Business Ethics in Government Contracts

Posted by Administrator on February 5th, 2008

Ethics in Government Service

In December 2007, new FAR regulations were enacted requiring businesses performing certain contracts to have a written business code of ethics. All federal contracts over $5 million must now contain a clause requiring the contractors to have concrete ethics policies in place, as well as internal controls to maintain them, within 90 days of the contract award. The only exceptions to this rule are contracts for commercial items and those that will be performed outside of the United States. The new regulation also applies to subcontracts that are for over $5 million and that have a performance period of 120 days or longer.

The purpose of this addition to the FAR is to allow the greater control over ethics in government service. Before, the government was unable to act on any perceived misconduct, as long as the contract was technically still being fulfilled. Now, standards for ethics in government service are being built in to federal contracts – and state and local agencies may build the ethics clause into their solicitations as well, although it’s not required. As a contract manager, it’s your job to take great care in complying with these standards. Failure to instate a business code of ethics could lose you the contract award.

What to Include in your Business Code of Ethics

The FAR is intentionally vague about what should be included in a contractor’s business code of ethics. Basically, a clear policy of ethics and business conduct should be enacted, as well as ongoing awareness programs around the ethics code. This awareness promotion could include training and posting of the ethics code in public spaces, and must include providing each employee with a written copy of the business code of ethics. Policies for ethics in government service should address such areas as fraud, theft and misappropriation of funds as well as violation of government regulations on labor and conduct standards.

Contractors must also have an internal control system in place, to enforce their business’ code of ethics. From Subpart 52.203-13 of the FAR:

“(i). The Contractor’s internal control system shall—

Facilitate timely discovery of improper conduct in connection with Government contracts; and
Ensure corrective measures are promptly instituted and carried out.

(ii) For example, the Contractor’s internal control system should provide for—

Periodic reviews of company business practices, procedures, policies, and internal controls for compliance with the Contractor’s code of business ethics and conduct and the special requirements of Government contracting;
An internal reporting mechanism, such as a hotline, by which employees may report suspected instances of improper conduct, and instructions that encourage employees to make such reports;
Internal and/or external audits, as appropriate; and
Disciplinary action for improper conduct.”

Hotline Posters

Be sure to read the contract language around hotline posters carefully. A contract may require you to post a hotline number where employees can report possible violations of your business code of ethics. Each agency decides whether or not it will require a hotline poster, and what information that poster will complain. However, for certain Department of Homeland Security contracts, such as those receiving disaster assistance funding, contractors may also be required to post hotline posters relating to the contract.