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New FAR Ethics Requirements
Richard W. OehlerPerkins Coie LLP
1201 Third AvenueSuite 4800
Seattle, WA 98101(206) 359-8419
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New FAR Ethics Requirements
FAR Subpart 3.10 - requires a written code of business ethics and conduct
Effective December 24, 2007 Recommended for all federal contractors Mandatory for all contracts and
subcontracts exceeding $5 million and having an expected performance period of at least 120 days
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Mandatory Ethics Code – Exceptions
Exceptions Commercial item contracts and subcontracts Contracts performed outside of the United
States
Does not apply to existing contracts – only future contracts
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Ethics Code – Requirements
Within 30 days of award of a covered contract, a contractor must: Have a written code of business ethics and
conduct Provide a copy of the code to each employee
engaged in performance of the contract Promote compliance with the code
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Ethics Code - Requirements
Throughout contract performance, a contractor must: Display fraud hotline posters except if the contractor
has established a mechanism by which employees can report suspected instances of misconduct and provided instructions that encourage employees to make such reports
If the company maintains a website as a method of providing information to employees, the posters must be displayed on the website
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Ethics Code – Requirements
Within 90 days of contract award, a contractor must (unless a small business): Establish a formal training program
Not defined in the regulations
Establish an internal control system
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Internal Control System
Internal Control System Must facilitate timely discovery of improper
conduct in connection with government contracts
Ensures corrective measures are promptly implemented
Appropriate to the size of the company
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Internal Control System
Components of an Internal Control System Periodic reviews of company business practices,
policies and procedures to ensure compliance with the contractor's code of business ethics
Internal reporting mechanisms, such as a hotline, allowing employees to report suspected misconduct
Internal and/or external audits Disciplinary action for misconduct
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Flow down Obligations
Prime contractor must flow down these requirements to subcontracts valued over $5 million and having a performance period greater than 120 days
Prime contractors are not required to evaluate or monitor the ethics awareness program of subcontractors, but should verify that the subcontractor has a program
Contracting officers are not required to verify compliance, but may inquire at their discretion
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Proposed Mandatory Disclosure
Contractors have an opportunity to voluntarily disclose wrongdoing, but have never been required to disclose
Proposed rule would require mandatory disclosure of wrongdoing by contractors and full cooperation with Government inquiries
Disclose to CO and OIG any violations of criminal law in connection with contracts or subcontracts valued at $5 million or more
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Proposed Mandatory Disclosure
Required to cooperate fully with any government agencies responsible for audit, investigative or corrective actions
The Government believes there is a need for mandatory disclosures Only 5 voluntary disclosures to DOD in 2007 High profile procurement-related misconduct Contractor misconduct under Iraq and Gulf Coast
reconstruction contracts Increasing number of False Claims Act cases
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Proposed Mandatory Disclosure
Industry concerns Counter to the corporate self-governance policy in
government contracting Attorney-client privilege could be waived as a result of
compelled disclosure May infringe upon constitutional rights and legal
protections of employees May chill employee willingness to report suspected
misconduct and have a negative impact on morale
