[Federal Register Volume 61, Number 48 (Monday, March 11, 1996)]
[Rules and Regulations]
[Pages 9590-9599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5254]
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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: Interim final rule.
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SUMMARY: The Board of Directors of the Federal Deposit Insurance
Corporation (FDIC or Corporation), with the concurrence of the Office
of Government Ethics (OGE), is adopting an interim final rule
implementing certain provisions of section 19 of the Resolution Trust
Corporation Completion Act (the Completion Act) and soliciting
comments. Section 19 of the Completion Act amended section 12 of the
Federal Deposit Insurance Act (FDI Act) and requires the Board of
Directors to prescribe regulations to ensure that contractors meet
minimum standards of competence, experience, integrity and fitness, and
requires that these regulations establish prohibitions on the
Corporation's ability to contract with or have certain entities provide
services to the FDIC. Section 19 of the Completion Act also requires
that the Board of Directors prescribe regulations governing conflicts
of interest, ethical responsibilities, and the use of confidential
information for those independent contractors who are not deemed under
the FDI Act, as amended, to be employees of the Corporation for
purposes of Title 18 of the United States Code. Pursuant to the
authority granted to it under the Completion Act, the Board of
Directors is making the regulations required under section 19 of the
Completion Act applicable to any FDIC contracts for services and has
combined the required regulations in the interim final rule.
The Board determined that combining the prescribed regulations into
one rule would provide the most consistent treatment of contractors and
reduce confusion in the application of the regulations.
DATES: Effective date. April 10, 1996.
Comment period date. Comments must be received on or before May 10,
1996.
ADDRESSES: Send comments to Jerry L. Langley, Executive Secretary,
FDIC, 550 17th Street, NW, Washington, DC 20429. Comments may be hand-
delivered to room 400, 1776 F Street, NW, Washington, DC 20429 on
business days between 8:30 a.m. and 5:00 p.m. [FAX number: (202) 898-
3604; Internet: [email protected]]. Comments will be available for
inspection and photocopying at 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: James T. Lantelme, Assistant General
Counsel, Regional Affairs Section, Legal Division, (202) 736-0120; or
Richard M. Handy, Ethics Program Manager, Office of the Executive
Secretary, (202) 898-7271, both at the FDIC.
SUPPLEMENTARY INFORMATION:
I. Background
On June 24, 1994, the Corporation published for comment a proposed
rule applicable to independent contractors designed to establish
standards governing conflicts of interest, ethical responsibilities,
and the use of confidential information and procedures for ensuring
that independent contractors meet minimum standards of competence,
experience, integrity, and fitness (59 FR 32661-32668). The proposed
rule was published in response to the requirements of Section 19(a) of
the Resolution Trust Corporation Completion Act, codified at 12 U.S.C.
1822(f), which requires that the Board of Directors prescribe
regulations establishing procedures for ensuring that any individual
who is performing any function or service on behalf of the Corporation
meets minimum standards of competence, experience, integrity, and
fitness and prohibiting any person who does not meet such standards
from entering into contracts for services with or performing services
on behalf of the Corporation. The Completion Act also requires the
Board of Directors, with the concurrence of OGE, to prescribe
regulations governing conflicts of interest, ethical responsibilities,
and the use of confidential information. The proposed rule prescribed a
60-day comment period and invited comments from all interested parties.
The Corporation received six comment letters and, after careful
consideration of each comment, has made appropriate modifications to
the rule. In addition, OGE requested numerous changes which resulted in
the reorganization and modification of some provisions. The Board
determined that an interim final rule would be appropriate in order to
allow interested parties to comment on the revised rule while providing
for the prompt implementation of the rule to satisfy concerns relating
to the merger of the RTC into the FDIC. The Corporation, with the
concurrence of OGE, is now publishing, as an interim final rule, the
Contractor Conflicts of Interest rule, to be codified in new part 366
of 12 CFR chapter III.
Pursuant to the Completion Act, OGE is providing its concurrence to
those provisions of the interim final rule which govern conflicts of
interest, ethical responsibilities, and the use of confidential
information as applicable to independent contractors which are not
deemed under 12 U.S.C. 1822(f)(1)(B) to be employees of the Corporation
for purposes of Title 18 of the United States Code. Contractors who are
deemed under 12 U.S.C. 1822(f)(1)(B) to be employees of the
Corporation, are subject, in addition to the interim final rule, to
Title 18 of the United States Code; the Standards of Ethical Conduct
for Employees of the Executive Branch (5 CFR part 2635); the
Supplemental Standards of Ethical Conduct for Employees of the Federal
Deposit Insurance Corporation (5 CFR part 3201); the Executive Branch
Financial Disclosure, Qualified Trusts, and Certificates of Divestiture
regulations (5 CFR part 2634); and the Supplemental Financial
Disclosure Requirements for Employees of the Federal Deposit Insurance
Corporation (5 CFR part 3202).
II. Summary of the Comments
The Corporation received comments from four law firms and two
corporations. The comments from the two corporations involved concerns
over the administrative burden that might be imposed through compliance
with the reporting requirements under Sec. 366.6 of the proposed rule.
The comments from the law firms raised a variety of issues including
the potential effects of state privacy laws, changes in the treatment
of law firms, concerns over threshold amount in the definition of
default on a material obligation, the impact of the rule on the use of
[[Page 9591]]
subsidiaries, and the potential for former insiders of failed
institutions to be involved in the liquidation of other failed
institutions.
III. Analysis of the Comments and Changes to the Rule
Section 366.1 Authority, Purpose and Scope
Authority. Section 366.1(a) of the proposed rule was modified by
adding section 12(f)(4) of the Federal Deposit Insurance Act to the
list of authorities.
Purpose. Section 366.1(b) of the proposed rule was simplified by
dividing the provision into its component parts and changing its
language to be consistent with language used elsewhere in the rule.
Scope. One of the law firm commenters suggested that the scope of
the rule be limited by adding a provision which would provide that the
existing policies concerning outside counsel conflicts of interest
remain unchanged after adoption of the rule. The Board declined to
modify the scope of the rule with regard to law firms. Section 19(a) of
the Completion Act, codified at 12 U.S.C. 1822(f), does not provide an
exception to its application for legal services contracts. To date, the
FDIC's Legal Division has applied the Resolution Trust Corporation's
(RTC) rule, 12 CFR part 1606, entitled Qualification of, Ethical
Standards for, and Restrictions on the Use of Confidential Information
by Independent Contractors (part 1606), in its contract relationships
with law firms. Part 1606 was promulgated by the RTC in response to
requirements imposed upon it by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA). The FDIC has
substantially identical restrictions on the use of contractors imposed
by the Completion Act. Thus, it is not expected that the FDIC's
relationships with the law firms with which it contracts will
substantially change after the promulgation of the interim final rule.
