// By Dorn C. McGrath and Sean M. Connoly

The FAR Requirements for Government Contractors

For many years, the U.S. policy has been that defense contractors “should” have a written code of ethics. Effective December 24, 2007, the government-wide Federal Acquisition Regulation (FAR) implemented a new requirement. Now, all government contractors “shall” have a written code of ethics. Here is a summary of the steps to take to comply with the new FAR ethics requirements.

01 // Determine whether the new rules apply to you.

• Is the contract value more than $5 million and the performance period longer than 120 days?
• Is the contract a defense or dual-use acquisition (but not commercial)?
• Will contract performance occur within the United States?
• If you answer “yes” to all questions, proceed to Step 2.

02 // Establish a compliance program.

• Write a Code of Conduct. Don’t wait until you’ve been awarded a contract because your Code must be in place within 30 days of the award. Start now. Trust us, it takes more than 30 days to write a Code and get it approved.
• Give a copy of the Code to all employees who are engaged in performance of the contract (or better yet, all employees). Begin to promote compliance with the Code.
• Hang posters in each worksite publicizing a reporting hotline. Check with the government contracting officer to find out what posters to use if your company doesn’t have its own reporting program.

03 // Implement an awareness program within 90 days of the contract award.

• Train employees on dos and don’ts for working on and managing government contracts.
• Establish a reporting hotline. You can either set up a company hotline or use the government fraud hotline. Which makes more sense to you?
• Publicize the reporting hotline on company web pages.
• Set up internal controls. Determine processes that will ensure timely discovery of improper conduct with government contracts and define the appropriate corrective measures to take. Decide what you will do if you uncover possible fraud with a government contract. (See below on proposed self-reporting requirement.)
• Schedule periodic reviews of your ethics program.

Proposed FAR Amendment:
Self-Reporting
An additional change to the new FAR ethics program rules proposed in 2007 requires highly controversial self–reporting requirements. Under this proposal, the FAR’s new ethics regulations would be further amended to add mandatory self reporting and cooperation and to subject contractors to suspension and debarment for failing to meet these requirements. This proposed contract clause would require contractors to notify contracting officers and agency inspector generals when the contractor has “reasonable grounds” to believe that the company has violated federal criminal law in connection with a government contract. The government would then expect “full cooperation with any government agencies responsible for audit, investigation, or corrective action.” Moreover, the causes for debarment or suspension would be modified to include a contractor’s “knowing failure to timely disclose” a violation of federal criminal law in connection with a government contract, or even an overpayment.

Before approval, this proposed rule will be the subject of much discussion in 2008. For instance, the proposal would make all disclosures mandatory, but it does not address the potential conflicts between its requirements and those of current voluntary disclosure programs. In addition, the terms “timely,” “reasonable grounds,” “criminal violations,” “full cooperation” and “overpayment” are not defined, which leaves them open to interpretation. The proposed rule also does not explain how a government contractor would go about policing a mandatory self-reporting requirement with subcontractors.