Reconnaissance Office Conflict Rules Create Shortage Of Key Skills

The National Reconnaissance Office (NRO) is implementing new rules designed to limit contractor conflicts of interest in a way that will undermine its ability to build the next generation of spy satellites. The recently strengthened rules, covering what the government calls “organizational conflicts of interest,” or OCI, were intended to minimize the danger that technical advice provided to the government might be tainted by the business interests of the providers. Specifically, they tighten the circumstances under which potential builders of spy satellites may provide technical support to government managers running those programs. But the way in which NRO is interpreting the rules is cutting it off from longstanding sources of critical expertise for which there are few substitutes.

NRO operates several constellations of satellites for collecting imagery and electronic signals. Efforts to develop replacements of cold-war spy satellites have not gone well, in part because the agency failed to fully grasp the challenges associated with addressing new missions and integrating new technologies. As it rethinks how to address future collection requirements, though, the new conflict-of-interest standards threaten to degrade its capacity to assess arcane design tradeoffs by removing from advisory roles all the companies with real experience in building spy satellites. These companies have long provided high-end technical advice through organizations that were isolated from the hardware-building operations of their parent companies, but NRO now says such “firewalls” are insufficient to preclude conflicts. The companies therefore may have to give up either their roles as advisors or their roles as system integrators.

Northrop Grumman, a key supplier of spacecraft and components to NRO, jettisoned its advisory unit earlier this month after several instances in which the unit appeared to have violated conflict rules. But other spacecraft integrators such as Boeing, Lockheed Martin and Raytheon are resisting similar divestitures, arguing that there is no evidence they have breached firewalls and pointing out that the government has few other places to go for the kind of esoteric knowledge it needs to manage key spacecraft programs. Nonetheless, NRO is pressing ahead with its tighter interpretation of the rules. As a result, only two companies — neither of them system integrators — have been approved to provide technical assistance on two big programs currently in development.

Having already made a series of major mis-steps on developing next-generation constellations in this decade, NRO is in no position to be walling itself off from the most qualified sources of technical insight. But contracting officers have little guidance as to how to apply more stringent conflict-of-interest standards, so they tend to err on the side of caution by simply excluding contractors from advisory roles when there is doubt about whether the rules apply. Since the decision to exclude or mitigate potential conflicts rests mainly with these mid-level officials, there is little consistency in the application of the rules. That creates considerable angst and uncertainty among contractors — conditions that will eventually degrade both their capabilities and their performance.

The government needs to issue consolidated guidance as to how organizational conflicts should be managed, including a compendium of acceptable measures for mitigating potential problems. Conflict-mitigation procedures have existed for many years, but their role has now been made unclear by the advent of the tighter OCI rules. Perhaps it makes sense for system integrators to take more steps that insulate their advisory units from the business interests of parent companies, for example by creating semi-independent subsidiaries with separate incentive structures and oversight boards. And there is no question that contractors must be excluded from processes like source selection where they may have an interest in the outcome. But if the government can’t introduce greater clarity and consistency into the current chaos, it will foreclose access to vital expertise and undermine its prospects for success on future spy satellites.