However, in order to better clarify the scope of the rule,
Sec. 366.1(c)(1) of the proposed rule was reorganized and revised in
order to (1) eliminate unnecessary language and simplify the provision,
(2) clearly set forth that the rule is applicable to law firms, (3)
clarify the application of the rule to subcontractors of FDIC
contractors, and (4) at the request of the Board, remove Corporate
leases of real property from coverage under the rule.
Section 366.1(c)(2) was not changed.
Resolution Trust Corporation. Section 366.1(d) was simplified by
eliminating unnecessary language.
Previous policies. Section 366.1(e) was eliminated as being
unnecessary. Effective on April 10, 1996, 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,
at 58 FR 28866.
Section 366.2 Definitions
Affiliated business entity. Section 366.2(a), the definition of
affiliated business entity, was modified at the request of OGE. The
Office of Government Ethics believed that the discretionary aspect of
the definition set forth in the proposed rule was too subjective and
that FDIC concerns as to whether various types of relationships
constitute affiliations are adequately addressed through the use of the
defined term control in the affiliated business entity definition.
Under the definition of control, the FDIC is able to determine that an
entity is an affiliated business entity when such entity has the
ability to exercise a controlling influence over a company's management
and policies. Additionally, OGE suggested the deletion of the statement
concerning when a subfranchiser would not be considered to be an
affiliated business entity of its master franchiser on the basis that
the remaining definition adequately addresses that issue.
Company. The definition of company, as set forth in Sec. 366.2(b)
of the proposed rule, was modified through the elimination of the term
individual from such definition. The Office of Government Ethics
disagreed with the proposed inclusion of the term individual since such
term was not consistent with the remaining business enterprises listed
under the definition and was contrary to the common meaning of such
term. In making such change, it was determined to be unnecessary to
separately define the term individual since its meaning is commonly
understood. Revision of the definition of company also necessitated
revision of the definitions of contractor, management official, and
person.
Contractor. The definition of contractor was changed due to the
impact of changes to other definitions. In Sec. 366.2(e) of the
proposed rule, a two-part definition was provided. Section 366.2(e)(1)
provided that a contractor was a company which had submitted an offer
to, or had a contractual arrangement with, the FDIC to perform
services. Since the definition of company has been modified to exclude
the term individual, the proposed rule was further modified by
replacing the term company with person at Sec. 366.2(d) of the interim
final rule in order to include individuals in the coverage of the
definition of contractor. The second part of the definition of
contractor, found at Sec. 366.2(e)(2) of the proposed rule, involved
subcontracting relationships. Section 366.2(o) of the interim final
rule provides a separate definition of the term subcontractor.
Management official. The definition of the term management
official, as set forth in Sec. 366.2(m) of the proposed rule, was
modified at OGE's request to provide greater guidance in the use of
such term. In the proposed rule, management official was defined to
mean an individual who controls a company. In Sec. 366.2(i) of the
interim final rule, management official is more specifically defined as
a shareholder, employee, or partner who controls a company and any
individual who directs the day-to-day operations of a company. For
partnerships, all general partners are considered management officials,
except when a partnership has a management or executive committee, in
which case the members of such committees are considered management
officials.
Person. The definition of person, found at Sec. 366.2(q) of the
proposed rule, was changed to be more compatible with its common
meaning. One of the law firm commenters objected to the scope of the
information that was required to be submitted by law firm employees
under Sec. 366.6(a) of the proposed rule due to the mistaken belief
that a more common definition of the word person was applicable. Since
the definition set forth in the proposed rule is inconsistent with the
common meaning of person and would likely cause confusion among
contractors and those FDIC employees charged with enforcement of the
rule, its definition was changed in the interim final rule to include
an individual or company. Such change satisfied similar concerns which
had been raised by OGE.
Confidential information. The definition of confidential
information, found at Sec. 366.2(c) of the proposed rule, was moved to
Sec. 366.8(c) in the interim final rule and simplified by eliminating
unnecessary language.
Conflict of interest. The definition of conflict of interest, found
at Sec. 366.2(d) of the proposed rule, was changed at the request of
OGE and one of the corporate commenters in order to provide a more
narrow definition and eliminate redundant language.
Section 366.2(d)(1) of the proposed rule had two subparts. The
first subpart, concerning actual adverse impact on a contractor's
ability to impartially provide services, was determined to be
[[Page 9592]]
included within the second subpart, which set forth that a conflict of
interest would exist where a reasonable individual with knowledge of
the relevant facts would question the contractor's ability to
impartially provide services to the FDIC. Therefore, the first subpart
was eliminated in the interim final rule and, with language changes to
accommodate changes made to other definitions, the second subpart was
rewritten to simplify the standard.
Sections 366.2(d)(2) and (4) of the proposed rule were combined in
Sec. 366.2(c)(4) of the interim final rule and their breadth reduced.
Under the revised provision, the FDIC is able to determine that facts
exist which would provide a contractor with an unfair competitive
advantage which could benefit the contractor or any person with whom
the contractor has or is likely to have a personal or business
relationship. Such situations are likely to arise in situations where
(1) a contractor or a person associated with the contractor intends to
purchase assets held by the FDIC which were managed by the contractor;
(2) information could be obtained by a contractor through the
performance of an FDIC contract which would not be available to other
bidders to a subsequent contract and which information could provide
the contractor or a person associated with the contractor with an
unfair competitive advantage in the preparation of its bid; and (3)
confidential information could be obtained through the performance of
an FDIC contract which would provide the contractor, or a person
associated with the contractor, with information which could be
utilized to obtain an advantage in the purchase of the securities of an
insured depository institution. Such situations are not exclusive. OGE
believed that the unintended advantage standard set forth in the
original provision was vague and contractors would be unable to provide
the requisite certifications for such standard. Additionally, the
discretionary standard set forth in Sec. 366.2(d)(4) of the proposed
rule was more narrowly tailored, yet, for the most part, is retained in
Sec. 366.2(c)(4) of the interim final rule and allows the FDIC to
review the myriad of possible factual scenarios to determine if
performance under an FDIC contract has created a situation which would
reduce competition in the marketplace.
Section 366.2(d)(3) of the proposed rule, which specifically
provides that a conflict of interest exists where a contractor is an
adverse party to the FDIC in a lawsuit, was retained in
Sec. 366.2(c)(2) of the interim final rule and the $50,000 threshold
was removed. OGE questioned the need for such provision since such
provision is a subset of the general standard set forth in
Sec. 366.2(c)(1) of the interim final rule. However, the FDIC has
experienced situations in which contractors have certified that they
have no conflicts of interest under current FDIC policies while being
an adversary to the FDIC in a lawsuit. The rationale most often
provided by contractors to justify their contention that there was no
conflict was that the litigation involved matters or insured depository
institutions which were unrelated to the contracts under consideration.
In order to avoid such problem, the provision has been retained in the
interim final rule.
