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New Ethics Rules Tighten Contractor Disclosures

Friday, November 14, 2008

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Federal regulators have finalized increased disclosure rules that lay out how the government expects contractors to monitor employees' wrongdoing on government contracts, two federal procurement agencies have announced.

Under the new contractor code of ethics and disclosure requirements, government contractors must notify both the contracting agency’s inspector general and contracting officer when a company’s executive or any manager comes across credible evidence of a crime related to a government contract. The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council published the regulations in Wednesday’s (Nov. 12, 2008) Federal Register.

The new rule takes effect Dec. 12.

“By mandating disclosure to the inspector general’s office, the rule will add weight to the arguments inside a corporation that good business practices in the long run favor compliance and disclosure,” the regulators wrote. It wouldn’t suffice to have contractors disclose a crime to the contracting officer, who is in no position to evaluate criminal actions, they said.

The new rule amends 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. The Internal Control System is not required for small businesses or for commercial item contracts.

The rules allow federal officials to suspend or bar a company from government work if the company knowingly fails to tell officials about crimes or significant overpayments by the government. The authority lasts for up to three years after final payment by the government on a contract.

However, the rules granted contractors some flexibility. The councils debated whether to define how long a contractor would have to notify the government of crimes but decided against adding a specific period of time. The councils said that requirement would be arbitrary and would cause more problems than it would solve. For example, if a time were added, officials would have to determine when exactly when that period would begin, the notice states.

The rules also give contractors an opportunity to examine the credibility of the evidence of the alleged crime before telling the government. Until the contractor has determined the evidence is credible, federal officials can’t charge the contractor with a knowingly failure to notify government officials, the regulators wrote.

Similarly, regulators intentionally did not add rigid requirements to set up an internal system for discovering wrongdoing. They only gave a general framework for such systems.

“The contractor can use its own judgment in the details,” they wrote. “Competing firms are free to establish the highest ethical standards they consider to be appropriate to the business at hand.”

The intent of the system is to help the company to notify the government about those actions, such as an anonymous hotline. The system would also ensure that a company quickly corrects any criminal actions. Contractors must have the systems in place in 90 days of being awarded a contract, according to the notice.

The councils had passed initial rules in 2007 for notifying the government about crimes and were assessing comments on a second proposal to expand those rules. In June, however, President Bush signed legislation (initiated by the Department of Defense, General Services Administration and NASA) that requires contractors to tell the government of crimes, thereby ending voluntary disclosures.

The full Federal Register notice is at http://edocket.access.gpo.gov/2008/E8-26953.htm.

Sources: Federal Register, www.acquisition.gov, Federal Computer Week

   

Tagged categories: Ethics; Government contracts

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