Tag: Federal Acquisition Regulations

Opportunities Exist to Improve DOD’s Oversight of Contractor Ethics Programs

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The Government Accounting Office released a report on the compliance and ethics programs of 57 government contractors each with yearly contracts over $500 million: Defense Contracting Integrity: Opportunities Exist to Improve DOD’s Oversight of Contractor Ethics Programspdf-icon

The report’s survey was conducted in September 2008, before the new Federal Acquisition Regulations were put in place to require compliance and ethics programs. As of December 2008, the government contractors are required to have a code of business ethics and conduct, an internal control system, and to disclose to the Government certain violations of criminal law, violations of the civil False Claims Act, or significant overpayments. In fiscal year 2008 alone, DOD’s hotline received nearly 14,000 contacts resulting in 2,000 cases referred for investigation.

The Report found two key areas where additional opportunities exist to improve DOD’s oversight. The first is in the area of verifying the existence of contractor ethics programs after contract award as part of contracting officers’ contract administration responsibility. Additional oversight of contractor ethics programs during contract administration could help ensure that contractor ethics programs are in place as intended. The second is in the area of DOD’s hotline program. The new FAR contractor ethics rules have the potential to make the DOD’s hotline program less effective by ultimately reducing contractor exposure to DOD hotline posters and diminishing the means by which fraud is reported under the protection of federal whistleblower laws. Nearly all of the major contractors surveyed in the report had in-house ethics and compliance programs that exempt them from displaying the DOD posters.

The GAO report ended with four recommendations to improve oversight of defense contractors’ ethics programs:

  1. Determine if other guidance is needed to clarify responsibility during contract administration responsibility for verifying the implementation of contractor ethics programs.
  2. Determine the need for displaying the DOD fraud hotline posters.
  3. Determine whether the hotline poster should inform contractor employees of their federal whistleblower protections.
  4. If there is a need for the DOD’s hotline posters, amend DFARS to require display posters regardless of whether contractor has its own posters.

References:

Violation Reporting under the Federal Acquisition Regulations

Government contractors have new reporting requirements under the Federal Acquisition Regulations. Beginning December 12, 2008, contractors and subcontractors performing federal contracts—irrespective of monetary value or duration—will be legally obligated to disclose to the relevant federal agency’s Office of Inspector General credible evidence of

  • federal criminal law violations involving fraud, conflict of interest, bribery or gratuities;
  • violations of the civil False Claims Act; or
  • significant overpayment on the contract.

Contractors should not automatically disclose every potential violation. “Credible evidence” implies that you have the opportunity to conduct a preliminary internal investigation of the facts before determining whether or not disclosure is necessary.

Government contractors should not be caught by surprise when the rule becomes effective on December 12, 2008. They should consider the following questions before they are confronted with reported violations relating to the contract:

  • Who will determine whether disclosure under the FAR is required?
  • How should disclosure be made to the agency OIG?
  • Who should make the disclosure?
  • How will the resulting government investigation be managed?
  • How will public relations consequences be handled?

You should also consider legal consequences of mandatory reporting, including the effect of disclosure on the preservation of attorney-client privilege, self-incrimination, preservation of company defenses to government claims, and maintenance of coverage under applicable insurance policies.

See my prior blog posts:

Update to the Federal Acquisition Regulations

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (Councils) have agreed on a final rule amending the Federal Acquisition Regulation (FAR) 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.

On November 12, 2008 the Department of Defense published amendments to the Federal Acquisition Regulation: Federal Register Volume 73, No.219 page 67064 -67093. Key is the amendment to 52.203-13 that enlarges the requirements for a contractor’s code of business ethics and conduct.

Under 52.203-13(c)(2)(F) requires:

Timely disclosure, in writing, to the agency OIG, with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of any Government contract performed by the Contractor or a subcontractor thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed a 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 (31 U.S.C. 3729-3733).

These amendments go into effect on December 12, 2008.

Contingent Fee Arrangements in Government Contracts

Section 3.400 of the Federal Acquistion Regulations limit the ability of the federal governmen to enter into contingent fee arrangements. Federal contracts require the insertion of the Covenant Against Contingent Fees:

(a) The Contractor warrants that no person or agency has been employed or retained to solicit or obtain this contract upon an agreement or understanding for a contingent fee, except a bona fide employee or agency. For breach or violation of this warranty, the Government shall have the right to annul this contract without liability or, in its discretion, to deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.

(b) “Bona fide agency,” as used in this clause, means an established commercial or selling agency, maintained by a contractor for the purpose of securing business, that neither exerts nor proposes to exert improper influence to solicit or obtain Government contracts nor holds itself out as being able to obtain any Government contract or contracts through improper influence.

“Bona fide employee,” as used in this clause, means a person, employed by a contractor and subject to the contractor’s supervision and control as to time, place, and manner of performance, who neither exerts nor proposes to exert improper influence to solicit or obtain Government contracts nor holds out as being able to obtain any Government contract or contracts through improper influence.

“Contingent fee,” as used in this clause, means any commission, percentage, brokerage, or other fee that is contingent upon the success that a person or concern has in securing a Government contract.

“Improper influence,” as used in this clause, means any influence that induces or tends to induce a Government employee or officer to give consideration or to act regarding a Government contract on any basis other than the merits of the matter.

Gratuities Clause

Section 3.201 of the Federal Acquisition Regulations requires the Gratuities Clause in all federal government contracts:

(a) The right of the Contractor to proceed may be terminated by written notice if, after notice and hearing, the agency head or a designee determines that the Contractor, its agent, or another representative—

(1) Offered or gave a gratuity (e.g., an entertainment or gift) to an officer, official, or employee of the Government; and

(2) Intended, by the gratuity, to obtain a contract or favorable treatment under a contract.

(b) The facts supporting this determination may be reviewed by any court having lawful jurisdiction.

(c) If this contract is terminated under paragraph (a) of this clause, the Government is entitled—

(1) To pursue the same remedies as in a breach of the contract; and

(2) In addition to any other damages provided by law, to exemplary damages of not less than 3 nor more than 10 times the cost incurred by the Contractor in giving gratuities to the person concerned, as determined by the agency head or a designee. (This paragraph (c)(2) is applicable only if this contract uses money appropriated to the Department of Defense.)

(d) The rights and remedies of the Government provided in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under this contract.

The Federal Acquisition Regulations can also be found in the 48 CFR Chapter 1.