A buyer identifies a government contractor with strong customer relationships, complementary capabilities, and a $100 million pipeline. The buyer expects the acquisition to open new markets, create cross-selling opportunities, and support growth across the combined company. Then diligence uncovers a problem.
The buyer already performs program management, systems engineering and technical assistance (SETA), testing and evaluation, acquisition support, or other advisory work for some of the same agencies and programs. Its personnel may help develop requirements, evaluate contractor performance, advise government decision-makers, or access nonpublic procurement information. Those roles may be unobjectionable today because the buyer and target are independent companies. The acquisition connects them.
After closing, the buyer could find itself evaluating an affiliate, competing for work shaped by its own personnel, or pursuing opportunities with access to information unavailable to other offerors. The combined company may need to preserve separate systems and teams, decline opportunities, restructure existing work, or choose between contracts it expected to keep.
The target may still have a $100 million pipeline on paper. But how much of that pipeline remains available once the companies share an owner is another question altogether. For GovCon buyers, organizational conflict of interest (OCI) risk is a pipeline, valuation, and deal-structure issue.
The Acquisition Changes the OCI Analysis
An acquisition does not automatically create an OCI. What changes is the relationship between the buyer’s existing government work and the target’s business. Under FAR Subpart 9.5, contracting officers must identify and evaluate potential organizational conflicts of interest and avoid, neutralize, or mitigate significant conflicts before award. The rules address situations in which a contractor’s other activities or relationships may impair its judgment or provide an unfair competitive advantage.
Two companies can work for the same agency without creating an OCI. They can support the same program and still pursue future opportunities. Common ownership, standing alone, does not make affiliated contractors ineligible. What matters is how their work connects.
Does either company evaluate, oversee, test, or advise the government about the other’s work? Did one help develop a procurement the other plans to pursue? Does either possess competitively useful information that could benefit the other? Will shared personnel, systems, or proposal resources create information flows that did not exist before closing? An acquisition can change the answers without changing the underlying contracts.
The buyer and target may have no material OCI issues on their own. The problem arises only when their businesses are combined. That is why diligence should assess the work itself.
Evaluate the Combined Pipeline Early
As discussed in Part 3 of this series, OCI should be part of government contracts due diligence. For M&A purposes, however, the analysis should go one step further. The buyer should assess the target’s key contracts, recompetes, task orders, and opportunities in the context of the buyer’s existing and anticipated government work. For each significant opportunity, diligence should identify what the buyer and target actually perform; whether either side develops requirements, provides acquisition support, evaluates performance, tests systems, or advises decision-makers; whether either side possesses competitively useful nonpublic information; whether either side helped shape the procurement; whether the governing contracts contain OCI restrictions or agency-specific duties; when the procurement is expected; and whether the combined company can realistically pursue the work.
This is different from asking whether the target has an OCI today. It tests whether the transaction itself changes the opportunity.
The answer will not be the same across the pipeline. Some opportunities may remain fully available. Some may require manageable controls. Others may demand costly operational separation. A few may no longer be realistic pursuits for the combined company. That opportunity-by-opportunity assessment is what allows the buyer to understand what it is buying.
Which OCI Risks Can Be Managed, and Which Can Eliminate an Opportunity?
The traditional OCI categories of impaired objectivity, biased ground rules, and unequal access to information remain legally important. For transaction purposes, however, buyers may find it more useful to think about OCI risk in terms of severity and fixability.
Conflicts That May Be Controlled Through Information Barriers
Some OCI concerns arise because one side possesses competitively useful, nonpublic information. A buyer may have access to competitor pricing, technical approaches, acquisition plans, program schedules, performance information, budgets, or future agency priorities. The target may never have possessed that information before the transaction. After closing, shared systems, common management, personnel movement, and combined proposal resources can make the information more difficult to isolate.
Depending on the facts, these concerns may be addressed through firewalls, segregated proposal teams, access controls, nondisclosure agreements, training, and monitoring. The controls must be credible and implemented in practice, but the underlying opportunity may remain available.
This is often the more manageable end of the OCI spectrum. Though it is not necessarily inexpensive. Separate systems and teams create cost, slow collaboration, and limit the buyer’s ability to use personnel. Still, a carefully designed information-control system may preserve both eligibility and a meaningful portion of the opportunity’s value.
