to perform
services, but does not include special government employees as
described at 18 U.S.C. 202.
(2) Any company with which a contractor has entered or intends to
enter into a contractual or other relationship in order to fulfill the
contractor's obligations under an FDIC contract.
(f) Control means:
(1) The power to vote, directly or indirectly, 25 percent or more
of any class of the voting stock of a company, the ability to direct in
any manner the election of a majority of a company's directors or
trustees, or the ability to exercise a controlling influence over the
company's management and policies. For purposes of this definition, a
general partner of a limited partnership is presumed to be in control
of that partnership.
(2) For purposes of this part, an entity or individual shall be
presumed to have control of a company if the entity or individual
directly or indirectly, or acting in concert with one or more entities
or individuals, or through one or more subsidiaries, owns or controls
25 percent or more of its equity, or otherwise controls or has power to
control its management or policies.
(g) Default on a material obligation means a loan or advance from
an insured depository institution which is or has been delinquent for
90 or more days as to payment of principal or interest, or a
combination thereof, in an amount in excess of $50,000.
(h) Federal banking agency means the Office of the Comptroller of
the Currency, the Office of Thrift Supervision, the Board of Governors
of the Federal Reserve System, or the Federal Deposit Insurance
Corporation, or their successors.
(i) Federal deposit insurance fund means the Bank Insurance Fund,
the Savings Association Insurance Fund, the FRF, or the funds
maintained by the RTC for the benefit of insured depositors.
(j) FDIC means the Federal Deposit Insurance Corporation in its
receivership and corporate capacities. It does not mean the FDIC in its
conservatorship capacity or when operating a bridge bank.
(k) Insider means an officer, director or principal shareholder and
includes affiliated business entities of such individuals.
(l) Insured depository institution means any bank or savings
association the deposits of which are insured by the FDIC.
(m) Management official means an individual who controls a company.
With respect to partnerships whose management committee or executive
committee has responsibility for control, this means only a member of
such committee but, if no such committee exists, this means each of the
general partners.
(n) Offer means a response submitted by an offeror to an FDIC
solicitation. For outside counsel services, ``offer'' means the
application submitted by the law firm to the FDIC.
(o) Offeror means a company which submits an offer in response to a
solicitation.
(p) Pattern or practice of defalcation means two or more instances
in which:
(1) A loan or advance from an insured depository institution is or
has been delinquent for ninety (90) or more days as to payment of
principal, interest, or a combination thereof and there remains a legal
obligation to pay an amount in excess of $50,000; or
(2) A loan or advance from an insured depository institution where
there has been a failure to comply with the terms to such an extent
that the collateral securing the loan or advance was foreclosed upon,
resulting in a loss in excess of $50,000 to the insured depository
institution.
(q) Person means a management official of a company, or any partner
or employee of the company who is performing or is proposed to perform
services pursuant to an FDIC contract.
(r) RTC means the Resolution Trust Corporation in any of its
capacities.
(s) Solicitation means a document sent to prospective offerors that
requests either quotations or offers to provide the services specified
therein.
(t) Substantial loss to Federal deposit insurance funds means:
(1) A loan or advance from an insured depository institution, which
is now owed to the FDIC, RTC, FSLIC or their successors, or any Federal
deposit insurance fund, that is or has been delinquent for ninety (90)
or more days as to payment of principal, interest, or a combination
thereof and on which there remains a legal obligation to pay an amount
in excess of $50,000; or
(2) An obligation to pay an outstanding, unsatisfied, final
judgment in excess of $50,000 in favor of any Federal deposit insurance
fund, the FDIC, RTC, FSLIC, or their successors; or
(3) A nonrecourse loan, advance, or extension of credit in excess
of $50,000 made to an insider from an insured depository institution
that the insider, acting alone or in concert with others, knew or
should have known was an unsafe and unsound action of the insured
depository institution or its management; or
(4) A loan or advance from an insured depository institution which
is now owed to the FDIC, RTC, FSLIC or their successors, or any Federal
deposit insurance fund, where there has been a failure to comply with
the terms to such an extent that the collateral securing the loan or
advance was foreclosed upon, resulting in a loss in excess of $50,000.
