Contractor Conflicts of Interest

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