Section 366.2(c)(3) of the interim final rule was added at the
request of the Board in order to clearly state that a conflict of
interest exists where a contractor has been suspended or debarred from
contracting with other Federal entities. In planning the merger of the
RTC into the FDIC, it was determined that it was appropriate for the
FDIC to adopt a debarment program similar to that established by the
RTC. To aid in properly administering such program, it was important
that consideration of such program be included in the interim final
rule.
Control. Section 366.2(f)(1) of the proposed rule was not changed
in the interim final rule, but was renumbered as Sec. 366.2(e). The
Office of Government Ethics believed that Sec. 366.2(f)(2) of the
proposed rule was redundant and requested that it be deleted. In
response, the FDIC has dropped that proposed paragraph from this
interim final rule.
Default on a material obligation. At the suggestion of OGE,
Sec. 366.2(g) of the proposed rule was modified in Sec. 366.2(f) of the
interim final rule by clarifying FDIC's intent that if a qualifying
default had ever occurred, it would be covered and by specifying that
the determination of whether the $50,000 threshold amount had been met
to qualify a default as a default on a material obligation would be
considered beginning on the 90th day after delinquency and thereafter.
One of the law firm commenters requested that the $50,000 threshold
amount be raised due to possible punitive effects of the rule on honest
and hard working persons who could be precluded from providing services
to the FDIC as contractors due to circumstances beyond their control.
The Board does not agree with the commenter's contention. The FDIC, in
its ``Statement of Policy on Contracting with Outside Firms'', which
was published in the Federal Register on May 17, 1993 (58 FR 28866),
utilized a similar $50,000 threshold amount and did not experience a
lack of contractors willing to perform services for the FDIC.
Additionally, the scope of the definition is limited to defaults on
loans or advances from insured depository institutions, the
institutions for which the FDIC has responsibility for providing
deposit insurance and resolution in the event of a failure, and it
would be inappropriate for the FDIC to contract with entities that have
significantly contributed to losses incurred by such institutions.
Federal banking agency. The definition of Federal banking agency
found at Sec. 366.2(h) of the proposed rule was deleted. Other changes
to the rule made the definition unnecessary.
The definition of Federal deposit insurance fund, found at
Sec. 366.2(i) of the proposed rule, was combined with the definition of
substantial loss to Federal deposit insurance funds, found at
Sec. 366.2(t) of the proposed rule, and the revised rule set forth as
the definition of substantial loss to Federal deposit insurance funds,
found at Sec. 366.2(o) of the interim final rule.
The definition of FDIC found at Sec. 366.2(j) of the proposed rule
was modified to include the statutory citations for the authority of
the Corporation to act as conservator and operator of a bridge bank.
The revised definition is found at Sec. 366.2(g) of the interim final
rule.
The definition of insider found at Sec. 366.2(k) of the proposed
rule was deleted. Other changes to the rule made the definition
unnecessary.
The definition of insured depository institution found at
Sec. 366.2(l) of the proposed rule was not changed (see Sec. 366.2(h)
of the interim final rule).
The definition of management official found at 366.2(m) of the
proposed rule was not changed (see 366.2(i) of the interim final rule).
The first sentence in the definition of offer, found at
Sec. 366.2(n) of the proposed rule, was simplified and an accommodation
made for the removal of the definition of offeror. In the proposed
version, an offer was defined to be a response submitted by an offeror
to an FDIC solicitation. In the interim final rule, an offer is defined
to be a proposal to provide services to the FDIC.
The definition of offeror found at Sec. 366.2(o) of the proposed
rule was deleted due to changes in the rule which made the use of such
term unnecessary.
The definition of pattern or practice of defalcation found in
Sec. 366.2(p) of the proposed rule was not changed but the defined term
was changed to pattern or practice of defalcation regarding
[[Page 9593]]
obligations to better track the statutory language. See Sec. 366.2 (k).
The definition of RTC found in Sec. 366.2(r) of the proposed rule
was not changed (see Sec. 366.2(m)).
The definition of solicitation found at Sec. 366.2(s) of the
proposed rule was deleted due to changes in the rule which made the use
of such term unnecessary.
The definition of subcontractor found at Sec. 366.2(n) of the
interim final rule was added to accommodate the suggestion of one of
the commenters for greater clarity in the application of the rule to
subcontractors.
The definition of substantial loss to Federal deposit insurance
funds found at 366.2(t) of the proposed rule was changed to delete
366.2(t)(3), concerning nonrecourse loans made to insiders from an
insured depository institution. Persons causing a loss due to such
loans will otherwise be barred under the remaining definitions of
substantial loss to Federal deposit insurance funds and the other
disqualifying conditions found at 366.4(a) of the interim final rule.
The revised definition is found at 366.2(o) of the interim final rule.
Section 366.3 Qualification of Contractors
Since publication of the proposed rule, the FDIC has designated the
FDIC Executive Secretary as the appropriate official to handle the
matters which had been designated for the Contractor Fitness and
Integrity Compliance Officer as referenced in Sec. 366.3(a)(2) of the
proposed rule. Additionally, the provisions relating to the officials
responsible for administration of the rule were simplified and provided
with their own distinct section. In Sec. 366.3 of the interim final
rule, entitled appropriate officials, the General Counsel and Executive
Secretary, or their designees, are assigned responsibility for the
administration of the rule with regard to law firms and other
contractors, respectively. Section 366.3(b) of the proposed rule was
moved to 366.4 of the interim final rule.
Section 366.4 Disqualification of Contractors
At the request of OGE, Sec. 366.3(b) of the proposed rule, entitled
Qualification for service on behalf of the FDIC, was moved to
Sec. 366.4(a) of the interim final rule and Sec. 366.3(b)(5) was
incorporated in Sec. 366.5 of the interim final rule. Section 366.4 was
simplified by incorporating only the mandatory prohibitions on the use
of contractors which were imposed on the FDIC by Section 19(a) of the
Completion Act, 12 U.S.C. 1822(f)(4)(E). OGE believed separating the
mandatory provisions from the conflict of interest provisions would
decrease the possibility of confusion about the variant authority
pursuant to which the respective provisions were being promulgated and
the degree of discretion the FDIC may have with respect to issues
arising under the respective authorities. By distinguishing between the
mandatory prohibitions imposed by the Completion Act and conflicts of
interest generally, the certifications required to be made under
Sec. 366.6(a) of the interim final rule are more easily identified by
contractors thereby simplifying the certification process. The
separation of the mandatory bars from the conflict of interest
provisions facilitates differentiation between those provisions
requiring OGE concurrence and those not requiring such concurrence.
Section 366.4(a) and (b) of the proposed rule were consolidated and
simplified in Sec. 366.4(b) of the interim final rule. The terms
offeror, person, and company were eliminated and replaced with the term
contractor and unnecessary language was eliminated. Additionally, in
order to avoid the significant administrative and contractual burdens
which would be imposed by awarding a contract to a disqualified
contractor, the 10 day requirement for reporting undisclosed
disqualifying conditions was refined to be the earlier of 10 days after
discovery or prior to award.
