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    Government Contracting Database

    Ethics in Federal Government Contracting

    Ethics in Federal Government Contracting

    In view of recent changes to the Federal Acquisition Regulation that impose new requirements relating to ethics in federal government contracting, it is crucial for government contractors to be vigilant in their adherence to all laws and regulations. It is also important for government contractors to implement a Code of Business Ethics and Conduct and to maintain a visible program demonstrating the company’s commitment to doing everything possible to avoid violations of the law. A final rule published in the Federal Register on November 12, 2008, amends the Federal Acquisition Regulation to amplify the requirements for a contractor Code of Business Ethics and Conduct, an internal control system, and disclosure to the government of certain violations of criminal law, violations of the civil False Claims Act, or significant overpayments. The rule provides for the suspension or debarment of a contractor for knowing failure by a principal to timely disclose violations in writing, to the agency Office of the Inspector General, with a copy to the contracting officer. In addition, the final rule implements ‘‘The Close the Contractor Fraud Loophole Act,’’ Public Law 110 – 252, Title VI, Chapter 1. The statute defines a covered contract to mean ‘‘any contract in an amount greater than $5,000,000 and more than 120 days in duration.’’ The final rule also provides that the contractor’s Internal Control System shall be established within 90 days after contract award, unless the Contracting Officer establishes a longer time period (See FAR 52.203 – 13(c)). The internal control system is not required for small businesses or commercial item contracts.

    Our firm recommends that all federal government contractors draft a Code of Business Ethics and Conduct that becomes part of the company’s culture and that is explained to all of the company’s employees. For those companies that receive awards in excess of $5 million, a Code of Business Ethics and Conduct is required. In addition, large business concerns that receive awards in excess of $5 million must provide training to their employees and they must establish an internal control system to demonstrate continuous compliance.

    The FAR provides some guidance at Subpart 3.10:

    Subpart 3.10 — Contractor Code of Business Ethics and Conduct

    3.1000 Scope of subpart.

    This subpart—

    (a) Implements 41 U.S.C. 3509, Notification of Violations of Federal Criminal Law or Overpayments; and

    (b) Prescribes policies and procedures for the establishment of contractor codes of business ethics and conduct, and display of agency Office of Inspector General (OIG) fraud hotline posters.

    3.1001 Definitions.

    As used in this subpart —

    “Subcontract” means any contract entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract.

    “Subcontractor” means any supplier, distributor, vendor, or firm that furnished supplies or services to or for a prime contractor or another subcontractor.

    “United States” means the 50 States, the District of Columbia, and outlying areas.

    3.1002 Policy.

    (a) Government contractors must conduct themselves with the highest degree of integrity and honesty.

    (b) Contractors should have a written code of business ethics and conduct. To promote compliance with such code of business ethics and conduct, contractors should have an employee business ethics and compliance training program and an internal control system that —

    (1) Are suitable to the size of the company and extent of its involvement in Government contracting;

    (2) Facilitate timely discovery and disclosure of improper conduct in connection with Government contracts; and

    (3) Ensure corrective measures are promptly instituted and carried out.

    3.1003 Requirements.

    (a) Contractor requirements.

    (1) Although the policy at 3.1002 applies as guidance to all Government contractors, the contractual requirements set forth in the clauses at 52.203 – 13, Contractor Code of Business Ethics and Conduct, and 52.203 – 14, Display of Hotline Poster(s), are mandatory if the contracts meet the conditions specified in the clause prescriptions at 3.1004.

    (2) Whether or not the clause at 52.203 – 13 is applicable, a contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose to the Government, in connection with the award, performance, or closeout of a Government contract performed by the contractor or a subcontract awarded thereunder, credible evidence of a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code or a violation of the civil False Claims Act. Knowing failure to timely disclose credible evidence of any of the above violations remains a cause for suspension and/or debarment until 3 years after final payment on a contract (see 9.406 – 2(b)(1)(vi) and 9.407 – 2(a)(8)).

    (3) The Payment clauses at FAR 52.212 – 4(i)(5), 52.232 – 25(d), 52.232 – 26(c), and 52.232 – 27(l) requires that, if the contractor becomes aware that the Government has overpaid on a contract financing or invoice payment, the contractor shall remit the overpayment amount to the Government. A contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of a significant overpayment, other than overpayments resulting from contract financing payments as defined in 32.001 (see 9.406 – 2(b)(1)(vi) and 9.407 – 2(a)(8)).

    (b) Notification of possible contractor violation. If the contracting officer is notified of possible contractor violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 U.S.C.; or a violation of the civil False Claims Act, the contracting officer shall—

    (1) Coordinate the matter with the agency Office of the Inspector General; or

    (2) Take action in accordance with agency procedures.

    (c) Fraud Hotline Poster.

    (1) Agency OIGs are responsible for determining the need for, and content of, their respective agency OIG fraud hotline poster(s).

    (2) When requested by the Department of Homeland Security, agencies shall ensure that contracts funded with disaster assistance funds require display of any fraud hotline poster applicable to the specific contract. As established by the agency OIG, such posters may be displayed in lieu of, or in addition to, the agency’s standard poster.

    3.1004 Contract Clauses.

    (a) Insert the clause at FAR 52.203 – 13, Contractor Code of Business Ethics and Conduct, in solicitations and contracts if the value of the contract is expected to exceed $5.5 million and the performance period is 120 days or more.

    (b) (1) Unless the contract is for the acquisition of a commercial item or will be performed entirely outside the United States, insert the clause at FAR 52.203 – 14 , Display of Hotline Poster(s), if —

    (i) The contract exceeds $5.5 million or a lesser amount established by the agency; and

    (ii) (A) The agency has a fraud hotline poster, or (B) The contract is funded with disaster assistance funds.

    (2) In paragraph (b)(3) of the clause, the contracting officer shall — (i) Identify the applicable posters; and (ii) Insert the website link(s) or other contact information for obtaining the agency and/or Department of Homeland Security poster.

    (3) In paragraph (d) of the clause, if the agency has established policies and procedures for display of the OIG fraud hotline poster at a lesser amount, the contracting officer shall replace “$5.5 million” with the lesser amount that the agency has established.

    Updated: June 26, 2018

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