United States: Government Contracts – Current Compliance Issues

This section highlights two major issues related to compliance under federal government contracts from the past year. The first is current compliance issues involving corporate compliance programs and organizational conflicts of interest. The second includes legislative and regulatory issues on the horizon. We also will highlight a few examples of national interest from the courts concerning ethical lapses. (The major topic of the American Recovery and Reinvestment Act of 2009, known as "ARRA" or the "Stimulus Package," is handled separately in Ryan Manger's section.).

I. Current Issues

A. Contractor Business Ethics Compliance and Disclosure

As we noted last year, the major development in ethics and compliance programs became effective on December 12, 2008, called the "Contractor Business Ethics Compliance Program and Disclosure Requirements," (the "FAR Ethics and Compliance Rule" or "Rule"), and with approximately one year of implementation, it remains the major development. Prior to last year, corporate compliance programs for government contractors were largely voluntary, although contractors were largely motivated to have programs due to their relationship with the government as well as incentives offered by the Federal Sentencing Guidelines, which allowed for reduced culpability for convicted contractors that had compliance programs.

Now, FAR 3.1004 requires the incorporation of FAR 52.203-13 mandating the compliance programs in contracts with a value expected to exceed $5,000,000 and having a performance period of 120 days or more. This requirement includes contracts for commercial items and contracts to be performed entirely outside of the United States. Under the FAR Ethics and Compliance Rule, contractors are required to have a written code of business conduct and ethics in place and disseminated to each employee working on a subject contract within 30 days of the award of the contract. This deadline may also be extended by the contracting officer. The Rule basically requires the rooting out and reporting of violations of federal criminal and civil fraud laws, notably those laws controlling conflict of interest, bribery, gratuities and fraud, as well as potential violations of the Civil False Claims Act, 31 U.S.C. Sections 3729-3733. Significantly, this Rule also makes prime contractors responsible for the acts and omissions of their subcontractors and requires the prime to report potential misconduct committed by subs as though the subs were employees of the primes.

Additional requirements are imposed under FAR 52.203-13(c) on contractors who are not qualified small business concerns or producing material defined under FAR 2.101 as commercial items. This section requires the implementation of ongoing business ethics awareness programs within 90 days of contract award, again subject to extension by the contracting officer. Under this section, programs must be developed, disseminated and publicized within the contractor's and subcontractor's organizations, and must include initial and periodic training as well. Moreover, the section requires the adoption and implementation of internal control systems managed from a sufficiently high level within the organization employing adequate resources. The program must provide ways to exclude individuals or subcontractors who have breached the Rule, reporting mechanisms such as hotlines that preserve anonymity, disclosure of and discipline for violations, and "[f]ull cooperation with any Government agencies responsible for audits, investigations, or corrective actions." FAR 52.203-13(c)(2).

The following chart illustrates the various applications of the Rule:

Applicability of Requirements for Code of Business Ethics and Conduct, Business Ethics Awareness and Compliance Program and Internal Control System

 

Code of Business Ethics and Conduct

Business Ethics Awareness and Compliance Program

Internal Control System

Contractors with Commercial Item Contracts

Yes, with contracts containing FAR 52.203- 13

Not required

Not required

Contractors with Noncommercial Item Contracts

Yes, with contracts containing FAR 52.203- 13

Yes, with contracts containing FAR 52.203- 13

Yes, with contracts containing FAR 52.203-13

Small Business Contractors

Yes, with contracts containing FAR 52.203- 13

Not required

Not required

Contracts Being Performed Wholly Overseas

Yes, with contracts containing FAR 52.203- 13

Yes, with contracts containing FAR 52.203- 13

Yes, with contracts containing FAR 52.203-13

Subcontracts

Yes, with sub-contracts containing FAR 52.203- 13

Yes, with sub-contracts containing FAR 52.203- 13

Yes, with subcontracts containing FAR 52.203-13

This chart and its contents were drawn from: Joseph D. West, Diana Richard, Karen L. Manos, Christyne K. Brennan, Joseph A. Barsalona, Philip Koss, and Richard J. Meene, Briefing Paper – Contractor Business Ethics Compliance Program and Disclosure Requirements (Apr. 6, 2009).