Section 366.4(c) of the proposed rule was simplified in of the
interim final rule. Additionally, Secs. 366.4(c)(2) and (3) of the
interim final rule were moved from Sec. 366.8 of the proposed rule in
order to provide greater clarity in the application of the provision.
The moved provisions, as revised, provide the FDIC with the option to
require that corrective action be taken by the contractor, to
immediately terminate any contracts with the contractor in default and
order a transfer of duties, or to declare any contracts with such
contractor in default and temporarily waive such default in order to
protect the FDIC's interests in the orderly transition of matters to a
new contractor.
Section 366.4(d) of the proposed rule was revised to provide for
the possibility of a secondary review process apart from the
appropriate official who originally rendered such decision. The
secondary review would be based upon written application made to the
Chairman of the FDIC, or the Chairman's designee.
Section 366.5 Contractor Conflicts of Interest and Ethical
Responsibilities
One of the law firm commenters was concerned that the example set
forth in Sec. 366.5(a)(1) of the proposed rule could be construed as
suggesting that an insider of an insured depository institution for
which the FDIC or RTC has been appointed receiver would not have a
conflict of interest with respect to a contract which involves services
to an unrelated institution. The issue of whether a conflict of
interest exists due to a person's former association with a failed
institution would have to be determined on a case-by-case basis after
review of the relationship of such person to the failed institution.
However, in order to avoid inappropriate application of the standard,
the examples were removed from the rule.
At the request of OGE, the first sentence in Sec. 366.5(a) of the
proposed rule was removed since it stated a matter which added no
substance to the rule. The remainder of the provision was restated more
succinctly and, as discussed above, the examples removed from the text.
The rule, as restated, provides that the FDIC will not award contracts
to contractors that have conflicts of interest associated with a
particular contract or permit contractors to continue performance under
existing contracts when such contractors have conflicts of interest,
unless such conflicts are eliminated by the contractor or are waived by
the appropriate FDIC official.
At the request of OGE, the standard of review for waiver requests
as provided in Sec. 366.5(b) and (c) of the proposed rule was
consolidated in Sec. 366.5(b) of the interim final rule and revised to
clearly state that waivers will only be granted when the interests of
the FDIC in the contractor's participation outweigh the concern that a
reasonable person may question the integrity of the FDIC's operations.
The standard set forth in the proposed rule provided that a waiver
would be granted pursuant to the discretion of the appropriate
official. The Office of Government Ethics stated that, in the interests
of fairness to contractors, a discernable standard of review should be
provided in the rule to be applied to all waiver requests.
The Office of Government Ethics also requested that Sec. 366.5(b)
and (c) of the proposed rule, which provided separate procedures for
pre- and post-offer requests for review of conflicts, be consolidated
into one time-frame. Section 366.5(c) of the interim final rule
provides the consolidated provision.
[[Page 9594]]
The Office of Government Ethics requested that the separate
treatment of contractors for legal services versus other services as
provided in proposed Sec. 366.5(b), (c), and (d) be explained in the
preamble and consolidated in the text of the rule through the use of
one paragraph covering pre-bid requests for review of conflicts of
interest for contractors other than law firms and sole practitioner
lawyers. The interim final rule, in Sec. 366.5(c)(3), provides that
requests for pre-bid review of conflicts for contractors other than law
firms and sole practitioner attorneys will only be considered if the
participation of the contractor in the bidding process is necessary to
provide adequate competition. It is the FDIC's preference to do
business only with contractors which do not have conflicts of interest.
However, it is recognized that there may be situations in which there
are few qualified contractors and the participation of contractors
which have conflicts is important to encourage competition.
With regard to the different treatment accorded law firms and sole
practitioner lawyers in the conflict review process, the regulation
recognizes the additional responsibilities that are placed on law firms
and sole practitioner lawyers providing services to the FDIC and also
observes the separate contracting processes that exist in the Legal
Division for the selection and retention of contractors.
Specifically, in addition to the conflicts of interest requirements
imposed by this regulation, law firms and sole practitioner lawyers who
are providing services to the FDIC are required to follow applicable
provisions of their State Code of Professional Responsibility, the
Model Rules of Professional Conduct and additional requirements set
forth in the FDIC Legal Division's Guide for Outside Counsel and its
Statement of Policies Concerning Outside Counsel Conflicts of Interest.
Law firms and sole practitioner lawyers are also subject to a separate
contracting process due to the close fiduciary relationship that a law
firm or sole practitioner lawyer has when representing the FDIC. Law
firms and sole practitioner lawyers are required to submit to the Legal
Division an application to provide services which requires disclosure
of any conflicts of interest existing under the broader requirements
imposed upon lawyers. If the information submitted does not indicate
the existence of any conditions that would bar retention, the law firm
or sole practitioner lawyer is added to a list of available counsel.
The list of available counsel provides the primary source for
identifying lawyers available for engagement on specific legal matters
and, if so identified, additional disclosure and review are required
concerning case-specific qualification criteria. Counsel are also
required to enter into a Legal Services Agreement with the Legal
Division which governs all engagements with the FDIC. The selection and
retention process for law firms and sole practitioner lawyers is
substantially different from the process utilized for other
contractors, which typically includes the development of a procurement
requisition, the preparation and issuance of a request for proposals,
and the subsequent evaluation of bids or proposals received. The
establishment of a separate procedure under Sec. 366.5 for resolution
or waiver of conflicts of interest for law firms and sole practitioner
lawyers is an acknowledgement of relevant differences in type of
services and the differing relationship that lawyers have with the FDIC
as their client.
Proposed Sec. 366.5(d) was also revised in the interim final rule
to include the remedies available to the FDIC in the event a conflict
of interest is discovered after contract award as was provided in
proposed Sec. 366.8(a).
Section 366.5(e) of the proposed rule was revised to provide for
the possibility of a secondary review process apart from the
appropriate official who originally rendered such decision. The
secondary review would be based upon written application made to the
Chairman of the FDIC, or the Chairman's designee. It also provides the
FDIC with the discretion to stay corrective or other actions ordered by
the appropriate official pending reconsideration of the decision.