Sec. 366.3 Qualification of contractors.
(a) Responsibility. (1) The General Counsel of the FDIC shall
address conflicts of interest relating to contractors for outside
counsel services engaged by the FDIC's Legal Division. The General
Counsel may delegate authority to one or more individuals to address
conflicts of interest which arise under this part. Such delegations
must be in writing and may not be redelegated.
(2) The Chairman of the Board of Directors of the FDIC will appoint
a Contractor Fitness and Integrity Compliance Officer, who shall
address conflicts of interest involving contractors other than those
providing outside counsel services for the Legal Division. The
Contractor Fitness and Integrity Compliance Officer may delegate
authority to one or more individuals to address conflicts of interest
which arise under this part. Such delegations must be in writing and
may not be redelegated.
(b) Qualification for service on behalf of the FDIC. The FDIC shall
not permit any person or company to enter into any contract with the
FDIC or to perform any service on behalf of the FDIC pursuant to any
such contract if that person or company:
(1) Has been convicted of any felony;
(2) Has been removed from, or prohibited from participating in the
affairs of, any insured depository institution pursuant to any final
enforcement action by any appropriate Federal banking agency;
(3) Has demonstrated a pattern or practice of defalcation;
(4) Has caused a substantial loss to Federal deposit insurance
funds; or
(5) Has a conflict of interest which has not been resolved or
waived by the FDIC.
Sec. 366.4 Disqualification of contractors.
(a) Disqualifying factors in existence prior to submission of an
offer. Offerors who have any of the factors identified in Sec. 366.3(b)
(1) through (4) in existence prior to submission of an offer are
disqualified. Such offerors are prohibited from entering into contracts
with the FDIC or performing services on behalf of the FDIC.
(b) Addressing disqualifying factors that arise after submission of
an offer but prior to award. (1) If, after submitting its offer, but
prior to contract award, an offeror discovers that its company, or any
person in the company, has a disqualifying factor identified in
Sec. 366.3(b) (1) through (4), the offeror must so notify the FDIC in
writing within ten (10) days of discovery of the disqualifying factor.
(2) Offerors that are disqualified from providing services to the
FDIC because of the existence of factors identified in Sec. 366.3(b)
(1) through (4) are prohibited from entering into contracts with the
FDIC or performing services on behalf of the FDIC.
(c) Addressing disqualifying factors that arise after contract
award. All contractors are required to notify the FDIC in writing
within 10 days after discovering that their company has a disqualifying
factor, as listed at Sec. 366.3(b) (1) through (4). Such notification
shall contain a detailed description of the specific condition and
state how the contractor intends to resolve such condition. The
Contractor Fitness and Integrity Compliance Officer, or a designee, or
the General Counsel, or a designee, shall notify the contractor in
writing of the actions, if any, which the contractor must take in order
to eliminate the disqualifying factor. Such corrective actions must be
completed by the contractor not later than 30 days after notification
by the FDIC unless the Contractor Fitness and Integrity Compliance
Officer or the General Counsel, at his or her sole discretion,
determines that it will be in the best interest of the FDIC to grant
the contractor a longer period in which to complete such action.
(d) Reconsideration of determination. Decisions issued by the
Contractor Fitness and Integrity Compliance Officer, or a designee or
the General Counsel, or a designee, may be reconsidered upon
application by the affected party(ies) to the deciding official. Such
requests must be in writing and contain the bases for the request.
Sec. 366.5 Contractor conflicts of interest and ethical
responsibilities.
