Ethics Compliance for Government Contracts

Mike King
November 22, 2011 — 1,773 views  
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So let's say that you have been fortunate enough to receive a federal government contract worth at least $5 million that will require 120 days or more to perform.  Congratulations, but don't mess up your good fortune by failing to comply with the Federal Acquisition Regulation! 

Let's go one step further. What if your company is an agent or subcontractor providing services underneath the master contract of $5 million or more that will take at least 120 days to complete?  With very few exceptions, your company also needs to comply with the applicable provisions of the Federal Acquisition Regulation.

Think about it.  How many businesses do not derive some portion of their revenues from federal contracts?  Pay attention!  You don't want to lose your piece of that federal contract and you certainly don't want to have payments withheld for work you have already performed!

What do you need to do to avoid losing this hard-earned federal business or your payments?

  • First you need to adopt an appropriate code of conduct.
  • Second, you need to train your employees to comply with the code of conduct.
  • Third, you need to create effective ways to perform ethics audits and policies and procedures for reporting failures to comply with the code of conduct.

The reason for these requirements is set forth in Federal Regulations as follows: "Government contractors must conduct themselves with the highest degree of integrity and honesty."  The idea is that the codes of conduct will "[f]acilitate timely discovery and disclosure of improper conduct in connection with Government contracts . . . ."  Moreover, the regulations tell us that these requirements are to "[e]nsure corrective measures are promptly instituted and carried out."  48 CFR 3.1003.

Are you looking for the loopholes and exemptions?  You better just comply with the Federal Acquisition Regulation, because if you're involved in a $5 million contract that will take at least 120 days to complete, the Regulation applies to you, regardless of which federal agency is the source of the contract.  The requirements reach down to agents and subcontractors on such contracts with very few exceptions.

Why should you care about compliance?  Keep in mind that your contract will probably require that you certify that you have complied with the Federal Acquisition Regulation.  Your company violates the Federal False Claims Act if it knowingly makes, uses or causes to be made or used, any false records or statements to get paid on government-funded projects.  Certifying falsely that you have adopted a code of conduct, employee training and audit procedures may be a violation of the False Claims Act. 

But, who is going to turn you in?  The Whistleblower Protections under the American Recovery and Reinvestment Act of 2009 are included in 48 CFR 3.907.  Not only are the definitions of false claims under the False Claims Act extremely broad, but almost any individual can be a "whistleblower" or plaintiff to bring the action.  The incentives for unhappy whistleblowers to bring these claims are huge.  If the United States intervenes and prosecutes the action, the relator is entitled to recover between 15 percent and 25 percent of the amounts collected.  If the government lets the relator proceed on his or her own, the whistleblower will be entitled to receive between 25 percent and 30 percent of the proceeds.  Did we mention that the threshold for the requirement of the code of conduct is a contract of $5 million or more?

So maybe your business should simply adopt a code of ethical business practices.  Training your staff to comply with that code of conduct might just be good for your business!  Having a system to audit compliance with an ethical code of business conduct could keep you from being the next major corporate scandal!  A reporting system for infractions is no more difficult, and no less necessary, than your reporting system for sexual harassment complaints.  Yes, ethical business is good business and a code of conduct and a compliance system can help your business thrive and avoid pitfalls!

If you need help complying with the Federal Acquisition Regulation or other administrative requirements or in the adoption of a code of business conduct and procedures for compliance, please call me.

Mike King

Gammage & Burnham PLC

Michael R. King is a founding partner of Gammage & Burnham, P.L.C., a Phoenix law firm with diverse areas of emphasis. His practice primarily centers around bankruptcy and creditors' rights, commercial litigation, including uniform commercial code cases, and real estate and business law. Mr. King is a former of the Creditor/Debtor Rights Committee and is a current member of the Bankruptcy, Real Estate and Construction Law Sections of the State Bar of Arizona. He is the past chair of the Board of Trustees of the Maricopa County Bar Foundation. Mr. King is an active alumnus of The University of Arizona, where he received his B.A. and J.D. degrees, with distinction and high distinction.