Section 366.6 Information Required to be Submitted
At the request of OGE, in order to provide greater specificity to
contractors with respect to the scope of required certifications,
proposed Sec. 366.6(a) was modified to specifically identify the
Representations and Certifications Form to be submitted by all
contractors with every offer. Also, the provision was altered to assure
that FDIC would obtain the information the FDIC deems appropriate to
make a determination with respect to disqualifying conditions and
conflicts of interest. Additionally, the information to be included in
the Representations and Certifications Form was tailored in
Sec. 366.6(a)(1) to accommodate the changes in the structure of
Secs. 366.4 and 366.5 of the interim final rule and reduced, at the
request of one of the Corporate and law firm commenters to include only
the contractor; proposed Sec. 366.6(a)(2) was reworked to accommodate
the changes to the definitions and the required certifications reduced
to include only the contractor or any company under the contractor's
control; to accommodate the reductions in the certifications required
under Sec. 366.6(a)(1) and (2) of the proposed rule while not imposing
a significant paperwork collection on the contractor and the FDIC,
Sec. 366.6(a)(3) in the interim final rule was added which requires
that the contractor provide an agreement that it will not allow any
employee, agent, or subcontractor to work on an FDIC contract unless it
has first verified that such employee, agent, or subcontractor is not
subject to disqualifying conditions or otherwise has a conflict of
interest; and proposed Sec. 366.6(a)(3) was moved to Sec. 366.6(a)(4)
of the interim final rule and the scope of the other information which
can be requested narrowed to be dependent on the contract under
consideration.
One of the law firm commenters stated that the FDIC had acted
outside the scope of its authority in imposing the requirement in
proposed Sec. 366.6(a)(2) that a contractor provide a list and
description of any defaults to insured depository institutions for the
10-year period preceding the submission of an offer. The Board
disagrees with the commenter's contention. The Completion Act, at 12
U.S.C. 1822(f)(4)(C), requires the FDIC to obtain a list and
description of any default to an insured depository institution for the
5-year period preceding the submission of an offer to the FDIC and any
other information as the Board may prescribe by regulation. The Board
determined that since the Completion Act provisions were extracted from
FIRREA, which was promulgated in 1989, it was important that the FDIC
be informed as to whether a contractor or any company under the
contractor's control defaulted on a material obligation for the 10 year
period preceding the offer.
A law firm commenter expressed concern that the information
disclosure requirements contained in Sec. 366.6(a) of the proposed rule
might conflict with California state laws involving privacy rights.
However, the Completion Act, at 12 U.S.C. 1822(f)(4)(D), requires
certain information be collected by the contractor for persons to be
employed by a contractor to perform services under an FDIC contract.
One of the law firm commenters objected to the scope of the
disclosures to be made and was concerned that outside contractors of
law firms would be required to make significant
[[Page 9595]]
disclosures to the law firm in order for the law firm to continue to
use such entities and enter into contracts with the FDIC. Additionally,
both of the corporate commenter's objected to the scope of the
certifications to be obtained under the proposed rule as applied to
large diversified corporations and their employees since certifications
would need to be obtained from all affiliated business entities and the
employees of the contractor. Consideration to the commenters' concerns
was given in the revision of Sec. 366.6 of the proposed rule. In
Sec. 366.6(a) of the interim final rule, certifications regarding
disqualifying factors and conflicts of interest must be provided for
the contractor; a list of defaults must be provided for the contractor
and any company under the contractor's control; and the contractor must
agree that it will not allow any employee, agent, or subcontractor to
perform services under the FDIC contract unless it verifies that such
employee, agent, or subcontractor does not have a disqualifying
condition or a conflict of interest and has not defaulted on a material
obligation. The scope of the required certifications and disclosures
was thus limited to those entities which would be directly involved in
the performance of the FDIC contract or which are under the
contractor's control.
Section 366.6(b)(1) of the proposed rule was revised to reduce the
reporting and review burden placed upon contractors and the FDIC. In
the proposed rule, a contractor was required to obtain and submit
certifications for all employees who were to provide services on any
FDIC contract. Additionally, in Sec. 366.6(b)(2), the FDIC could
request the submission of such information at any time. In
Sec. 366.6(b) of the interim final rule, a contractor is required to
obtain verification of the lack of disqualifying conditions and
conflicts of interest for employees who will provide services on an
FDIC contract and to provide the FDIC with immediate notification if
the certifications provided in Sec. 366.6(a) were incorrect at the time
of submission or subsequently became incorrect.
At the request of OGE, Sec. 366.6(c) of the proposed rule was
simplified in the interim final rule and provides that a contractor
which fails to provide information may be determined by the FDIC to be
ineligible for the award of an FDIC contract or in default under an
existing contract with the FDIC.
The Board was concerned that the reduction in the disclosures
required to be submitted under the rule might provide an opportunity
for abuse by contractors. In order to aid the FDIC in obtaining
compliance with the rule, the proposed rule was modified through the
addition of Sec. 366.6(d) which requires contractors to retain the
records relied upon in making the requisite disclosures for three years
after the expiration or termination of the relevant contract and to
make such information available to the FDIC upon request.
The Board was also concerned unforeseeable circumstances might
require immediate contracting in order to protect the assets or
interests of the FDIC. In order to provide reasonable protection and
allow the FDIC to act promptly in order to protect its interests,
Sec. 366.6(e) was added which provides that, in the event of an
emergency, the FDIC may authorize delayed compliance with the rule.
Delayed compliance is allowed only when it is necessary to protect FDIC
personnel or property.
To clarify that, on a contract-by-contract basis, the FDIC may add
additional contractual conditions or limitations on a contractor,
Sec. 366.6(f) was added. Part 366 establishes the minimum standards as
required by the Completion Act and additional standards may be required
as the FDIC deems appropriate.
Section 366.7 Minimum Ethical Standards for Independent Contractors
Section 366.7 was added to the interim final rule to comply with
the portion of the Completion Act that requires the FDIC to establish
minimum ethical standards for contractors. Section 366.7(a) provides
that a contractor shall not improperly solicit favors, gifts, or other
items of monetary value; improperly use FDIC property; use its status
as an FDIC contractor for its benefit except as contemplated by the
contract; or make unauthorized promises or commitments on behalf of the
FDIC.
Section 366.7(b) and (c) identify potentially applicable criminal
provisions to contractors that solicit or accept bribes or make false
statements to the Government.
The penalties for violating the provisions of Sec. 366.7 are
provided in Sec. 366.7(d).
Section 366.8 Confidentiality of Information
Section 366.7 of the proposed rule was modified at Sec. 366.8 of
the interim final rule. Section 366.8(a) was added to provide a general
duty to be adhered to by contractors in protection of confidential
information.
Section 366.8(b) sets forth the penalties for the failure to
properly protect confidential information as required under
Sec. 366.8(a).
Section 366.8(c) defines confidential information as information
obtained from the FDIC or a third party in connection with an FDIC
contract but does not include information generally available to the
public provided such information was not made publicly available by the
contractor without appropriate authorization.
Section 366.9 Liability for Rescission or Termination
Section 366.8(a) of the proposed rule set forth that the FDIC could
rescind or terminate a contract with a contractor who violated the
requirements of part 366. The termination provision has been set forth
in each appropriate section of the interim final rule.
Section 366.8(b) of the proposed rule was revised to accommodate
the revised structure of the interim final rule and is now set forth in
Sec. 366.9.