(a) General. The FDIC's preference is to award contracts which do
not have associated conflicts of interest. Therefore, as a general
rule, in order to minimize the administrative burden of reviewing all
potential conflicts of interest, the FDIC will not actively solicit
offers from companies which the FDIC knows have one or more conflicts
of interest associated with the proposed contract. Neither a person nor
a company which has a conflict of interest will be permitted to enter
into any contract with the FDIC or to perform any service on behalf of
the FDIC pursuant to any such contract unless that conflict of interest
is resolved or waived by the FDIC. The following are examples of
conflicts of interest:
(1) A company, or any of its management officials or affiliated
business entities, or any management officials of those affiliated
business entities are, or have been insiders of an insured depository
institution for which the FDIC or the RTC has been appointed as
receiver, and the proposed contract contemplates services related to
the assets of that institution.
(2) A company was awarded a contract to review assets acquired by
the FDIC and to develop a plan of action for disposing of those assets.
To allow the contractor to bid on the subsequent solicitation
concerning the disposition of those assets, or to assist another
company in the preparation of a bid, would provide the contractor or
such other company with an unfair competitive advantage and would
constitute a conflict of interest.
(3) A company's affiliated business entity, or any management
official of that affiliated business entity, has caused a substantial
loss to Federal deposit insurance funds.
(b) Addressing conflicts of interest in existence prior to
submission of an offer--(1) Offerors of legal services. An offeror of
legal services that has a conflict of interest may, with its offer,
request resolution or waiver of such conflict of interest. The General
Counsel, or a designee, at his or her sole discretion, may waive the
conflict of interest or enter into a written agreement with the offeror
which will resolve the conflict of interest for purposes of the
specific contract.
(2) Offerors of all other types of services. (i) In all other
cases, an offeror that has a conflict of interest may, with its offer,
request resolution or waiver of such conflict of interest. The
Contractor Fitness and Integrity Compliance Officer, or a designee, at
his or her sole discretion, may waive the conflict of interest or enter
into a written agreement with the offeror which will resolve the
conflict of interest for purposes of the specific contract.
(ii) Waivers or resolutions of conflicts of interest will only be
considered when the FDIC determines, at its sole discretion, that the
offer is the most advantageous of all received.
(iii) In very limited circumstances a company may request a pre-bid
review of a conflict of interest. The request shall be in writing, and
shall describe in detail the conflict of interest and a recommended
resolution. The FDIC will perform a pre-bid review when it determines,
at its sole discretion, that the participation of that company in the
bidding process is necessary to ensure adequate competition.
(c) Addressing conflicts of interest arising after submission of an
offer but prior to award--(1) Offerors of legal services. If, after
submitting its offer, but prior to contract award, an offeror of legal
services discovers that its company, or any person in the company has a
conflict of interest, it must so notify the FDIC in writing within ten
(10) days of discovery of the conflict of interest. The offeror may
include with such notification a request for resolution or waiver of
such conflict of interest. The General Counsel, or a designee, at his
or her sole discretion, may waive the conflict of interest or enter
into a written agreement with the offeror which will resolve the
conflict of interest for purposes of the specific contract.
(2) Offerors of all other types of services. (i) If, after
submitting its offer, but prior to contract award, an offeror discovers
that its company, or any person in the company has a conflict of
interest, it must so notify the FDIC in writing within ten (10) days of
discovery of the conflict of interest. The offeror may include with
such notification a request for resolution or waiver of such conflict
of interest. The Contractor Fitness and Integrity Compliance Officer,
or a designee, at his or her sole discretion, may waive the conflict of
interest or enter into a written agreement with the offeror which will
resolve the conflict of interest for purposes of the specific contract.
(ii) Waivers of conflicts of interest will only be considered if
the FDIC, at its sole discretion, determines that the offer is the most
advantageous of all received.
