State weighs conflicts of interest

Upcoming infrastructure review presents situation where experience also brings legitimate concerns about conflicts of interest

Eric Lidji

Petroleum News

As the state looks for a company to check out the oil and gas infrastructure in Alaska, it is facing the inevitable complications arising from the simple fact that the Alaska oil world can sometimes be a small one.

Perhaps the most inevitable among those is how best to define conflicts of interest.

Based on feedback from an April 7 meeting with potential applicants for the $4.1 million contract, the state recently amended its request for proposals on the infrastructure review, adding language to try to flesh out the boundaries of what might constitute a conflict of interest on the project.

The contract is to conduct a comprehensive assessment of all oil and gas infrastructure in the state, from the North Slope, to Valdez, to Cook Inlet. This assessment involves looking at both the risks facing each piece of the interconnected grid, as well as the effectiveness of the measures currently in place to prevent any failures from happening.

The oil field support industry is filled with companies that have plenty of experience doing exactly this type of work, and doing it in Alaska to boot.

But they got that experience working for the major oil and pipeline companies, the ones that built and operate the majority of the infrastructure under review. It even stands to reason that some of these support service companies might have helped craft the existing mitigation measures also under evaluation.

Confusion about conflicts

“How about if a bidder has one of the oil producers of Alaska as a client? Does that put the bidder in a conflict of interest?” asked Jack Colonell, with the environmental consulting firm Entrix Inc.

Colonell noted how “in the past with some State agencies, any relationship at all has been regarded as a conflict of interest.”

Deb Pock, a procurement officer with the Alaska Department of Environmental Conservation, told Colonell the state would have to consider “what kind of relationship you have to the oil industry, what kind of work you’ve done with them and what kind of products you’ve ended up producing for them.”

“It is going to be pretty difficult to sort that out, and I think that we’ll probably end up being somewhat subjective instead of objective when we’re looking at that.”

Betty Schorr, manager of the Industry Preparedness Program within DEC, told applicants that the state would consider the issue of conflicts of interest “in a very pragmatic way.”

“Obviously, we know that all of you work for the oil companies, and that’s a fact of life,” Schorr said. “But I have to defer to our procurement rules and General Services. ... I don’t think we’d have any bidders if we excluded oil and gas company consultants. We’d have a pretty limited pool.”

One potential applicant asked about work done outside Alaska for companies that maintain a major presence in the state. Another asked for a weeklong extension to resolve conflict of interest issues. (The state denied that request.)

From an industry perspective, part of the concern involves going to unnecessary expense and time to prepare an application that might be automatically turned down.

Wesley Patrick with the nonprofit Southwest Research Institute, a San Antonio-based research and development company, asked for some guidance. How would the state consider “things like percentage of business” conducted with the majors in Alaska, or how recently the work took place, or “business that deals with exploration or distribution” arms of the companies, as opposed to infrastructure departments?

Several potential applicants brought up the same inherent contradiction: Companies needed to prove “relevant past experience” to get the contract, but the more relevant the experience, the more likely it is that the company has a conflict of interest.

New guidelines for conflicts

• The statutory rules governing current or recent employment by the state;

• “A significant financial or economic incentive or business relationship” that would impact objectivity;

• “An unfair competitive advantage” caused by access to nonpublic information gathered through a previous government contract; and

• A case where the applicant would have to evaluate itself under the scope of the risk assessment.

All of these guidelines allow for some interpretation. The only specific example came at the April 7 meeting, when state procurement officer Sonja Love-Hestnes said, “An example of conflict of interest would be someone who participated in preparation of the RFP itself. They would be disqualified to bid on this.”

Complex project from the start

But from the start, the state knew the project would require some agility.

In describing the risk assessment in its request for proposals, the state encouraged potential applicants “to recommend alternatives based on their experience.” Even the evaluation process leaves room for interpretation: the winning contractor will conduct the assessment based on a methodology of its own design.

At the April 7 meeting, Schorr told potential applicants, “Basically, we are looking to the experts in the field to propose the best way to assess overall system integrity in the time and budget we have available.”

The project will also require applicants to be agile.

The winning company will face the challenge of working on the state’s behalf without having all the rights afforded to state inspectors, such as access to infrastructure and certain company documents and records.

The state has said it will provide “information under the purview of state agencies” and “will work with the companies to gain access, as feasible, to information to which the agencies do not already have access.”

The deadline for applications is April 28. The contract begins on June 4 and runs through June 2010, with public workshops during that time to highlight the progress of the evaluation.