Section 366.10 Finality of Determination
Section 366.9 of the proposed rule is now set forth at Sec. 366.10
of the interim final rule.
IV. Matters of Regulatory Procedure
Regulatory Flexibility Act
The Board of Directors has concluded that the interim final rule
will not impose a significant economic hardship on small institutions.
Therefore, the Board of Directors hereby certifies pursuant to section
605 of the Regulatory Flexibility Act (5 U.S.C. 605) that the interim
final rule will not have a significant economic impact on a substantial
number of small business entities within the meaning of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.).
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.). The collection pursuant to the proposed
rule was reviewed and approved by the Office of Management and Budget
(OMB) under control number 3064-0072. Any changes made to the
Representations and Certifications forms resulting from the
promulgation of this interim final rule will be submitted to OMB for
review and approval pursuant to the Paperwork Reduction Act.
List of Subjects in 12 CFR Part 366
Conflict of interests, Government contracts, Reporting and
recordkeeping requirements.
[[Page 9596]]
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, with the
concurrence of OGE, amends title 12, Chapter III of the Code of Federal
Regulations by adding part 366 to read as follows:
PART 366--CONTRACTOR CONFLICTS OF INTEREST
Sec.
366.1 Authority, purpose, and scope.
366.2 Definitions.
366.3 Appropriate officials.
366.4 Disqualification of contractors.
366.5 Contractor conflicts of interest.
366.6 Information required to be submitted.
366.7 Minimum ethical standards for independent contractors.
366.8 Confidentiality of information.
366.9 Liability for rescission or termination.
366.10 Finality of determination.
Authority: 12 U.S.C. 1819, 1822(f)(3) and (4).
Sec. 366.1 Authority, purpose, and scope.
(a) Authority. This part is adopted pursuant to section 12(f)(3)
and (4) of the Federal Deposit Insurance Act, 12 U.S.C. 1822(f)(3) and
(4), and the rule-making authority of the Federal Deposit Insurance
Corporation (FDIC) found at 12 U.S.C. 1819. Pursuant to those sections
and consistent with the goals and purposes of titles 18 and 41 of the
U.S. Code, the FDIC is promulgating regulations in this part applicable
to independent contractors governing conflicts of interest, ethical
responsibilities, and the use of confidential information. The
regulations in this part also establish procedures for ensuring that
independent contractors meet minimum standards of competence,
experience, integrity, and fitness. The FDIC will apply this part to
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 is in addition to,
and not in lieu of, any other statute or regulation which may apply to
such contractual activities. This part does not apply to the FDIC when
acting as a conservator of a failed financial institution or when
operating a bridge bank.
(b) Purpose. Consistent with the goals and purposes of titles 18
and 41 of the U.S. Code, this part seeks to establish:
(1) Minimum standards which govern conflicts of interest, ethical
responsibilities, and the use of confidential information by
contractors;
(2) Procedures to ensure that independent contractors meet minimum
standards of competence, experience, integrity, and fitness; and
(3) Official written guidance to contracting personnel who award
contracts for services and to contractors who bid on such contracts.
(c) Scope. (1) (i) This part applies to:
(A) Contractors, including law firms and other independent
contractors, that are not deemed, under 12 U.S.C. 1822(f)(1)(B), to be
employees of the FDIC, which submit offers to provide services to the
FDIC or which enter into contracts for services with the FDIC; and
(B) Subcontractors which enter into contracts to perform services
under a proposed or existing contract with the FDIC.
(ii) Contractors that are deemed under 12 U.S.C. 1822(f)(1)(B) to
be employees of the Corporation are subject, in addition to this part,
to Title 18 of the United States Code; the Standards of Ethical Conduct
for Employees of the Executive Branch (5 CFR part 2635); the
Supplemental Standards of Ethical Conduct for Employees of the Federal
Deposit Insurance Corporation (5 CFR part 3201); the Executive Branch
Financial Disclosure, Qualified Trusts, and Certificates of Divestiture
regulations (5 CFR part 2634); and the Supplemental Financial
Disclosure Requirements for Employees of the Federal Deposit Insurance
Corporation (5 CFR part 3202).
(2) For all contractors subject to this part, the FDIC will apply
this part to contracts which are entered into between the contractors
and the FDIC on or after April 10, 1996. In addition, this part applies
to contracts between contractors subject to this part and the FDIC
which exist on April 10, 1996 for which a contractual action, such as a
modification, extension, or exercise of an option, takes place on or
after April 10, 1996.
(d) Resolution Trust Corporation transition. This part shall apply
to all RTC contractors that provide services to the FDIC after the
RTC's termination which occurred, by statute, December 31, 1995.
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.
(b) Company means any corporation, firm, partnership, society,
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, or any
other organization or institution, 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) Conflict of interest means a situation in which:
(1) A contractor; any management officials or affiliated business
entities of a contractor; or any employees, agents, or subcontractors
of a contractor who will perform services under a proposed or existing
contract with the FDIC, has one or more personal, business, or
financial interests or relationships which would cause a reasonable
individual with knowledge of the relevant facts to question the
integrity or impartiality of those who are or will be acting under a
proposed or existing FDIC contract; or
(2) A contractor; any management officials or affiliated business
entities of a contractor; or any employees, agents, or subcontractors
of a contractor who will perform services under a proposed or existing
contract with the FDIC, is an adverse party to the FDIC, RTC, FSLIC, or
their successors in a lawsuit; or
(3) A contractor; any management officials or affiliated business
entities of a contractor; or any employees, agents, or subcontractors
of a contractor who will perform services under a proposed or existing
contract with the FDIC, has ever been suspended, excluded, or debarred
from contracting with a Federal entity or has ever had a contract with
the FDIC, RTC, FSLIC or their successors rescinded or terminated prior
to the contract's completion and which rescission or termination
involved issues of conflicts of interest or ethical responsibilities;
or
(4) Any other facts exist which the FDIC, in its sole discretion,
determines may, through performance of a proposed or existing FDIC
contract, provide a contractor with an unfair competitive advantage
which favors the interests of the contractor or any person with whom
the contractor has or is likely to have a personal or business
relationship.
(d) Contractor means a person which has submitted an offer to
perform services for the FDIC or has a contractual arrangement with the
FDIC to perform services.
(e) Control means 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
[[Page 9597]]
of this definition, a general partner of a limited partnership is
presumed to be in control of that partnership.
(f) Default on a material obligation means a loan or advance from
an insured depository institution which has ever been delinquent for 90
or more days as to payment of principal or interest, or a combination
thereof, with a remaining balance of principal and accrued interest on
the ninetieth day, or any time thereafter, in an amount in excess of
$50,000.
(g) 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 it is operating a bridge bank as
defined, respectively, in 12 U.S.C. 1821(c) and (n).
(h) Insured depository institution means any bank or savings
association the deposits of which are insured by the FDIC.
