Construction Law

Department of Justice Adds Teeth to Current Contractor Ethics Rules

By Michael Payne

This has been a banner year for ethics in government contracting. This intense focus on integrity and honesty in business is evident in the evolution of the rules of the game-the Federal Acquisition Regulation. Just last December, changes to the FAR mandated contractors to “conduct themselves with the highest degree of integrity and honesty” and to document how they planned to achieve this standard in a Code of Business Ethics and Conduct (see our January 2008 blog article). In addition, the requirements for contractors were stepped up to include prominently displayed hotline posters to facilitate the reporting of violations. 

Before the initial changes were passed, public comments were sought regarding the proposed legislation. Review of these comments revealed two paramount concerns: the exemption of foreign contracts, and the exemption of contracts for the acquisition of commercial goods. The first of these was addressed in April when the House voted to close a loophole in the original ethics provisions (see our April 2008 blog article). Initially, contracts performed outside of the United States were exempt from the requirements-an odd exception considering that the new rules were initially drafted in response to the flagrant abuses of the federal procurement system abroad. The second concern regarding commercial contracts was addressed shortly thereafter. 

Early this summer, the Department of Justice demonstrated its continued commitment to cracking down on ethics in contracting when they went a step further and proposed additional modifications to the FAR. These proposals gave teeth to the earlier provisions by including the foreign and commercial contracts mentioned above under the business ethics umbrella. Additionally, they imposed new requirements on contractors such as reporting violations of the civil False Claims Act, while adding knowing failure to timely report such violations as an additional cause for debarment or suspension under FAR subpart 9.4.  As in the original ethics rules, small business were still not required to have a formal awareness/training program and internal control system, but the requirement to report violations of the civil False Claims Act did apply to them, along with the inclusion of foreign contracts and contracts for the acquisition of commercial goods to the ethics rules. 

These new ethics rules were enacted on June 30, 2008, when President Bush signed the supplemental appropriations bill,  H.R. 2642 . While this bill required contractors to report violations of federal law and overpayments received, many questions remained, such as to whom contractors would report. These ambiguities and were left to the FAR Council to iron out. 

 Just two days ago, on November 12, 2008, the FAR Council revealed its final rule regarding the “Contractor Business Ethics Compliance Program,” clarifying the murky details of the newly-enacted fraud-busting proposals. These more stringent requirements become effective on December 12, 2008, and will require federal government contractors to establish and maintain specific internal controls to detect and prevent improper conduct in connection the award or performance of any government contract; and timely disclose to the agency Office of the Inspector General, with a copy to the contracting officer, whenever, in connection with the award, performance or closeout of a government contract performed by the contractor or a subcontract awarded thereunder, the contractor has 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 (31 U.S.C. §§ 3729-3733). 

The new rules also make a cause for suspension or debarment the knowing failure by a principal, until three years after final payment on any government contract awarded to the contractor, to timely disclose to the government, credible evidence of any of the following in connection with the award, performance or closeout of the contract or a subcontractor thereunder: violation of federal criminal law involving fraud, conflict of interest, bribery or gratuity violations found in Title 18 of the United States Code; violation of the civil False Claims Act; or significant overpayment(s) on the contract, other than overpayments resulting from contract financing payments as defined in FAR 32.001, Definitions.  Lastly, these augmented ethics requirements will apply to contracts (and subcontracts) outside of the United States as well as to contracts (and subcontracts) for the acquisition of commercial items.

It is now crucial for government contractors to be vigilant in their adherence to all laws and regulations, and for them to implement and maintain a visible program demonstrating their commitment to doing everything possible to inform their employees. Our firm is available to assist contractors to assure prompt compliance with these heightened ethics requirements.

Full post as published by Federal Construction Contracting Blog on November 14, 2008 (boomark / email).