What can a project manager do when they learn a contractor is in a conflict of interest situation?

The project manager should first define the nature and severity of the conflict of interest.

Perhaps the conflict is very mild - for example, the contractor's cousin works for a competing firm. In this case, there may not be an issue. At the other extreme, perhaps the contractor is also performing work for one of your top competitors, which case there could be issues around protection of trade secrets.

After understanding the situation, the decision about what to do should be guided by three factors:

1. Rules, guidelines, or laws regarding conflicts of interest that must be followed? If so, then the project manager will likely need to rectify the situation, in line of established guidelines.

2. In cases not governed by prescribed regulation, the next step is determining the potential damage to be caused by the conflict. The worse the damage, the more compelling the need to intervene and do something.

3. Finally, the project manager should analyze the impact of addressing the situation. If a gentle talk with the contractor is sufficient, then there may be low impact on the project. On the other hand, if a major contractor must be removed mid-stream, that change can be disruptive and cause more damage than the conflict itself.

In general, the project manager must balance potential damage against the cost of doing nothing and the impact (positive and negative) of fixing the situation.