(i) Management official means any shareholder, employee or partner
who controls a company and any individual who directs the day-to-day
operations of a company. With respect to a partnership whose management
committee or executive committee has responsibility for the day-to-day
operations of the partnership, management official means only a member
of such committee but, if no such committee exists, management official
means each of the general partners.
(j) Offer means a proposal to provide services to the FDIC. For law
firms or sole practitioner lawyers, ``offer'' also means the
application submitted by the law firm to the FDIC.
(k) Pattern or practice of defalcation regarding obligations means
two or more instances in which:
(1) A loan or advance from an insured depository institution is in
default 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.
(l) Person means an individual or company.
(m) RTC means the former Resolution Trust Corporation in any of its
capacities.
(n) Subcontractor means a person that enters into a contract with
an FDIC contractor to perform services under a proposed or existing
contract with the FDIC.
(o) Substantial loss to Federal deposit insurance funds means:
(1) A loan or advance from an insured depository institution, which
is currently owed to the FDIC, RTC, FSLIC or their successors, or the
Bank Insurance Fund (BIF), the Savings Association Insurance Fund
(SAIF), the FRF, or funds maintained by the RTC for the benefit of
insured depositors, that is or has ever 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;
(2) An obligation to pay an outstanding, unsatisfied, final
judgment in excess of $50,000 in favor of the FDIC, RTC, FSLIC, or
their successors, or the BIF, the SAIF, the FRF or the funds maintained
by the RTC for the benefit of insured depositors; or
(3) A loan or advance from an insured depository institution which
is currently owed to the FDIC, RTC, FSLIC or their successors, or the
BIF, the SAIF, the FRF or the funds maintained by the RTC for the
benefit of insured depositors, 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 Appropriate officials.
(a) The General Counsel of the FDIC, or the designee of the General
Counsel, shall administer the provisions of this part with respect to
contracts involving the provision of services by law firms or sole
practitioner lawyers.
(b) The FDIC Executive Secretary, or the designee of the Executive
Secretary, shall administer the provisions of this part with respect to
all other contracts.
Sec. 366.4 Disqualification of contractors.
(a) Disqualifying conditions. No person shall perform services
under an FDIC contract and no contractor shall enter into any contract
with the FDIC if that person or contractor:
(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 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;
(3) Has demonstrated a pattern or practice of defalcation regarding
obligations; or
(4) Has caused a substantial loss to Federal deposit insurance
funds.
(b) Contractors with disqualifying conditions arising prior to
contract award. (1) A contractor which has any of the disqualifying
conditions identified in paragraph (a) of this section prior to the
award of an FDIC contract is disqualified and is prohibited from
entering into contracts with the FDIC.
(2) If after submitting an offer but prior to award, a contractor
discovers that it has any of the disqualifying conditions identified in
paragraph (a) of this section, it shall notify the FDIC in writing
within 10 days or prior to award, whichever is earlier.
(c) Disqualifying conditions that arise or are discovered after
contract award. A contractor must notify the FDIC in writing within 10
days after discovering that it or any person performing services under
an FDIC contract has any of the disqualifying conditions identified in
paragraph (a) of this section. Such notification shall contain a
detailed description of the disqualifying condition and may include a
statement of how the contractor intends to resolve such condition. The
FDIC, after receipt of such notification or other discovery of the
contractor's disqualifying condition, shall take such action as it
determines is in the FDIC's best interests, including that:
(1) The FDIC may notify the contractor in writing of the corrective
actions, if any, which the contractor must take to eliminate the
disqualifying condition. Corrective actions must be completed by the
contractor not later than 30 days after notification is mailed by the
FDIC unless the FDIC, at its sole discretion, determines that it will
be in the best interests of the FDIC to grant the contractor an
extension of time in which to complete such corrective action;
(2) The FDIC may immediately declare any contracts with such
contractor in default, terminate the contracts, and order an immediate
transfer of duties and responsibilities under the contracts; or
(3) The FDIC may declare any contracts with such contractor in
default and temporarily waive such default in order to allow an orderly
transfer of duties and responsibilities under the contracts.
(d) Reconsideration of decisions. Decisions issued by the FDIC may
be reconsidered upon application by an affected party to the Chairman
or the Chairman's designee. Such requests
[[Page 9598]]
shall be in writing and contain the bases for the request. The FDIC, at
its discretion and after determining that it is in its best interests,
may stay any corrective or other actions ordered by it pending
reconsideration of a decision.
Sec. 366.5 Contractor conflicts of interest.
(a) General. The FDIC will not award contracts to contractors that
have conflicts of interest associated with a particular contract or
permit contractors to continue performance under existing contracts
when such contractors have conflicts of interest, unless such conflicts
are eliminated by the contractor or are waived by the appropriate FDIC
official.
(b) Waivers. Waivers of conflicts of interest will only be granted
when, in light of all relevant circumstances, the interests of the FDIC
in the contractor's participation outweigh the concern that a
reasonable person may question the integrity of the FDIC's operations.
(c) Conflicts of interest arising prior to contract award (1)
Requests for review of conflicts of interest. (i) A contractor, with
its offer, may request a determination as to the existence of a
conflict of interest, may request that the conflict of interest, if
any, be waived in accordance with paragraph (b) of this section, or may
propose how the contractor could eliminate the conflict.
(ii) If after submitting an offer, but prior to award, a contractor
discovers that it has a conflict, it shall notify the FDIC in writing
within 10 days or prior to award, whichever is earlier. The contractor,
with its notice, may make such requests or proposals regarding the
conflict or potential conflict as are described in paragraph (c)(1)(i)
of this section.
(2) Review by the FDIC. (i) Subject to the restrictions set forth
in paragraphs (c)(2)(ii) and (c)(3) of this section, the appropriate
FDIC official, at his or her sole discretion, may determine whether a
conflict of interest exists, may waive the conflict of interest in
accordance with paragraph (b) of this section, or may approve in
writing a contractor's proposal to eliminate a conflict of interest.
(ii) For contractors other than law firms and sole practitioner
lawyers, the FDIC may consider a contractor's conflict or potential
conflict of interest only if the FDIC first determines that the
contractor's offer is the most advantageous of all received.
(3) Pre-bid requests and pre-bid review for contractors other than
law firms and sole practitioner lawyers. A request for pre-bid review
must be in writing and describe in detail the conflict or potential
conflict of interest. The request may provide a proposal for
elimination of the conflict or request a waiver of the conflict. The
FDIC may perform a pre-bid review of conflicts of interest only if it
first determines, at its sole discretion, that the participation of the
contractor in the bidding process is necessary to provide adequate
competition.
