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Strict New Ethics and Reporting Requirements Imposed on Federal Contractors
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December 15, 2008
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By Laura Kent and Andrew D. Ness
Howrey LLP
A significant amendment to the Federal Acquisition Regulation (FAR) that will affect all government contractors took effect on December 12, 2008. Contractors with federal government contracts of more than $5 million and with performance periods of more than 120 days face even more extensive requirements.
All government contractors, regardless of size and duration of the contract, now must report to the federal government “credible evidence” of any of the following:
 | | A “violation of Federal criminal law involving fraud, conflict of interest, bribery or gratuity violations….”
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| | A violation of the civil False Claims Act.
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| | Significant overpayments by the federal government.
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FAR (48 CFR) 3.1003 (a) (2-3). Click here to view the Final Rule in the Federal Register.
A contractor may be debarred or suspended for “knowing failure by a principal, until 3 years after final payment on any Government contract awarded to the contractor, to timely disclose to the government, in connection with the award, performance or closeout of the contract or a subcontract there under,” evidence of any of these events. FAR 9.406-2(b); 9.407-2(a)(8). A “principal” includes “an officer, director, owner, partner, or a person having primary management or supervisory responsibility within a business entity.…” FAR 2.101(b)(2).
In 2007, FAR was amended to require federal government contractors with contracts of more than $5 million and performance periods of more than 120 days to have a written code of business ethics and conduct within 30 days after the contract is awarded and to make a copy available to “each employee engaged in performance of the contract.” FAR 52.203-13(b)(1). The December 12 revisions now require such contractors to “exercise due diligence to prevent and detect criminal conduct” and “otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” FAR 52.203-13(b)(2).
In addition, the new amendments provide more detail regarding the business ethics awareness and compliance program and internal control system required by last year’s amendments. Contractors now must train their employees, principals, agents and subcontractors (when appropriate) regarding their business ethics standards and procedures as part of the required “ongoing business ethics awareness and compliance program.” FAR 52.203-13(c).
And, responsibility for the internal control system must be “at a sufficiently high level…to ensure effectiveness of the business ethics awareness and compliance program and internal control system.” FAR 52.203-13(c)(2)(ii)(A).
Among the many new requirements for the internal control system are periodic review of company procedures to ensure that they comply with the company’s code of ethics; periodic assessment of the “risk of criminal conduct”; an internal, confidential means by which employees may report improper conduct; discipline for improper conduct; and timely disclosure to the agency Office of the Inspector General and Contracting Officer of criminal conduct or overpayment. FAR 52.203-13(c)(2).
“The timely disclosure requirement for an individual contract continues until at least 3 years after final payment on the contract.” FAR 52.203-13(c)(3). This amounts to a “look-back” requirement that requires contractors to review completed contracts when final payment was received within the last three years as well as current contracts.
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For assistance with developing a compliance program or updating an existing compliance program or for more information about the issues covered in this report, please contact Laura Kent in our Washington, D.C. office at 202-383-7369 or at kentl@howrey.com, Andrew Ness in our Washington, D.C. office at 202-383-7333 or at nessa@howrey.com, or contact your Howrey attorney. For more information about Howrey’s Construction and Government Contracts Practice, click here.
©2008 Howrey LLP
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