B. Organizational Conflicts of Interest

On April 22, 2010, the Department of Defense responded to a Congressional mandate in the Weapons System Acquisition Reform Act and issued a proposed rule providing further guidance to contracting officers and contractors concerning Organizational Conflicts of Interest ("OCIs"). In general, the new rule follows precedent established by the GAO and the Court of Federal Claims in bid protest decisions, formalizing existing case law. The rule establishes mitigation as the preferred resolution for OCIs and provides further guidance for the avoidance of OCIs, such as limitations on future contracting, firewalls and, in some circumstances, exclusion of certain contractors. Waivers, provided they are announced in an RFP, would still be allowed under FAR 9.5.

II. Future Issues

The Lieutenant Colonel Dominic "Rocky" Baragona Justice for American Heroes Harmed by Contractors Act, S. 2782

This bill, proposed by Missouri Sen. Claire McCaskill, would require U.S. government contractors operating abroad to consent to the jurisdiction of domestic courts in the United States to provide redress for injuries inflicted abroad upon members of the Armed Forces, civilian USG employees and privately employed U.S. citizens. It would cover prime as well as subcontractors and would require those contractors not having an office in the United States to designate an agent within the United States to accept service of process. In addition to the remedies available in court, the bill would provide for suspension and debarment for failing to appear in court or evading service of process.

A. United States Sentencing Guidelines

In support of the FAR Ethics and Compliance Rule noted above, the U.S. Sentencing Guidelines are being brought into conformity with FAR Rules to provide clearer guidance and potential benefits to contractors and subcontractors charged with criminal misconduct.

B. Ethical Lapses: Last Year's Lessons Learned

South Carolina's Deputy Assistant Attorney General and former state legislator, Roland Corning, was found parked in a secluded section of a Columbia cemetery over the lunch hour in the company of an 18-year-old representative of the Platinum Plus Gentlemen's Club. When questioned, Corning, 66, attempted to talk his way out of the jam by identifying himself as the State's Deputy Assistant Attorney General. The officer then searched Corning's SUV and found, in addition to the stripper, several sex toys and Viagra. Deputy Assistant Attorney General Corning then kept talking, explaining that he kept "the supplies" on hand "just in case." Apparently the police officer's wife worked with Corning in the Attorney General's Office. Corning was terminated later that same day.

In an elaborate two-step process involving bribes, extortion and fraud, Luzerne County, Pennsylvania, Judge Mark Ciavarella collected over $2,600,000 in kickbacks from the owners of privately-run juvenile detention facilities. Judge Ciavarella first ordered that the local state-run detention center be closed, citing poor conditions. He then began sending and transferring juveniles under state supervision to the private facility, collecting his "commissions" along the way. He was convicted in February of 2009. He and the State of Pennsylvania are also facing a class action suit charging that he aggressively and improperly committed juveniles to the private detention facility.

In a case that hits closer to home for government contractors, Surdex Corporation vice president Russell Hoffman was convicted of violating the federal gratuities statute for giving Titleist golf clubs to his contracting contact at the U.S. Army Corps of Engineers. Surdex provided aerial photography to the Corps, and Hoffman was the project manager. The evidence was undisputed that Hoffman and his Corps contact, William Schwening, had been friends for years and shared golf and many other social activities. The evidence also showed that, over many years' worth of emails, Schwening once told Hoffman that the clubs were "awesome" and added "Hey buddy, do you need ANYTHING[?]. Nothing was returned or exchanged at that time, although Hoffman later reminded Schwening that heneeded to complete a performance rating for Surdex Corporation, which was never completed. On this evidence, and little more, the government built a circumstantial case and a jury convicted Hoffman of providing illegal gratuities for giving a gift "for or because of an official act." The Court of Appeals upheld the conviction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.