(d) Conflicts of interest that arise or are discovered after
contract award. A contractor shall notify the FDIC in writing within 10
days after discovering that it has a conflict of interest. Such
notification shall contain a detailed description of the conflict of
interest and state how the contractor intends to eliminate the
conflict. The FDIC, after receipt of such notification or other
discovery of the contractor's conflict or potential conflict of
interest, shall take such action as it determines is in the FDIC's best
interests, including that:
(1) The FDIC may notify the contractor in writing of its finding as
to whether a conflict of interest exists and the basis for such
determination; whether or not a waiver will be granted; or whether
corrective actions may be taken in order to eliminate the conflict of
interest. Corrective actions must be completed by the contractor not
later than 30 days after notification is mailed by the FDIC unless the
FDIC, at its sole discretion, determines that it is in the best
interests of the FDIC to grant the contractor an extension in which to
complete such corrective action;
(2) The FDIC may immediately declare any affected contracts with
such contractor in default, terminate the contracts, and order an
immediate transfer of duties and responsibilities under such contracts;
or
(3) The FDIC may declare any affected contract with such contractor
in default and temporarily waive such default in order to allow an
orderly transfer of duties and responsibilities under such contract.
(e) Reconsideration of decisions. Decisions issued pursuant to this
part may be reconsidered by the Chairman or the Chairman's designee
upon application by the contractor. Such requests shall be in writing
and shall contain the bases for the request. The FDIC, at its
discretion and after determining that it is in its best interests, may
stay any corrective or other actions ordered by the FDIC pending
reconsideration of a decision.
Sec. 366.6 Information required to be submitted.
(a) Initial submission. Every offer submitted to the FDIC by any
contractor shall include a completed Representations and Certifications
Form and such other information as the FDIC may deem appropriate to
permit it to make a determination with respect to disqualifying
conditions or conflicts of interest. The Representations and
Certifications Form shall require that the contractor provide the
following:
(1) Certifications that, to the best of the contractor's knowledge,
the contractor is not disqualified from service on behalf of the FDIC
because of the existence of any of the conditions identified in
Sec. 366.4(a), or conflicts of interest as defined in Sec. 366.2(c)(1)
through (3), subject to the contractor's request for waiver of a
conflict of interest or proposal for elimination 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 contractor or
any company under the contractor's control defaulted on a material
obligation to any insured depository institution;
(3) The contractor's agreement that it will not allow any employee,
agent, or subcontractor to perform services under the proposed contract
with the FDIC unless the contractor first verifies with each such
employee, agent, or subcontractor that, to the best of such person's
knowledge, such person:
(i) Is not disqualified from performing services under the FDIC
contract because of the existence of any of the conditions identified
in Sec. 366.4(a);
(ii) Has no conflicts of interest as defined in Sec. 366.2(c)(1)
through (3), subject to a request by the contractor for a conflict of
interest waiver or proposal for the elimination of a conflict of
interest as set forth in Sec. 366.5; and
(iii) Has not, during the ten (10) years preceding the submission
of the offer, defaulted on a material obligation to any insured
depository institution; and
(4) Any other information which the FDIC may deem appropriate, the
scope of which will be dependent on the particular contract under
consideration.
(b) Subsequent submissions. During the term of the contract, the
contractor shall:
(1) Verify the information described in paragraph (a)(3) of this
section for any employee, agent, or subcontractor who will perform
services under the contract for whom such information has not been
previously verified, prior to such employee, agent, or subcontractor
performing services under the contract; and
(2) Immediately notify the FDIC if any of the information submitted
pursuant to paragraph (a) of this section was incorrect at time of
submission or has subsequently become incorrect.
[[Page 9599]]
(c) Failure to provide information. A contractor that fails to
provide any required information or misstates a material fact may be
determined by the FDIC to be ineligible for the award of the FDIC
contract for which such information is required or to be in default
with respect to any existing contract for which such information is
required.
(d) Retention of information. A contractor shall retain the
information upon which it relied in preparing its certification(s)
during the term of the contract and for a period of three (3) years
following the termination or expiration of the contract and shall make
such information available for review by the FDIC upon request.
(e) Delayed compliance in emergencies. In emergencies, when
unforeseeable circumstances make it necessary to contract immediately
in order to protect FDIC personnel or property, the FDIC may authorize
delayed compliance with this part.
(f) Additional contractual requirements. In addition to the
provisions of this part, the FDIC may include in its contract
provisions, conditions and limitations, including additional standards
for contractor fitness and integrity.
Sec. 366.7 Minimum ethical standards for independent contractors.
(a) In connection with the performance of any contract and during
the term of such contract, a contractor, shall not:
(1) Accept or solicit for itself or others favors, gifts, or other
items of monetary value from any person the contractor knows is seeking
official action from the FDIC in connection with the contract or has
interests which may be substantially affected by the contractor's
performance or nonperformance of duties to the FDIC;
(2) Use improperly or allow the improper use of FDIC property, or
property over which the contractor has supervision or charge by reason
of the contract;
(3) Use its status as an FDIC contractor for its personal,
financial or business benefit or for the benefit of a third party,
except as contemplated by the contract;
(4) Make any promise or commitment on behalf of the FDIC not
authorized by the FDIC.
(b) Pursuant to 18 U.S.C. 201, whoever acts for or on behalf of the
FDIC is deemed to be a public official and public officials are
prohibited from soliciting or accepting anything of value in return for
being influenced in the performance of official actions. Violators are
subject to criminal sanctions under Title 18 of the United States Code.
(c) Pursuant to 18 U.S.C. 1001, whoever knowingly and willingly
falsifies a material fact, makes a false statement, or utilizes a false
writing in connection with an FDIC contract is subject to criminal
sanctions under Title 18 of the United States Code.
(d) A contractor that violates the provisions of this section may
be determined by the FDIC to be ineligible for the award of an FDIC
contract and the FDIC may determine that such contractor is in default
under any existing FDIC contract.
Sec. 366.8 Confidentiality of information.
(a) A contractor has a duty to protect confidential information and
shall not use or allow the use of confidential information to further a
private interest other than as contemplated by the contract.
(b) If a contractor fails to comply with the provisions of this
section, the FDIC may:
(1) Declare the contractor ineligible for the award of any FDIC
contract not yet awarded; or
(2) Declare the contractor in default under any existing contract
with the FDIC.
(c) As used in this section, ``confidential information'' means
information that a contractor obtains from the FDIC or a third party in
connection with an FDIC contract but does not include information
generally available to the public unless the information becomes
available to the public as a result of unauthorized disclosure by the
contractor.
Sec. 366.9 Liability for rescission or termination.
The FDIC may seek its actual, direct, and consequential damages
from a contractor whose disqualifying conditions, conflicts of
interest, failure to comply with information submission or
confidentiality requirements, or failure to comply with the minimum
ethical standards for independent contractors 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. 366.10 Finality of determination.
Any determination made by the FDIC pursuant to this part is 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 6th day of February 1996.
Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
Concurred in this 27th day of February 1996.
Stephen D. Potts,
Director, Office of Government Ethics.
[FR Doc. 96-5254 Filed 3-8-96; 8:45 am]
BILLING CODE 6714-01-P