The buyer needs to identify the information before personnel and systems are combined. A firewall proposed after a pursuit is underway is harder to implement and may be less persuasive.
Conflicts That Require Real Operational Separation
Other concerns arise because one affiliate would be in a position to evaluate, test, oversee, or advise the government about another affiliate’s work. Suppose the buyer provides program management or technical evaluation services for an agency while the target supplies products or implementation services to the same program. After closing, the buyer may be asked to assess its affiliate’s performance, identify deficiencies, validate its products, recommend corrective action, or advise whether the government should continue using the target. The government may retain final decision-making authority, but the contractor’s advice can still shape the outcome.
In Solutions71, LLC, B-423671.2 (Dec. 30, 2025), GAO sustained a protest involving affiliated contractors where one affiliate was responsible for reviewing work performed by the other and making recommendations to the agency. GAO concluded that the agency had not meaningfully considered whether the financial connection could impair the reviewing affiliate’s judgment. The government’s retention of final approval authority did not eliminate the concern. The decision highlights an important acquisition risk. An ordinary oversight relationship can become problematic when the company performing the review acquires a financial interest in the contractor being reviewed.
These conflicts are generally harder to address through an information firewall because the problem is not limited to who knows what. The concern is whether a contractor can exercise impartial judgment concerning an affiliate’s work. Managing that risk may require reassignment of responsibilities, independent review, recusal, separate reporting lines, removal of work from one entity, or restrictions on which opportunities the combined company pursues. Those measures can preserve eligibility, but they may materially change how the buyer expected to operate the business.
Conflicts That May Be Baked into the Opportunity
Some of the most difficult conflicts arise from work already performed before the acquisition. A buyer or affiliate may have helped the government develop a statement of work, technical requirements, evaluation criteria, system architecture, or acquisition strategy. The target may be pursuing the resulting procurement. Before closing, the target may be an eligible competitor. Once the companies become affiliates, the buyer’s earlier role in shaping the competition may affect the target’s ability to pursue it.
This risk differs from an information-access concern because potentially problematic work has already occurred. A post-closing firewall cannot undo the buyer’s role in developing the procurement. Separating the proposal team does not change who helped write the requirements, shape the evaluation criteria, or advise the agency on its acquisition strategy. That makes these conflicts particularly important in pipeline diligence. A review may confirm that the target is eligible to compete today while overlooking work by the buyer that could change the analysis after closing.
For each priority pursuit, the buyer should understand how the procurement was developed and whether the buyer or any affiliate played a role. If it did, the opportunity may require substantial restructuring or may need to be removed from the post-closing pipeline altogether.
Can Corporate Separation Preserve the Opportunity?
Sometimes, but maintaining separate legal entities is not a complete answer. OCI analysis can look beyond corporate structure to how affiliated businesses operate. Shared management, common systems, overlapping personnel, financial relationships, reporting lines, proposal collaboration, and access to information may all matter. That makes the buyer’s post-closing plans part of diligence.
A buyer may expect to consolidate systems, move employees between business units, centralize proposal resources, create shared business-development teams, or pursue opportunities jointly. Those plans may support the acquisition’s expected return, but they can make conflicting roles, and information flows more difficult to control.
Preserving eligibility may require the buyer to maintain more separation than it originally planned. The businesses may need different personnel, systems, reporting lines, customer teams, or proposal resources for certain work. That creates a direct tension between OCI mitigation and deal value.
A structure that preserves an opportunity may also reduce the efficiencies that made the acquisition attractive. The buyer may remain eligible to pursue the work but lose the ability to use the target’s people, customer relationships, systems, or capabilities as originally planned. The buyer should understand that result before closing, rather than discover it while preparing the next proposal.
Can an Agency-Specific Clause Create Additional Restrictions?
Yes. FAR Subpart 9.5 provides the general OCI framework, but solicitations and contracts may impose more specific requirements. Certain agency clauses require additional disclosures, extend restrictions to affiliates or successors, or impose limitations that are more exacting than the general FAR rules.