(d) Addressing conflicts of interest that arise after contract
award. All contractors are required to notify the FDIC in writing
within 10 days after discovering that their company has a conflict of
interest. Such notification shall contain a detailed description of the
conflict of interest and state how the contractor intends to resolve
such condition. The Contractor Fitness and Integrity Compliance
Officer, or a designee or the General Counsel, or a designee, shall
notify the contractor in writing of his or her finding as to whether
the contractor is still qualified to continue performing under the
contract with the FDIC, the basis for such determination, and, when
applicable, a description of the actions which the contractor must take
in order to resolve the conflict of interest. Such corrective actions
must be completed by the contractor not later than 30 days after
notification by the FDIC unless the Contractor Fitness and Integrity
Compliance Officer or the General Counsel, at his or her sole
discretion, determines that it will be in the best interest of the FDIC
to grant the contractor a longer period in which to complete such
action.
(e) Reconsideration of determination. Decisions issued by the
Contractor Fitness and Integrity Compliance Officer, or a designee or
the General Counsel, or a designee, may be reconsidered upon
application by the affected party(ies) to the deciding official. Such
requests must be in writing and contain the bases for the request.
Sec. 366.6 Information required to be submitted.
(a) Initial submission. Every offer submitted to the FDIC by any
company shall include the following, in a format to be provided by the
FDIC in the solicitation:
(1) Certifications that the company or any person in the company,
is not disqualified from service on behalf of the FDIC because of the
existence of any of the factors identified in Sec. 366.3(b) (1) through
(4), or conflicts of interest as defined in Sec. 366.2(d) (1) through
(3), subject to the contractor's request for resolution or waiver of a
conflict of interest as described in Sec. 366.5;
(2) A list and description of any instance during the ten (10)
years preceding the submission of the offer in which the company, or
any person in the company, or any company under such person's control
defaulted on a material obligation to any insured depository
institution; and
(3) Any other information which the FDIC may deem appropriate.
(b) Subsequent submissions. (1) No offer submitted to the FDIC may
be accepted unless the offeror agrees that no person will be employed,
directly or indirectly, by the offeror to work on any contract with the
FDIC unless the information required in paragraph (a) of this section
regarding such person is submitted to the FDIC and the FDIC does not
disapprove of the direct or indirect employment of that person.
(2) During the term of any contract, contractors shall submit the
information described in paragraph (a) of this section at any time that
the FDIC so requests.
(c) Failure to provide information. Any contractor who fails to
provide any information described in this part will not be eligible for
the award of an FDIC contract or be qualified to contract with the
FDIC.
Sec. 366.7 Confidentiality of information.
(a) Contractors are prohibited from:
(1) Disclosing confidential information to anyone except as
required to perform the contractor's obligations pursuant to the
contract; or
(2) Using or allowing the use of any confidential information to
further any private interest other than as contemplated by the
contract.
(b) Contractors shall take appropriate measures to ensure the
confidentiality of confidential information and to prevent its
disclosure and inappropriate use.
Sec. 366.8 Abrogation of contracts.
(a) Circumstances permitting abrogation of contracts. The FDIC may
rescind or terminate any contract with a contractor who:
(1) Fails to disclose a material fact to the FDIC;
(2) Would not be qualified under this regulation to provide
services to, receive fees from, or contract with the FDIC;
(3) Has been subject to a final enforcement action by any Federal
banking agency; or
(4) Fails to take the actions required by the FDIC to resolve a
conflict of interest.
(b) Liability for rescission or termination. The FDIC may seek its
actual, direct, and consequential damages from a contractor whose
actions were the basis for rescission or termination of a contract
between the FDIC and the contractor. This right to terminate or rescind
and these remedies are cumulative and in addition to any other remedies
or rights the FDIC may have under the terms of the contract, at law, or
otherwise.
Sec. 366.9 Finality of determination.
Any determination made by the FDIC pursuant to this part shall be
at the FDIC's sole discretion and shall not be subject to further
review.
By Order of the Board of Directors.
Dated at Washington, D.C. this 14th day of June, 1994.
Federal Deposit Insurance Corporation
Leneta G. Gregorie,
Acting Assistant Executive Secretary.
[FR Doc. 94-15103 Filed 6-23-94; 8:45 am]
BILLING CODE 6714-01-P