A particularly important example appears in DFARS 209.571. For certain systems engineering and technical assistance work supporting major defense acquisition programs and pre-major defense acquisition programs (MDAP), the SETA contractor and its affiliates may be restricted from participating in development or production of the same weapon system. The applicable statutory prohibition cannot be addressed through the ordinary FAR OCI waiver process.
That restriction can impact the entire corporate family. A buyer that acquires an MDAP SETA contractor may discover that the acquired company’s responsibilities affect development or production work performed or pursued by another affiliate.
As a result, buyers should review the actual OCI clauses, mitigation plans, waivers, disclosures, and contracting officer correspondence governing both sides of the transaction. In some deals, the most consequential OCI risk comes from the buyer’s existing contracts rather than the target’s.
Can Mitigation Preserve Eligibility but Undermine the Deal?
Yes. A mitigation plan may satisfy the government while imposing real operational and financial costs on the combined company. Separate personnel increase staffing needs, restricted information flows slow decision-making, separate systems increase expenses, and restrictions on moving employees across the company can prevent the buyer from using talent where it is most valuable.
Mitigation can also alter the assumptions underlying a proposal. If a contractor plans to rely on specific employees, systems, affiliates, or management resources, an OCI mitigation plan that removes or restricts those resources may change how the contractor can perform.
For M&A buyers, mitigation should be evaluated based on how it impacts the buyer’s operating plans. The buyer needs to know which functions must remain separate; which employees cannot support particular pursuits; whether information can be shared across affiliates; whether the combined company needs duplicate systems or management structures; whether customer coordination will be restricted; and whether the mitigation plan changes the cost or feasibility of performance. The goal is to understand the business that will remain after mitigation.
When Does OCI Risk Become Material During a Transaction?
The procurement calendar and the deal calendar do not always move together. A transaction may be under discussion, signed but subject to approval, expected to close, or completed. Meanwhile, the target may have proposals pending, awards expected, options approaching, recompetes underway, or task-order competitions scheduled after closing. The significance of the transaction can change depending on where each procurement stands when ownership changes or the agency learns of the deal.
A conflict that does not affect an existing contract may affect the next task order. A mitigation approach designed before systems and personnel are combined may become harder to implement after operational changes begin. An opportunity viewed as remote at signing may become a priority pursuit by the time the transaction closes.
Buyers should identify when each material opportunity could intersect with signing, closing, required disclosures, and post-closing changes. Ideally, that analysis should happen while the buyer still has the ability to adjust the deal.
How Can OCI Risk Affect Valuation and Deal Structure?
Once the combined pipeline has been assessed, the buyer should be able to distinguish among opportunities expected to remain fully available; opportunities that require manageable controls; opportunities that require costly separation; opportunities whose availability depends on future government decisions; and opportunities the combined company should not assume it can pursue.
Those conclusions can affect the purchase price, earnouts, closing conditions, responsibility for mitigation costs, and the structure of the transaction. They can also affect the buyer’s view of post-closing operations. A buyer may plan to cross-sell the target’s capabilities, use common proposal teams, move personnel across business units, or bring the target into existing agency accounts. OCI restrictions may reduce those benefits even when the target’s current backlog remains intact.
The seller’s pipeline reflects opportunities available to the target as it operates today. But the buyer needs to evaluate the opportunities available to the combined company after closing.
Bottom Line
An acquisition does not create an OCI simply because two government contractors become affiliates. The risk arises when the transaction connects roles, information, influence, or financial interests that were previously separate. Those connections can shrink the pipeline the buyer thought it was purchasing.
OCI diligence should therefore begin with the combined pipeline. Buyers need to compare the target’s priority opportunities against their own contracts, affiliates, advisory roles, nonpublic information, and post-closing operating plans. Before signing the letter of intent, the buyer should know which opportunities remain available, which require mitigation, what mitigation will cost, and which opportunities are off the table.
A target’s pipeline is only the starting point. The value of the transaction depends on what the combined company can still pursue.
What’s Next in The GovCon M&A Playbook:
In Part 7, we examine how transaction planning can be influenced by issues identified during the diligence process as buyers move toward signing and closing.
If your firm is evaluating a government contractor acquisition, contact Sam Finnerty at sfinnerty@pilieromazza.com to discuss the government contracts issues that may affect your transaction.
